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TMI Blog2025 (1) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the ITAT has decided the issue as stated hereinabove in favour of the assessee. Accordingly, we quash the revisionary order passed u/s. 263 of the Act. Appeal of the assessee is allowed. - Shri Rajesh Kumar, AM And Shri Pradip Kumar Choubey, JM For the Assessee : Shri Sunil Surana, AR For the Respondent : Shri Praveen Kishore, CIT, DR ORDER PER SHRI RAJESH KUMAR, AM This appeal filed by the assessee is against the revisionary order passed u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) of Ld. CIT(E), Kolkata dated 28.03.2024for AY 2018-19 arising out of assessment order passed u/s. 143(3) r.w.s. 143(3A) 143(3B) of the by Assessing Officer, National e-Assessment Centre, Delhi dated 12.04.2021. 2. The only issue raised by the assessee is against the revisionary order under section 263 of the Act passed by CIT(E) and holding that proviso to sec. 2(15) of the Act was applicable to the assessee and thus setting aside the assessment framed. 3. At the outset, the Ld. Counsel for the assessee submitted that the Ld. CIT( E) invoked the revisionary jurisdiction u/s. 263 of the Act for proposing to pass a modified assessment order after conducting enquiry and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable. The relevant finding of the Tribunal reads as under: 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 that the Co-ordinate Bench while passing the above order has 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- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned 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 charitable income/receipts. We also note that during the year 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 miscella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 protect and promote trade, commerce and industry has been organizing the activities of seminars, meetings and conferences in order to disseminate knowledge on 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 participativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 receipts such as interest, rental and 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 theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 or business, or 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 Memorandu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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 activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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] 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table 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 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 dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating 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 entitledto 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust 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 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subsection (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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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