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TMI Blog2025 (2) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... ell and therefore protected by CBDT Circular (supra) as well. It is also not the case of the revenue that the assessee established Pharmacy store exclusively for outpatients/outsiders and has utilized surplus from the operation of the chemist shop, for other objects than the prescribed objects. Hence on the aforesaid analysis, we hold that receipts from renting of Pharmacy shop is incidental and ancillary to the dominant object and purpose to provide medical facility, and thus the assessee complies with first condition of section 11(4A) of the Act. In respect of the Interest earned by the assessee on FD, PCO receipts, Miscellaneous income, receipt from sale of scrap, canteen, lunch & farm receipts, received from sale of machines, received from nursing course fee we note that even if test of income directly arising from property of Trust is applied, interest directly accrues on funds of the Trust. Interest income will fall under section 11(1)(a )in respect of the receipt from letting out of assessee's premises, belonging to the educational institutions of the assessee, it is a well-settled principle of law that the test to determine as to what would be a charitable purpose within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1975. The assessee has also been granted certificate under section 80G of the act with effect from 01/04/1992. It is submitted that as on date, both these certificates are valid and in force. It is submitted that, the assessee is running 12 institutions established in different parts of the country covering hospitals, educational institution, imparting education to pre-primary, primary and high school etc. It is submitted that, all these institutions are focused on imparting education to the poor people, especially to tribal population. It is also submitted that, the assessee runs hospital by the name St. Elizabeth Hospital, at Mumbai having about hundred beds which is one of the major institution of the assessee. It is submitted that, the assessee is running following institutions under its banner: Reproduce table at page 2-3 of CIT appeal order 2011-12 S. No. Name of Unit Place Activity 1. St. Joseph's Convent Bandra Preprimary, high school, boarding school 2. St. Joseph's Convent Primary Section Bandra Primary School 3. Priti Sagar Collem/ Tilamol GOA Primary, Formal Education 4. Sacred Heart Convent Hubli Pre Primary, Primary, High School 5. Holy Family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of the society. 5. .............. 10. And generally to carry out such measures as are incidental or conducive to the attainment of all or any other objects. The above objects have been placed at page 6-7 of the paper book. 2.3. The assessee for the year under consideration furnished along with the return of income computation of income, income and expenditure account, balance sheet and audit report in Form 10B, declaring total income to be 'Nil'. It is submitted that, the assessee was issued certificate for 'Nil' TDS, which is placed in the paper book. 2.4. The Ld.AO noted that, for all the years under consideration the assessee received income by way of; i) royalties, ii) agency commission, iii) ground amenities, iv) canteens, v) farmhouse income, vi) lunch income, vii) sale of scrap, viii) miscellaneous income, ix) nursing course fees, x) incentives, xi) rent income. 2.4.1. During the assessment proceedings, the Ld. AO issued show cause notices for all the years under consideration calling upon assessee to explain, as to why, receipts from above referred activities should not be treated as business income under section 2(15) of the act. 2.4.2. For assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above irregularities I think the AO has rightly treated the above mention income as business income and disallowed the exemption u/s 11 of the Act. As such the appeal of the appellant is dismissed." For assessment years 2010-11 to 2018-19. 2.5.1. The observations of the Ld. CIT(A) are similar for all the remaining years. For sake of convenience the observations of the Ld. CIT(A) has been reproduced for assessment year 2010-11 as under: "Being aggrieved with the order u/s 143(3) of the act dated 20/03/2014 this appeal was filed by the appellant. During the course of appeal proceedings the appellant filed explanation which is considered. From the said explanation, it is found that activity of Hiring of marriage Hall and ground, Royalties from caterers, Agency commission and Rental income are derived from appellant society. In this regard reliance is placed on the decision of Hon'ble Supreme Court in the case of Sole Trustee, Lok Shikshan Trust vs. CIT (101 ITR 234), even though it is incidental to its main activity of providing business education. Since it is a organized systematic activity, it can be called business incidental to the main object of the society. The hal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it accordingly. Sr. No. Activities carried by assessee A. Receipt under the head royalties B. Receipt from use of ground amenities and agency commission. C. Receipt from running canteen, lunch home and farm. D. Receipt from sale of scrap. E. Receipt from Nursing course fee. F. Receipt from Miscellaneous sale. G. Receipt from sale and machinery H. Receipt of interest on FD. I. Receipt from PCO. 3.2. The Ld.AR submitted that from the above activates income received by the assessee are incidental to the main object of the trustee and is not out of any organised, systematic activity, as held by the Ld. AO/NFAC. It is submitted that, the assessee runs its medical and educational institutions at various places Bandra, Panchgini, Igatpuri, Hubli etc. it is submitted that the assessee has its main object to establish, conduct, maintain, administer and carry on medical and educational institutions for the benefit of women and children. 3.3.With this backdrop, the Ld.AR submitted that Ground No.3, 6, 7, 8 raised by the assessee is challenging various disallowances made by the Ld.AO under various heads vis-à-vis the requirements under section 11 of the act. 3.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above income is ancillary to the main objects of providing medical relief. B. Receipt from use of ground amenities and agency commission: B.1. The Ld.AR submitted that, the assessee runs a school at Bandra under the name St Joseph's Convent High School and St Joseph's Convent Primary School at Hubli, Igatpuri and other places. It is submitted that, these education institutions have open ground attached to it. The Ld.AR submitted that, after the school hours and for on holidays these grounds remain unutilised. In order to generate some resources for educational activities, the school thought fit to allow its use by outside people for functions. B.2. The Ld.AR submitted that, instead of dealing with various outside people directly, the assessee thought fit to avail services of one Mr.Soharab Zorabian and Mr.Augustino Ferraz to deal with the people requiring the use of ground for a few hours during holidays or when the ground was not in use. It was submitted that, the assessee assumed no expenses, responsibility, liability or risk whatsoever; In terms of agreement dated 01/10/2007 between the assessee and Mr. Augustino Ferraz, the latter was appointed as agent for the purpose of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to earn income to fulfil and apply the same for the main objects of the assessee. He submitted that, similar was the view taken by Hon'ble Madras High Court in case of CIT vs Sri Rao Baghadur Dharamraj educational charity trust reported in 300 ITR 365 and CIT vs Grdhandas Bhagavandas charitable trust reported in 136 Taxman 161. The Ld.AR also relied on the decision of Hon'ble Calcutta High Court in case of CIT vs Sahujain trust reported in 56 DTR 402, wherein it was held that invoking section 11(4A) was also held to be bad in law. C. Receipts from canteen, lunch home and farm: C.1. The Ld.AR submitted that, canteen is run at various schools for exclusive benefit of the students At St Elizabeth Hospital Canteen is run for the benefit of the patients and their families, who come for treatment. It is submitted that, this negligible of the surplus. Ld. AR. submitted that by selling the foodstuff for the benefit of the students and the parents of the families and the activity is the only in furtherance of the object of the society as canteen provision in the schools and hospitals are basic facilities that are necessary to be provided to the patients their families and the students an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its medical activities and is important to provide training to the nurses in order to render proper treatment and care for the patients in the hospital. The Ld.AR submitted that these training also provides assistance to the women to become self-sufficient and are conducted for those who are poor and not qualified as nurses but to educate and train them as nursing aides. The Ld.AR drew our attention to page number 316-317 of the paper book wherein the details of the receipts have been given. F. Receipt from Miscellaneous sales: The Ld.AR submitted that, these receipts are out of sales from school uniforms, notebooks, stationeries at the school premises of the assessee for the students who are being enrolled to the educational institutions run by the assessee. It is submitted that, these are integral part of the activity carried on by the assessee of rendering education to the general public at large. The Ld.AR placed reliance on the decision of Hon'ble Andhra Pradesh High Court in case of CIT vs V. Vijay Vani Educational Trust reported in 349 ITR 280 and decision of Hon'ble Madras High Court in case of DIT (E) vs Chartered Accountancy Study circle reported in (2012) 347 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... high rate of interest. H.3. The Ld.AR referring to the provisions of section 11(1)(a) of the act submitted that, the requirement for claiming exemption on such income is that it should be derived from the property held in trust for charitable purposes. It is submitted that the assessee invested the amounts in fixed deposit over period of Time, which is permitted mode under section 11(5) of the act. It is submitted that, the amount is out of accumulation of income under section 11, and also account of receipt from corporate donations. The Ld.AR thus emphasised that the interest so earned qualify for being exempted under section 11. H.4. The Ld.AR referred to page number 215-241 of the paper book wherein details of the deposits maintained with various banks and the interest earned are provided, which forms part of the record for the authorities below. He placed reliance on the decision of Hon'ble Punjab and Haryana High Court in case of CIT vs Punjab energy development agency reported in (2010) 323 ITR 463 and the decision of Hon'ble Delhi High Court in case of ITO vs Jesuit conference of India reported in 131 TTJ 725 wherein the Hon'ble courts envisaged that, the investment has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon'ble Gujarat High Court in case of DIT vs Ahmedabad Management Association reported in 366 ITR 85, wherein it was held that on fair reading of section 2(15) of the act, the newly inserted proviso to section 2(15) of the act will not apply in respect of relief to the poor, education or medical relief. Thus where the purpose of trust institution is relief to the poor, education or medical relief, it will constitute "charitable purpose", even if it is incidentally involved in carrying on of commercial activity. 4.2. The Ld.AR submitted that, from the memorandum and articles of association and from the activities carried on by the assessee, it is clear that the dominant object is establishing, maintaining and running medical and educational institutions. He further submitted that, for securing its primary aim as mentioned in the memorandum of association, the assessee has to take necessary steps to carry out measures as are incidental to or conducive to that the of its primary objective. In support of this contention the Ld.AR please reliance on the decision of Hon'ble Supreme Court in case of CIT vs Sandra Chamber of Commerce reported in (1965) 55 ITR 722 and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncidental and ancillary to the dominant object for conducting the educational medical activities and the said income were always utilised only for the purposes of feeding its dominant purpose. He the submitted that assessee cannot be denied benefit under section 11 of the act in respect of revenues generated from such ancillary activities are to be granted exemption. In support of the contentions the Ld.AR placed reliance on following decisions: 1. Decision of Hon'ble Supreme Court in case of Queens Educational Society vs CIT reported in (2015) 55 taxman.com 255 2. Decision of Hon'ble Supreme Court in case of Commissioner of sales tax vs. Sai Publication Fund reported in (2002) 258 ITR 70 3. Decision of Hon'ble Madras High Court in case of CIT vs Janakiammal Ayyandar Trust reported in (2005) 277 ITR 274 4. Decision of Hon'ble Delhi High Court in case of India Trade Promotion Organisation vs CIT (A) and others reported in (2015) 229 taxman 347; 4.7. On the contrary, the Ld.DR placed reliance on the decision of Hon'ble Supreme Court in case of Sole Trustee, Loka Shikshna Trust Vs.CIT reported in (1975) 101 ITR 234.The Ld.DR opposed the submissions of the Ld.AR. He conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arity relevant clarification reads as under: "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." Therefore, as per the provisions of section 11(4A), we have to consider, as to whether the receipts from various activities as analyzed hereinabove are incidental to the objects of the Assessee/trust. 5.2. Hon'ble Bombay High Court in the case of Baun Foundation Trust reported in (2012) 73 DTR 45 took into consideration the situation, wherein the general public was also using the facility of chemist shop. In Baun Foundation Trust (supra), exemption under Section 10(23C)(via) of the Act was in question. Hon'ble Bombay High Court referred to the decision of the Hon'ble Supreme Court in case of Aditanar Educational Institution reported in (1997) 90 Taxmann 528 to hold that, a hospital must of necessity have a section or depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om property of Trust is applied, interest directly accrues on funds of the Trust. Hon'ble Bombay High Court in case of CIT v. Pruthivi Trust reported in (1980) 124 ITR 488 observed that:-- "In order to ascertain the scope and ambit of the expression 'income derived from property held under trust' reference can be held to the decision of this Court in J.K. Trust v. CIT(1953) 23 ITR 143 . In this case, the High Court has held that in order to claim exemption it is not sufficient that the property is indirectly responsible for the income. The income must directly and substantially arise from the property held under trust. For arriving at this conclusion this Court referred to the decision of their Lordships of the Privy Council in CIT v. Kamakhya Narayan Singh(1948) 16 ITR 325 at p. 328, where the definition of the expression has been given of the word 'derived'. At page 151 (of 23 ITR) this Court pointed out: 'Reference might also be usefully made to the definition of the expression 'derived' given by the Privy Council in CIT v. Kamakhya Narayan Singh (1948) 16 ITR 325. It is true that their Lordships were there considering the question of agricu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue that these are business income is not accepted as assessee could have exploited the sources of these income in order to earn huge profit, however the same has not been the intention of assessee. 5.6.2. In the decision therefore relied by the Ld.AR of Hon'ble Supreme Court in case of Sole trustee, Loka Shikshana Trust vs CIT(supra) honourable court observed that the assessee therein had wide powers of utilisation of trust fund for the purpose of the trust but it could also divert it assets as well as any funds of the trust to other institutions whose objects are similar to the object of the trust. The Hon'ble court thus observed that the activities of the assessee was falling within the category of "advancement of any other object of general public utility" and not within the category of "charitable purpose that includes relief of the poor, education, medical relief ". Similar is the observation by Hon'ble Supreme Court in case of Ahmedabad Urban Development Authority (supra). These decisions therefore are factually distinguishable from the present facts of the case and is not of assistance of the revenue in any manner whatsoever. 5.7. We are of the opinion that the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titute and not for any particular person, separate books of account are also maintained, then, this income cannot be brought to tax. This conclusion is also not perverse and given the facts and circumstances which are undisputed." (Emphasis supplied) 5.8. The circular relied by the Ld.AR further clarifies the position. CBDT in para 2 clarified the implications arising from the amendment: "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. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility i.e. the fourth limb of the definition of 'charitable purpose ' contained in section 2 (15). Hence such entities will not be eligible for exemption under section 11 or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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