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TMI Blog2016 (1) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose is charitable, another object which by itself may not be charitable, would not prevent the trust or institution from being a valid charity. It is noted in this case that the charges for the room are very nominal, starting from a mere ₹ 40/-. This also indicates that there is no profit motive involved in this case. Considering all the legal and factual position, it is apparent that the dominant motive in this case is not earning profit but to do charity in the form of public service by providing accommodation to the common man at affordable rates. The activities of the assessee, therefore, cannot be characterized as business activities. Hence, proviso to section 2(15) is not attracted in this case and, therefore, the disallowance of exemption u/s 11 & 12 is unjustified. The AO is, accordingly, directed to assess the society as per the provisions of section 11 & 12, and grant the requisite exemption - Decided in favour of assessee - ITA Nos. 809/JP/2013 - - - Dated:- 1-1-2016 - Shri T. R. Meena, AM And Shri Laliet Kumar, JM For the Petitioner : Shri Kailash Mangal (JCIT) For the Respondent : Shri Vijay Goel (C.A.) ORDER Per Shri Laliet Kumar, J. M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not be entitled for exemption from taxation. Therefore, the AO forfeited the exemption u/s 11 12 of the IT Act for the A.Y. 2010-11 on the income earned by the assessee of ₹ 68,45,354/- (Rs. 68,28,254/- as collection from travelers and ₹ 17,100/- as advertisement income) and after allowing expenses to the tune of ₹ 41,17,572/- added the balance amount of ₹ 27,27,782/- to the income of the assessee. The AO has also not allowed capital expenditure to the tune of ₹ 72,35,233/- on the ground that he has forfeited the exemption, but allowed the depreciation to the extent of ₹ 7,45,149/-. 3. Being aggrieved by the order of AO, the assessee carried the matter before ld. CIT (A), who allowed the claim of the assessee after discussing the matter at length in para 4 to 6 of his order. The ld. CIT (A) observed that the first and second proviso to section 2(15) come into play only when the activity being carried out by the assessee is in the nature of trade, commerce or business . He also placed reliance on the CBDT s Circular no. 11 of 2008 dated 19.12.2008 which explains the rationale of bring this amendment. After going through the circular, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself may not be charitable, would not prevent the trust or institution from being a valid charity. The ld. CIT (A) after going through the tariff rate of room rent charged by the assessee opined that the charges are very nominal starting from a mere ₹ 40/- and it indicates that no profit motive is involved. He, considering all the legal and factual position, held that proviso to section 2(15) is not attracted in this case and disallowance of exemption u/s 11 12 is unjustified. Thus he directed the AO to assess the society as per provisions of section 11 12 and grant the requisite exemption. 4.1. In respect of denial of claim of capital expenditure amounting to ₹ 72,35,233/-, the ld. CIT (A) allowed the claim of the assessee by observing as under :- 6. I have considered the facts of the case. The capital expenditure made by the appellant has been disallowed by the AO on the ground that the appellant was not entitled to exemption u/s 11 12. However, as has been held above, the appellant is entitled to exemption under these sections. Therefore, the disallowance of claim of the capital expenditure as application of income also appears to be uncalled for and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 which explains the rationale of bringing this amendment. This Circular reads as under :- .. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility . Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registration Act, 1860 and is now governed by the Rajasthan Society Registration Act, 1958. Sec. 14A of this Act provides that upon dissolution of the society all the assets shall go to the State Government. Apart from this, it may also be noted that the terms of the society clearly provide that all the moveable and immovable property, in resent or in future, shall belong to the society and all the savings of income and expenditure account shall be utilized for the developmental work of the society. Clause 4(c) of the Society s constitution reads as under :- Hence, there does not appear to be any profit motive in the case of the assessee as the excess of income over expenditure cannot be distributed amongst its members either in the course of its activity or in the event of its dissolution. Therefore, one of the important ingredients for treating the activity of the appellant as business i.e., profit motive is missing in this case. Since there is no profit motive involve, the activities carried out by the appellant cannot be described as business. In such a situation, as explained by CBDT vide its Circular (supra), there would be no application of proviso to section 2(15 ..... 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