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TMI Blog2019 (7) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... f the considered opinion that the issue would require reappreciation by Ld. AO in view of the fact that the main objects of the assessee trust as well as the connection of testing activities vis- -vis main objects, has not been brought on record by lower authorities. Onus would be on assessee to establish that the testing activities were merely incidental to the attainment of the prime objective of the trust i.e. education and separate books were maintained by the assessee in respect of such business. On the other hand, if the objects of the assessee are found to be covered by last limb i.e. advancement of any other object of general public utility, the 1st proviso of Section 2(15) would squarely apply to the case of the assessee since the assessee is providing service in relation to any trade, business or commerce. In that case, the case has to be adjudicated in the light of the binding judicial pronouncements from the point of view of profit motive as cited by us in the opening paragraphs. Needless to add that, in the event of activity of testing fees found to be having no connection with assessee s primary objectives, the same would be a separate line of business activity for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2008 dated 19/12/2008, clarified that the first proviso will apply only to those entities whose purpose was 'advancement of any other object of general public utility' and therefore, such entities would not be eligible to claim exemption u/s 11 if they carry on commercial activities. Whether the entity was carrying on an activity in the nature of trade, commerce or business would be a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. Para 3.1 of the said circular restricted the application of 1st proviso to Charitable Institution and mutual organizations whose activities were restricted to contributions from and participation of only their members. Para 3.2 clarified that if the assessee having its object as 'advancement of any other object of general public utility' engages in any activity in the nature of trade, commerce or business or rendering of any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable in nature. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was not meant to exclude entities which are essentially for charitable purposes but conducting some activities for a consideration or a fees. The test which has to be applied is whether the predominant objective of the activity involved in carrying out the object of general public utility was to sub-serve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity was to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. 1.6 Similarly, Hon'ble Allahabad High Court in CIT V/s Lucknow Development Authority 265 CTR 433 16/09/2013 has held that where a trust is carrying on its activities for the fulfilment of its aims and objectives which are of charitable in nature with no motive to earn profit and in the process, earns some profit, the same would not be hit by proviso to Section 2(15). 1.7 The Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India V/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere hit by the 1st proviso to Section 2(15) and the testing activity could not be termed as charitable activity. Another fact noted by Ld. AO was that that the assessee was not maintaining any separate books for testing activity and therefore, even if the assessee was to be held as educational institution, the above income would still be taxed as business income. Accordingly, denying exemption u/s 11, the income of the assessee was computed at ₹ 54.06 Lacs. 3.1 Before Ld. first appellate authority, the attention was drawn to the fact that the registration u/s 12A was granted to the assessee which was valid and continuing. It was submitted that the assessee was conducting courses of formal education / training which has been accepted to be a Charitable Activity as supported by the decision of this Tribunal for AY 2008-09 wherein it was held that the assessee was entitled for the benefit of exemption u/s 11. In the alternative, it was submitted that if the activities of the trust could not be termed as educational, its objects would certainly fall within the expression 'advancement of any other object of general public utility'. It was further pleaded that the testing activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption u/s 11(1)(d) or reduction of specific donations from capital expenditure was not admitted since the assessee did not make out a case for additional evidence in terms of Rule 46A. Regarding the plea that the net income was to be taxed as per slab rates as applicable to Association of Persons [AOP], directions were issued to Ld. AO to dispose-off assessee's rectification application filed u/s 154, in this regard. 3.3 Aggrieved, the assessee is in further appeal before us with following grounds of appeal: - 1. The learned Commissioner of Income Tax (Appeals] has erred in upholding the denial of exemption u/s 11 of the Income Tax Act, 1961 ('Act'), and in confirming that the first proviso to section 2(15) was applicable to the appellant. 2. The learned Commissioner of Income Tax (Appeals) erred in upholding the assessing officer's view that the activities of your appellant were not charitable in nature despite the valid and subsisting registration u/s 12A granted by the Commissioner of Income Tax. 3. The learned Commissioner of Income Tax (Appeals) erred in upholding that the activities carried on by your appellant did not fall within the meaning of the term & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent so as the adjudge the applicability of 1st proviso to Sec. 2(15). The Ld. Departmental Representative [DR], on the other hand, has placed reliance on the stand of lower authorities to submit that the assessee was hit by the 1st proviso to Section 2(15) as well as Section 11(4A) as invoked by Ld. AO. 4.2 So far as the decision of Tribunal for AY 2008-09, ITA No. 5781/Mum/2011 dated 22/03/2013 is concerned, the perusal of the same would reveal that in that year, Ld.AO had disputed assessee's claim of carrying out of educational activities and denied the exemption u/s 11. Before first appellate authority, the assessee contended that it was conducting specialized courses for many years and the claim of exemption was accepted by revenue for so many years. Upon being satisfied, first appellate authority concurred with assessee's claim. Aggrieved, the revenue preferred further appeal before Tribunal. The Tribunal, observing that the registration u/s 12A was subsisting and therefore, the role of Ld. AO was limited to see whether the assessee followed its objects and there were no statutory violations, held that Ld. AO could not examine the objects of the Trust so long as there was va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue would require reappreciation by Ld. AO in view of the fact that the main objects of the assessee trust as well as the connection of testing activities vis-à-vis main objects, has not been brought on record by lower authorities. The perusal of order for AY 2008-09 would, prima-facie, would reveal that the assessee was engaged in the field of education. If that is so, Section 11(4A) would become applicable to the facts of the case, as observed by us in para 1.3 in the initial part of the order. In such a case, the onus would be on assessee to establish that the testing activities were merely incidental to the attainment of the prime objective of the trust i.e. education and separate books were maintained by the assessee in respect of such business. On the other hand, if the objects of the assessee are found to be covered by last limb i.e. advancement of any other object of general public utility, the 1st proviso of Section 2(15) would squarely apply to the case of the assessee since the assessee is providing service in relation to any trade, business or commerce. In that case, the case has to be adjudicated in the light of the binding judicial pronouncements from the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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