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TMI Blog2019 (10) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... gupta, AR For the Revenue : Shri Gautam Kr. Mondal, Add.CIT ORDER PER J. SUDHAKAR REDDY, AM :- This is an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals)-25 [ ld.CIT(A) for short], Kolkata, dated 28.03.2019. 2. The assessee is a society. As per para-1 of the ld.CIT(A) s order the facts are as follows: The Assessee society has been set up with all forms of humanitarian grounds to take care of the physically and mentally challenged persons for their up lifting, survival and further establishment in life. This society has been spread over throughout West Bengal specially in rural areas with thousands of children and thousands of persons who are mentally and physically disabled. 3. The assessee society filed its return of income on 30.09.2010 declaring nil income by claiming exemption u/s 11 of the Income Tax Act, 1961 (the Act for short). The assessee society is registered u/s 12A of the Act vide registration no. DIT(E)/S- 23/8E/201/91-92 dated 06.08.1996 w.e.f. 01.04.1993. Approval u/s 80G(5)(vi) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year. 9. The objects and the activities of the assessee society in running educational institutions such as nursing training school and B-Ed special education college brings the activities within the ambit of the definition of charitable purpose, being education. The proviso to Section 2(15) of the Act applies only for the last limb of the definition u/s 2(15) of the Act i.e. advancement of any other object of general public utility and not to the limbs of (a) relief to the poor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unning of PCO booths with local STD and ISD facilities, running of chemist shop, production centers etc. as mentioned in Clause 17B of the Constitution of the Society the core activity of the appellants are business activity. It has already been observed that the objects of the trust as set out in its Constitution were independent objects and since one of these objects was to run commercial concerns, it could not be described as a charitable purpose. The argument that the sole and dominant purpose of the trust deed was charitable and that the carrying on of a commercial activity was only subservient to the main object could not be accepted in view of the independent nature of all the objects set out in its Constitution. Further, I also agree with the view of the AO that the constitution of the trust itself provided that the purpose of the trust would be carried out by engaging in the activity as mentioned in clause 17B which had a predominant profit motive. The exemption could not, therefore, be available as t,1:1 very existence and nature therein of the assessee trust rallied upon Clause 4k, of the Constitution of the Society. I agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11 - Revenue authorities opined that activities undertaken by assessee fell under sixth limb of definition of 'charitable purpose' given under section 2(15), i.e., advancement of any other object of general public utility - Authorities below thus applying proviso to section 2(15) concluded that assessee's transactions were in nature of business and commerce which were not eligible for exemption under section 11 - It was noted from records that all business activities including business of pharmacy were incidential to attainment of main object, i.e., propagation of yoga, which was undoubtedly charitable in nature - It was also apparent that profits from business were applied for charitable objects and separate books of account were maintained in respect of those business activities - Whether on facts, assessee satisfied conditions prescribed in section 11(4)/11(4A) and, thus, its claim for exemption of income was to be allowed. Section 11 of the Income-tax Act, 1961 - Charitable/religious trust - Exemption of income from property held under [Business held in trust] - Whether there is no bar in charitable trust/institution carrying on business p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not necessary or because it is blocked. The intention behind introducing the proviso to Section 2(15) of the said Act could certainly not have been to render the provisions of Section 10(23C)(iv) redundant. 48. With this in mind, it is to be seen as to what is meant by the expressions trade , commerce or business . The word trade was considered by the Supreme Court in its decision in the case of Khoday Distilleries Ltd and Others v. State of Karnataka and Others: 1995 (1) SCC 574, whereby the Supreme Court held that the primary meaning of the word 'trade' is the exchange of goods for goods or goods for money . Furthermore, in State of Andhra Pradesh v. H. Abdul Bakhi and Bros: 1964 (5) STC 644 (SC), the Supreme Court held that ―the word business was of indefinite import and in a taxing statute, it is used in the sense of an occupation, or profession which occupies time, attention or labour of a person, and is clearly associated with the object of making profit . This court, in ICAI (I) (supra) held that, while construing the term business as appearing in the proviso to Section 2(15), the object and purpose of the Section has to be kept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, prescribing and enforcing standards, involves the carrying on of trade or commercial activity. 50. In ICAI(II) (supra), while considering whether the activities of ICAI fell within the proviso to Section 2(15) as introduced with effect from 01.04.2009, this court, after considering the Supreme Court decision in the case of Commissioner of Sales Tax v. Sai Publication Fund: (2002) 258 ITR 70(SC) held:- Thus, if the dominant activity of the assessee was not business, then any incidental or ancillary activity would also not fall within the definition of business. 51. This court also observed in ICAI(II) (supra) that:- 64. ... It is not necessary that a person should give something for free or at a concessional rate to qualify as being established for a charitable purpose. If the object and purpose of the institution is charitable, the fact that the institution collects certain charges, does not alter the character of the institution. ... This court in ICAI (II) (supra) held:- 67. The expressions trade, commerce and business as occurring in the first proviso to section 2(15) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 is to any out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely be cause some profit arises from the activity.' 70. Although in that case the statutory provisions being considered by the Supreme Court were different and the utilisation of income earned is, now, not a relevant consideration in view of the express words of the first proviso to section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. In the present case, there is little doubt that the objects of the activities of the petitioner are entirely for charitable purposes. Finally in ICAI(II) (supra), this court, with reference to H. Abdul Bakhi and Bros (supra) observed as under:- 71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well-settled that the courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above, in Arun Kumar (supra). 54. It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, ―in this Act, unless the context otherwise requires. The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression charitable purpose , as defined in Section 2(15) of the said Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression charitable purpose by the revenue. With respect, we do not agree with the views of the Kerala and Andhra Pradesh High Courts. 55. It would be appropriate to also examine the observations of another Division Bench of this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a critical factor to discern whether an activity is business, trade or commerce. The court further held:- 22. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said 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 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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