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TMI Blog2024 (4) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A) ] dated 21.09.2023 for the AY 2015-16, 2016-17 2017-18. 2. The common issue raised by the assessee in all these appeals is against the orders of Ld. CIT(A) upholding the assessment orders passed by the AO wherein the AO has treated that the activities of the trust as commercial activity by invoking the proviso to section 2(15) of the Act thereby the denying of exemption u/s. 11 of the Act. 3. At the outset, the Ld. Counsel for the assessee submitted that the assessee is registered u/s. 12A of the Act vide order No. DIT(E)/6347/8E/79/81-82 dated 30.09.1989. The Ld. A.R submitted that the assessee derived income from membership, advertisement, contractual receipts, publication of journals /directories etc. The Ld. A. R further submitted that the interest earned on the deposits along with other income was applied for general public utility. The Ld. A.R submitted that the provisions of section 2(15) of the Act states that charitable purpose of relief to poor, education, medical relief, preservation of environment, preservation of monuments or places or object of artistic or historic interest and the advancem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld. 5. After hearing the rival contentions and perusing the facts involved in these assessment years and also the coordinate bench decision in assessee s own case in A.Y. 2014-15, we find that the issue involved in these appeals are similar to the one as decided by the coordinate bench in A.Y. 2014-15. For the sake of readiness we extract the operative part of the said decision as under: 7. After considering the facts on record and hearing the rival contentions, we find that the assessee is registered u/s. 12A of the Act vide order dated 30.09.1989 and has derived income by way of contributions from the head office, membership fee, income from publication of Indian Foundry journal , other grants and donations etc. besides receiving interest on fixed deposits . We find that undoubtedly the assessee s main object is general public utility which is clearly covered u/s. 2(15) of the Act however the receipts from the said activity is more than 10 lakh and now the issue before us where surplus generated from the said activity is meager so that it does not fall within the ambit of proviso to Section 2(15) of the Act. We note that profit on the receipts is very meager and therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. In the appellate proceedings, the Ld. CIT(A) enhanced the income after issuing show cause notice u/s. 251(2) of the Act to the ICC by treating the entire income/receipts of the ICC as business receipt and taxed the same at the rate applicable to the companies. The ld CIT(A) by doing so rejected the methodology adopted by the AO of bifurcating the total receipts into business and charitable one. Now the issue before us whether the assessee is hit by the proviso to Section 2(15) of the Act as amended w.e.f. A.Y. 2009- 10 or the assessee is still eligible and entitled to exemption u/s. 11 of the Act. In order to better understand the provisions section 2(15) of Act as applicable at relevant point of time, the same is reproduced as under: 15) charitable purpose includes relief of the poor, education, [yoga,]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 carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussion and interactions are held during such meetings, conference and seminars. So that the members and non-members are invited from such activities of the assessee. We also observe that the assessee is not organizing any trading programs to impart skill development courses by specialist and skilled knowledge and certified courses but general meetings, conferences and seminars are organized to discuss and debate, issues in current topics, amendments of Income Tax Act, MSME Act, Foreign Trade Policy and other issues having concerns for trade, commerce and industries. So that the interest of trade, commerce and industries are promoted and protected. The AO treated the receipts from organizing meetings, conferences and seminars as business activity whereas the Ld. CIT(A) treated the entire receipts of the ICC as business income by following the decision of Hon ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra) which too appears to be in correct. 14. We have minutely perused the decision of Hon ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra) and observed that the Hon ble Apex Court has nowhere held that the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it can be reasonable presumed that ICC has provided these activities even below the cost. We note that in the subsequent assessment year 2014-15 , the AO has computed the loss of Rs. 77,87,698/-. In view of this factual matrix , we are inclined to hold that the ICC is not carrying on any activity of holding meetings, seminars and conferences for business purpose but only in support its main object and it charges from its participants, members and non-members the amount of fee which does not even covers the cost of holding such events. So much so that the administrative and other incidental expenses of holding and organizing such seminars, conferences and meetings are met out of other charitable income received form interest on FDRs, rental and miscellaneous income. Therefore we find force in the contentions of the Ld. AR that the decision of Hon ble Apex Court has wrongly been interpreted and applied against the assessee. In our opinion, the decision is squarely applicable to the facts of the case and in view of that the ICC is entitled to exemption u/s. 11 of the Act as the activities of the advancement of main object is not hit by the proviso to Section 2(15) of the Act even po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um explaining the provisions in the Finance Bill, 2008 reported in 298 ITR (St) 2000-01 which reads as under: (Clause 3) It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the Act on the ground that they ware charitable institutions. This is based on the argument that they are engaged in the advancement of an object of general public utility as is included in the fourth limb of the current definition of charitable purpose . Such a claim when made in respect of an activity carried out on commercial lines is contrary to the intention of the proviso. With a view to limiting the scope of the phrase advancement of any other object of general public utility , it is proposed to amend section 2(15) so as to provide that the advancement of any other object of general public utility shall not a charitable purpose if it involves the carrying on of following activities: (a) Any activity in the nature of trade, commerce or business or, (b) Any activity or rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that i) the business should be incidental to the attainment of the objectives of the entity, and ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e, the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement of any other object of general public utility , whether the same will be hit by commercial activities in view of the newly inserted proviso to section 2(15) of the Act or not? The proviso was introduced with the sole aim of bringing into ambit of taxation such entities which were engaged in commercial activities. Here, we need to appreciate the concept of an entity engaged in commercial activities . In very simple words, any entity whose main or dominant object is commercial can only be said to be a commercial entity. An entity whose main purpose is undoubtedly charitable in nature without an iota of commerciality in it cannot be said to be engaged in commercial activity. Also we need to note that another point that emerges from the above is that whether an entity is carrying on an activity in the nature of trade, commerce or business always remains a question of fact which will have to be determined on the basis of the facts of the individual case. No generalization for such determination is possible. In view of the above, it is seen that the proviso can be applied to fact based on the facts and the past history of the assessee, which is discussed in detail above. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been used. The legislature has deliberately departed from giving a definite import to the term business but has made reference to several other general terms like trade , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture . The term business has been explained by various judicial decisions and the landmark decision of the Hon'ble Supreme Court of India in the case of CST v. Sai Publication Fund [2002] 258 ITR 70 interpreted the word business under section 2(5- A) of the Bombay Sales Tax Act, 1959 as follows:- No doubt, the definition of business given in Section 2(5-A) of the Act even without profit motive is wide enough to include any trade, commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture and any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not business, then any transaction incidental or ancillary would not normally amount to business unless an independent intention to carry on business in the incidental or ancillary activity is established. In such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are not business and the onus of proof of an independent intention to do business in these connected, incidental and ancillary sales will rest on the department. If, for example, these connected, incidental or ancillary transactions are so large as to render the main activity infinitesimal or very small, then of course the case would fall under the first category referred to earlier. (emphasis supplied. Further, Hon'ble Supreme Court in this very same case held as under: This decision is directly on the point supporting the case of the respondent after noticing number of decisions on the point including the decisions cited by the learned counsel before us. It may be stated that the question of profit motive or no-profit motive would be relevant only where a person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce etc. On the facts and in the circumstances of the present case irrespective of the profit motive, it could not be said that the Trust either was dealer or was carrying on trade, commerce etc. The Trust is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity, even if carried out for profit, would not mitigate or change the charitable character of the institution. Thus in the cases of many professional institution whose main activity is not business , the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the revenue. The test, therefore, to be applied is whether the activity which is pursued is ancillary to a dominant object or is independent to the main object and forms a separate object in itself. The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. 35. In view of the above, we thus now turn to examine and analyse in full details the particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade or commerce or in any service in relation to business, trade or commerce. The individual nature and purpose of the specific activities, it is stated that the activities held by AO and the (A) to be business in nature, were as follows: (a) Meetings, Conferences Seminars (b) Environment Management Centre (c ) Fees for Certificate of origin Facts relating to these activities are discussed in detail in para 23 to 25 of this order above, which need not be repeated. 36. From facts in entirety, now the question arises is whether principle of consistency will apply or not? From AY 1985-86 to 2007-08 exemption u/s. 11 of the Act was allowed. Now, having extensively with the newly amended section 2(15) of the Act and its absolute inapplicability to the case of assessee supported by various judicial decisions, we will discuss this issue. We find that CIT(A) without appreciating that the basis principle underlying the definition of charitable purpose remained unaltered, and on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, whereby the restrictive first proviso was inserted therein, lower authorities held that the same substantially changed the position of law and thus the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er legal obligation for private religious purposes which does not enure for the benefit of the public. The adding of the words not involving the carrying on of any activity for profit: was introduced by the Income tax Act, 1961. Hon'ble Apex court in the earliest decision in the case of Surat Art Silk Cloth Manufacturers Association (Supra) held the theory of dominant or primary object of the trust to be the determining factor so as to take the carrying on of the business activity merely ancillary or incidental to the main object. It was held as follows:- (i) That the dominant or primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth a set out in clause (a) and the objects specified in clauses (b) to (e) were merely powers incidental to the carrying out of that dominant and primary purpose; (ii) That the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., was an object of public utility not involving the carrying on of any activity for profit within the meaning of s.2(15) and that the assessee was entitled to exemption under s 11(1)(a) Again the Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose under section 2(15) has undergone changes, the principle underlying the same has remained the same. In context of the above, with regard to the principle of consistency it would be of relevance here to quote the decision of the Apex Court in the case of RadhasoamiSatsang v. Commissioner of Income-tax (193 ITR 321 SC) wherein it was held that: . (ii) That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened. Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the ordered, it would not be at all appropriate to allow the position to be changed in a subsequent year. 37. Now coming to application of section 28(iii) of the Act. We find that section 28(iii) of the Act provides that the income de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was charitable in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be charitable in nature. Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view the basic principle underlying the definition of charitable purpose remained unaltered even on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, though the restrictive first proviso was inserted therein. Accordingly, in the given facts of the case as discussed above in detail, the assessee association s primary purpose was advancement of objects of general public utility and it would remain charitable even if an incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has to be determined form the Memorandum of Articles of Associations, Rules of Membership, Rules of the Organizations, etc. which must be construed broadly. iii) There must be no scope for profiteering by the contributors from a fund made by them which could only be expended or returned to themselves. 18.1. Similarly the decision of Hon ble Delhi High Court in the case of CIT vs. Deloitte Touche Tohmastu (supra) has held as under: 10. All three tests of mutuality having been satisfied as aforesaid, we are of the considered view that the receipts of the respondent/assessee wherein from its members were not in the nature of fees for technical services and that the same were exempt from tax having regard to the principle of mutuality. 18.2. Therefore if the membership fee/ annual entrance fee of members is reduced from the so-called business income of the assessee company then the loss would further increase which further buttress the contentions of the assessee that the ICC is not carrying on or holding the meetings, seminars and conferences for business purpose but its only is supportive activity carried on to the main object of the ICC for promotion and protection of trade, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed depreciation of Rs. 16,20,365/- in AY 2013-14 and Rs. 18,43,085/- in AY 2014-15 as application of income. The AO as well as Ld. CIT(A) has not allowed the deduction of the said depreciation as an expense to be deducted from the gross receipts for the purposes of calculating the income available for application. 23. After hearing the rival contentions and perusing the material on record, we find that the assessee s case is squarely covered by the decision of Hon ble Apex Court in the case of CIT vs. Rajashthan and Gujrati Charitable Foundation [2018] 402 ITR 441 (SC) in the context of amendment in Section 11(6) of the Act by the Finance (NO.2) Act 2014 w.e.f 01.04.2015 wherein it has been held that up to AY 2015-16 the assessee is entitled to claim the cost of acquisition of fixed asset as application of income and further depreciation thereon in subsequent years. The operative part is reproduced as under: 2. After hearing learned Counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same. 3. It may be mentioned that most of the High Courts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account. We have even perused the provisions of Section 11(1)(a) of the Act which provide that if the sale consideration received on sale of assets is utilized for acquiring another asset then the same is treated as having applied for the charitable purposes. The case of the assessee also find support from the decision of Hon ble Apex Court in the case of CIT vs. CIT vs. Rajashthan and Gujrati Charitable Foundation (supra) wherein it was held that besides claiming the full deduction of cost of fixed asset in the year and the assessee would be entitled to depreciation thereon. By considering the ratio laid down in the said decision, we are of the view that even if the entire cost has been claimed as application of income even then the assessee is entitled to claim the deduction of WDV from the sales consideration in order to calculate the capital gain. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition. 29. Issue raised in ground no. 9 is against the order of AO computing the deduction u/s. 11(1)(a) @ 15% on the net income and not on the gross receipt of the ICC whereas the Ld. CIT(A) has not decided the issue on the ground of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not earn such exemption, could not be accepted. Section 11(1)(a) operates on its own. By its operation two types of income earned by the trust during the previous year from its properties are given exemption from income-tax(i) that part of the income of the previous year which is actually spent for charitable or religious purposes in that year, and (ii) out of the unspent accumulated income of the previous year 25 per cent of such total property income or Rs. 10,000, whichever is higher, can be permitted to be accumulated by the trust, earmarked for such charitable or religious purposes. Such 25 per cent of the income or Rs. 10,000, whichever is higher, will also get exempted from income-tax. That exhausts the operation of section 11(1)(a). Then follows sub-section (2) which deals with the question of investment of the balance of accumulated income which has still not earned exemption under sub-section (1)(a). So far as that balance of accumulated income is concerned, that balance also can earn exemption from income-tax meaning thereby the ceiling or the limit of exemption of accumulated income from income-tax as imposed by section 11(1)(a) would get lifted if additional accumu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provisions of sections 11(1) and 11(2) this is the only result which can follow. Therefore, if the entire income received by a trust is spent for charitable purposes in India, then it will not be taxable but if there is a saving, i.e., to say an accumulation of 25 per cent or Rs. 10,000, whichever is higher, it will not be included in the taxable income, section 11(2) further liberalizes and enlarges the exemption. A combined reading of both the provisions would clearly show that section 11(2) while enlarging the scope of exemption removes the restriction imposed by section 11(1)(a) but it does not take away the exemption allowed by section 11(1)(a). The combined operation of section 11(1)(a) and section 11(2) as applicable at the relevant time would yield the following result : (i) If the income derived from property held under trust wholly for charitable or religious purposes during the previous year was Rs. 1 lakh and if Rs. 20,000 therefrom were actually applied to such purposes in India then those Rs. 20,000 would get exempted from payment of income-tax as per the first part of section 11(1)(a). (ii) Out of the remaining accumulated income of Rs. 80,000 for the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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