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TMI Blog2017 (11) TMI 1663X X X X Extracts X X X X X X X X Extracts X X X X ..... applied to assessee to deny exemption u/s 11 of the Act. - Decided against revenue Disallowance u/s 40(a)(ia) - Held that:- we confirm the finding of the CIT(A) that as exemption u/s 11 is allowed the disallowance would consequently get deleted and accordingly, this ground of appeal is also dismissed. - ITA No. 332/Hyd/2017 - - - Dated:- 10-11-2017 - Shri D. Manmohan, Vice President And Shri S. Rifaur Rahman, Accountant Member For the Revenue : Shri V. Sreekar For the Assessee : Shri V. Sivakumar ORDER PER S. RIFAUR RAHMAN, A.M.: This appeal of the Revenue is directed against the order of CIT(A)- 9, Hyderabad, dated 18th November, 2016 relating to AY 2012-13. 2. Briefly the facts of the case are that the assessee is registered u/s12A of the Act, filed its return of income for the AY 2012-13 on 18/09/2012 declaring total income of Rs. Nil after claiming exemption u/s 11 of the Act to the extent of ₹ 1,16,38,669/-. The case was selected for scrutiny under CASS and accordingly, statutory notices u/s 143(2) and 142(1) were issued, against which, the AR of the assessee submitted the information, as called for. 2.1 The AO observed that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before us raising the following grounds of appeal: 1. The order of the Ld. CIT(A) is erroneous both on facts and in law. 2. The Id. CIT(A) erred in allowing exemption to the assessee Trust for the A.Y. 2012-13, when the assessee is not eligible for exemption of its income u/s 11 of the IT Act, 1961, in view of the amended provisions of section 2(15) of the Act, particularly, in view of the provisions of the first proviso to section 2(15) of the Act, inserted vide finance act, 2008, with effect from 01-04- 2009 which is attracted in the case of the assessee for the A Y 2012-13. 3. The Id. CIT(A) ought to have appreciated that the provisions of the first Proviso to section 2(15) of the IT Act, 1961 is attracted to the surplus receipts of ₹ 47,45,479/- derived by the assessee towards rental income from the cultural hall during the previous year 2011-12, relevant to A Y 2012-13 and thus not eligible for exemption of income u/s 11 of the Act. 4. The Id. CIT(A) erred in deleting the disallowance of ₹ 20,29,067/-, made by the AO, u/s. 40(a)(ia) of the Act, in the assessment, when the assessee is not eligible for exemption u/s.t i of the Act, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and perused the material on record as well as the orders of revenue authorities. As could be seen from the assessment order, AO has denied exemption u/s 11 to assessee primarily on two reasons, firstly, because assessee is constructing Jagannadha Temple, which, according to AO, is neither in accordance with the aims and objects nor a charitable activity. The second reason is, after introduction of proviso to section 2(15) of the Act, assessee looses its character of trust having been established for charitable purpose as it has earned income by engaging in commercial activities. As far as allegation of AO that construction of temple by assessee is neither in accordance with aims and objects of assessee nor charitable activity is concerned, it has to be rejected at the threshold in view of the decision of the coordinate bench in assessee's own case in AYs 2006- 07, 2007-08 and 2008-09 in ITA Nos. 894 895/Hyd/13 and 1067/Hyd/12, dated 06/06/14 wherein the coordinate bench agreed with the ld. CIT(A) that construction of Jagannadha Temple is not only in furtherance of the aims and objects of assessee society but, is also a charitable activity. In view of the aforesaid, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judiciary in this regard is, proviso to section 2(15) has to be applied keeping in mind the dominant object/purpose of the trusts or institutions. Therefore, it has to be seen whether the dominant object of the trust is of charitable nature in carrying out the object of general public utility or main intention of the assessee is to earn profit. Further, definition of 'charitable purpose' as defined u/s 2(15) of the Act cannot be read in vacuum, but, has to be read along with the exemption provisions. That being the case, a literal interpretation to the proviso to section 2(15) cannot be given if the objects of the exemption provisions are to be given full effect. The Hon'ble Delhi High Court in case of Indian Trade Promotion Organisation Vs. director General of Income-tax (E), 371 ITR 333 while interpreting the effect of proviso to section 2(15) of the Act, after analyzing a number of decisions of the Hon'ble Supreme Court as well as different high courts observed that the only thing which is required to be examined is whether the trust or institution has been established for charitable purposes. The fact that it derives income does not in any way detract from the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act then the proviso would be at risk of running fowl of the principle of equality enshrined in article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and the prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2011-12, being similar to those considered by the coordinate benches of the Tribunal in assessee's own case for earlier years noted above and in the absence of anything to the contrary brought on record by the Learned Departmental Representative, we find no justification to interfere with the impugned order of the CIT(A) on this issue, which is accordingly confirmed. 8. As for the grievance of the Revenue on the issue of disallowance made by the Assessing Officer invoking the provisions of S.40A(3), as correctly observed by the learned CIT(A), once the claim of the assessee for exemption under S.11 has been accepted, the disallowance made by the Assessing Officer under S.40A(3) has no legs to stand, and the ground of the assessee before the learned CIT(A) becomes infructuous. We accordingly find no merit in the ground of the Revenue on this issue as well. The issues raised by the AO in his order are materially identical to that of AY 2011-12, respectfully following the decision of Tribunal, we uphold the order of the CIT(A) as the decision of the CIT(A) is in consonance with the decision of the Tribunal and accordingly, dismiss the ground Nos. 2 3 raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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