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TMI Blog2019 (1) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cost of activities to run the centre. These activities could not be treated in the nature of trade or commerce. As regards hostel accommodation, there were number of rooms and guidelines for hiring of the accommodation and also there were restrictions. It was also pointed out that, as could be seen from the list of programmes, the assessee conducted very large number of programmes during the year which covered discussions, music, dances, exhibitions and also certain special programmes such as festivals during the course of the year. These programmes were published through the newspapers and website. Further e-mails were sent to members as well as non-members. Periodical articles also appeared in the various newspapers highlighting some of the special programmes conducted by the centre. As regards DIT(E)’s objection with regard to the membership of the centre, the assessee had pointed out before the AO itself that individual membership was open to all persons of India or foreign origin. Tribunal in assessee’s own case for assessment year 2011-12, while deciding the issue of allowing benefit of section 11 and 12 read with section 2(15) of the IT Act, following the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, according to him, this trust cannot be called as serving the general public. He further noted that the entire activities of the assessee also include providing of services such as accommodation, food and beverages, etc., for payment of charges which is caught within the mischief proviso 1 and 2 to section 2(15) read with 3rd proviso to section 143(3) of the IT Act. In view fo the above, he issued a show cause notice asking the assessee to explain as to why the order passed u/s 143(3) dated 7th March, 2013 be not treated as erroneous and prejudicial to the interests of the Revenue. 4. In response to the notice issued by the ld.CIT(E), the assessee appeared and made its submissions. It was argued that: (i) Jurisdiction u/s 263 of the Act could be exercised by the CIT if and only if the order passed by the assessing officer is found to be 'erroneous' as well as 'prejudicial to the interests of the Revenue'. In the present case, the twin conditions, are not satisfied qua that issue in as much as there was no error in the assessment order allowing the claim of the assessee and no prejudice has been caused to Revenue, as a consequence of the stand., taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has been notified by the CBDT as an eligible institute for the purpose of section 10(23C)(iv) of the I.T. Act. All these notifications/registrations are valid till date and there is no violation of any sort that has been alleged by any of the authorities who have granted these registrations. To allege or hold it to otherwise without any basis are contrary to the facts that assessee is violating any of the conditions which are stipulated in these sections. (iv) The total gross income of the Society for the year ended 31st March, 2010 is ₹ 31.24 crores, which includes interest income of ₹ 6.25 crores. As against this, the total expenditure is ₹ 26.44 crores. The overall, surplus, as also stated by your honour is ₹ 4.79 crores. Therefore, no activity whatsoever of the Society can be said or alleged to be generating any surplus. The surplus, if any, has resulted only because of interest income being earned by the Society on the accumulated funds of earlier years. (v) The assessee also relied upon the submission made before the CBDT at the time of seeking approval u/s 10 (23C)(iv) of I.T. Act, vide letter dated 12.12.2006. It is contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen that the assessee society is engaged in cultural and intellectual activities. During the year under consideration, it has continued to conduct seminars , talks, discussions and cultural activities as in the past. Rule 3 of MOA of the assessee comprises of its objects. Rules && Regulations (R&R) of the assessee mainly deal with the qualifications for becoming member of the assessee, types of membership, privileges of members, subscription, etc. As per Rule 4(A) of R&R, individual membership of the assessee is open to persons of India or foreign origin. Besides, there are corporation Foundation Members/ Corporate Members, which are Universities, national Laboratories, National Academies, etc. As per the assessee while its cultural and intellectual activities are open to general public, hostel and restaurant facilities are limited to its members and their guests only. 3.1. It is seen that though the assessee is notified u/s 10(23)( c ) (iv), of the ITAct, 1961 for the Assessment Year 2006-07 and onwards vide Notification No.13/ 2007 dated 19.1.2007, however, the assessee in its audit Report in form No. 10 BB has shown only part of its income and expenditure attributable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed only part of its income as exempt and compliance of condition laid down u/s 10(23)(c)(iv), is limited to extent of income of ₹ 8,07,18,905/-. Thus, the claim of the assessee that its entire income is exempt u/s 10(23C ) (iv ) is rejected. 3.4 Further, on taking into consideration, the entire activities of the assessee, it is noticed that these also include providing of services, such as accommodation, food & beverages, etc. for payment of charges, which is caught within the mischief of proviso 1 & 2 to section 2(15) read with 3rd proviso to Section 143(3) of the Income Tax Act, 1961. These provisions are reproduced here under:- Section 2(15):- "Charitable purpose" includes relief of the poor, education medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility: 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down under the respective section. As already observed the assessee has shown the compliance to conditions only with respect to income amounting to ₹ 807.19 lacs. (ii) Further, as already stated in Para 3.6 above, the assessee activities are hit by proviso to section 2(15). Therefore, the exemption u/s 11 top is not admissible in view of provisions 2(15) read with section 13(8). (iii) In any case, the claim of the assessee has not been examined by the AO during the assessment proceedings. 3.7 As regards the assessee's claim that its income is not taxable being income derived from mutual concern, it is seen that activities of the assessee are claimed to be hybrid, partly covered by provisions of section 10(23C)(iv) read with section 2(15) and partly by principle of mutuality. An assessee can have income from different heads or income from difference sources, but it cannot have its income and expenditure for the same sources apportioned on the basis of different principles, as claimed-by the assessee. Therefore, the assessee cannot be allowed to compartmentalize its activities and income arising therefrom, under charitable activities and mutual activities. All the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption either u/s 10(23) (c) (iv ), u/s 11 or under the principle of mutuality do not appear to be tenable. Therefore, entire surplus of ₹ 479.75 lacs to be exempt was to be brought to tax, which the AO has failed to do. Thus, the order is both erroneous and prejudicial to the interest of revenue. 4.3. Support is drawn from the decision of Hon'ble Karnataka High Court, in the case of Infosys Technologies Ltd. reported in 341 ITR 293 (Kar) wherein the Hon'ble High Court observed that 'The provision is intended to plug leakages to the revenue by erroneous orders passed by the lower authorities, whether by mistake or in ignorance or even by design' The decision of the Hon'ble Full Bench of the Hon'ble Gauhati High Court in the case of Jawahar Bhattacharjee reported in 341 ITR 434 (Gauhati) (F B), also supports the stand of revenue. The Hon'ble'High Court observed that 'Not holding such inquiry as is normal and not applying the mind to relevant material in making, an assessment would be erroneous assessment warranting exercise of revisional jurisdiction.' It has been further held as under:- The object of the provision is to correct an erroneous o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT (Exemption) has erred in law in holding that the A.O. failed to examine the applicability of amended provisions of Section 2(15) of the Income Tax Act in spite of the fact that the AO made specific enquiries at the stage of original assessment in the light of amendments. 4. That the Ld. CIT (Exemption) has grossly erred in holding that provisions of Sections 11, 12, 13 and Section 10(23C)(iv) of the Income Tax Act are not applicable to the facts of the appellant in spite of the fact that registration u/s 12A, 80G and 10(23C)(iv) remain intact. 5. That the Ld. CIT (Exemption) grossly erred in law in holding that the activities such as accommodation, food and beverages to the members of the appellant represent trade and business irrespective of the fact that "dominant object" of the appellant remains charitable not driven by "profit motive". 6. That the Ld. CIT (Exemption) grossly erred in law in invoking provisions of Section 263 although it was not a case of "no enquiry" by the A.O. on the applicability of provisions of Section 2(15) with its latest amendment. 7. That the Director of Income-tax (Exemptions) has erred in holding that all the activities of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en pointed out by the ld. CIT(E). He submitted that although the third proviso to section 143(3) which was inserted by the Finance Act, 2012 with retrospective effect from 01.04.2009 was available in the statute book while passing order, however, the Assessing Officer has not considered the same. So far as the argument of the ld. counsel for the assessee that the Tribunal has considered all the issues is concerned, he submitted that the proviso was not there when the order was passed for the preceding assessment year. Therefore, the same cannot be followed in the instant case. So far as the order of the Tribunal for assessment year 2011-12 is concerned, he submitted that the issue of section 10(23C) was not there and the decision was only in respect of section 11 and 12 read with section 2(15). Therefore, the order of the High Court in assessee's own case for assessment year 2011-12 also cannot be followed. Since the Assessing Officer in the instant case, without verification of the relevant details has granted relief to the assessee, therefore, the order has become erroneous and prejudicial to the interests of the Revenue. Therefore, the ld.CIT(E) was fully justified in invoking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come not being returned by assessee in its income-tax return or in form 10BB is concerned, the same was claimed as exempt on account of concept of mutuality, as in earlier years and, therefore, there was no basis for the AO to take any contrary view on the same. Accordingly, the proceedings u/s 263 initiated by ld. DIT(E) on this count is not at all tenable in law, particularly when this view has been taken by the department since inception. 6.1. Now coming to the main ground regarding applicability of proviso to section 2(15) by the ld. DIT(E). This proviso has been made applicable to institutions notified u/s 10(23C)(iv) w.e.f. 1-4-2009 by inserting 17 th proviso to section 10(23C)(iv) by Finance Act 2012, as reproduced below: "Provided also that the income of a trust or institution referred to in subclause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or notification issued in respect of such trust or institution has been withdrawn or rescinded." 6.2. Prior to suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act. 6.4. Further we find that 263 proceedings initiated by ld. DIT(E) on the ground that there was no application of mind by AO cannot be sustained because vide questionnaire dated 23-8-2011, the AO had issued notice u/s 142(1) and had required the assessee as under: "2. Note on the activities of the trust in AY 2009-10, Explanation along with documentary proof to justify that these activities were charitable as per Section 11,12,13 read with Section 2(15) in light of the recent amendment. Show computation as to how 85% is applied for objects of the trust. 6.5. Further in question no. 13 the assessee was required as under: "13. Whether any business is carried out by the Trust/Society/Institution. If yes, please produce the complete books of accounts along with bills/ vouchers in respect of such business activities." 6.7. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of place to mention here that the notice has also been granted exemption from income tax under sub clause (iv) of clause (23C) of Section 10 of Income Tax Act. The Kitchen and the dining hall are operated by IIC's own staff members and no outsourcing is done for the said facilities. Rules and Regulations Booking of Tables: 1. In the Dining Hall of the Main Centre, a Member can book a table for maximum of 8 persons and in the Dining Hall, Annexe for 10 persons. 2. There is no provision for reserving of table in the Lounge. 3. Children below 8 year of age are not allowed in the Dining Hall of both the Main Centre and Annexe. Members accompanied by children who visit the Lounge may use the outer Verandah of the Lounge in the Main Centre. In the Annexe Lounge, children below 8 years of age accompanying members are allowed to avail of catering facilities only during lunch hours on Saturday, Sunday and other Public Holidays between 12.30pm to 2.30 pm. 4. Tables are not allowed to be joined in any catering outlets. 5. Use of Cell Phones is not permitted in the Dining Hall, Lounge. Cell Phone may kindly be kept in Vibration mode. 6. Members are requested to spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Centre and attend the discourses, conferences, seminars, lectures etc. sponsored by the IIC on its own initiative or in collaboration with number of cultural, academic, intellectual institution in the country, In addition to what the IIC and our collaborator organize, the Centre also makes its facilities available to members and their guests for conducting programmes of only academic, intellectual or cultural category of functions. 1500 programmes in a year are organized by members and their guests providing academic discussion contributing to the inteJ!ectual thought in the country and also organizing number of cultural programmes benefiting the citizens of Delhi. These programmes are organized in the Auditorium, Conference Halls, Rooms and Lecture Halls. There are also numbers of other seminars, large and small, where numbers of people were provided hospitality by IIC for stay in the hostel. In addition there are large numbers of smaller programmes spread throughout the year. For these programmes a very large number of members and their guests stay for varying periods of time. It is difficult to build information system or reflect in the accounts as to which or how many ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have enough funds to carry out the charitable activities. We are reminded at this juncture of an old saying - "Everything comes at a price". It is incomprehensible that an institution which is carrying out charitable objects will provide the essential facilities free of charge. It is not the allegation of ld. DIT(E) that the main object of asessee, in any manner, did not fulfill the criteria of charitable activity. On the contrary she herself has observed that the first category does fulfill the charitable purpose/ criteria and it is only the second category i.e. giving of hostel, catering etc. that the assessee's activities are caught within the mischief of second proviso to section 2(15). It is also not the case of ld. DIT(E) that there was no free access to the general public for programmes such as dance, music, seminars etc. In its reply the assessee had also pointed out that there were number of occasions when the centre did not charge institutions for holding their programmes such as lectures, discussions or seminars etc. Admittedly there is no funding from government or any other outside bodies to sustain activities of promotion of cultural and intellectual activities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) Life Members Life Members are persons of high attainment in education, science, culture, art or other areas of public activity who are admitted as such. (d) Members Members are persons in the fields of academia, art, culture, science, technology, sports or those engaged in public or professional functions and activities and are admitted as such in accordance with the decisions taken by the Board in this behalf. (e) Associate Members Associate Members are persons who are admitted as such in accordance with the decisions taken by the Board in this behalf. (f) Overseas Associate Members Overseas Associate Members are persons who are admitted as such in accordance with the decisions taken by the Board in this behalf. (g) Temporary Members Temporary Members are persons who are admitted as such in accordance with the decisions taken by the Board in this behalf. (h) Short Term Associate Members Short Term Associate Members are persons who are admitted as such in accordance with the decisions taken by the Board in this behalf Provided always that no person shall be eligible for admission under Rule 4(c) to (f) unless he/she has completed 25* years of age at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y object of insertion of proviso to section 2(15) was to curb the practice of earning income by way of carrying on of trade or commerce and claiming the same as exempt in the garb of pursuing the alleged charitable object of general public utility. This proviso never meant to deny the exemption to those institutions, where the predominant object is undeniably a charitable object and in order to achieve the same incidental activities, essential in the given circumstances, are carried on. 6.19. In view of the above discussion we hold that the proviso to section 2(15) is not at all applicable in the present case and, therefore, ld. DIT(E) was not at all justified in invoking the proceedings u/s 263. 6.20. Further we find that the assessee's case is squarely covered by the decision of Hon'ble Delhi High court in the case of India Trade Promotion Organization Vs. Director General of incomew Tax (Exemptions) & Others (WP(C) no. 1872/2013 dated 22-1-2015) 2015-TIOL-227-HC-DEL-IT, held as under: "Having heard the matter, the High Court held that, if a meaning is given to the expression "charitable purpose" so as to suggest that in case /1/ en institution, having an objective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of e general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity, institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008; ++ the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context o. Section 10(23C)(iv) of the Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following the decision of the Tribunal for assessment year 2009-10, has decided the issue in favour of the assessee. We find, on further appeal by the Revenue, the Hon'ble High Court vide ITA No.300 of 2018, Order dated 14th March, 2018, dismissed the appeal filed by the Revenue by observing as under:- "The question of law urged by the Revenue is the applicability of Section 11(23) of the Income Tax Act, 1961 (hereafter referred to as "the Act") read with Section 2(15) of the Act. The Court is of the opinion that both the CIT(A) and ITAT correctly relied upon previous ruling s of this Court in Directorate of Income Tax v. Chiranjeev Charitable Trust (decided on 18.03.2015). The ITAT had also relied upon its previous order in the assessee's own case to hold that it was carrying on charitable activities within the meaning of Section 2(15) of the Act. Consequently, no substantial question of law arises. The appeal is, accordingly, dismissed." 10. Since the issues raised by the ld.CIT(E) in his 263 order has already been considered by the Tribunal in assessee's own case for the immediately preceding assessment year, therefore, respectfully following the same, we set aside the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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