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TMI Blog2022 (9) TMI 1603X X X X Extracts X X X X X X X X Extracts X X X X ..... collection of money from the users of Private Workers Pool and distribute wages to the Private Workers; apart from collecting subscriptions from the Members of the Stevedor s Association and Clearing and Forwarding Agents Association of Visakhapatnam, who intend to use private workers enrolled by the Trust. Therefore, once registration is done u/s 12A of the Act, it is a fait accompli and the Assessing Officer cannot thereafter probe into the objects of the Trust and hold that there was any charitable activity, unless the material on record indicate that there was violation of conditions/ objects of the Trust Deed, which does not appear to be the case on hand. AO as well as the Appellate Authority rejected the claims of the Assessee. Challenging the same, appeals came to be preferred before the Income Tax Appellate Tribunal, which were allowed, as in this case. The issues before the High Court [ 2008 (4) TMI 16 - SUPREME COURT] were as under:- (A) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the objects of the Trust restricting benefit to the members of the Club would fall within the purview of the act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our Board and collected accordingly. The Trustees are not entitled for any remuneration/profit except reimbursement of expenses incurred by them on behalf of the Trust in terms of Clause 16 of the Trust Deed. Therefore, all the above factors/activities of the Trust, which are being carried out right from the inception, would only indicate that the activities are for advancement of general public utility, as ordained in Clause 3 of the Trust Deed. Further, the Tribunal, which is a fact finding body has categorically held that these activities of the Trust are charitable in nature, which, in our view, cannot be overturned, unless it is established that there is a grave error apparent on record in coming to such conclusion, which is not so. Violation of Section 11(5) and Section 13(1)(c) read with Section 13(2) - The amounts advanced by the Trust cannot be treated as investments and, as such, there is no violation of Section 11(5) of the Act and, accordingly, the question of violation of Section 11(3) also does not arise. Whether there was any violation of Section 13(1)(c) read with Section 13(2) of the Act? - We reiterate that the principal amount was repaid on 26.02.2001 and interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous stevedores at Visakhapatnam sea-port in an organized manner; earning wages from the stevedores and distributing it to the labourers, while retaining part of the wages. The Assessee is said to have invested its funds in non-specified modes as well and that too in concerns, in which the trustees are interested. 3. On a premise that, there was an escapement of income for the assessment year 2003-2004, the assessment was re-opened under Section 147 of the I.T. Act and a notice under Section 148 was issued. In response to the said notice, the Assessee submitted the return of income. After hearing the Assessee, an Assessment Order came to be passed on 04.01.2006, holding that the Assessee is liable to pay tax to a tune of Rs.3,35,93,179/-. 4. Assailing the Assessment Order, Appeal vide I.T.A. No. 297/Vizag/2006 came to be filed. After hearing the Assessee, the Commissioner of Income Tax (Appeals)-I, Hyderabad, passed an Order on 28.04.2006, which reads as under: The aforesaid provisions provide that the assessee shall be liable to pay interest on the amount by which the tax on the total income determined on the basis of the reassessment exceeds the tax on the total income determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee Trust, and also Office Bearers in the above said two associations, the finding of the Assessing Officer in treating these two associations as the persons referred to in Section 13(3) of the I.T. Act, cannot be found fault with. It is also urged that, a charitable trust will lose exemption under Section 11 of the I.T. Act, if any income or property is used or applied for the benefit of any person referred to in Section 13(3) of the I.T. Act. The learned Counsel also contends that, though, the Assessee did not charge interest from these two associations initially, but later on, the amounts were collected with interest @ 12%. In other words, the learned Counsel for the Appellant mainly submits that, the activities of the Assessee are not charitable in nature; there is an employee and employer relationship and that the predominant object of the Trust is to give employment and after paying wages, surplus is retained. Having regard to the above, it is urged that the order under challenge warrants interference. 7. (i) Sri. C.P. Rama Swami, learned Counsel appearing for the Assessee would submit that, the Assessing Officer is not empowered to probe into the objects of the Char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the amount of Rs.30,00,000/- and Rs.5,00,000/- given to the two settler associations can be treated as investment in terms of Section 11(5) of the Act? d) Whether the said advance of Rs.30,00,000/- and Rs.5,00,000/- are hit by the provisions of Section 13(1) r.w.s. 13(2)(a) of the Act? e) Whether the objects for which accumulation was made u/s. 11(2) was for charitable purposes or not? 9. Before going into the issues framed, it is to be noted here that the Assessing Officer denied exemption under Section 11 of the Act, on the ground that the Assessee has not carried on any charitable activities during the relevant period and, as such, violated Section 11(2) and 11(5) of the Act. The reasons given by the Assessing Officer are, (1) the main activity of the Assessee being identifying, enrolling and allotment of work to the workers and payment of wages to them. (2) it has earned profits by engaging them at Visakhapatnam Dock Labour Board. (3) Since the work carried out by the Assessee was allotment of work to workers and payment of their wages including statutory compliances, it cannot be said that there was any charitable activity by the Assessee. (4) Since the receipts from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied and enrolled in the Trust. c) To utilise the Funds of the Trust for the above purposes and also for other Charitable purposes such as Education, Health, Sports and Alleviation of sufferings of the Poor and the needy etc. d) To carryout other public utility activity within the meaning of Charitable purposes defined in the Income-Tax Act. 13. Further, the objects ancillary or incidental to the attainment of the main objects are: i. To collect money from the users of the Private Workers Pool and distribute wages to the Private Workers. ii. To collect subscriptions from the Members of the Stevedor s Association and Clearing and Forwarding Agents Association of Visakhapatnam, who intend using the Private Workers who are identified and enrolled by the Trust. iii. To allot workers to the users as per their indent and for that purpose maintain Office or establishment, employing the necessary personnel. iv. To utilise the surplus arising out of the collections from the users and the voluntary contributions obtained from the public to such charitable purposes as the Board of Trustees may deem it expedient from time to time. v. To acquire Immovable and Movable Properties as may be found n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner of Income Tax V. Surat City Gymkahana (2008) 300 ITR 214 , wherein, the Court was dealing with a situation, where the respondent-assessee claimed exemption under Section 10(23) of the Income Tax Act, 1961, for the assessment years 1991-92 and 1992-93 on the ground that the activities of the Trust are charitable in nature. The Assessing Officer as well as the Appellate Authority rejected the claims of the Assessee. Challenging the same, appeals came to be preferred before the Income Tax Appellate Tribunal, which were allowed, as in this case. The issues before the High Court were as under:- (A) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the objects of the Trust restricting benefit to the members of the Club would fall within the purview of the act of general public utility u/s 2(15) of the Income Tax Act constituting as a section of public and not a body of individuals? (B) Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that Registration u/s 12-A was a fait accompli to hold the Assessing Officer back from further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration is, whether the activities of the assessee trust can be termed as business activity in terms of Section 11(4A) of the Act? As observed earlier, the preamble of the Trust Deed contemplates that the purpose for which the Trust is constituted was to organize functioning of private workers pool, for the benefit of such workers. The main object, for which the Trust was formed, does not indicate any profit motive. As stated earlier, the role of the Trust was to identify, enrol, allot work and regulate the operation of private workers, which activity was being carried out by the Trust from its inception. The object of the Trust clearly indicate the surplus earned, while carrying on the said activity, shall be retained for carrying on the objects of the Trust. Therefore, in the circumstances, we are of the view that the activities of the Trust cannot be treated as business activity . 20. On the other hand, as urged by the learned Counsel for the Respondent, the Assessee Trust was formed only for the purpose of regulating the operations of private workers in the Dockyard, which was approved as an act of Charitable Purpose by the C.I.T. 21. In Sole Trustee, Loka Shikshana Trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trust before it can be held to be really charitable. 22. Similar such view was taken by the Delhi High Court in GS1 India V. Director General of Income-Tax (Exemption) and Another (2014) 360 ITR 138 (Del) . Applying the principles laid down, it can be held that, there was no profit motive in carrying on the objects by the Assessee Trust, namely, taking care of the welfare of labourers, who were not enrolled by the Dock Labour Board. The so-called business activity, when intrinsically woven into and is part of the charitable activity, the business activity is not feeding charitable activities, as they are integral to the charity / charitable activity. The wages and fees payable by the users and shipping companies are fixed by the Dock Labour Board and collected accordingly. The Trustees are not entitled for any remuneration/profit except reimbursement of expenses incurred by them on behalf of the Trust in terms of Clause 16 of the Trust Deed. 23. Therefore, all the above factors/activities of the Trust, which are being carried out right from the inception, would only indicate that the activities are for advancement of general public utility, as ordained in Clause 3 of the Trust D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the event of investment alone. The controversy is focussed upon the connotation of the words lend and invest . As these expressions are sought to be made applicable in different situations, the legitimate inference is that they bear a distinct interpretation in the context of the set up and synonymity is ruled out. In commercial parlance, lending is associated with advancing money for an agreed rate of interest returnable within a specified period or on demand. Though the expression invest in a broad sweep takes in lending also, it can be considered as confined to laying out the amount in a venture or institution with a profit motive and with no promise of assured return. It is not feasible to survey the multifarious mode of investment and it is sufficient to indicate prominent modes to convey the width of the expression invest . Investment involves laying out the amount in partnership firms, shares in joint stock companies, real estate business and such other concerns or businesses. In the process of investment, an element of risk is involved and the expectation of return or profit is not assured and the depletion of capital itself is not an abnormal feature. In the case of lendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der investment so as to attract the denial of exemption under clause (h). The amount is advanced on an agreed rate of interest and, therefore, the transaction is within the fold of lending and it cannot be considered as an investment. The lending in clause (a) should be supported by adequate interest or security. The Appellate Assistant Commissioner found that the rate of interest at 12% is normal and adequate and the firm is financially sound and the Appellate Tribunal confirmed the finding. Therefore, the assessee is entitled to exemption under section 11 and the conditions under section 13(2)(a) are satisfied and section 13(2)(h) is not applicable. 30. From the facts in issue, we reiterate that the principal amount was repaid on 26.02.2001 and interest on 15.05.2002, while other association repaid the principal amount of Rs.30,00,000/- with interest aggregating to Rs.46,60,000/- between October 2003 and March 2008. The interest liability in both the cases was recognized on accrual basis from the beginning i.e., from 03.11.1995 and the actual interest was accounted on cash basis, as the Trust accounts for its receipts and payments on cash basis. Hence, there is no violation of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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