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TMI Blog2015 (6) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... isbursing the same utilised the same for earning interest income. The interest income so earned by the assessee was also not utilised for payment to any charitable trust or for any other charitable activities. Simply because the assessee was registered under section 12 AA of the Act does not entitle it to claim its entire income as exempt under section 11 of the act but for getting that exemption the assessee is required to further satisfy condition of applying 85% of its income for charitable activities. In absence of the same only the amount which is utilised by the assessee for doing charitable activities can only be allowed as deduction to the assessee. In the present case as it is observed that no part of the assessee’s income was actually applied for any charitable activities as defined in section 2(15) of the Act, the assessee was not entitled for deduction under section 11 of the Act for application of income towards charitable activities. - Decided against assessee. Software expenditure - Revenue or Capital expenditure - Held that:- No relevant facts were brought on record by the A.O. and no reason was given by the AO for not accepting the claim of the assessee of so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aritable entity engaged in charitable activities. 5. Ld. CIT (A) erred in law and on facts in confirming action of AO refusing to grant exemption u/s.11 and assessing income of the appellant u/s. 28 to 44 of the Act. Both the lower authorities failed to appreciate that proviso to section 2(15) was not applicable to the appellant and further provisions of Section 13 (8) were also not applicable. It be so held now by granting exemption u/s. 11 of the Act as claimed. 6. Ld. CIT (A) erred in law and on facts in not appreciating the fact that the appellant was not engaged in any commercial /business activity but was carrying out charitable activity in accordance with its objects for which Registration u/s.12AA of the Act was granted to the appellant trust. 3. As the facts and issues involved are same they are being disposed of together as under. Brief facts of the case are that he assessee is a charitable organisation under section 25 of the companies Act, 1956. The assessee was registered under section12A of the Income Tax Act, 1961 on 4- 8-2000.The assessee filed return of income for Assessment Year 2009-10 on 29-09-2009 showing loss of ₹ 1,82,38,329/-. 4. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional qualification of employees, the high amount of salaries /professional fees paid, the type of experience which the employees/professionals possess, suggests that it is the requirement of business or profession and not of a charitable institution. 7. The amount of interest income earned by the assessee on funds not disbursed to trust cannot be treated as the income of the trust because by overriding title, it becomes the income of the concerned trust for which the funds are earmarked and not disbursed. As the donor has given donation with specific instruction to be paid to specific trust and which are shown under current liabilities are the funds owned by the trusts for whom they are meant and hence, income earned thereon should also be provided to trusts for whom donations were paid by donors. The figures of income of the trust by way of consultancy fees, personnel expenditure incurred and interest income as discussed above have been provided in this assessment order. 8. The decision relied upon by the assessee and reproduced in this assessment orders have been carefully considered and on careful perusal it has been noticed that facts of the case of the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions made in this regard. It is an admitted fact, amply evident from the website of the appellant, that the appellant is not doing any charitable activity directly. The appellant has devised an innovative idea of collecting money or donation from individuals or corporate interested in donating for a charitable cause. Such money is collected and kept by the appellant and disbursed thereafter to various NGOs enlisted with it for which the appellant has carried out due diligence and the list of all such NGOs is available on its website. At this point, it is important to look at Section 2(15) which reads as under:- 15) charitable purpose includes relief of the poor, education, medical relief, [preservation of environment {including watersheds, forests and wildlife} and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility; Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicable in the appellant s case. It may be pointed out that irrespective of nature of use or application or retention of income from such activity, the said activity of the appellant may not be termed as charitable. I may draw attention to Section 13(8) of the Income Tax Act which comes into force with effect from Assessment year 2009- 10. The same reads as under: [ 13(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.] To sum up, thus, the variety of causes for donation mobilization by the appellant also the registration u/s.12AA of Income tax Act indicate that the appellant is doing charitable work u/s. 2(15) but under the heading advancement of general public utility . To elaborate, some of the donations are earmarked for poor, others for medical needs of the people etc, but it is the actual donor who could only be doing the charitable activity directly, but with the help of appellant. Thus I am of the opinion that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1995-96 till 2008-09 the Revenue had considered the activities of the assessee educational and had granted the benefit u/s.11. The view taken by the Tribunal that the activities of the assessee such as continuing education diploma and certificate programme; management development programme, public talks and seminars and workshops and conferences, were educational activities or is in the field of education was proper. The activities of the assessee would fall within the definition of charitable purpose in terms of Section 2(15) and, therefore, would be entitled to exemption under Secton11. 8. He further argued that the only ground on which the CIT (A) held against the assessee after holding that the assessee is a charitable institution, is that the assessee falls in the residuary clause and is hit by the proviso, is contrary to the facts and therefore, the assessee be held as a charity. For this, he placed reliance on the decision of Hon ble Delhi High Court in the case of the DIT (E) vs. PRADAN Property Holding Trust in ITA No.361/2007 order dated 16-08-2010 wherein the Hon ble High Court held as under:- It has been discussed by the Tribunal and has also come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of an object of general public utility to which the exception carved out in the first proviso to Section 2 (15) of the said Act would not apply. We say so, because, if a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well-settled that the courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above, in Arun Kumar case (supra). It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, in this Act, unless the context otherwise requires . The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression charitable purpose , as defined in Sec. 2(15) of the said Act, is read in the context of Sec 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression charitable purpose by the revenue. With respect, we do not agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce . The Court further held:- Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered in the context of Sec. 10(23C)(iv) of the said Act. It is also that if the literal interpretation is given to the proviso to Sec. 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Sec. 10(23)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Sec. 2(15) of the said 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 any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing coaching classes or undertaking campus placement interviews for a fee were in relation to the main object of the Institute which cannot be held to be trade business or commerce. Accordingly, even though fees were charged by the Institute for providing coaching classes and for holding interviews with respect to the campus placement, the activities cannot be stated to be rendering service in relation to any trade, commerce or business as such activities are undertaken by the Institute in furtherance of its main object it has held earlier are not trade, commerce or business. 12. He further relied on the decision of Hon ble Delhi High Court in the case of Institute of Chartered Accountants of India Another vs. DIT (E) (2012) 347 ITR (99) (Del.) wherein it was held that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled Chartered Accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business. The Institute had framed the Chartered Accountants Regulations, 1988 and the regulations provided for training students, their ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome (S.13) 7,22,035 18. The expenses or payment debited by the assessee in its income and expenditure account are as under:- Particulars Year ending 31.3.09 Personnel expenditure S.14) 91,59,959 Technical exp. (S.15) 19,36,006 Promotional Exp.(S.16) 11,994 Adm. Other Exp. 53,00446 Dep. (117868 43487) Less Tr. From Cap.Grant Res. 74,381 Total 1,64,82,786 Excess of Income over Exp. 31,93,755 19. Thus the assessee disclosed net income at ₹ 31,93,755/-. 20. The assessee in its return claimed the above income of ₹ 31,93,755/- as fully exempt under section 11 of the Act. 21. We find that the entire expenses incurred by the assessee are for providing advisory services to the affluent corporate and high net worth individuals who desire to make donations to public welfare trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act for application of income towards charitable activities. 23. The Authorised Representative relied on the decision of Hon ble Gujarat High Court in the case of [2014] 366 ITR-85 (Guj.) Director of Income Tax (Exemption) vs. Ahmedabad Management Association wherein it was held as under:- The assessee, a public charitable trust, was dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas for the past 50 years. The Assessing Officer, for the assessment year 2009-10, held that considering the nature of the courses their duration and the resultant surplus from each activity, the activity of the assessee was not educational. The activities of the assessee fell within the scope of advancement of any other object of general public utility and any other activity of section 2(15) of the Income Tax Act,1961 as amended, and since the aggregate value of the receipts were more than ₹ 10 lakhs the proviso to section 2(15) was applicable and the assessee was not entitled to exemption. He denied the exemption under section 11 and assessed the income of the assessee at ₹ 1,42,11,129 making a furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. Therefore, in view of the above amendment in law the activities which were regarded as advancement of general public utility in earlier years cannot be regarded as activities for charitable purposes if the activities are hit by first proviso and is not covered by exemption provided in second proviso. In the instant case we find that the receipt of the assessee from advisory fee charged for rendering services exceeds the limit provided in section 2(15) of the Act. Therefore, the activity of the assessee cannot be regarded as of charitable purpose of advancement of general public utility during the Assessment Year 2009-10. Therefore the above decision is not applicable on facts of the case. 27. The second decision relied upon by the assessee is of Hon ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra). In this case, Hon ble High Court has held as under:- that the main objectives of the Trust were to breed cattle and endeavour to improve the quality of the cows and oxen in view of the need of all India is prominently and agricultural country. All these were objects of general public utility and would squarely fall under Sec. 2(15) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision is not applicable to the facts of the assessee s case. 31. For the above stated reasons we hold that the assessee is not entitled for deduction under section11 of the Act during the year under consideration. In view of our observations made above we confirm the order of the CIT (A) and dismiss the grounds of appeal of the assessee. 32. Ground No.7 of the appeal reads as under:- Ld. CIT (A) erred in law and on facts in confirming action of AO holding software expenditure of ₹ 19,25,285/- as capital in nature and allowing depreciation of 30% thereon failing to treat the expenses as application of funds for charitable activities of the appellant trust. The AO has held as under :- Addition for capital expenditure debited to revenue expenses:- The assessee has debited following expenses to software development expenses account which are of capital in nature. Date Particulars as per submission made by assessee. Amount 30-12-2008 Paid to Planman Technology P. Ltd. 1,20,746 31-03-2009 -do- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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