TMI Blog1989 (4) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of its objects and general public utility ; (b) alternatively and without prejudice to the above the CIT(A) wrongly held that assessable profits and gains amounted to Rs. 3,67,700 by ignoring to deduct considerable expenditure from the gross receipts earned from carrying on the alleged business activity ; (c) CIT (A) erred in treating the receipts arising from selection of personnel, course receipts, consultancy services, publication and hiring of machinery as business receipts and (d) CIT(A) erred in upholding the application of section 11(4A) to the case by the assessing officer for denying exemption under section 11. 2. In ground No. 5 charging of interest under section 217 is contested. In ground No. 6, which is again alternative, it has been stated that net income, if at all, should be Rs. 3,239. The last ground reads as follows :--- " Assuming but not admitting that certain profits and gains arise from carrying on the impugned activity--the consequent of such assumption would lead to computation of loss under other heads of income, which is necessarily to be set off against the assessed profits and gains of business." 3. To understand and adjudicate the issues som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjects of the Institute. 9. To institute and establish grants, scholarship awards and prizes for encouragement of study in the art and science of marketing and management 10. To promote and maintain effective liaison with all organisations interested in marketing and management in India and abroad. 11. To provide offices, conference rooms, libraries, reading rooms, clubs, workshops, laboratories or other buildings and conveniences in connection therewith, and to furnish, equip and maintain and conduct the same, and to permit the same and other purpose of the Institute to be used for members either gratuitously or for payment 12. To enter into any arrangement or agreement, with any other Institute or association having objects similar to the Institute and to join any association or amalgamation of Institutes or associations having such similar objects and to grant affiliation to any institute or association having such similar objects. " 13. To collect and circulate statistics and other information relating to marketing and management " in all its branches. 14. To accept subscriptions from member or donations from members and others in furtherance of all or any of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... membership of the Society was drawn from Government departments, statutory bodies, public sector companies, the co-operative sector and the private sector companies, as also from various professionals, academicians and those interested in various fields of marketing management. 7. The Society had all along been assessed as an Association of Persons and its income was being exempted under section 11 on the ground that the assessee was a charitable society. Up to assessment year 1978-79 all along the income had-been assessed at Nil. The assessment for the assessment year 1979-80 was completed by the ITO on 27-2-1982 and, as in the past, the assessee was allowed exemption under section 11 and total income computed at Nil. Subsequently, the CIT, Delhi-VI exercising his powers under section 263(1) of the Act issued a notice by raising the following issues :-- "(i) Applicability of section 13(1)(c) as regards payment of Rs. 1,24,692 as remuneration and other benefits (including the commission of 10% of the gross revenue payable) to Dr. Jagjit Singh and his relatives being persons covered by section 13(3) had not been considered by the ITO. (ii) Payments made to Dr. Jagjit Singh fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11(4A). 10. There being no dispute that the Institute activites remained the same right from the beginning, it is considered expedient to reproduce paras 26 to 28 of the Tribunal order for 1979-80 because of two clear findings recorded therein that the assessee was not carrying on any business and that the provisions of section 13(1)(bb) were not applicable :-- "26. The next objection relates to the applicability of section 13(1)(bb). We have already reproduced this provision. Attention was invited to the objects of the Institute. Some of these object clauses have been reproduced in paragraph 1 supra. The submission is that the assessee is engaged in a charitable purpose relating to the advancement of an object of general public utility not involving the carrying on of any activity for profit. Attention is invited to the finding of the ITO in the asst. order for this year. He has recorded there that the objects of the Society are to conduct research in the field of Marketing and Management. This particular finding has not been disputed by the CIT in his order under section 263, and yet he has invoked section 13(1)(bb), which refers only to the first three categories of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessment year 1980-81 passed on 29-10-1982 under section 143(3) exempting the income of the institute under section 11. In any case, the submission is, in terms of section 13(1)(bb) only the income derived from such business viz. Rs. 8,230 can be brought to tax and not the entire income of the institute. 28. In our view, there is no case for holding that the assessee is engaged in a business activity. All along in the past, it has been held that the objects of the assessee are to conduct research in the field of marketing and management. In none of the prior years, it has been held that the object clauses were covered by any of the first three categories of the definition of 'charitable purpose' in terms of section 2(15). It has not been held at any time in the past or by the CIT for this year that the dominant objects of the assessee society include relief of the poor, education medical relief. There is no doubt a mention of 'education' in object clause (2) of the Memorandum of Association. But such education is only an incidental part of the activities of the institute. It is difficult to describe the institute, on the facts on record, 'as a charitable trust or institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Receipts from publication, subscription, sale and advertisements have also remained in the same vicinity, inasmuch as, there is increase of only less than Rs. 7,000. The fee for selection of personnel, however, is of the order of Rs. 2,05,426, against which expenditure, as given at page 49 of the paper book, is very substantial. It can be nobody's case that training programme courses, seminars and conference receipts etc. could be said to be business income though there are substantial increase in such receipts, as there are corresponding increase in expenses also. 14. The important factor to be noticed is that the surplus only amounted to Rs. 3,229 against the receipts of Rs. 26,12,801. Another aspect, which goes to the root of the matter, is Article 26 of the Memorandum of Association, which stipulates that 3/5th of the members of the Institute may determine that the Society may be dissolved and in such event of the matter, since it is a non-profit body, no part of the property could be distributed amongst the members of the Society but it shall be given to some other Society, to be determined by the votes of not less than 3/5th of the members personally or by proxy at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. In the context of the basic controversy before us we consider expedient to extract part of the said judgment at pages 23 and 24 as follows :-- "The word 'involve' according to the Shorter Oxford Dictionary means 'to enwrap in anything, to enfold or envelop ; to contain or imply'. The activity for profit must, therefore, be intertwined or wrapped up with or implied in the purpose of the trust or institution or in other words it must be an integral part of such purpose. But the question again is what do we understand by these verbal labels or formulae ; what is it precisely that they mean ? Now there are two possible ways of looking at this problem of construction. One interpretation is that according to the definition what is necessary is that the purpose must be of such a nature that it involves the carrying on of an activity for profit in the sense that it cannot be achieved without carrying on an activity for profit. On this view, if the purpose can be achieved without the trust or institution engaging itself in an activity for profit, it cannot be said that the purpose involves the carrying on of an activity for profit. Take, for example, a case where a trust or instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose is specifically stated to be promotion of sports by holding cricket matches on commercial lines with a view to making profit, there would be no scope for controversy, because the purpose would, on the face of it, involve carrying on of an activity for profit and it would be non-charitable even though no activity for profit is actually carried on or, in the example given, no cricket matches are in fact organised." 17. The next question would be whether the term "business" and the term "activity for profit" are synonymous and there should be no dispute in that regard that such is the case, in view of the principles enunciated by the Hon'ble Supreme Court in the above-noted case. 18. Before us, for both the sides our attention was invited to the Supreme Court judgment in the case of State of Gujar at v. Raipur Mfg. Co. Ltd. [1967] 19 STC 1. 19. For the assessee, to impress upon us that the word "business" is a word of indefinite import and in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit, and to regard an activity as business there must be a cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence. 23. Mr. Durgesh Shankar next submitted that for business motivation was not necessary, as even an mountaineering adventure could be considered as business. Next he submitted that in the earlier years the Tribunal was misled by the assessee by pleading that the element of profit was necessary ingredient of a business. We do not have to say much to reject such contention as completely devoid of merit, because there could be no question of the Tribunal being misled, particularly on a question of law, and to repeat, when the Revenue had not even sought references for the earlier years. 24. Next Shri Durgesh Shankar referred us to the Finance Minister's speech while introducing Finance Bill of 1983 and sought to draw support from the statement that some trust carried on business on commercial lines and derived income therefrom and there was no reason why such business income should not be brought to tax and the proposal was that business income of all charitable and religious trusts would be subjected to tax. His contention was that even if it could be said that the assessee applied its income for its objects which were of charitable in nature, but still there could be no exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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