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TMI Blog2017 (1) TMI 1145X X X X Extracts X X X X X X X X Extracts X X X X ..... tially existing for charitable purposes but conducting some activities for consideration or fee. In this background, the proviso to section 2(15) of the Act cannot be invoked to exclude assessee Trust from the purview of section 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business, as inferred by us following the legal position explained by the Hon’ble Delhi High Court in the cases referred herein above. We therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to allow the claim of the assessee for exemption under section 11 & 12 of the Act. - Decided in favour of assessee - ITA No.6282/Mum/2014 - - - Dated:- 20-1-2017 - SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : Shri Arvind Sonde For The Respondent : Shri Prawin Kumar ORDER PER G.S.PANNU,A.M: The captioned appeal filed by the assessee pertaining to assessment year 2010-11 is directed against an order passed by CIT(A)-1, Mumbai dated 28/07/2014, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, against the expenditure incurred on objects/purposes during the assessment year 2013-14 and hence the addition of the said amount in this year amounts to double taxation of the same amount. (f) On the facts, and in the circumstances of the case and in law the ld.CIT(A) failed to appreciate that DIT(E) has also passed an order u/s 263 of the Act for A.Y.2009-10 directing the learned Assessing officer to frame assessment afresh after considering the amount accumulated and set apart in A.Y. 2007- 08 and 2008-09 as income of the trust for A.Y. 2009-10 which shows that addition of this amount cannot be made or sustained in this year. 2(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming addition of ₹ 166,41,00,000/- being the contribution received from Settlers, namely Government of India (GOI) and Small Industries Development Bank of India (SIDBI) towards the Corpus in terms of the trust deed and the reasons assigned for doing so are wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. (b) the Learned Commissioner of Income Tax (Appeals) err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in as much as he has held that the sections 11,12 and 13 of the Act are not applicable during the year but has confirmed the additions to total income by taking recourse to section 11(3) and 12(1) of the Act and thereby confirming additions of amounts accumulated in earlier years and contributions to the corpus of the trust in terms of trust deed. 5(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of deduction of a sum of ₹ 53,69,84,940/-, being 15% of the income derived by the trust, under section 11(1)(a) of the Act, by holding that the activities carried out by appellant are not covered within the definition of Charitable Purpose as defined u/s 2(15) of the Income Tax Act, 1961 which is wrong and contrary to the facts of the case, the provisions of the Income Tax Act, 1961, and Rules made thereunder. (b) On the facts and in the circumstances of the case and in law, the authorities below failed to appreciate (i) that the objects of the Trust are covered within the meaning of charitable purpose and the Trust was granted registration u/s.12A of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust-deed, the settlors i.e. Government of India and SIDBI noted that the Small Scale Industries were facing difficulties in getting credit from primary lending institutions viz. Banks, State Finance Corporation, State Industrial Development Corporation and Regional Rural Banks(RRB) for want of collateral securities and/or third party guarantees. The Government of India decided to introduce a Credit Guarantee Fund Scheme for the small industries, in order to provide effective credit guarantee for SSI loans; for guaranteeing the loans and advances extended without collateral and/or third party guarantees to small industries by the Scheduled Commercial Banks and others. With these objectives the settlors i.e. Government of India and SIDBI decided to create a Trust and provide for the necessary funds. As per the trust-deed, the initial as well as any further contributions to the corpus of the Trust are to be made by the Government of India and SIDBI in the ratio of 4:1. It is prescribed in the trust-deed that the Government of India was liable to make up the deficit, if any, incurred in the overall operation of the scheme by providing the necessary budgetary support to the Trust. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new or existing Small Scale Industrial manufacturing units, including IT and Software Industries, without any collateral security and/or third party guarantee. 4.1 The Trust was registered under section 12A of the Act with the Director of Income Tax (Exemption)[ in short DIT(E)] on18/10/2001. Upto the assessment year 2006-07 the income of the assessee Trust was exempt in terms of section 10(23EB) of the Act. From assessment year 2007-08 onwards, assessee Trust claimed exemption under sections 11 12 of the Act. For assessment year 2007-08, assessee Trust filed return of income claiming exemption under sections 11 12 of the Act, which was also accepted by the Assessing Officer in an assessment finalized under section 143(3)(ii) of the Act dated 24/12/2009 and the total income was assessed at Nil . Pertinently, in coming to such assessment, the Assessing Officer allowed the claim of the assessee for accumulation of income under section 11(2)(a) of the Act for ₹ 94,34,84,008/-. Similarly, in assessment year 2008-09 also assessee s claim for exemption under sections 11 12 of the Act was accepted by the Assessing Officer and vide an order dated 30/12/2010 passed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of registration under section 12A of the Act did not entitle the assessee for the exemptions provided in the regime of sections 11 to13 of the Act. Further, the Assessing Officer noted the accumulation made by the assessee in assessment years 2007-08 and 2008-09 and held that in view of the cancellation of registration under section 12A of the Act, the benefit of accumulation was no longer available to the assessee, and he has accordingly brought to tax such sums of ₹ 94,38,84,008/- and ₹ 154,61,84,037/- respectively. Thus, the assessment of total income at ₹ 773,40,60,646/-. 5. The aforesaid assessment was carried in appeal before the CIT(A) by the assessee. The assessee Trust assailed the order of the Assessing Officer on various legal and factual aspects. One of the aspects noted by the CIT(A) is that the registration cancelled by the DIT(E) under section 12AA(3) of the Act has since been restored by the Tribunal vide its order dated 28/05/2014 and to that extent he has corrected the position, but has ultimately upheld the assessment done by the Assessing Officer. In sub-and-substance, the CIT(A) has affirmed the ultimate stand of the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the above judgments relied upon by the appellant assessee is concerned. 5.3 At the time of hearing, it was specifically put to the parties as to whether the registration granted under section 12A of the Act contains reference to any particular limb of section 2(15) of the Act on the basis of which the registration has been granted. Both the parties converged to say that the registration accorded by the DIT(E) under section 12AA of the Act does not contain reference to any specific limb of section 2(15) under which assessee is covered. Notably, section 2(15) of the Act provides an inclusive definition of charitable purpose to include relief to the poor, education, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest, and the advancement of other object of general public utility. Be that as it may, there is no denying the fact that as of now the registration granted to the assessee under section 12A of the Act by DIT(E) on 18/10/2001, continues to hold the field. It is a well settled proposition that the registration of a charitable trust accorded under section 12A of the Act is done by the DIT(E) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, it is not competent for the assessing authority to revisit the nature of the objects of the assessee Trust and say that the same does not fall within the meaning of charitable purpose defined in section 2(15) of the Act. Therefore, in view of our aforesaid discussion, we are enable to approve the stand of the CIT(A) that assessee is an institution existing without any charitable purpose. 5.4 The second objection of the CIT(A) is based on the proviso to section 2(15) of the Act as it was amended by the Finance Act, 2008 with effect from 01/04/2009. The said proviso reads as under:- 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 trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. We may briefly cull out the effect of the proviso and the argument set up by the Revenue thereof. Ostensibly, the expression, charitable purpose has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndered in the context of the legal position prevailing after the insertion of the proviso to section 2(15) of the Act by Finance Act, 2008 with effect from 01/04/2009:- (i) PHD Chamber of Commerce and Industry vs. DIT(E), 357 ITR 296. (ii)Institute of Chartered Accountants of India and Another v. DGI(E) And Other, 358 ITR 91(Del) (iii) GSI India v. DGIT(E), 360 ITR 138(Del) (iv) India Trade Promotion Organization vs. DGIT(E) Others, 371 ITR 333 (Del) 5.6 We have carefully considered the rival submissions. Before we proceed to address the controversy relating to invoking of the proviso to section 2(15) of the Act, we may briefly recapitulate the fact-situation. As noted earlier, the main object and purpose of the assessee Trust is to give guarantee for loans and advances disbursed by lending institutions to the small scale industries and micro enterprises upto a specified limit. In other words, the object and purpose of the Trust is to enable small and micro enterprises ,who do not have adequate fund-raising abilities, to raise funds for their businesses. The objects are being pursued by providing guarantees or counter guarantees for the loans and other credit facil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the proviso to section 2(15) of the Act. As per the Hon ble High Court, the expression trade, commerce or business in section 2(15) of the Act would mean an activity, which is undertaken with a view to make or earn profits. In other words, it was emphasized by the Hon ble High Court that existence or otherwise of profit motive would be determinative and critical to discern as to whether or not an activity is trade, commerce or business. In this context, it has been explained that the quantum of fee charged, the economic status of the beneficiaries who pay commercial value of benefits in comparison to the fee, the purpose and object behind the fee, etc. are several factors which are relevant to decide the seminal question, is it business? . It has been noted that charitable activities require operation/running expenses as well as capital expenses to be able to sustain itself in the long run. The Hon ble Court explained that the proviso to section 2(15) cannot be understood to mean that a charitable institution with the object of advancement of general public utility is to be wholly, substantially or in part funded only by way of voluntary contributions. 5.9 Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are in the nature of trade, commerce or business or whether it is rendering any service in relation to any trade, commerce or business, as prescribed in the proviso to section 2(15) of the Act. 5.11 In this background, now we may go back to the facts of the present case. In the instant case, the object and purpose of the assessee Trust is to enable the small scale industries and micro enterprises to pursue their income generation activities. The said object is sought to be achieved by providing guarantees or counter guarantees to the lending institutions who disburse loans or provide other credit facilities to the small scale industries and micro enterprises. We may again emphasize that the object and purpose of the assessee Trust is to help the small scale industries and micro enterprises by ensuring that they get ability to obtain loans from lending institutions. No doubt, there is an element of fee or charges levied by the assessee Trust, but the point is, is there a profit motive which would enable such activity to be characterized as a trade, commerce or business. In the orders of the authorities below as well as before us, there is no charge made by the Revenue that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business, as inferred by us following the legal position explained by the Hon ble Delhi High Court in the cases referred herein above. 5.12 In conclusion, we therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to allow the claim of the assessee for exemption under section 11 12 of the Act. 6. Before parting, we may note that the appellant has made an alternate plea that its activities fall within the scope of relief of poor as envisaged in section 2(15) of the Act, and in this context reliance was also placed on the decision of the Delhi Tribunal in the case of Disha India Micro Credit in ITA No.1374/Mum/2010 dated 28th January, 2011. The case before the Delhi Tribunal pertained to a lending institution who had provided loans to micro enterprises, which in-turn were guaranteed by the assessee-Trust before us. The Tribunal upheld the plea of the assessee therein seeking registration under section 12A of the Act. Since assessee has already succeeded on its claim for the benefits of sections 11 12 of the Act in the earlier paras, the said alte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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