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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 ..... rt decisions. Thus, direct the AO to allow the exemption u/s 11 of the Act to the assessee by holding that the profit derived from the services rendered by the assessee as public utility services is very meager and therefore the same is held to be charitable. Appeal of the assessee is allowed. - Shri Rajesh Kumar, Accountant Member And Shri Pradip Kumar Choubey, Judicial Member For the Appellant : Shri Sunil Surana, A.R For the Respondent : Shri B. K. Singh, JCIT, Sr. D.R ORDER PER RAJESH KUMAR, AM: This is the appeal preferred by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A) ] dated 29.01.2024 for the AY 2018-19. 2. The only issue raised by the assessee in the various grounds of appeal is against the order of Ld. CIT(A) confirming the action of AO in holding that the assessee was doing commercial activity and is covered by proviso to Section 2(15) of the Act thereby upholding the denial 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the order passed by the Ld. CIT(A) may be set aside and the AO may be directed to allow the exemption u/s 11 of the Act. 4. The Ld. D.R on the other hand relied on the authorities below by submitting the proviso to Section 2(15) of the Act is clearly attracted as receipt of the trust from the said activity exceed Rs. 10 Lakh therefore the object of general public utility cannot be considered as charitable. 5. After hearing the rival contentions and perusing the material on record, we find that the facts of the instant assessment year before us are similar to the facts in AY 2014-15, 2015-16, 2016-17 and 2017-18 in assessee s own case and in all the preceding assessment years, the issue has been decided by the Co-ordinate Bench in favour of the assessee by holding that the assessee is entitled to exemption u/s 11 of the Act on the ground that the profit derived from services rendered as general public utility is very meager after following the decision of Co-ordinate Bench in the case of Indian Chamber of Commerce vs. DCIT in ITA Nos. 933 934/Kol/2023 for AY 2013-14 and 2014-15 dated 22.12.2023 wherein an identical issue has been decided in favour of the assessee. We also note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fined to its members only. The ICC derives income by way of sponsorships of such seminars, conferences and meetings from various industrial houses/trading and commercial entities and this has been so in the instant year also. The assessee received sum of Rs. 9,48,14,435/- from holdings of such meetings/seminars and conferences. Besides during the impugned year the assessee has received incomes by way of interest on FDRs, rental income and miscellaneous income from the properties held by the assessee. We note the AO treated such activities of organizing conferences, meetings and seminars as business activities reasoning that the ICC was charging consideration in the form of sponsorships by invoking proviso to Section 2(15) of the Act read with Section 13(8) and thus denied exemption u/s 11 of the Act to that part of income of the assessee which is received in respect of the so called business activities by segregating and bifurcating the total/gross receipts into two segments namely business segment and charitable segment. The AO apportioned and allocated the administrative expenses incurred by the ICC proportionately in the ratio of quantum of business income/receipts and charitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a cess or any other consideration irrespective of the nature of use or application or retention of the income from such activity and the 2nd proviso provides that 1st proviso shall not be application if the receipts from the activities as referred to herein is Rs. 25.00 lacs or less in the previous year. In the present case before us undisputedly the assessee is engaged in advancement of promotion and protection of trade, commerce and industry which is duly covered in the ambit of charitable activities however the receipts from the activity of organizing seminars, conferences and meetings exceeds by more than Rs. 25.00 lacs and therefore now the question is whether the assessee is covered under the provisions of Section 11 and 12 read with Section 2(15) of the Act and is entitled to exemption of its income u/s 11 of the Act. Undisputedly the trust is registered u/s 12A of the Act and up to AY 2009-10 even the Tribunal has accepted the activity of the trust has been charitable within the meaning of Section 2(15) of the Act as the activity of organizing meetings, conferences and seminars are only attainment of and in support of main object of the assessee. The assessee in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in question, that they would fall within the mischief or cess, or fee, or any other consideration towards trade, commerce or business. In this regard, the Court has clarified through illustrations wheat kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce or business, in the body of the judgment. 15. In the present case also, the AO has computed business income at Rs. 21,99,772/- by allowing the administrative expenses proportionately on the basis of and in the ratio of business receipts and charitable receipts. We note that during the instant assessment year, the receipt form business activities of the assessee from the activities of holdings and organizing meetings, seminars and conferences were Rs. 9,48,14,435/- and the profit as computed by the AO constituted only 2% of such receipts. Therefore we are inclined to hold that the consideration charged by the ICC is just a cost basis and nominally above the cost. However if we allocate the administrative expenses on a rational and scientific basis between the activities of holding meetings, seminars and conferences on the one hand and other charitable rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Environment Management Centres, meetings, conferences seminars and issuance of certificate of origin were all in the nature of rendering of service in relation to business, for consideration and falling under the last limb of charitable purpose, i.e. advancement of any other object of general public utility , thus covered by the proviso to section 2(15) of the Act. In connection to the above it would be relevant to know the amended section 2(15) of the Act in view of legislative intent behind such amendment. We have gone through section 2(15) of the Act, which is relevant for assessment year 2009-10 year under consideration, which lays down the definition of charitable purpose as under: (15) charitable purpose includes relief of the poor, education, medical relief, 79 [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 carrying on of any activity in the nature of trade, commerce o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of charitable purpose . Therefore, section 2(15) was amended vide Finance Act, 20008 by adding a proviso which states that the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of a) Any activity in the nature of trade, commerce or business; or b) 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. 2. The following implications arise from this amendment 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 3.2 In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessee, who claim that their object is charitable purpose within the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. According to us, part of the proviso being any activity of rendering any service in relation to any trade, commerce or business intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity in relation to the trade commerce or business must be for a cess or fee or any other consideration. From the proviso, it is seen that the most material and relevant words in the proviso are trade, business or commerce . The activities which are undertaken by the institute should be in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. We will analyse the term business from the definition of the term business as defined in section 2(13) of the act and whether assessee s activities falls within the terminology of business . The term Business read as under:- 2. Definitions: (13) business includes any trade, commerce or manufacture or any adventur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad message. Hence, such activity does not amount to business . Publication for the purpose of spreading message is incidental to the main activity which the Trust does not carry on as business. In this view, the activity of the Trust in bringing out publications and selling them at cost price to spread message of Saibaba does not make it a dealer under Section 2(11) of the Act. Further Hon'ble Supreme Court in para16 elaborated the term business as under:- 16. The words carrying on business require something more than merely selling or buying, etc. Whether a person carries on a business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive (Board of Revenue v. A. M. Ansari (1976) 38 STC 577 (Supreme Court); (1976) 3 scc 512). Such profit motive may, however, be statutorily excluded from the definition of business but still the person may be carrying on business. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. Therefore, the issue whether a professional institution is or 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. The AO and CIT(A) in their orders relied upon the following judicial decisions: * Barendra Prasad Ray v. Income-tax Officer (129 ITR 295) SC * Commissioner of Income-tax v. Dharma Reddy (A) (73 ITR 751) SC * Sole Trustee, LokaShikshana Trust v. Commissioner of Income-tax (101 ITR 234 SC) We have already discussed the case law of Hon'ble Delhi High Court in the case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the development of trade and industries in India. Further it is to be noticed that the Memorandum has also specifically authorized the Chamber to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them. Thus it was only for the purpose of securing its primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit motive in any of the said activities. The surplus arising out of the same was merely incidental to the main object to charity. The majority of the receipts in 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It was laid out by the Court that, That if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g. promotion of or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cidental 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 cases, the onus of proof of an independent intention to carry on business : connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of business . In the recent decision which deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR 0099 Del HC, laying down the very same principle it was again laid: that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of 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 Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are confirmed to services performed by the association for its members . Such income would either be charged as business income or under the residual head, depending upon the question whether the activities of the association with the non-members amount to a business or otherwise. Section 28(iii) constitutes certain income of the association to be business income without affecting the scope of the exemption under Section 11. Section 2(15) which incorporates the definition of charitable purposes simply shows that several mutual associations may also fall within the definition. The receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii) would still be entitled to the exemption under Section 11 r.w.s. 2(15) of the Act, provided there is no profit motive. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed to take a different view. Accordingly we are inclined to hold that the rule of consistency has to be applied. Pertinent to state that revenue authorities have failed to adhere to the principle of judicial discipline in following the decision of the Tribunal while adjudicating the case of the assessee. In our considered view the assessee is eligible and entitled to claim exemption u/s 11 of the Act in respect of its entire receipts. Therefore for this reason alone the order of ld. CIT(A) has to be and cannot be sustained. 18. Besides the assessee has received subscription fee from the existing member on annual basis as well as admission fee from new members as entrance fee which is not an income eligible to tax by virtue of principle of mutuality which means that there exists no difference between two persons (i.e. 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] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said period provided that the said income is accumulated or set apart in terms of provision of Section 11(5) of the Act. Whereas provisions of 11(1) provides for accumulation of income of the trust to the extent of 15% of the gross receipts in perpetuity. In other words , the institution can retain 15% from the application of income without applying for charitable purpose in which accrued meaning thereby that 15% is indefinite accumulation and the assessee is not obliged to apply the same in subsequent years and can be retained as part of the corpus of the body. The AO has accepted which the same. But the institution has to comply with the requirements of section 11(5)(iii) of the Act. The ICC has fully complied with the provisions of section 11(5)(iii) of the Act and kept the funds invested in terms of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the facts of case and the decision of Hon ble Apex Court, we set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation on fixed asset as application of income/expenses. Accordingly ground nos. 6 and 7 are allowed. 25. Issue raised in ground no. 8 is against the confirmation of addition of Rs. 1,95,000/- by ld CIT(A) as made by AO by treating the sale value of motor car as income on the ground that the cost of car has been treated allowed as application of income when the car was purchased. 26. Facts in brief are that during the year the assessee has sold old motor car for a consideration of Rs. 1,95,000/- and purchased a new car of Rs. 14,49,732/-. The assessee has reduced the sale consideration from the fixed asset, however the AO rejected the same and 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 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. A.L.N. Rao Charitable Trust [1995] 83 Taxman 252 (SC) wherein it has been held that statutory accumulation u/s 11(1)(a) has to be computed on the gross receipts of the assessee. The relevant extract of the decision held as under: A mere look at section 11(1)(a ) as it stood at the relevant time clearly shows that out of the total income accruing to a trust in the previous year from property held by it wholly for charitable or religious purposes, to the extent the income is applied for such religious or charitable purpose, the same will get out of the tax net but so far as the income which is not so applied during the previous year is concerned, at least 25 per cent of such income or Rs. 10,000, whichever is higher, will be permitted to be accumulated for 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 inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of the accumulated income of the previous year an amount of Rs. 10,000 or 25 per cent of the total income from property, whichever is higher, is given exemption from income-tax by section 11(1)(a) itself. That exemption is unfettered and not subject to any conditions. In other words, it is an absolute exemption. If sub-section (2) is so read as suggested by the revenue, what is an absolute and unfettered exemption of accumulated income as guaranteed by section 11(1)(a) would become a restricted exemption as laid down by section 11(2). Section 11(2) does not operate to whittle down or to cut across the exemption provisions contained in section 11(1)(a) so far as such accumulated income of the previous year is concerned It has also to be appreciated that sub-section (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 additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remaining balance of the accumulated income out of Rs. 55,000 that is Rs. 35,000 if not invested as per sub-section (2) of section 11 would be added to the taxable income of the trust and would not get exempted from the tax net. (v) If on the other hand, the entire remaining accumulated income of Rs. 55,000 was wholly invested as per section 11(2) the said entire amount of Rs. 55,000 will get exempted from the tax net. Therefore, the appeal was dismissed. 32.1. Similarly in the case of CIT vs. Programme for Community Organization [2001] 116 Taxman 608 (SC) wherein it has held that the accumulation u/s 11(1)(a) has to be computed on the gross income by observing and holding as under: 3. The question that really required consideration is whether, 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 p ..... 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