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TMI Blog2025 (3) TMI 286X X X X Extracts X X X X X X X X Extracts X X X X ..... DR ORDER PER BENCH: This appeal by Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-40, Delhi in appeal No.298/2016-17 vide dated 04/01/2018. Assessment was framed by Income Tax Officer (Exemption), Ward-22, New Delhi for the Asst. Year 2014-15 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide order dated 26/12/2016. 2. The only issue in this appeal of Revenue is as regards to the order of CIT(A) allowing exemption u/s 11 of the Act by holding that the assessee is not covered within the meaning of proviso to section 2(15) of the Act as assessee carrying on objects of the, General Public Utility' (GPU). For this, the Revenue has raised following two grounds:- "1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) was correct in holding that the activities of the assessee of publication of books & training instructions, voluntary training of first aid, hygiene, sanitation, disaster management etc. is in nature of education within the meaning of section 2(15) of the IT Act. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in not appreciating the fact that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which is commercial in nature and the activity carried on by the assessee falls under 'Advancement of any other object of public utility. In view of this it was held that both the proviso to section 2(15) are applicable in this case and that the assessee is not entitled to claim the benefits of exemption under sections 11 and 12 of the Act as the activities carried on during the year are not charitable. The income of the assessee was assessed as normal AOP. Further, whole of the surplus generated from business activities of the assessee was held to be liable to tax as normal business income. Depreciation on fixed assets purchased in the earlier years was not allowed as the same had already been treated as application in the earlier years. Income was assessed at Rs. 1,83,66,000/-. Aggrieved, assessee preferred appeal before CIT(A). 5. The CIT(A) after considering the submissions and documents of the assessee hold that the assessee is eligible for exemption u/s 11 of the Act. For this, CIT(A) relied on his predecessor orders for Asst. Year 2012-13 (which is noted in the CIT(A)'s order) and he observed in para 4.2.2 to 4.2.6 as under: - "4.2.2 I have considered the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of my ld. predecessor, it is held that the assessee is carrying out training and education relating to paramedic and nursing and also charging fees for such education and training and it is apparent that the assessee is carrying out educational activities and will, therefore, be not covered by the proviso to section 2(15). Hence, the Assessing Officer is directed to allow exemption under sections 11 and 12 with all consequential benefits as was done for assessment years 2011-12 and 2012-13. 4.2.4 Since exemption under section 11 has been allowed, the issue of taxing of surplus and allowing 15% deduction becomes infructuous. 4.2.5 As regards the issue of depreciation, the Hon'ble Delhi High Court, in the case of DIT(Exemption) vs. Indraprastha Cancer Society in ITA No. 240, 348, 406, 463 & 464/2014 vide the order dated 18.11.2014, have held that the assessee is eligible for depreciation in the case of charitable or religious institution also. Further, recently in the case of Commissioner of Income-tax-III, Pune vs. Rajasthan and Gujarati Charitable Foundation, Poona in Civil Appeal No. 7186/2014 vide order dated 13/12/2017, the Hon'ble Supreme Court have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Surat Art Silk (supra), the court had articulated the determinative test for defining whether a Trust was a GPU charity if its predominant object was to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se deprive it of tax exemption. This decision was interpreted in the context of Section 11(4A) by this court in Thanthi Trust, to hold that business can be incidental to attainment of the trust's objects. 167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity's object. Thus, the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported by the language of seventh proviso 142 to Section 10(23C). Whereas Section 2(15) is the definition clause, Section 10 lists out what is not income. Section 10(23C) - by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of Section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso - much like Section 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes Section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. 170. Classically, the idea of charity was tied up with eleemosynary 143. However, "charitable purpose" - and charity as defined in the Act have a wider meaning where it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15)." In similar circumstances as in the present case, the Hon'ble Supreme Court, further, from paragraphs 247 to 252, has considered issue, as under: "247. The revenue appeals a decision of the Allahabad High Court affirming the order of the ITAT which had directed the CIT to grant registration under Section 12AA of the Income Tax Act. 248. The assessee is a registered society which was formed with the object of establishing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into by the assessee with the State or its agencies. If on the basis of such contracts, the accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards supplying the services, the activity may fall within the description of one advancing the general public utility. If on the other hand, there is a significant mark-up over the actual cost of service, the next step would be ascertain whether the quantitative limit in the proviso to Section 2(15) is adhered to. It is only in the event of the trust actually carrying on an activity in the course of achieving one of its objects, and earning income which should not exceed the quantitative limit prescribed at the relevant time, that it can be said to be driven by charitable purpose. 252. This court, in the normal circumstances, having regard to the above discussion, would have remitted the matter for consideration. However, it is apparent from the records that the tax effect is less than Rs. 10 lakhs. It is apparent that the receipt from the activities in the present case did not exceed the quantitative limit of Rs. 10 lakhs prescribed at the relevant time. In the circumstances, the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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