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TMI Blog2015 (5) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... same as exempt in the garb of pursuing the alleged charitable object of general public utility. This proviso never meant to deny the exemption to those institutions, where the predominant object is undeniably a charitable object and in order to achieve the same incidental activities, essential in the given circumstances, are carried on.In view of the above discussion we hold that the proviso to section 2(15) is not at all applicable in the present case and, therefore, ld. DIT(E) was not at all justified in invoking the proceedings u/s 263. We fail to understand as to how these activities can be said to have an iota of commercial/ trade colour. The dominant object of the assessee is definitely for the well being of public at large by organizing various seminars for the welfare of people by disseminating knowledge in various fields in order to uplift the social consciousness of the society at large. (The composition of membership clearly exemplifies the real intention of assessee. We fail to understand as to how the hostel accommodation provided to various invitees could be considered as a commercial activity. Before any activity can be branded as being in the nature of trade or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he account for many previous years. He further observed that the second objective, as per memorandum of association viz. to undertake, organize and facilitate study courses, conferences, seminars, lectures and research in matters relating to different cultural patterns of the world , was not charitable in itself but becomes charitable only when it is read with first objective viz. to promote understanding and amity between the different communities of the world by undertaking or promoting the study of their past and present cultures, by disseminating or exchanging knowledge thereof, and by providing such other facilities as would lead to their universal appreciation . He pointed out that in the first category there were general citizen of the world whereas beneficiaries in the second category were exclusive selected members of the society and their few invited guests. She, therefore, concluded that the trust could not be called as serving the general public. She further observed that since the trust itself was applying the principle of mutuality in respect of admission fee, subscription, income from hostel rooms, food and beverage, sale and expenses thereof, it could be concluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt u/s 10(23C)(iv). Both the return of income as well as the form no. 10BB were silent on balance income. (b) The exemption u/s 10(23C)(iv) was subject to fulfillment of conditions laid down in the order notifying the assessee u/s 10(23C)(iv). The assessee s activities included providing of services i.e. accommodation, food beverages etc., for payment of charges, which comes within the mischief of proviso 1 2 to section 2(15) read with third proviso to section 143(3). (c) She also pointed out that as per Income Expenditure A/c of the assessee, the surplus generated in assessee s case was ₹ 292.17 lacs as against ₹ 230.08 lacs in the preceding year. Therefore, the assessee s claim that the activities were not on commercial line, was not tenable. (d) As regards the assessere s claim that income was not taxable income, being derived from mutual concern, she observed that assessee had claimed that partly income was covered by the provisions of section 10(23C)(iv) read with sec. 2(15) and partly by principle of mutuality. She observed that an assessee could have income from different heads or income from different sources, but it could not have its income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicability of provisions of Section 2(15) with its latest amendment. 7. That the Director of Income-tax (Exemptions) has erred in holding that all the activities of the assessee had to be seen in totality and the assessee cannot be allowed to compartmentalize its activities and income arising there from under charitable activities and mutual activities. 8. That the learned Director of Income-tax (Exemptions) has erred in holding that the AO has failed to bring to tax the entire surplus of ₹ 292.70 lakhs. 9. That each ground is independent of and without prejudice to the other grounds raised herein . 3.1. Ld. counsel submitted that the assessee is registered u/s 12A since 18- 6-1973 and also approved u/s 80G(5) and further notified u/s 10(23C)(iv) for the AY 2006-07 onwards vide notification no. 13/2007 dated 19-1-2007. He submitted that all these registrations are still subsisting. Ld. counsel submitted that since the inception till date, the assessment has been completed u/s 143(3). He pointed out that the main allegation and the findings given in the order u/s 263 by the DIT(Exemption) are that activities undertaken by the assessee included providing of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society as an eligible entity u/s.10(23C)(iv) of the I.T. Act. Therefore, it cannot be said that the activities of the assessee were hit by the mischief of proviso to sec. 2(15). 3.5. Ld. counsel submitted that before the AO as well before the ld. DIT(E) detailed note on the activities and annual report was filed. The AO formed an opinion that the activities of the assessee society were charitable in nature. Therefore, once the AO had taken a possible view, then, ld. DIT(E), under her power of revision u/s 263, could not impose her own view to give a different finding. He relied on following decisions: - Malabar Industrial Co. Ltd. vs. CIT, 243-ITR-83 (SC) - CIT vs. Green World Corn., 181 Taxman - 111 (SC) 3.6. Ld. counsel further submitted that in the initial notice or in the revised notice u/s 263, ld. DIT(E) never raised any issue on the applicability of third proviso to section 143(3) or section 13(8) or first proviso to section 2(15), but in her order, she relied upon these provisions only. Ld. counsel pointed out that the basis of order has to be the same as in the show cause notice. For this proposition he relied on following decisions: - CIT v. Ashish Raj Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the category of advancement of any other object of general public utility . 3.10. Ld. counsel pointed out that there is no change in the objects or in the activities of the centre for the last five decades or more. Therefore, the rule of consistency has to be applied. For this proposition he relied on following decisions: - Dy. Director of Income Tax Vs. Shanti Devi Progressive Educations Society [2012] 340 ITR 320 (Delhi). - Excel Industries SC-2013- TIOL-52-SC-IT 3.11. As regards the objection raised by ld. CIT on account of principle of mutuality, ld. Counsel submitted that this has been accepted in the previous years in assessee s own case. 3.12. Ld. counsel for the assessee referred to pages 2 3 of the PB, wherein Income Expenditure A/c is contained and pointed out that the interest income is ₹ 617.45 lacs and the surplus generated ₹ 292.17 lacs. No donations have been received by asessee. Therefore, it is evident that no surplus is generated from catering, hostel activities. Surplus is born from interest income earned on FDRs. He pointed out that assessee incurred loss from hostel activities. Therefore, there is no question of any trade or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich reads as unless the context otherwise requires , the said definition could not be imported to institutions notified u/s 10(23C)(iv) by Competent Authority. Here approval entitled the institution, subject to fulfillment of conditions laid down in notification read with conditions laid down in section 10(23C). In view of 7th proviso to section 10(23C), the Competent Authority was required to examine that if the institution was deriving any income from profits and gains, then the said business was only incidental to the attainment of its main object. However, after application of proviso to section 2(15), by insertion of 17th proviso to section 10(23C) by Finance Act, 2012 with retrospective effect from 1-4-2009, the ambit has considerably been widened and if an assessee is carrying on any activity which is in the nature of trade, commerce or business then the assessee cannot be said to be carrying on charitable activities. In view of changed legal position, ld. DIT(E) concluded that since AO had not considered the applicability of proviso to section 2(15), the assessment order was erroneous as well as prejudicial to the interest of Revenue. 6.3. Admittedly, the third proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erable force in the submission of ld. counsel for the assessee that AO had taken one of the possible views after considering the assessee s reply and, therefore, 263 proceedings could not be initiated against the assessee. Therefore, it cannot be said that AO s order was in any manner erroneous or prejudicial to the interests of revenue. 6.8. However, since detailed arguments have been advanced before us with respect to applicability of proviso to section 2(15), we proceed to examine the same. First objection of revenue is with regard to the amounts realized out of catering facilities provided at the centre. Catering facilities were provided in the centre for members who came to the centre or stayed in the centre and attended discourses, conferences, seminars, lectures etc. We reproduce the following note filed by assessee on catering facilities at the centre: INDIA INTERNATIONAL CENTRE Note on Catering Facilities at the Centre Catering facilities are provided in the Centre for members who come to the Centre or stay in the Centre and attend the discourses, conferences, seminars, lectures. The Centre has two dining halls and two Lounges. The dining hall operates for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has given the following note: Note on Activities Carried on by India International Centre India International Centre (IIC) is a Society registered under the Societies Act of 1860 and is strictly governed by its Memorandum of Association and Rules Regulations. The objects of the Society are wholly charitable in nature and it has been so held right from its inception year after year. There is absolutely no change in the objects or the activities of the Centre right from its inception. Hostel services are predominant to sub-serve the main objective of the Centre i.e. organizing a very large number of programmes throughout the year which are open to the general public, free of cost, the price of which is inestimable. The activity of hostel provides basic amenities to all the invitees in the seminars, cultural and other functions and to research scholars free of cost and only guests of members are allowed to avail of facilities in case surplus accommodation is available at times. Your kind attention is invited to Art.VII of Memorandum of the Centre which states to organize and maintain, as far as possible, on no-profit no-loss basis, limited residential acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of institutions in Delhi. As per the rules these members are entitled to stay. That IIC is a centre for promotion of intellectual and cultural activities can be seen when we compare it with other institutions. This is because the Centre is geared to be only an institution of not only for promoting culture and academic thought. but also in inducting members ensures that the Members fulfill the objects of the Centre. Annual Subscription is charged from the members. 6.10. In the backdrop of aforementioned factual background, we proceed to examine whether these activities take colour of trade or business activity or merely facilitating in achievement of dominant object of assessee, which is the test. 6.11. The assessee society was formed to promote, understanding and amity between different communities of the world by undertaking or promoting study of their past and present culture, by disseminating or exchanging knowledge thereof, and to provide facilities for undertaking, organizing and facilitating study courses, conferences, seminars, lectures and research on various matters in order to achieve these objects and to provide facilities and also for establishing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from members so that the activities could be carried out. Admittedly, the assessee is disseminating knowledge to general public on subjects ranging from art, dance, urban development means etc. through conferences, lectures etc. It was further pointed out before AO that even while charging the members, there was no commercial motive in fixing the rates. The rates were nowhere near the commercial rates and were generally fixed to recover the cost and cost of activities to run the centre. These activities could not be treated in the nature of trade or commerce. 6.13. As regards hostel accommodation, there were number of rooms and guidelines for hiring of the accommodation and also there were restrictions. It was also pointed out that, as could be seen from the list of programmes, the assessee conducted very large number of programmes during the year which covered discussions, music, dances, exhibitions and also certain special programmes such as festivals during the course of the year. These programmes were published through the newspapers and website. Further emails were sent to members as well as non-members. Periodical articles also appeared in the various newspapers highligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and seconded by two individual members (other than an Associate, Overseas Associate, Short Term Associate and Temporary Member), one of them certifying that the applicant is personally known to him or her and is, in his opinion, a person fit to be admitted as a member of the Centre. 6.15. From the rule, it is evident that members are persons in the field of academic, art, culture, science, technology, sports or those engaged in public or professional functions and activities and are admitted as such in accordance with the decisions taken by the Board in this behalf, in order to achieve the main object of assessee of disseminating knowledge in various fields to public at large. 6.16. The assessee also pointed out that the members are presently from all over the world and about 30% of members are outside the Delhi NCR region. 6.17. From the detailed submissions of assessee, reproduced earlier, which have not been controverted by department, we fail to understand as to how these activities can be said to have an iota of commercial/ trade colour. The dominant object of the assessee is definitely for the well being of public at large by organizing various seminars for the wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, then there would be no institution whatsoever which would qualify for the exemption u/s 10(23C)(iv) of the Act. And, the said provision would be rendered redundant. This is so, because, if the institution had no income, recourse to Section 10(23C)(iv) would not be necessary. And, if such an institution had an income, it would not, on the interpretation sought to be given by the revenue, be qualified for being considered as an institution established for charitable purposes. So, either way, the provisions of Section 10 (23C)(iv) would not be available, either because it is not necessary or because it is blocked. The intention behind If introducing the proviso to Section 2(15) of the Act could certainly not have been to render the provisions of Section 10 (23 C)(iv) redundant; ++ it is apparent that merely because a fee or some other consideration is collected 01 received by an institution, it would not lose its character of having been established for c charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was 'not business, trade or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The correct interpretation of the proviso to Section 2(15) of the Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or' any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, i: profit making, whether its activities are directly in the nature of trade, commerce or business: or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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