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TMI Blog2016 (8) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... from education is confined to Distance Learning course fee of ₹ 20.65 lacs out of total receipts of ₹ 21.45 crores is incorrect. On the contrary, we notice that the activities of the appellant are in the nature of participatory research. In the order of assessment of the appellant for assessment year 1983-84, it has been observed that the participatory research is a new development of the last decade and was arisen out of the experience of grassroots educational efforts in the Third World Countries. It has been noted that the Participatory Research can be utilized depend upon the needs of the poor and deprived. It has been noted that it has worked on the problems of forest, land, rural development, drinking water, primary health care, women’s income generating efforts, occupational and environmental health etc. The appellant has also emphasized that it work with the community organizers, adult educator, health care workers, social workers etc. in training them to use participatory research methodology in their work. The appellant produces own educational materials for use in educational programmes and for wider dissemination. Punjab & Haryana High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes, vocational studies and imparting education etc. 5. That the learned Commissioner of Income Tax (Appeals) has failed to comprehend that, there is neither any basis nor there is any material, on the basis whereof, any such finding could be arrived. 6. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the interest of ₹ 1,36,03,945/-had been earned on the surplus funds of the Society, which surplus funds had been invested in accordance with the provisions of section 11(5) of the I.T. Act and was thus the trust property not liable to be included in the total income. The reliance of the judgment of Apex Court in the case of Banglore Club is entirely misconceived which had no application. 7. That the findings of the learned CIT(A) that the assessee has generated surplus of ₹ 1.09 Crores as well as earned interest is factually incorrect, since ₹ 1.09 crores only was the excess (which included the interest of ₹ 1,36,03,945/- and it was after meeting the expenditure incurred there remained excess of ₹ 1,09,00,000/-) 8. That the learned Commissioner of Income Tax (Appeals) has further erred in sustain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. He also noted that during the year, the assessee has also shown surplus of ₹ 1,09,99,469/- which also established the profit motive behind the activities carried out by the appellant society. He also held that nomenclature of the transaction is not relevant and all what is relevant is that assessee is providing certain services and charges which is clearly of commercial in nature. Thereafter, after referring to various case laws, he concluded that the activities of the appellant society are commercial in nature and also not in consonance with the aims and objects contained in memorandum of association of the appellant society. Consequently, he concluded that the assessee society does not fall within the scope of charitable purpose defined in section 2(15) of the Act and therefore, benefit of section 11 and 12 of the Act was not allowed to the appellant in the instant year. 4.2 On appeal, the CIT(A) upheld the denial of exemption by holding as under: 3.1 To verify the claim of the appellant, I have gone through the Schedule 9 of the Balance Sheet, as per which there is Research Training grants amounting to ₹ 15,91,42.039/- which has been received from (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st earned by the assessee from the banks will not fall within the ambit of mutuality principle and will therefore, be eligible to income tax in the hands of the assessee (order dated 14.1.13 ) . So, this is a latest judgment of Hon'ble Supreme Court on the similar issues. 3.2 In the instant case appellant has earned interest of ₹ 1,36,03,945/- which cannot be exempt from tax in view of the decision of Hon'ble Supreme Court as discussed above. Furthermore, it is found that activities of the appellant are not falling under the first three limbs of section 2(15) of the IT Act which are, relief to the poor, education, and medical relief and it is very clear that activities are in the nature of advancement of general public utility which is the last limb. Now only question is to be decided whether activities are in the nature of trade, commerce or business or not. For the same AO has very categorically discussed the instances in the body of order by mentioning the name of the parties who had deducted TDS on various services offered by the appellant. Further appellant has also generated surplus of ₹ 1.09 crores as well as earned interest income on the fixed depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been carried forward to be applied to attain the objects of the society in the subsequent years. It was contended that no portion of the surplus has been utilized for any personal gain or benefit of the members of the society in any manner whatsoever. It was thus contended that mere fact that there was a surplus could not be a basis to conclude that activities of the society were in the nature of trade, commerce or business or any activities rendered in connection with service or business for any other consideration. It was submitted that the receipt of the society is by way of aids and grants which grants had been made by government and other N.G.O s and were made in order to enable the assessee to carry out the educational activities and therefore, the appellant cannot be held to be engaged in surplus activities. Reference was made to the judgment of the Hon ble High Court of Delhi in the case of PHD Chamber of Commerce Industry v. DIT(E) 357 ITR 296. It was submitted that contributions on account of short term project is only of ₹ 92.12 lacs as against grants in aid of ₹ 15.91 crores and therefore, is not relevant in any manner. The appellant also submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to therein is ten lakh rupees or less in the previous year; 5.1 Charitable purpose as indicated above is an inclusive definition and includes relief of the poor, education, medical relief, advancement of any other object of general public utility and preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest. As regards, the proviso inserted by Circular No. 11 of 2008 dated 19.12.2008 provides as under: 1. Section 2(15) of the Income-tax Act, 1961 ( Act ) defines charitable purpose to include the following : - i) Relief of the poor ii) Education iii) Medical relief, and iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 5.2 Thus the amended provision of section 2(15) of the Act will have no application viz-a-viz the clauses other than object of general public utility. The Hon ble Court further in the case of Indian Trade Promotion Organization v. DGIT(E) 371 ITR 333 (Del) on examination of the proviso, has held that the proviso has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i-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 in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business? 5.4 It was further held as under: On the flip side, where an institution is not driv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illing objectives of PRIA; vii. To disseminate information through all media-print, oral or electronic; viii. To establish and maintain libraries, documentation and resource centers; ix. To develop and distribute learning, public education and advocacy materials in print, audio-visual and software modes and to create facilities for the acquisition, production, storage and dissemination of the same; x. To organize seminars, workshops, conferences, exchange visits, study tours etc. on all subjects of interest in the context hereof for the time being; xi. To promote continuing and liberating education of adults in particularly the under privileged and disempowered citizens of different societies; xii. To sponsor and support training programs on participatory research and its related aspects; xiii. To publish books, papers, monographs and other educational material for furtherance of the objectives of PRIA; xiv. To conduct projects on Participatory Research and related subjects both on its own and on behalf of others; xv. To support, fund and collaborate with similar projects being conducted by like-minded institutions; xvi. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in the instant year, there was surplus of ₹ 1.09 crores, the same clearly shows the profit motive behind the activities carried out by the appellant society. It has been held that receipts of the appellant society are contractual in nature on account of deduction of TDS. Further, it has been also held that since the receipts from educational activities is only ₹ 20.65 lacs out of total receipts of ₹ 21.46 crores declared during the year, therefore activities of the appellant cannot be considered to be education. The learned counsel for the assessee however has assailed the above conclusion by pointing out that consistently that the revenue itself has accepted that the appellant is engaged in education. 6.3 We find that in the year 1984-85, in the case of the appellant society in ITA No. 4791/Del/86, the claim of the appellant under section 10(22) of the Act was denied and the matter travelled to the Tribunal. On appeal by the Revenue, claim of exemption stood accepted by Tribunal. The Tribunal in an order dated 30.7.1987 has held as under: 4. After taking into consideration of the rival submissions and looking to the facts to and going through sec.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that the Participatory Research can be utilized depend upon the needs of the poor and deprived. It has been noted that it has worked on the problems of forest, land, rural development, drinking water, primary health care, women s income generating efforts, occupational and environmental health etc. The appellant has also emphasized that it work with the community organizers, adult educator, health care workers, social workers etc. in training them to use participatory research methodology in their work. The appellant produces own educational materials for use in educational programmes and for wider dissemination. 6.6 Similar view has also been expressed in the case of Praxis Institute of Participatory Practices v. DIT(E) 154 ITD 10 (Del) wherein it has been held as under: Having gone through the activities of the assessee made available at page Nos. 101, 113, 130, 141, 151, 156 etc. of the paper book filed on behalf of the assessee about the activities of the assessee, we find that for Care India, the task involves on the part of the assessee is planning and conducting capacity building program for state lead and implementing partners, field visits and facilitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs such as Child Care including sexual harassment/violence etc. Page No. 12 of the annual report contains the relevant activities and photographs depicting the living and working condition of workers. 17. For Pellastakaa Laspset-Radda Banen(save the children, contract Finland), the assessee was entrusted to undertake the study on qualitative base line in eight village of southern Rajasthan for formulating an educational model for promoting and protecting the rights of children of indigenous community through a right based approach in the area of root causes of violation of rights of children, nature and impact of such violation etc. 18. We find that during the year, the assessee undertook 25 such projects, the details of which were submitted before the authorities below but the Learned CIT(Appeals) or the Assessing Officer did not determine the nature of the activities for the very purpose of the objects. The Assessing Officer was of the view that the assessee involves in carrying on the activities in the nature of rendering services in relation to trade, commerce or business as assessee is providing consultancy, workshop, training program, conducting research on behalf of ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. The services provided by the assessee to SAS were taken as being of commercial nature. The Assessing Officer held that the proviso to sec. 2(15) of the Act is applicable to any other object of general public utility and not to charitable organization engaged in providing either relief to the poor or medical relief or education and that since the activities of the assessee did not fall under either relief to the poor or medical relief or education, it could be safely presumed that they fall under the category of general public utility , that for such activities, the assessee was receiving contractual income, irrespective of whether it resulted in profit or loss and that as such, the assessee had violation of the provisions of section 2(15) of the Act, that since the assessee did not fall within the scope charitable purpose , as defined in sec. 2(15) of the Act, the benefit of sec. 11/12 of the Act was being disallowed to the assessee for the year under consideration. The Assessing Officer also sent a proposal for withdrawal of registration to the assessee under sec. 12AA of the Act to the DIT(E), separately. The grievance of the revenue before the ITAT was that the Learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d within the meaning of sec. 2(15) of the Act. As discussed above, the activities of the assessee firstly cannot be treated as advancement of any other object of general public utility nor it can be said that the activity of the assessee involves the carrying of any activity 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. Respectfully following the above referred decisions on identical issues on almost similar facts as of the present assessee before us, we hold that the activities as discussed hereinabove of the present assessee cannot be held to be engaged in the activity of advancement of any other object of general public utility. The activities carried on by the assessee cannot be said to be beyond its main aims and objects and it is also an undisputed fact that the assessee society continued to enjoy registration under sec. 12A of the Act as a charitable trust and that the charitable purpose for which the assessee society was established remained unchanged. Under the circumstances, we while setting aside the first appellate order as well as order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the educational institution, it will ont be cease to be one existing solely for educational purposes. (5) The ultimate test is whether on an overall view of the matter in the concerned assessment year the object is to make profit as opposed to educating persons. 7.1 The Hon ble Court in the aforesaid judgment affirmed the judgment of the Punjab Haryana High Court n the case of Pinegrove International Charitable Trust v. UOI 327 ITR 73 wherein it was held that merely because profits have resulted from the activities of imparting education, it would not result in change of character of the education that it was solely for educational purpose. 8 Thus, respectfully following the aforesaid judgments, we hold that the invocation of proviso to section 2(15) of the Act to deny claim of exemption under section 11 and 12 of the Act is not justified. Accordingly, grounds of appeal a ..... 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