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TMI Blog2017 (11) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer had rightly applied the provisions of Section 11(4)(A) of the Act by holding the same as business activity. It seems that the CIT(A)’s first appeal order in AY 1992-93 became final where it was held by the CIT(A) that the Appellant was entitled to exemption u/s 11 of the Act and the provisions of Section 11(4)(A) of the Act were not applicable to the case. There-after in AY 1997-98 the Assessing Officer himself in the assessment order dated 11.01.2000 conferred charitable status to the assessee by applying Section 11 of the Act. While fees may be charged and there may even to be a surplus out of charitable activities, the principle that so long as the surplus funds are redeployed in charitable activities no objection can be taken as to the charitable pursuits is inexceptionable. Thus, on a careful consideration of the entirety of the facts and the material on record and based on the history of the case and the existing precedents on this point, we have no hesitation in holding that the CIT(A) has rightly decided the issue in favour of the assessee Association by directing relief u/s 11 read with Section 12AA of the Act. Resultantly the appeal filed by the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociate with any other association or body of persons having similar objects. The jurisdiction of the Association is stated to be in the National Capital Territory of Delhi and such other portions of the National Capital Region except those areas under the territorial jurisdiction of any other YMCA affiliated to the National Council of YMCAs of India. The income and property of the Association was required to be applied solely towards the objects of the Association and no portion thereof could be paid directly or indirectly by way of dividend, bonus or otherwise. 5. During the year the Association was stated to be engaged in the activities of the community development, running of special schools and providing home training programmes. The Association also had refugee assistance programme, rural development centres, Education and Health and also provided hostel services. 6. The Assessing Officer on an analysis of the objects of the Association found that the Association was promoting Christianity which could be inferred on a perusal of the Memorandum of Association which also was so stated in the official Website. The Assessing Officer found that the programmes had a Christia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities of the Association were mixed and TDS had been deducted in respect of the same. The Assessing Officer noticed that the expenditure had been claimed under the following sub-heads:- Sub-heads Income Operation/Programme Educational expenses 3,74,21,986 Medical Relief, Education and Relief of poor expenses 7,90,69,451 Allied Educational and Awareness expenses 1,12,38,711 Hostel Service Expenses Personal Expenses 2,36,41,618 Administrative and other expenses 4,19,59,268 11. In this way there was a surplus of ₹ 2,82,57,209/-. The Assessing Officer also found that the Association was continuously generating surplus from its activities and transferred it to the reserve for adjustments as under:- Financial year Increase in Reserve Surplus (Rs) Surplus as per Income Expenditure A/c (Rs) 2007-08 3,50,08,635 4,19,60,385 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... courses as run by the Association were not recognized. The Assessing Officer further found that on some educational courses, TDS had been deducted which showed that they were in the nature of commercial training/coaching. The Assessing Officer further observed that the Association had itself claimed fees for sports and music coaching/training. Obviously such fees were for coaching and training which should not have been permitted as fees for education. Adverting to the decisions of the apex court in Lok Shikshan Trust vs. CIT, (1975)101 ITR 234 the Assessing Officer observed that the word education meant only formal education. In this context the Assessing Officer further relied upon the decision in CIT vs. National Institute of Aeronautical Engineering Educational Association (Uttrakhand) (2009) 315 ITR 428 and Rajah Sir Annamalai Chettiar Foundation vs. DIT(E) 10 ITR (Trib) 424 (Chennai.) 15. Thereafter, the Assessing Officer observed that the assessee had also shown income under the heads Medical relief and education and relief of rural urban poor whereas according to him in the normal circumstances there should be no fees charged from the poor and there could be no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Section 2(15) of the Act and reasoned that the proviso applied if the entity was engaged in advancement of any other object of general public utility . It postulated that such entity was not charitable if it was involved in 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. The second part viz, any activity of rendering any service in relation to any trade, commerce or business obviously is intended to expand the scope of the proviso by including services which were rendered in relation to any trade, commerce or business. The proviso further stipulated that the activity must be for a cess or fees or any other consideration. The last part, according to the Assessing Officer, stated that the proviso would apply even if the cess, fee or any other consideration was applied for charitable activity/purpose. The proviso had to be given its full effect. The Assessing Officer reasoned that even if cess, fees or any other consideration was used or utilized for charitable purpose the proviso under the bar would continue to apply. The Assessing Officer argued that an entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961) 41 ITR 636, State of Gujarat vs. Raipur Manufacturing Co. (2008) 19 STC 1 (SC) and CIT vs. Bhikamchand Jankila (1981) 232 ITR 554 (MP) the Assessing Officer concluded that the activities of the Association including hostel services, the unrecognized educational courses, Allied Educational and Awareness programmes and the miscellaneous income etc. had characteristics as mentioned in the cited cases and, therefore, the activities of the assessee were commercial in nature. The Association was thus not working wholly and solely for the purposes of education to keep the Society out of the mischief of the proviso of Section 2(15) of the Act. The medical relief to the poor claimed by the assessee was substantially funded by UNHCR. The assessee had not given complete bifurcation of expenditure from grant received from UNHCR and so the assessee could not take the plea that the hostel services and other commercial activities were incidental to them. The end use of surplus was of no consequence after the amendment to section 2(15) of the Act. Obviously some of the objects fell under the last limb of Section 2(15) of the Act and the assessee was hit by the proviso as the assessee was gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 404 (Delhi) 2015 (order dated 22/01/2015) has upheld the constitution validity of the proviso of section 2(15) which was under challenge being discriminatory in view of the Article 14 (Equality before law) of the Constitution of India but the Hon ble High Court has read down the strict and literal interpretation of the proviso of Section 2(15) and has held that mere receipt of fee or charge cannot be said that the assessee is involved in any trade, commerce or business and has accordingly allowed the relief to the ITPO case vide Para 58 and 59 of the order. After considering all the facts and circumstances of the case, I am of the view that the assessee is a charitable and non-profit organization and I do not find any of the activities of the assessee that the assessee is involved in any trade, commerce or business to attract the mischief of the proviso of section 2(15) and accordingly following the earlier year s orders on the principle of precedence and consistency the AO is directed to allow the exemption to the assessee u/s 11(1) with all the consequential benefits . 23. In the hearing before us the Ld. Senior DR vehemently supported the order of assessment and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no change in the objectives of the Association at any time. He pointed out that the hostel facility was intimately connected with the educational activity of the Association. Ld. Counsel further stated that the Act did not prescribe the criteria of the educational course to be an approved course for fetching the benefit of charity u/s 11 of the Act. The proviso to section 2(15) of the Act as introduced was applicable only to the fourth limb of charity i.e any other object of general public utility. That the Ld. Counsel submitted stood clarified through a Board Circular. The provision of hostel facilities was intimately and inextricably connected with the educational activity. Hostel facilities as provided were neither lavish nor prodigal as made out by the Department. Ld. Counsel emphasized that the nominal income as derived from the letting out of idle facilities of the halls and rooms for raising funds for charity could not be a ground to brand the activities of the Association as commercial. Ld. Counsel further pointed out that the mere payment of luxury tax and other taxes by the Association for the Hostel and other facilities run by it would not tantamount to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is true that the Association is running several educational courses some of which are recognized while some are not recognized. As to the unrecognized courses, we notice that there is nothing in the Act which prohibits the carrying on of any such course so long as it is educational. Charitable entities can rent out their idle premises to raise funds for charity. No objection can be taken to that action. As to the hostel facilities, the same as urged on behalf of the assessee is aligned to the objective of the Association to provide education. Nothing has been brought on record by the Assessing Officer to show that the hostel facilities are de hors the educational activities of the Association and are for commercial purpose. That being the case the provision of hostel facilities cannot in the facts of this case, be held to fall under the 4th limb of charity viz any other object of general public utility. So long as hostel facility is aligned to education, no plausible objection can be raised as to the charitable nature of the activities. The amendment as made to the definition of charity by insertion of the proviso by the Finance Act, 2010 is thus of no consequence to the facts i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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