9911796707
TMI Blog2013 (6) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account of the assessee-trust are audited. The assessee filed Audit Reports dated 22/09/2009 and 26/10/2006, in Form No. 10-B & 10CB/CD, as required u/s 12A (b) & 44AB of the Act respectively. The assessee produced the books of account during the assessment proceedings. 2.1 The objects of the assessee-trust as per the Trust-Deed are described as under:- "Whereas the settler is in possession of large number of pictures, paintings, portraits, works of art, coins of antiquity, artistic (silver, china, glass, ivory) ware, cut glass, books of art, priceless rugs, anitiques, curios, weapons of all types, absolute and otherwise, old armor, shields, swords, daggers etc. and other various miscellaneous items representing the collection of many generation of Rulers of Jodhpur and is desirous of setting port of the collection for charitable purposes and in order to secure this object, is desirous of establishing a museum for the benefit of the public at large. The Trustees shall protect, preserve, enlarge and improve the articles and things to be received by them from time to time." 2.2 After perusing the above objects of this trust the A.O has found that this Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, which is off season (due to climatic conditions in this part of Rajasthan) the number of visitors drastically fall and the number of visitors are also affected by other external causes such as terrorist activity in any part of the world, communicable disease such as plague, bird flu, swine flu and the number of visitors also falls drastically on happening of such events whereas the fixed cost of maintaining and preserving the objects and monuments throughout the year remains almost the same. To meet the gap of this shortfall the Assessee Trust is carrying on certain other activities to enhance its income so that it could maintain the Museum throughout the year and meet its fixed costs. In this connection it is permitting Films Shooting and charging the fees from the monument in which it is operating the Museum and some of its objects set popularity all over the world. The film Shooting Company also gives credit to the Assessee Trust and, this also became a source of its publicity for attracting more visitors from all over the world. Similarly some Indian and Foreign tourist like to visit the fort during evening hours because they remain much occupied in other during the day h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the above mentioned receipts as commercial in nature and being hit by the proviso to Section 2(15) of the Act which says that the advancement of any object other than the object of general public utility shall not be a charitable purpose if it involves commercial activities in it. He has found that the Trust falls under the category of other object of general public utility which is the fourth limb of the Charitable purpose. Hence, qua these receipts exemption u/s 11 of the Act has been denied to the assessee. 2.4 Further the assessee-trust has been found to have incurred expenses of ₹ 39,61, 880/- towards the renovation of Ranvas Hotel; of ₹ 31,92,556/- towards Ahichhtragarh Fort Project; and of ₹ 18,90,914/- towards Nagaur Fort maintenance. The assessee was asked to explain the nature of these expenses and also to explain as to how these expenses should be treated as an application of income of the trust for the purpose of section 11 of the Act. The assessee-trust replied vide letter dated 27/12/2011, which is reproduced as under : "The objects of the Assessee Trust are to establish and operate the Museum, In the course of its activities the Assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Prime motive to renovate the Ahichhtragarh fort was commercial. The funds of the trust were used to renovate this fort. After renovation the Hotel Ranvas has been constructed inside the fort premises. This is a luxurious hotel with all the facilities of a five star hotel such as Swimming Pool, Deluxe rooms and Royal suites, Wi-fi services. Air Conditioned Restaurants and Bar, Spa, Doctor on call etc. 2.6 The Ranvas hotel is charging heavy tariffs from the tourists. It is also offering tour programs to visitors. The two nights/three days at Ranvas is costing from ₹ 15,000/- to 30,000/- as per the quality of rooms. On special occasions the tariffs are even higher. In the relevant year the assessee trust has incurred expenditure of ₹ 39,61,880/- for renovation of Ranvas in which ₹ 17,54,235/-have been expended for purchase of Air-conditioners from Toshiba Carrier Co. Ltd and ₹ 22,07,645/- were incurred to purchase artistic furniture from Jain Exports. The air conditioners and furniture were installed in the hotel premise. The sole purpose of these expenses was to construct the hotel by using the trust fund. The profit of the hotel is going to Jodhana Heritage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found that the funds of the trust are being utilized for the benefit of the settler and the managing trustee Shri Gag Singh Ji. Therefore, he has held that the trust is not qualified for exemption u/s 11. Accordingly, he has disallowed exemption u/s 11 to the assessee trust. 2.9 The assessee has received foreign contribution of ₹ 66,20,524/-during the year and claimed expenses of ₹ 65,55,9907-. The A/R was asked to explain the nature of this grant and how the expenses claimed are allowable. The A/R of the assessee replied vide letter dated 27.12.2011. The content of the reply are being reproduced as under: "The assessee trust has received donations/grants in foreign currency equivalent to ₹ 67,31,311/- from foreign organizations and individuals (as Annexure /'B-1"). The assessee trust has refunded foreign currency equivalent to ₹ 1,10,787/- being the unutilized grant received from the Embassy of The Federal Republic of Germany. As per the provisions of foreign Contribution Regulation Act, the amount of donations/ grants received in foreign currency are being deposited in a separate Bank account and separate books of account are being maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spent during the year is almost the same hence whole of the amount received this year has been utilized during the year itself. Accordingly it cannot be treated as the income of the trust as it has been received for utilizing for specific purposes and is refundable in case of non-utilization. For the reasons mentioned above, such amount cannot included in the Income and Expenditure of the assessee trust". 2.10 After considering the above reply the A.O. has found that the assessee trust had received amounts as donations but has not disclosed them in the income and expenditure account. Because the expenses have been found to have been incurred beyond the objects of the trust towards the renovation of Ranvas Hotel accordingly the exemption on these receipts has also been disallowed. 2.11. The assessee has claimed expenses of ₹ 1,42,31,760/- on repair and maintenance. Among these expenses ₹ 49,11,261/- were incurred for repair of building and ₹ 78,88,152/- were incurred for repairs of other assets. The A/R of the assessee was asked to explain the nature of these expenses. The assessee replied that these expenses were incurred for repairs and maintenance of bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fixed at ₹ 100/- which itself if being disputed by your goodself in the case of the H H Maharaja Gaj Singh. The Lessor (Owner of Jodhpur Fort) and your goodself has proposed to enhance the ALV of this Fort at more than ₹ 1.20 Crores whereas the Lessor is getting ₹ 100/- only. As held by the Hon'ble Rajasthan High Court in the case of HH Sh. Gaj Singh. That the Assessee was not in a position to maintain this historical monument hence it has been let out to the Assessee any part of the property for indefinite term, hence the amount spent by it for repairs maintenance and preservation of the Fort cannot be said to be any benefit provided to the owner of the property. As mentioned above the fort was constructed in 1459 and if it is not kept in the state repair and maintenance, the Assessee Trust could not operate the museum in the ruins of a fort, rather than operating in a well maintained fort itself. If it is not being repaired any part of it may fall being an old monument in which case neither visitors would like to enter the premises nor the Assessee Trust could take the risk to permit any such visitor to enter in the property having a risk of injury to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The funds of the trust are being utilized for renovation Nagaur Fort and for renovation of Mehrangarh Fort which is the property of the settler and managing Trustee. After renovation both the places the Ranvas hotel and the Chokhelao Garden in the fort premise are being run by a company in which the settler and the Managing-Trustee is having substantial interest. Provisions of section 13 (1)(c) (ii) are clearly applicable in this case. Therefore, the trust cannot be given the benefit of section 11. The exemption to the trust is disallowed accordingly. The A.O. has substantiated his above conclusion with the help of the following decisions: (i) Little Tradition v. Dy. DIT(Exmpton) [2009] 119 ITD 127 (Delhi) (ii) Action for Welfare & Awakening in Rural Environment (AWARE) v. Dy. CIT [2003] 263 ITR 13/130 Taxman 82 (AP). 2.14 On perusal of the administrative and other expenses, it was noticed that some expenses were incurred for personal purpose such as: Bill Ho. 562 dated 23-08-2008 of ₹ 5,121/- Bill Mo. 9843 dated 13-06-2008 of ₹ 5,541/- Bill No. 562 No. 10645 dated 10-09-2008 of ₹ 2,888/- Bill No. 56284 dated 13-09-2008 of Rs, 4,050/- Bill No. 562 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 10,05,499 Depreciation ₹ 17,43,600 ₹ 5,40,63,794 Total income ₹ 2,60,08,723 Add: 1. Income from business of souvenir shop ₹ 57,01,873 2. Prevision for staff welfare ₹ 3,56,239 Total Income ₹ 3,20,66,835 Rounded off to ₹ 3,20,66,840 2.17 Being aggrieved from the above action of the A.O, the assessee preferred appeal and ld. CIT(A) has confirmed the impugned additions. The assessee is further aggrieved and has filed this second appeal 3. We have heard the parties at length. We have carefully examined all the relevant documents placed before us. We have circumspected the entire record and the related provisions of the Act and relevant precedents relied before us. 3.1 Ground No. 1 of this appeal reads as under: "On the facts and in the circumstances of the case Ld. CIT(A) has erred in upholding assessment order passed u/s 143(3) of IT Act, 1961 and in not holding the same to be unjust and passed without following the provisions of law on the subject, hence not binding on the appellant." The ground is general in nature and does not require specific adjudication. Ground No. 2 read as under: "On the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of art, priceless rugs, antiques, curios, weapons of all types, obsolete and otherwise, old armour, shields, swords , daggers etc. and other various miscellaneous items representing the collection of many generations of rulers of Jodhpur and is desirous of settling part of the collection for charitable purposes and in order to secure this object, is desirous of establishing a MUSEUM for the benefit of the public at large. ..... 6. The TRUSTEES shall protect, preserve, enlarge and improve the collections and articles and things to be received by them from time to time and will take all necessary steps to the best of their ability and means to promote, enlarge and improve the collections to be so received and help seekers of knowledge, in the study and research in art, literary, scientific, historic and religious matters leading to the progress and development of knowledge in general. 7. All inhabitants of Jodhpur and all visitors to Jodhpur city, without any discrimination of caste, creed or religion shall, subject to the rules and regulations as framed or altered from time to time by the administrators and the management of the Trust, be at liberty to visit the Museum. 8. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant trust carried on commercial activities for consideration, in view of proviso to that section, inserted by the Finance Act, 2008, w.e.f. 01.04.2009, the appellant trust was no longer eligible for exemption under section 11 of the Act. 3.7 We have noticed that the main reasons for denying exemption claimed by the appellant under section 11/12 of the Act can be summarized as below: (a) The predominant objective of the appellant, being establishment of museums, did not qualify as 'preservation of monuments or places or objects of artistic or historic nature', but fell in the residuary category of 'advancement of any other object of general public utility'; and (b) The appellant undertook commercial activities, such as, allowing filming of movies, permitting hoteliers to host dinners at the Fort and allowing craftsmen to give live demonstration of their activities. 3.8 On appeal, the CIT(A) affirmed the order of the AO and held that the case of the appellant was covered within proviso to section 2(15) of the Act, on the following grounds: (a) Objects of the appellant did not mention about 'preservation of monuments or things'; (b) Case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied) 3.10 The intention of the legislature behind introduction of the aforesaid proviso in the definition of "charitable purpose" in section 2(15) of the Act can be gathered from CBDT Circular No. 11 dated 19th December, 2008 reported in 221 CTR (St) 1, wherein scope of the said amendment has been elaborated in the following words: "3. The newly amended section 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of 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 activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 or on the ground that their objects are for charitable purposes as these are covered under the 'any other object of public utility'. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion engaged in the charitable object of preservation of monuments or places or objects of artistic or historic nature. Again this intention can be gathered from CBDT Circular No. 5 of 2010 dated 3rd June, 2010 reported in 308 ITR (St) 5, explaining the scope of the aforesaid amendment in the following words: '4.2 Clause 15 of section 2 has been amended so as to provide that the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be excluded from the applicability of the aforesaid proviso which is applicable to the "advancement of any other object of general public utility". 4.3 Applicability - These amendments have been made applicable with effect from 1st April, 2009 and will accordingly apply for assessment year 2009-10 and subsequent years.' The aforesaid Circular clarifies that prior to amendment any trust/ institution falling in the last limb was not treated as a 'charitable' if it was involved in commercial activity. After the amendment, "preservation of monuments or places or objects of artistic or historic nature" has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a semblance of trade, an attribute of commercial activity and an expectation to earn income over a reasonable period. The Tribunal further held that the expressions 'trade' and 'commerce' are narrower in scope than the expression 'business'. The expressions 'trade' or 'commerce' signify economic/commercial activity with motive of earning profit. The term "trade" has not been defined in the Act. Some of the dictionary meanings of 'trade' are as under: - As per Webster's New Twentieth Century Dictionary, (Second edition), is, amongst others, "A means of earning one's living, occupation or work". - In Black's Law Dictionary "trade" has been defined to mean a business which a person has learnt or he carried on for procuring subsistence or profit; occupation or employment, etc. - In Halsbury's Laws of England, third edition vol. 38 p. 8, the word ' trade' is defined as (a) exchange of goods for goods or goods for money, (b) any business carried on with a view to profit, whether manual or mercantile, as distinguished from learned art or professions and from agriculture (Secretar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of general public utility. On the issue of charging of fees for undertaking research projects, the Court held that mere charging of fees would not render the activity as commercial. The Court also dealt with the aforesaid amended definition of 'charitable purpose' and held that having regard to the essential character of the assessee-foundation, the activity carried on by the assessee-foundation could not be regarded as trade, commerce or business; or activity of rendering any service in relation to trade, commerce or business. While arriving at the aforesaid conclusion, the Court also took note of the judgments in the cases of Addl. CIT v. Hamdard Dawakhana (Wakf)[1986] 157 ITR 639/25 Taxman 185 (Delhi), and CIT v. K.S. Venkatasubbiah Reddiar [1996] 221 ITR 18/89 Taxman 262 (Mad.). explaining the scope of 'business' and other trading activities. The relevant portions of the judgment read as follows: "17. It clearly follows that even these three projects were the research projects which were given to the Petitioner Foundation having regard to its expertise in this field. Therefore, these activities per se would not bring out the Petitioner Foundation out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust is not to run that business, but to utilise the income of that business for a charitable purpose. The income has been divided into two portions, i.e., khandani income and the qaumi income. That portion of the income which is not earmarked for charity is subject to tax, but the remaining portion has to be used for charitable purposes. In our view, the entire point is now covered by the Supreme Court's judgment in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. The Court pointed out in that case that when the object of a trust was the carrying on of an object of general public utility, it is that object of general public utility which must not involve the carrying on of an activity for profit. It was pointed out that it was immaterial how the money for achieving or implementing such purpose was found. Whether, that money was obtained by the running of an activity for profit or not, did not make the charity not charitable. Thus, in the present case, no doubt, the trust earns the money from the Hamdard Dawakhana. If that money is used for charitable purpose and not for the carrying on of any business at a profit, then the object of the trust is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roving the accounting and budgetary systems in these local bodies. The expertise of the Petitioner Foundation in carrying out research in this field was sought to be utilized. Therefore, it cannot constitute 'business/commercial activity'. Merely because some remuneration was taken by the Petitioner Foundation for undertaking these projects would not alter the character of these projects, which remained research and consultancy work. It is so categorically held in Hamdard Dawakhana (WAKF's) case (supra). The important test is the application of the amounts received from those projects. It is nowhere disputed that the receipts are utilized by the Petitioner Foundation for advancement of its objectives. The Memorandum of Association specifically stipulates that these are not to be distributed to the Members as dividends or profits. It is clear that most of the amount received qua these projects was spent on the project and surplus, if any, is used for advancement of the objectives for which the Petitioner Foundation is established. 21. The amended definition of 'charitable purpose' would not alter this position. No doubt, proviso to this definition clarifies tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to pay taxes or comply with the statute when the charge, or incidence of tax, is on the "economic activity". This concept is today well recognized in European Union and England (see Riverside Housing Association Ltd. v. Revenue & Customs Commissioner (2006) EWHC 2383 (Ch) and the case law cited therein), it may also be also appropriate here to refer the decision of the House of lords in Town Investments Ltd. v. Department of the Environment [1977] 1 All ER 813. In this case, a Government department was claiming benefit under a legislation that protected "business tenancies" from increase in rent. The term "business" in the said case by a majority decision was held to include Government activities. It was held that the word "business" is a etymological chameleon; it suits its meaning to the context in which it is found. It is not the term of legal art but in its dictionary meaning it includes anything which is an occupation, as distinguished from pleasure- anything which is an occupation or a duty which requires attention is business. It was also observed that business conveys in ordinary meaning the notion of a distinct enterprise (no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beneficiaries. The contribution from beneficiaries cannot be said a commercial activity. After close perusal of these facts and taking the pleadings into consideration, we hold that the assessee trust is a genuine trust registered for charitable purpose, hence deserves registration under section 12A of the Income-tax Act and the exemption under section 80G. Therefore, we set aside the order of the DIT (Exemptions) and direct to grant the registration under section 12A and also to grant exemption under section 80G." 3.15 In the case of Bombay Presidency Golf Club Ltd. v DIT(Exemptions) [2012] 52 SOT 149/23 taxmann.com 319 (Mum.), the assessee was a Club which had been granted registration u/s 12AA with effect from 01-04-2001. A proposal for cancellation of registration was sent from the ITO(E)l(1), Mumbai to the DIT(E) on the ground that the assessee has been carrying on activities in the nature of trade, commerce, business, etc., and is hit by the proviso to section 2(15) of the Act, applicable from assessment year 2009-10. Accordingly, a show-cause notice dated 31-10-2011 was issued to the assessee for cancellation of registration u/s 12AA(3). The DIT(E), from the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o business, trade or commerce, unless there is some intention to carry on business, trade or commerce on a permanent basis or with a reasonable continuity. If there is some incidental or ancillary receipts during the course of carrying out its promotional activity of game of golf or for maintenance of its club and the facilities, it cannot be held to be in the nature of business, trade or commerce. The Tribunal in this case also observed that where principle of mutuality was applicable, registration cannot be cancelled simply by relying on the proviso to section 2(15). The relevant extracts of the judgment are re-produced below: "10. Thus, the test of business, trade or commerce has to be viewed from the angle that the activity of the trust has continued on business principle and pursued with reasonable continuity. If the principle and ratio laid down by the Hon'ble High Court is applied in the instant case, it would be seen that none of its receipts can be said to be arising or accruing from the activities which have been carried out for the purpose of business or in the nature of trade or commerce. All its activities are towards promotion of game of golf and other anci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, the DIT (Exemption) rejected the application for renewal filed by assessee. The assessee in this regard filed an appeal before the Tribunal. The Tribunal held that when a person sponsors a music programme and sponsorship fee is paid to the artist concerned, it could not be said that the sponsorship fee was a receipt in the hands of the assessee which was in the nature of trade, commerce or business. Similarly, conducting music coaching for the purpose of advancement of various traditional music forms of State of Tamil Nadu, which was an integral part of cultural life of people of Tamil Nadu, could also not be considered to be an activity in the nature of trade, commerce and business, the Tribunal held. Observing the DIT(E) had taken a very narrow view in this regard, the Tribunal came to the conclusion that the assessee was not carrying on any activity in the nature of trade, commerce or business but was carrying on its avowed object of advancement of fine arts and traditional art forms, which could not be considered as a commercial or business activity. The relevant extracts of the judgment are re-produced as under: 'If we have a look at Section 2(15) of the Act whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ife of people of Tamil Nadu, cannot also be considered to be an activity in the nature of trade, commerce and business. This can at the best be considered as an educational pursuit. When there are colleges run for coaching music, we cannot say that training in music is not education. In our opinion, the ld. DIT(E) took a very narrow view in this regard and came to a conclusion that the sponsorship fee and music coaching fee received by the assessee were from the activity in the nature of trade, commerce or business. Assessee, in our opinion, was not carrying on any activity in the nature of trade, commerce or business but was carrying on its avowed object of advancement of fine arts and traditional art forms, which cannot be considered as a commercial or business activity. The nature of receipts of the assessee, in our opinion, will not come within the purview of first proviso to Section 2(15) of the Act except for sale of tickets and the receipts from sale of tickets were well below a sum of ₹ 10 lakhs. We also note that the assessee has been registered under Section 12AA of the Act and such registration is still in vogue. In our opinion, assessee was eligible for renewal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible' and 'each case will have to be decided on its facts'. The question then arises whether on the present set of facts it can be said that the assessee was engaged in trade, commerce or business or in rendering of a service to trade, commerce or business. As far as assessee being engaged in trade, commerce or business is concerned, it is not even learned Commissioner's case that running a organization, set up under the statute law, for controlling, preventing and abating pollution, is pursuing trade, commerce or business. Obviously, a trade, commerce or business implies an activity with profit motive even though public good may be a secondary benefit from such an activity. That is not the case before us. The legal framework under which the assessee is set up is quite clear and unambiguous and it reflects will of the lawmakers in no uncertain terms, which is to prevent pollution. 16. The next question is whether the learned Commissioner is justified in taking a stand that the assessee "earning income over the years in the nature of licence fees, consent fees, testing charges etc" and "since the basic objective of the protection of environment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The Tribunal vide its order dated 11-2-2011 held that above condition was unwarranted and was imposed by the DIT without backing from the law. The Tribunal, accordingly, expunged the aforesaid condition from the certificate of registration issued by DIT (Exemptions). The Department subsequently filed an appeal before the Delhi High Court. The Hon'ble Delhi High Court vide its order dated 20-9-2011 dismissed the appeal of the department agreeing with the view taken by the Tribunal. Therefore, the legal position that emerges from the aforesaid decisions is that where a charitable trust/ institution engaged in advancement of object of general public utility undertakes/ carries on commercial activities in the nature of business, trade or commerce with a view to make profit, then such trust/ institution would not be regarded as 'charitable', irrespective of the fact that profit is redeployed into the activities. If, however, such trust/ institution does not undertake/ carry on commercial activities, then the trust/ institution would continue to be regarded as charitable and the character of the trust/institution would not be affected merely because some profit results fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the ancillary purpose is non-charitable: ♦ Victoria Technical Institute v. Addl. CIT [1991] 188 ITR 57 (SC) ♦ CIT v. Andhra Chamber of Commerce [1965] 55 ITR 722 (SC) ♦ CIT v. Dharmodayam Co. [1977] 109 ITR 527 (SC) ♦ CIT v. Federation of Indian Chambers of Commerce & Industries [1981] 130 ITR 186/6 Taxman 7 (SC). ♦ Addl. CIT v. Automobile Association of Southern India [1981] 127 ITR 730/5 Taxman 77 (Mad.) ♦ Addl. CIT v. Madras Jewellers & Diamond Merchants Association [1981] 129 ITR 214 (Mad.) ♦ CIT v. Mahendra Mohta Sewa Nidi [1985] 152 ITR 516/[1984] 19 Taxman 119 (Punj. & Har.) ♦ CIT v. Arya Vysya Kalyana Nilaya Sangam [1986] 159 ITR 324 (AP) ♦ CIT v. Adarsh Gram Trust [1986] 159 ITR 41 (Raj.) ♦ CIT v. J.K. Charitable Trust [1992] 196 ITR 31/[1991] 59 Taxman 602 (All.) ♦ CIT v. Hyderabad Race Club Charitable Trust [2003] 262 ITR 194/129 Taxman 788 (AP) ♦ CIT v. Cochin Chamber of Commerce & Industry [1973] 87 ITR 83 (Ker.) ♦ Andhra Pradesh State Road Transport Corprn. v. CIT [1975] 100 ITR 392 (AP) affirmed in CIT v. Andhra Pradesh State Road Transport Corpn. [1986] 159 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nument or any tumulus, tomb or place of interment or any cave, rock-sculpture, rock-painting or sculpture of or on stone, metal, terracotta of other immovable object or any inscription or monolith, which is of historical, archaeological or artistic importance, interest or value, and includes - (a) any remains thereof, (b) the site thereof, (c) the portion of land adjoining such site which may be necessary or required for the preservation, protection, upkeep and maintenance of the same, and (d) the means of access thereto and of convenient inspection and repairs thereof; but does not include an ancient monument as defined in the Central Act, to which the provisions of that Act apply for the time being;' Section 3 of the said Act empowers the State Government to declare a historical monument as "protected monument". The relevant extracts of the section is reproduced as under: "3. Power to declare monuments etc. to be protected - (1) The State Government may declare for the purposes of this Act - (i) any ancient or historical monument to be a protected monument, or (ii) any archaeological site to be a protected area, or (iii) any antiquity to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e historical in nature. Thus, the act of preservation of such monuments undoubtedly qualifies as 'preservation of monuments of artistic or historic in nature' as provided in section 2(15) of the Act. In view of the above, the case of appellant does not fall in the last limb of section 2(15) of the Act. 3.22 Even if it were to be held that the activities of the appellant fall under 'advancement of any other object of general public utility', the appellant would still be entitled to claim exemption under section 11/12 of the Act, in view of the purely charitable objects pursued by the applicant in the assessment year under consideration. In this regard, it is respectfully submitted that the appellant was formed for objects of national interest. It does not and cannot undertake any commercial activity in the nature of-business. Our attention was invited to the correspondence with Embassy of the Federal Republic of Germany and Lady Helen Hamlyn Trust, sanctioning release of grants-in-aid, on sample basis. The said sanction is subject to several conditions, which inter alia, requires the appellant to spend grants-in-aid exclusively, in pursuance of the objectives envisa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also permits hoteliers of Jodhpur to organize dinner for high-end visitors, particularly foreigners, who are either unable to visit the Fort in morning hours or for visitors who have preference to enjoy the night view of the city. In addition to entrance fees, the appellant recovers location charges from such hoteliers, which results in additional receipts to the appellant. (d) The appellant further recovers administrative cost in connection with services provided to the above mentioned people. 3.23 As elaborately explained supra, the appellant is engaged in preservation of monuments and articles/things of historic nature, which is the predominant object of the appellant. The aforesaid activities are incidental to the main object only. As has been held in various decisions relied upon supra, charging of fee to meet a part of the cost for rendering charitable services cannot, result in the services being regarded as business activities and, accordingly, the appellant does not cease to be a charitable institution, notwithstanding proviso to section 2(15) of the Act. Accordingly, Ground No. 2 of this appeal is allowed. 4. Ground Nos. 3 to 6 of this appeal raise a common issue and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t did not have either the expertise or the financial capacity to restore Nagaur Fort and looking at successful implementation of the Museum in the Mehrangarh Fort, the appellant was engaged for the task of setting up a Museum. Accordingly, vide Management Agreement, dated 14.11.1992, the appellant agreed to take over management of the said Fort for restoration, renovation and establishment of a Museum and other cultural activities for benefit of the community at large, on behalf of Hanwant Trust. In terms of Clause 1 of the Management Agreement (refer Pg 77 of the PB), the appellant was authorized to create avenues of income generation, in line with the objects of the Trust, like Heritage Tourism, facilities for researchers, scholars and students, etc. The appellant was entitled to retain income from all sources arising at Nagaur Fort and bear all expenses in that connection. Vide agreement dated 05.10.2010, the appellant contracted with Jodhana Heritage Resorts Pvt. Ltd. ("JHRPL"), to set up a Scholar's Museum/ Retreat (also known as 'Ranvas') at Nagaur Fort for scholars coming to study the history of Marwar. It may be pertinent to point out that such area wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er society having similar objectives and the expenditure on conference was also part of the charitable activities of the assessee. On that basis, the Tribunal reversed the order of the assessing officer and allowed the claim of the assessee under section 11/12 of the Act. In further appeal preferred by the Revenue. Their Lordships of Delhi High Court dismissed the appeal filed. Following the aforesaid decision, the Delhi High Court in the case of DIT (Exemption) v. Acme Educational Society [2010] 326 ITR 146 held that grant of interest free loan by the assessee-society to another society having similar objects registered under section 12A and approved under section 80G was not violative of section 13(1)(d) of the Act. The pertinent observations of the court are reproduced hereunder: 'A Division Bench of this court in case of Director of Income-tax (Exemption) v. Pariwar Sewa Sansthan [2002] 254 ITR 268 (Delhi) has held that no question of law arises from the order of the Income-tax Appellate Tribunal holding that there was no violation of the provision of section 13(1) (d) of the Act, 1961 where loan had been given by one society to another society having similar objects. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving similar objects upon such terms as they may in their absolute discretion think fit and proper." In light of the above, we have found that the foremost contention of the assessing officer, which was affirmed by the CIT(A), that the expenses incurred by appellant on restoration / maintenance of Nagaur Fort was beyond the objects prescribed in the Trust deed is contrary to facts, based purely on conjectures and surmises. In terms of the aforesaid clause, the appellant was authorized to assist charitable trusts, engaged in similar objects, in monetary as well as other forms. The term "otherwise" would include carrying out of "renovation / maintenance" of Fort owned by Hanwant Trust. Likewise, Nagaur Fort was also an historical monument. In terms of the Management agreement between H.H. Maharaja Hanwant Singhji Charitable Trust (Hanwant Trust) and the appellant, the appellant was engaged to establish a museum in Nagaur Fort, in line with the objects of the appellant trust. It may be pertinent to note, that establishment of museum, not only includes maintenance of items displayed in the monument but also preservation of such museum premises. The expenses a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any benefit being passed to a related person does not arise; (b) The appellant, in financial year 2010-11 had given Ranwas area to JHRPL in light of the expertise of JHRPL in setting up boarding and lodging facilities; (c) The area was given for trial run only for 15 months, which was subsequently extended for another 12 months; (d) After the trial run period was over, it is open for the appellant to engage any other hotelier. In case JHRPL was appointed, then, remuneration would be charged from JHRPL; (e) From the operation of boarding/ lodging facilities, during the trial run period, JHRPL was in fact, running in losses. Even if the appellant was to set up such facility on its own, it would, too, have incurred losses from operation. There was, therefore, no "benefit" flowing to JHRPL, and ultimately Maharaja Gaj Singh ji. (f) In fact, from the inception, it is only the appellant who benefited from setting up of Scholar's retreat. Nagaur is about 150 kms away from Jodhpur City, and had inadequate boarding/ lodging facilities. In absence of such facilities, footfalls of scholars and visitors to Nagaur were negligible. Such arrangements were made with the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from Embassy of the Federal Republic of Germany for conservation and restoration of the Zanana - Palaces of the Queens, Mehrangarh Fort, jodhpur and (b) ₹ 24,50,748 from Lady Helen Hamlyn Trust to meet part of the cost of staging. The Nagaur Sufi Festival at Nagaur Fort, Nagaur. The assessing officer taxed the foreign contributions aggregating to ₹ 66,20,524 on the following grounds: (a) the assessing officer treated corpus donation of ₹ 66,20,524 as voluntary contribution and taxed the same in the hands of the appellant; (b) in doing so, utilization of ₹ 65,55,900 was not allowed to the appellant, holding the same to have been incurred for renovation of Ranvas Hotel, allegedly beyond the objects of the trust and for giving direct benefit to the specified person. 6.2 The ld. CIT(A) affirmed the findings of the assessing officer treating the expenses incurred as being beyond the objects of the appellant trust on the ground that the funds utilized towards renovation of Ranwas Hotel could not be held to be for charitable purpose. 6.3 After hearing both the sides we have found that Section 12(1) of the Act provides that all voluntary contributions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, one of the meanings of "corpus" is "a principal or capital sum, as opposed to interest or income". ♦ As per Oxford Dictionary "corpus" means "capital sum originally lent or invested". ♦ As per Webster's Dictionary "corpus" means "the principal of fund or an estate as distinct from income or interest". ♦ As per Webster's New International Dictionary, one of the meanings is "the main body or corporeal substance of a thing, specifically, the principal of a fund or asset, as opposed to interest, income, dividends, or the like", ♦ As per Osborn's Concise Law Dictionary "corpus" means "The capital of a fund as contrasted with income.' The aforesaid dictionary meanings make it clear that "corpus" means the capital/principal fund as opposed to income earned by deploying such capital/ principal fund. For example, donation given in the form of building to be utilized as such for attaining the objectives of the trust/institution would be "corpus donation", but where such building is received as donation along with direction to dispose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceiving trust treats it as a corpus one' (Emphasis supplied) At this juncture, it may also be pertinent to quote the observations of the Delhi Bench of the Tribunal in the case of Mahila Sidh Nirman Yojna v. IAC [1994] 50 ITD 472. 'From a plain reading of above two provisions it would be that voluntary contributions received by a trust are income subject to exception, i.e. contributions received towards corpus. To put it differently, all voluntary contributions received by the trust, other than contribution towards corpus, are income in the hands of recipient. We also find support from the decision of this Bench in the case of Dharma Pratishthanam's case (supra). The Hon'ble Members after examining the issue in detail had held as under: "It, therefore, follows by a combined reading of section 2(24)(iia) and section 12 that voluntary contributions received by a trust created wholly for charitable or religious purposes other than contributions made towards the corpus will be deemed to be the income derived from the property held under trust and the provisions of section 11 and section 13 are made to apply. Now even if voluntary contributions are received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same shall form part of the corpus of the trust/institution, would not be regarded as part of income for the purpose of taxation. To further elaborate this subject sometimes, grants/contributions are received by a trust/institution with specific/ overriding specific stipulations, inter alia, as regards: (a) Mode and manner of usage; (b) Time of usage; (c) Restrictions as to usage for any other purpose other than specified; (d) Return/ refund of unutilized grant to the payer or any other person as per the directions of the payer. The aforesaid grants, are, per se, not "income" and hence not includible in the total income of the recipient trust/institution. 6.8 Reliance in this regard was placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT v. State Urban Development Society [IT Appeal No. 210 (Chd.) of 2011, dated 19-10-2011]. In this case the assessee society was acting as a nodal agency receiving grant from Government of India and State Governments and distributing it to district authorities for implementation of various Schemes of Government of India and supervising the execution of Schemes. The assessee had no discreti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case we treat the grants received by the appellant are treated as "voluntary contributions", then, in light of the decision of the Punjab and Haryana High Court in the case of State Urban Development Society (supra), such grants/ contributions received with specific/overriding specific stipulations, inter alia, as regards restrictions as to usage for any other purpose other than specified; refund of unutilized grant to the payer or any other person as per the, directions of the payer, are not "income" and hence not includible in the total income of the appellant on this ground, too. Assuming for sake of the argument, that the grants received are voluntary in nature, it will be appreciated that utilization of ₹ 65,55,900 could not have been ignored, having been spent at the direction of the donor(s) and for the purposes specified by the donor. Furthermore, the unspent amount was liable to be returned and could not, therefore, be regarded as income of the appellant trust. In the aforesaid circumstances, the action of the assessing officer as sustained by the CIT(A) in taxing the grants and in the alternative not allowing expenses, incurred is contrary to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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