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TMI Blog2020 (9) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... erely having surplus in one year does not change the character of the trust to a business or profit making entity which is otherwise a charitable trust advancing work of general public utility and certainly not hit by the first proviso to Section 2(15) of the Act. Since the Assessing Officer has denied the benefit of sections 11 and 12 which has been upheld by the Ld. CIT(Appeals) also on the ground that the assessee did not fall within the scope of charitable purposes defined in section 2(15) of the Act because of carrying on or rendering of any services in business, trade and commerce and this in our considered opinion is not a correct interpretation of the provision. Set aside the order of the Ld. CIT(Appeal) and direct the Assessing Officer to grant benefit of exemption u/s.11 and 12 of the Act to the assessee. - Decided in favour of assessee. - ITA Nos. 2338 & 2339/PUN/2016 - - - Dated:- 3-9-2020 - Shri R.S. Syal, VP And Shri Partha Sarathi Chaudhury, JM For the Assessee : S/Shri Nikhil Pathak Suhas Bora For the Revenue : Smt. Kesang Y Sherpa ORDER PER PARTHA SARATHI CHAUDHURY, JM: These two appeals preferred by the common assessee emanates f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9, certain restrictions are placed on an object for advancement of general public utility. Under the first proviso, advancement of object of general public utility shall not be a charitable purpose, if it involves activity of trade, commerce or business or any service rendered in relation to any trade, commerce or business for a consideration, irrespective of nature of use or application or retention of the income from such activity. However, under second proviso, the constraints placed under the first proviso on an object of general public utility, will come into play only if the aggregate value of the receipts of the nature mentioned therein exceeded ₹ 10 lakhs ( since revised to ₹ 25 lakhs.). 5.2 In the case of the assessee, the aggregate value of the receipts during the year exceed ₹ 10 Lakhs and therefore, the constraints or restrictions placed under the first proviso i.e. advancement of object of general public utility shall not be a charitable purpose, if it involves activity of trade, commerce or business etc. and these are being examined with reference to the nature of activities of the assessee, receipts and the statements of accounts of the trust to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.11 or 12 of the Act. 6. When the matter travelled up to the Ld. CIT(Appeals), at Para (vi) of his order, he observed that on perusal of the objects of the assessee trust at Sr. No.(xii), it is mentioned that the assessee shall create better working condition for labour class people and benefit of their families etc. but on analyzing the income expenditure account for both the assessment years i.e. 2011-12 2012-13, the Ld. CIT(Appeals) held not a single penny has been incurred towards the welfare of the labour class. The First Appellate Authority was of the considered opinion that the functioning of the association revolves around the mutual benefit of the members only and no public utility whatsoever is involved. Thereafter, as per the detailed reasoning in his order, the Ld. CIT(Appeals) upheld the order of the Assessing Officer stating that though the Assessing Officer cannot cancel the registration of the assessee trust, however, he can withdraw the exemption and accordingly, the exemption u/s.11 of the Act for both the assessment years as denied by the Assessing Officer, was upheld by the Ld. CIT(Appeals). 7. At the time of hearing, the Ld. AR of the assessee vehem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reproduced in the order of the Assessing Officer. However, for assessment year 2012-13, as per income expenditure account placed at Page 7 of the paper book, there is deficit from exhibition activities. Therefore, the Ld. AR submitted that the assessee trust being charitable trust is not charging any subscription fees for participating in the exhibition and it is purely benefit for public at large as evident from income expenditure account for assessment years 2011-12 2012-13. It is only for one year, there is surplus. 7.3 The Ld. AR of the assessee further submitted that as per department‟s Circular dated 27th March, 2009, it is clear that the amendment of section 2(15) of the Act has been brought to bring in the tax net the entities operating on commercial lines and are claiming exemption on their income u/s.11 of the Act. Thus, the amendment is not applicable to the institutions like assessee which are charitable institutions right from its inception. The Ld. AR of the assessee also drew our attention to Circular No.11 of 2008 dated 19th December, 2008 and in Para 3 of this circular, it is clearly mentioned that such entities will not be eligible for exemption u/s.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscriptions for attendance in these exhibitions and earned money. That on detailed analysis, it was held by the Assessing Officer that the assessee trust is hit by the first proviso to section 2(15) of the Act wherein the activity of the assessee trust in advancement of any other object of general public utility involves activity of trade, commerce or business and therefore, such activities cannot be defined to be of charitable purposes. This was upheld by the Ld. CIT(Appeals) upholding the decision of the Assessing Officer withdrawing the exemption u/s.11 and 12 of the Act for the assessee trust and determining the income as income from business or profession. 9.2 The Ld. AR vehemently submitted that the assessee trust is not charging any subscription from people attending the exhibitions and conducting exhibition activities is only for furtherance of the object of the trust specifically mentioned in Clause (vii) as per Memorandum of Objects. We have considered the entire submissions of the Ld. AR as placed on record. 9.3 That before us, the Ld. DR could not place on record any evidence that the assessee trust was collecting subscriptions nor could point out from the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not apply. The relevant portion of the decision is extracted as under: 11. Coming back to the factual matrix of the case, we find that the assessee society was set up with the object of promoting the growth of automobile industry in India and also to improve and protect the environment which is nothing, but, an object of general public utility which is otherwise charitable within the main provision of section 2(15). The Revenue has also accepted such objects as charitable in nature and granted registration in the year 1998. However, it needs to be examined as to whether or not the activities undertaken by the assessee during the year amount to carrying on any activity in the nature of business, trade or commerce or rendering of services in business, trade or commerce so as to attract the proviso to section 2(15). For that we will venture to examine the actual activities carried out by the assessee during the year, which can be traced from the income side of the assessee's Income and expenditure account, a copy of which is available on page 59 of the paper book. First item is Annual membership subscription amounting to ₹ 1.81 crore. This comprises of annual mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat for some conferences, income is higher than the expenses, while for others, it is vice versa. Above narration of the activities actually undertaken by the assessee transpires that these are aimed at the overall promotion of the automobile sector. Even if there has resulted some surplus in organizing these conferences and seminars etc., it cannot be said that the assessee carried out any trade, commerce or business or rendering any service in relation to any trade, commerce or business. It is manifest that none of the activities undertaken by the assessee was pursued with the prior object of earning income. Au contraire, all such activities were performed with the prior object of promotion of growth of the automobile industry in India which is an object of general public utility. The activities of the assessee in organizing seminars and conferences, etc. can be seen de hors its main object of general public utility so as to bring the case within the ambit of first proviso to section 2(15). Even if there has generated some excess of receipts over expenses in doing these activities, the same is a normal incidence of the activity of promotion of automobile industries and cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. We say so, because, if a literal interpretation were to be given to 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 case (supra). We further find that the Hon'ble Gujarat High Court in the case of Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly reached out to the greater number of people of the society. It is not disputed that clause (vii) in the Memorandum of Objects is one of the pertinent object of the assessee trust and fulfillment of such object benefited the public at large by holding the exhibition and therefore, is a part of charitable activity conducted by the assessee trust. Merely having surplus in one year does not change the character of the trust to a business or profit making entity which is otherwise a charitable trust advancing work of general public utility and certainly not hit by the first proviso to Section 2(15) of the Act. Since the Assessing Officer has denied the benefit of sections 11 and 12 which has been upheld by the Ld. CIT(Appeals) also on the ground that the assessee did not fall within the scope of charitable purposes defined in section 2(15) of the Act because of carrying on or rendering of any services in business, trade and commerce and this in our considered opinion is not a correct interpretation of the provision. We, therefore, set aside the order of the Ld. CIT(Appeal) and direct the Assessing Officer to grant benefit of exemption u/s.11 and 12 of the Act to the assessee. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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