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TMI Blog2024 (7) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisement, 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 attainment of the main object/charitable object. The Ld. A.R submitted that the provisions of section 2(15) of the Act states that charitable purpose of relief of poor, education, medical relief, preservation of environment, preservation of monuments or places or object 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 carrying on of any activity in nature of trade, commerce or business for a cess or fee or any other consideration. The Ld. A.R submitted that the main object of the assessee related to foundry industry for taking up of various activities for achieving the basic and main object. Thus the said activity is covered under any other object of general public utility. The AO has rejected the contention of assessee on the ground that the activity of the assessee for advancing the object of general public utility canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed the decision passed by the Hon'ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority [2022] 143 Taxmann.com 278 (SC) and also other various High Court decisions. For the sake of ready reference the operative part of the order in AY 2015-16, 2016-17 and 2017-18 is extracted below: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the AO calculated the profit from business of Rs. 21,99,772/- in A.Y. 2013-14 and taxed accordingly whereas the AO computed loss of Rs. 77,87,698/- in A.Y.2014-15. Thus, the exemption claimed by the ICC u/s 11 of the Act was allowed to the assessee only in respect of interests , rental and miscellaneous income. 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, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industry has been organizing the activities of seminars, meetings and conferences in order to disseminate knowledgeon specialized issues to members and non members on the subject with specialized knowledge. During such events the experts on the subjects are invited to speak on the occasion and also participative 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 Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misc. income on the other , then there would be huge loss from these activities of organizing and holding meetings, seminars and meetings meaning thereby that the assessee has not been even charging from these sponsors, participants, members or non-members which are barely enough to cover the cost of the ICC and therefore 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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;" The rationale for bringing this proviso can be understood by referring to the relevant portion of the Memorandum 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y involves the carrying on of commercial activities. 2.2 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im that their object is 'charitable purpose' within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 33. From the Memo Explaining the provisions of Finance Bill 2008 & CBDT Circular dated 19-12- 2008, what will be position of an entity engaged in the 'advancement 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 entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions: ... ... ... (13) "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture" The word "Business" is of large and infinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the legislature is to make the definition extensive as the term "includes" 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 manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." Further in para 30 of the same judgment, it is stated thus: "30. In our view, if the main activity was not 'business', then the connected, incidental or ancillary activities of sales 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. It will then be necessary to find out whether the transactions which are connected, incidental or ancillary are only an infinitesimal or small part 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of PHD Chamber of Commerce &Industry(Supra), wherein very categorically held that activities and services performed for a fee or against a payment, by a trade, professional or similar association, such as a chamber of commerce and industry could not be held to be "business" in nature carried out with a profit motive. From all the above what thus transpires is that it is the primary or dominant purpose of the institution, which must be charitable. Where the main activity is "charitable" then the activities which are incidental or ancillary to the main activity, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said activities were out of the sponsorships and donations. The expenses incurred on the said activities as and when incurred were all separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of general public utility, it can never be the case that it is engaged in "business, 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect." In connection to the above case it is laid out the said case dealt with the assessment of the assessee in the A.Ys 1948-49 to wherein relevant to the said AYs 948-49 to 1952-53, by the last paragraph of sub-section (3) of the IT Act, 1922", charitable purposes" was defined as "... .. In this sub-section "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act part of the income from property held under a trust or other 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) Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business." Again, Hon'ble Bombay High Court in the WP of Baun Foundation Trust (Writ Petition No. 1206 of 2010 in the High Court of judicature At Bombay 27 March 2012) it was held that "4... It is a well settled position in law that the dominant nature of the purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital." Thus from all the above it is seen that though the definition of "charitable" 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 exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otive. Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and which is not involved in the carrying on of any activity in the nature of "business", the said section 28(iii) of the Act does not apply. 38. In view of the above discussion, we are of the considered view that in the given facts and detailed reading of the various judicial decisions through the years, interpreting the definition of "charitable purpose" as laid out in section 2(15) of the Act and also the definition of "business" in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . they are one and the same) and a person cannot make profit from himself. The Hon'ble Apex Court in the case of Secunderabad club vs. CIT (supra) has dealt with the principle of mutuality and thus the relevant part is extracted below: "31. While considering the triple test for applying the principle of mutuality, we find that in the case of Bangalore Club [2013] 350 ITR 509 (SC), the aforesaid triple test was applied. It was reiterated that the principle of mutuality envisages: i) Complete identity between the contributors and participators; ii) Action of the participators and contributors must be in furtherance of the mandate of the associations or the clubs. The mandate of the Club is a question of fact 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 mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said section. So the ld CIT(A) has erred in treating the same as taxable income. But in any case we have allowed the main contentions of the ICC by allowing exemption u/s 11 of the Act on the entire receipts of the ICC as discussed supra. 20. Considering the above facts and ratio laid by the various judicial forums , we set aside the order of ld CIT(A) and direct the AO to allow exemption u/s 11 of the Act in respect of entire receipts/income. Consequently ,the grounds no. 1to 5 are allowed. 21. Issue raised in ground no. 6 and 7 is against the order of Ld. CIT(A) not allowing the depreciation of Rs. 16,20,365/- as claimed by the assessee thereby upholding the assessment order. 22. Facts in brief are that the assessee has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d treated the entire sale consideration as income by holding that the entire cost of car has been claimed as application of income in the year of purchase and thus the assessee was not entitled to reduction of cost of car from the sales consideration for the purpose of calculation of capital gain in the instant year which according to the AO would amount to double deduction. 27. The Ld. CIT(A) affirmed the order on this issue by holding that there is no opening WDV for this year. 28. After hearing the rival contentions and perusing the material on record, we find that up to AY 2015-16 even if fixed asset purchased by the assessee was claimed as application of income while computing the income, even then it is presumed that WDV is there in the books of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable or religious purpose and it will also get exempted from the tax net. Then follows sub-section (2) which seeks to lift the restriction or ceiling imposed on such accumulated income during the previous year and also brings such further accumulated income out of the tax net if the conditions laid down in section 11(2) are fulfilled. The contention that the investment as contemplated by section 11(2)(b) must be investment of all accumulated income in the Government securities, etc., namely, 100 per cent of the accumulated income and not only 75 per cent thereof and if that is not done then, only the invested accumulated income to the extent of 75 per cent will get excluded from income-tax assessment, the remaining 25 per cent of the accumulated income will 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (2) of section 11 does not contain any non obstante clause like 'notwithstanding the provisions of sub-section (1)' Consequently, it must be held that after section 11(1)(a) has full play and if still any accumulated income of the previous year is left to be dealt with and to be considered for the purpose of income-tax exemption section 11(2) can be pressed in service and if it is complied with then such additional accumulated income beyond 25 per cent or Rs. 10,000, whichever is higher, can also earn exemption from income-tax on compliance with the conditions laid down by section 11(2). It is true that section 11(2) has not clearly mentioned the extent of the accumulated income which is to be invested. But on a conjoint reading of the aforesaid two 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 combin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, for the purposes of section 11(1)(a) of the Income Tax Act, 1961 ("of the Act), the amount for the grant of exemption of twenty five percent should be the income of the trust or it should be its total income determined for the purposes of assessment to income tax. This question has to be answered in the light of these facts the assessee trust, received donations in the aggregate sum of Rs. 2,57,376/- It applied thereof for its charitable purpose the aggregate sum of Rs. 1,70,369/- leaving a balance of Rs. 87,010/-. The question is whether the assessee is entitled to accumulate twenty five percent of Rs. 2,57,376/- as it contends, or twenty five percent of Rs. 87,010/- as the revenue appeared to contend." 32.2. Considering the facts of the case and ratio laid down by the Hon'ble Apex Court we are inclined to direct the AO to allow the accumulation u/s 11(1)(a) of the Act on the gross receipt of the assessee and not on the net receipt. Accordingly ground raised by the assessee is allowed. 6.1. Considering the facts on record and decision by the Co-ordinate Bench in assessee's own case, we are inclined set aside the order of ld. CIT(A) and further uphold that the assessee is en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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