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TMI Blog2024 (2) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s receipts from its activity even though it is for general public utility has exceeded the threshold of Rs. 10 lakhs and Rs. 20 lakhs, therefore, it is not entitled for exemption u/s. 11 for these years - The activity of the trust for publishing advertising in the newspaper is intrinsically linked for newspaper activity falls within the ambit of sub-clause (i) of Subsection 2(15) and conditions imposed in sub-clause (ii) of the proviso has to be fulfilled. The moot question is, whether the receipts from such activity itself is in the nature of trade, commerce or business or any activity of ranging in services in relation to any trade, commerce or business has to be examined. If the assessee is generating revenue from the activities for which it has been granted status of charitable nature, then whether it falls within the main section 2(15) itself or its activities are hit by proviso has not been discussed by the authorities below, both by the AO and ld. CIT(A) who have simply stated that since receipts of the assessee had crossed the limit of Rs. 10 lakhs, therefore, benefit of Section 11 cannot be granted. Before deciding this issue, it is incumbent whether its activity f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is Rs. 1,79,31,763/-,. Similarly, in A.Y.2012-13 out of the gross receipts of Rs. 19.39 Crores, the income from subscription for IRS report is 10.30 Crores. In A.Y.2013-14 again it is Rs. 20,88,44,490/- and income is Rs. 11,28,60,307. Thus, it cannot be said that there is a nominal income from the main activity of the assessee. Hence, the calculation given before us at the threshold does not appear to be correct which needs to be verified by the AO. Thus, the working which has been given, we find that it does not give the correct picture of margins from the sale of reports and therefore, this plea also needs to be examined by the AO in line with the judgment of the Supreme Court. Accordingly, the entire issue is remanded back to the AO to examine, 1.Firstly, to be decided in accordance with the judgment of the Hon ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra); and application of criteria of the threshold and the issue discussed in paras 23 to 27 of this order. 2.Whether its main activities for which it has been granted the status of charitable entity u/s. 12A who is carrying out one activity which is the object of general public utility then on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the findings of such survey and/or research through any medium with or without charge. 4. Memorandum of Association clearly provide that income and property of the assessee shall be applied only for promotion of the objects of the assessee and no portion of income or property shall be paid or transferred directly or indirectly. Looking to its activities of general public utility, it was registered u/s. 12A on 07/06/1994 and it continues to enjoy such registration during the years under consideration. It has also been informed that assessee's application for registration under the amended provisions of Section 12AB of the Act for the A. Yrs. 2022-23 to 2026-27 has also been accepted by the department and there is no dispute that the objects of the assessee fall within the category of "advancement of any other object of general public utility". 5. It has also been stated that benefit of Section 11 of the Act has been allowed in the past by the department and for the A.Yrs. 1998-99 to 2002-03, the Tribunal has held that its objects are charitable in nature and benefits of Section 11 cannot be denied. It has filed its return of income on 30/09/2009 along with income expenditure ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are above Rs. 10 lakhs which have been received by charging of fees, sale of dissemination of research and findings of survey / search reports relevant to advertisement business, etc. The dissemination of research report is not without any charge but assessee has realised huge revenues from such activity. Accordingly, he confirmed the said observation and finding of the AO. Before the ld. CIT (A), assessee has also raised that principle of mutuality is applicable because most of the receipts are from the members and only marginal amount is from non-members. The said pleading has also been rejected by ld. CIT(A) holding that in A.Y. 2008-09, principle of mutuality was decided by the ld. CIT(A) and he also relied upon the decision of the Hon'ble Supreme Court in the case of Bangalore Club vs. CIT reported in (2013) 5 SCC 509. 8. Before us explaining the facts and activities of the assessee Mr. Pardiwala submitted that in pursuance of its main object of conducting surveys and research into the readership, etc. of various media and dissemination of the findings of such survey and/or research, the assessee enters into agreements with research agencies. The amounts payable to the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to section 2(15) of the Act was not intended to affect genuine charitable organisations. This is borne out from the speech of the Hon'ble Finance Minister at the time of introducing the sais proviso, where he had clearly stated that genuine charitable organisations and chambers of commerce and similar organisations rendering services to the members would not be affected by the proviso to section 2(15) of the Act and their activities would continue to be regarded as "advancement of any other object of general public utility. He also referred to clause 3 of the Finance Bill, 2008 that intention was to limit the benefit to the entities which are engaged in activities such as relief of the poor, education, medical relief and any other genuine charitable purpose and to deny it to purely commercial and business entities which wear the mask of a charity. In pursuance thereof CBDT had issued Circular 11 of 2008 dated 19/12/2008 where circular clarified in the following manner:- "3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under any other object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that pure charity in the sense of performance of an activity without consideration is not envisioned under the Act. The Court has held in paragraph 172 that if the charity involves itself in activities that entail charging amounts only at cost or marginal markup over cost, the prohibition against carrying on business or service relating to business is not attracted. In this context, it has been laid down that the quantum of such profits should not exceed 20% of the overall receipts. It is submitted that the surplus in the assessee's case for the assessment years 2009-10 to 2013-14 does not in any year exceed 20% of the receipts and, thus, the assessee satisfies the test laid down by the Hon'ble Supreme Court in paragraph 172. In paragraph 173, the Hon'ble Court has given certain examples as to what would mean charging a nominal markup for the activities carried out by GPU charity. Even going by those examples, the assessee's case would not be hit by the proviso since it does not charge significant amounts as subscription revenues but only recovers the research fees charged by the agencies along with a small mark-up to cover its administrative costs. It is no dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as business. 15. Without prejudice, he submitted that here in this case more than 90% of the Revenue of the assessee is from its members, which cannot be regarded as in the nature of trade or business and the percentage of the revenue from non-members is only 6.47% in A.Y.2009-10 and in subsequent years it is ranging from 2.45% to 8.09%. Thus, if the revenue from non-members is regarded as business then such revenue does not exceed 20% of the total receipts from the IRS subscription, consequently, the proviso to Section 2(15) of the Act will not apply. Lastly, he submitted that without prejudice to the claim u/s. 11, since assessee is dealing mostly with the members, therefore, principle of mutuality should be applied at least for the members. He further submitted that in A.Y.2008-09, Tribunal has restored the issue to the AO for denovo adjudication on the principle of mutuality in its order for A.Yrs. 2006-07 and 2008-09. Regarding disallowance for provision of gratuity of Rs. 45,936/- and disallowed for leave encashment of Rs. 1,32,557/- he submitted that same are consequential if the benefit of exemption u/s. 11 is granted, then it would have to be deleted otherwise th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity's object. Thus, the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure from the previous law, is - firstly that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly - and the equally important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso - much like section 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. 170. Classically, the idea of charity was tied up with eleemosynary. However, "charitable purpose" - and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render services to the public with the condition that they would not charge "more than is actually needed for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision being impossible in the case of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to section 2(15). 200. Surat Art Silk (supra) and other decisions, had ruled that as long as the objects of trade promotion bodies were for general public utility wherein 'trade promotion in itself, was held to be a GPU - the fact that incidentally these bodies carried on some commercial activity, leading to profit, did not preclude them from claiming to be driven by charitable purpose. As observed earlier, the enunciation of those principles were in the context of the unamended section 2(15). 201. The question that arises is whether the change in definition impacts the claims of trade promotion bodies, federations of commerce, or such organizations, that they are GPU charities The judgment in Surat Art Silk (xupra) proceeded on the assumption that trade promotion was the pre-dominant object of the GPU charity before the court, and that other objects - including procuring licences, trade etc. were incidental. The assessee in Surat Silk had clear trading objects: "(b) To carry on all and any of the business of Art Silk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... organised twice a year by AEPC, etc. These fairs host over 350 participants who exhibit their garment designs and patterns. Other functions are to provide information, and to provide market research. AEPC also assists in developing new design patterns and garments and to perform promotional activities in individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who participate in international fairs, and conduct surveys to gather information on potential export of readymade garments. 204. As part of its functioning, it also books bulk space, which is then rented out to individual Indian exporters, who showcase their products and services, and ultimately secure export orders. Towards these services, ie booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed assets owned by it. They are in fact charges, or Tees, towards services in relation to business; likewise, the skill development and diploma courses conducted by it, for which fees are charged, are to improve business functioning of garment exporters. Furthermore, market surveys and market intelligence, especially country specific activities, aimed at catering to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wider meaning. But now there is an inhibition against making profit though there may be a little surplus left over the end of the year. Thus, concept of pure charity i.e. the performance of an activity without consideration is not envisioned under the Act, however, as long as GPUs object involves activities which also generates profits, it can be granted exemption provided the quantitative limit under second proviso to section 2(15) for receipts from such profits, is adhered to. * In para 171, it has been stated that if the charity involves itself in activities that entail charging amounts only at cost or marginal markup over cost and also derives from profit, the prohibition against carrying on business or service relating to business is not attracted (if the quantum of such profits did not exceed 20% of its overall receipts) has been adhered to. 20. The ld. Sr. Counsel referring to para 172, submitted that Hon'ble Apex Court has observed that, if the profit do not exceed 20% then benefit of Section 11 cannot be denied. However, such an interpretation as stated by the ld. Senior Counsel cannot be accepted, because all through the judgment the Hon'ble Supreme Court while mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognised for carrying out charitable purposes for the object of general public utility, then benefit of Section 11 is available and if it carries out activity which is by nature of trade, commerce or business, then activity should be intrinsically linked to or part of the GPU. Further, if any consideration is received by way of fees, cess or any other consideration from such activity, then it should not exceed the quantitative limit. It has further held that though the consent of pure charity i.e. performance of activity without consideration is not envisioned under the Act. However, as long as GPU object involves activities which also generates profits, it can be granted exemption, provided it is within the quantitative limit fixed under the second proviso to Section 2(15). 23. Now, the question is that, if an institution has been granted registration u/s. 12A for a particular object of GPU holding it to be charitable in nature, then, still it has to be seen, whether that activity per se for which it has been granted registration has some element of trade, commerce or business. If it has only one source of receipts from that activity only, then whether the threshold of 20% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n explained by the Hon'ble Supreme Court, then can it be interpreted that the main activity per se has to be seen from the angle, whether it is in the nature of trade, commerce or business; and other factors of low margin or very low profit coupled with conditions provided in the proviso; or one has to see, is there any other activity falling into ambit of proviso and examine the benefit u/s. 11. 24. If one takes a view that the very activity for which it has been granted registration for carrying out object of GPU, then also limit has to be adhered to, that is, in case the receipts from said activity of GPU exceeds Rs. 10 lakhs or Rs. 20 lakhs or 20%, then, no benefit of Section 11 is to be given and only in the year it is less than Rs. 10 lakhs or Rs. 20 lakhs then only exemption u/s. 11 can be given. This interpretation, in our view will defeat the very intent of the section 2(15) for any trust or body carrying GPU as its main object. Here, in this case, the only activity which has been carried out, has been recognized for the charitable purposes with the object of GPU. If the very activity was in the nature of trade, commerce or business, then why it was even granted registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oning involved element of trade, commerce or business and therefore, for such services whether the quantum for these receipts are within the limit prescribed has to be examined year to year. 26. While deciding the issue, whether the nature of receipts of income garnered by the trust in the course actually carrying out these activities of publishing newspaper can be characterized as in the nature of trade, commerce or business for the consideration, normally Apex Court observed and held as under:- "245. The publication of advertisements for consideration, in the opinion of the court, by the newspaper, cannot but be termed as an activity in the nature of carrying on business, trade or commerce for a fee or consideration. That the newspaper published by the trust ("the Tribune") in this case is funded mainly through advertisement is no basis for holding that publishing such advertisements by the Trust does not constitute business. The object of the trust to involve or engage in publication of newspapers. Publishing advertisements is obviously to garner receipts which are in the nature of profit. Now, by virtue of the amended definition of section 2(15), GPU charities can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as general public utility and only nominal revenue from non-members should be treated as activity in the nature of trade, commerce or business cannot be accepted. Because, even if it is with the members, what is to be seen is whether the activity per se is in the nature of trade, commerce or business or not. How a distinction can be made only for non-members and the subscription revenue from them alone has to be treated as in the nature of trade, commerce or business and for some activity and charging fees from the members, it is not. We are unable to appreciate such plea and is rejected. 30. Secondly, in so far as the issue of principle of mutuality also prima facie, once the revenues are from the non-members, even if they are marginal, that does not mean the entire activities of the assessee falls within the ambit of principle of mutuality. However, since in the earlier years this issue has been remanded back to the AO by the Tribunal with specific direction therefore, we are not deciding or adjudicating this issue and matter is remanded back to deal and decide the issue in line with the order of the Tribunal in the earlier years. 31. One of the contention raised that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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