TMI Blog2024 (2) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... y even though it is for general public utility has exceeded the threshold of Rs. 10 lakhs and Rs. 20 lakhs, therefore, it is not entitled for exemption u/s. 11 for these years - The activity of the trust for publishing advertising in the newspaper is intrinsically linked for newspaper activity falls within the ambit of sub-clause (i) of Subsection 2(15) and conditions imposed in sub-clause (ii) of the proviso has to be fulfilled. The moot question is, whether the receipts from such activity itself is in the nature of trade, commerce or business or any activity of ranging in services in relation to any trade, commerce or business has to be examined. If the assessee is generating revenue from the activities for which it has been granted status of charitable nature, then whether it falls within the main section 2(15) itself or its activities are hit by proviso has not been discussed by the authorities below, both by the AO and ld. CIT(A) who have simply stated that since receipts of the assessee had crossed the limit of Rs. 10 lakhs, therefore, benefit of Section 11 cannot be granted. Before deciding this issue, it is incumbent whether its activity for which it has been granted regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,763/-,. Similarly, in A.Y.2012-13 out of the gross receipts of Rs. 19.39 Crores, the income from subscription for IRS report is 10.30 Crores. In A.Y.2013-14 again it is Rs. 20,88,44,490/- and income is Rs. 11,28,60,307. Thus, it cannot be said that there is a nominal income from the main activity of the assessee. Hence, the calculation given before us at the threshold does not appear to be correct which needs to be verified by the AO. Thus, the working which has been given, we find that it does not give the correct picture of margins from the sale of reports and therefore, this plea also needs to be examined by the AO in line with the judgment of the Supreme Court. Accordingly, the entire issue is remanded back to the AO to examine, 1.Firstly, to be decided in accordance with the judgment of the Hon ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra); and application of criteria of the threshold and the issue discussed in paras 23 to 27 of this order. 2.Whether its main activities for which it has been granted the status of charitable entity u/s. 12A who is carrying out one activity which is the object of general public utility then on what basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to any party. d. To disseminate the findings of such survey and/or research through any medium with or without charge. 4. Memorandum of Association clearly provide that income and property of the assessee shall be applied only for promotion of the objects of the assessee and no portion of income or property shall be paid or transferred directly or indirectly. Looking to its activities of general public utility, it was registered u/s. 12A on 07/06/1994 and it continues to enjoy such registration during the years under consideration. It has also been informed that assessee s application for registration under the amended provisions of Section 12AB of the Act for the A. Yrs. 2022-23 to 2026-27 has also been accepted by the department and there is no dispute that the objects of the assessee fall within the category of advancement of any other object of general public utility . 5. It has also been stated that benefit of Section 11 of the Act has been allowed in the past by the department and for the A.Yrs. 1998-99 to 2002-03, the Tribunal has held that its objects are charitable in nature and benefits of Section 11 cannot be denied. It has filed its return of income on 30/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 44,93,857 Add: Provision for gratuity 45,936 Leave encashment 1,32,587 1,78,523 1,25,85,794 Depreciation as per I.T. Act 3,61,536 Total Income 1,22,24,258 Rounded off 1,22,24,260 7. The ld. CIT(A) has confirmed the said finding of the AO holding that its income from its activities are above Rs. 10 lakhs which have been received by charging of fees, sale of dissemination of research and findings of survey / search reports relevant to advertisement business, etc. The dissemination of research report is not without any charge but assessee has realised huge revenues from such activity. Accordingly, he confirmed the said observation and finding of the AO. Before the ld. CIT (A), assessee has also raised that principle of mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 9,88,60,859 95.98% 41,39,777 4.02% 2013-14 11,00,91,082 97.55% 27,69,225 2.45% 9. Thus, it was submitted that revenues derived from members are more than 90% of the total revenue and from small percentage is from non-members. 10. Regarding the observation and the finding by the authorities below that activities carried out by the assessee is in the nature of trade, commerce or business and thus, proviso of Section 2(15) of the Act applies, Mr. Pardiwala submitted that for an activity to be regarded as trade, commerce or business or an activity in the nature of trade, commerce or business, it has to be carried on in a regular systemized manner with a profit motive. The memorandum of association of the assessee prohibits distribution of profits or surplus on winding up or otherwise. Therefore, there can be no profit motive for the assessee to carry out its activities and pursue its objects. It is undisputed that the activity carried out by the assessee is in accordance with its main objects. 11. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, it must be regarded as a charitable as well as a mutual organization. Moreover, there is no allegation that its activities are not genuine or not carried out in accordance with the main objects. Regarding applicability of the proviso, ld. Sr. Counsel submitted that the activity carried out by the assessee in the absence of any profit motive cannot be held to be in the nature of trade, commerce or business nor can it be said it is an activity of rendering any service in relation to any trade, commerce or business as a sine qua non for an activity to be considered as a business is the motive to earn profit. During the course of hearing, the judgment of Hon ble Supreme Court in the case of ACIT (Exmptions) vs. Ahmedabad Urban Development Authority (2022) 449 ITR 1(SC) was also discussed in detail. After referring to para 141-143, he submitted that profit motive is necessary for an activity to be hit by the proviso to Section 2(15) of the Act. Then after referring to paras 170 to 173, he submitted that the Hon'ble Supreme Court has categorically held that merely because there is a surplus/ profit from the activities carried out would not mean that the trust is not carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities fell within the limit prescribed under the second proviso to section 2(15) of the Act was gone into. Similarly in the case of the Tribune trust, the Hon'ble Court at paragraph 241 found that the receipt from advertisements exceeded the threshold limit provided under the proviso to section 2(15) of the Act and, therefore, in paragraph 245, it has been held that the proviso was applicable. Therefore, only in cases where the assessee carries on an activity other than the activity as per its main objects can the question of applying the limits laid down in the proviso to section 2(15) arise, In cases such as the assessee, since the only activity in question is the activity carried on as per the main objects, the question of applying the limits would not arise. 14. He further submitted that the Hon ble Supreme Court in the case of Ahmadabad Urban Development Authority particularly made observations in para 170-176 and para 200- 211 has been considered in detail that ITAT Mumbai Bench in the case of, The Gem Jewellery Export Promotion Council vs. ACIT (Exemptions) Range 2(1) in ITA No.752/Mum/2017 and ITA No.989/Mum/2019) and it was held that costs are recouped with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h into readership, viewership and listenership of various media and dissemination of research to various members and non-members who are basically industrial business entities. There are more than 165 members to whom assessee has sold subscription for IRS reports. These IRS reports are prepared from outside agencies which are research agencies to whom research are outsourced and then sold to members and in some cases to non-members at slightly higher prices. The case of the Revenue is that since assessee s receipts from its activity even though it is for general public utility has exceeded the threshold of Rs. 10 lakhs and Rs. 20 lakhs, therefore, it is not entitled for exemption u/s. 11 for these years. 18. This issue of proviso to Section 2(15) in the case of institutions carrying out object of general public utility has been discussed in detail by the Hon ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra). Certain relevant paragraphs of the Hon ble Supreme Court for the sake of ready reference are reproduced hereunder:- 167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (i) to proviso to section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of section 11(4A). Further, the obligation under section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner. 169. The conclusion recorded above is also supported by the language of seventh proviso 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 condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits do not exceed 20% of its overall receipts. 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as conducting paid workshops, training courses, skill development courses certified by it, and hires venues which are then let out to industrial, trading or business organizations, to promote and advertise their respective businesses, the claim for GPU status geeds to be serutinised more closely. Such activities are in the nature of services in relation to trade, commerce or business. These activities, and the facility of consultation, or skill development courses, are meant to improve business activities, and make them more efficient. The receipts from such activities clearly are fee or other consideration for providing service in relation to trade, commerce or business. 203. The revenue has appealed to this court, in respect of two assessment years, in the case of Apparel Export Promotion Council (AEPC). The objects of AEPC, which was set up in 1978- include promotion of ready- made garment export. To achieve that end, its objects include providing training to instil skills in the workforce, to improve skills in the industry, guide in sourcing machinery, to serve as a body advising. providing information on market or technical intelligence, assisting the concerned indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amended position of law in the following manner:- 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, then activity should be intrinsically linked to, or is part of the GPU category charity's object. the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure from the previous law, that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective; and equally important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit. The Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial, trading of business organisation to promote and advertise their respective business, then the claim for GPU status needs to be scrutinized more closely. Such activities are in the nature of services in relation to trade, commerce or business. Thus, receipt from such activity clearly are fee or other consideration for providing services in relation to trade, commerce or business. In para 202 (supra), after citing examples of activities of AEPC the Hon ble Court held that these activities carried out cannot be held that it does not have any element of trade, commerce or business or service and the activities carried out by it, has to be examined, whether they are in the actual course of carrying on the GPU activity or not. In such a case, for each year, the question would be whether the quantum from these receipts, and other such receipts are within the limit prescribed by the sub-clause (ii) to proviso to section 2(15). If they are within the limits, AEPC would be for that year, entitled to claim benefit as a GPU charity. Thus, judgment of the Hon ble Supreme Court has clarified the law post insertion of the proviso to Section 2(15). 22. The sequitur of the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of trade, commerce or business for a consideration to fulfill its GPU objects, then the receipts from such activity should not cross the threshold limit of Rs. 10 lakhs, Rs. 20 lakhs or 20% of the total receipts. Now, if there is only one activity and there are no other receipts from any other activity, then the issue would arise is how to calculate the threshold limit of 20%. If activity carried out in pursuance of that object which is the only activity, then whether registration u/s. 12A should at all be granted, because, ostensibly the receipts will always will fall in the scope of the proviso if the limit provided therein is crossed; or the mandate of law is that such institution or body should not cross the threshold at all. If that is the purport, then activity per se does not qualify under main section 2(15). In our view, this cannot be the true purport of the section or the judgment of the Hon ble Supreme Court. What needs to be examined, if there is any activity which is hit by proviso, then only benefit can be denied. Another view of looking into the proviso is that, during the course of carrying out activity of objects of GPU, it undertakes any activity which falls int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y activity for GPU charity which involves any such activity which is in the nature of trade, commerce or business, then threshold imposed for the quantitative limit has to be adhered to. Secondly, if charity involves itself any activities that entail charging amounts only at cost or marginal markup over cost and it also derives profit, then such profit should not exceed 20% of its overall receipts. That means the Court envisioned that if carrying out GPU objective or any other activity which has been carried out, then the receipts from such activity should not exceed 20%. This has been further clarified while explaining the case of trade promotion bodies in para 202 wherein they have held that if the trade promotion s main activity is organizing meetings, disseminating information through publication, holding awareness camps and events would be broadly covered by trade promotion for which it is recognized for GPU. However, only when trade promotion body provides individuals or specialized services which have been elaborated therein and if such receipts are in the nature of fee or other consideration, then it is reckoned to be providing service in relation to trade, commerce or busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade, commerce or business or any activity of ranging in services in relation to any trade, commerce or business has to be examined. If the assessee is generating revenue from the activities for which it has been granted status of charitable nature, then whether it falls within the main section 2(15) itself or its activities are hit by proviso has not been discussed by the authorities below, both by the AO and ld. CIT(A) who have simply stated that since receipts of the assessee had crossed the limit of Rs. 10 lakhs, therefore, benefit of Section 11 cannot be granted. Before deciding this issue, it is incumbent whether its activity for which it has been granted registration u/s. 12A itself per se falls in the category of carrying of any activity in the nature of trade, commerce or business. Only if it carries any other activity which falls in such nature, then only proviso to Section 2(15) would be applicable. 28. Accordingly, we remit this issue to the file of the AO to decide this issue in line with judgment of Hon ble Supreme Court and the principles laid down therein, whether any activity carried out by the assessee falls in the nature of trade, commerce or business or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of margins from the sale of reports and therefore, this plea also needs to be examined by the AO in line with the judgment of the Supreme Court. 32. Accordingly, the entire issue is remanded back to the AO to examine, Firstly, to be decided in accordance with the judgment of the Hon ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra); and application of criteria of the threshold and the issue discussed in paras 23 to 27 of this order. Secondly, whether its main activities for which it has been granted the status of charitable entity u/s. 12A who is carrying out one activity which is the object of general public utility then on what basis it has been held that it is in the nature of trade, commerce or business; or whether any activity is being carried out by the assessee other than the main activity which falls in the nature of trade, commerce or business or any activity of rendering any services in relation to trade, commerce or business; or which threshold is to be examined and thirdly, to examine the plea of assessee that it has a very nominal profit or margin from the main activity of selling of IRS report to members and non-members ..... X X X X Extracts X X X X X X X X Extracts X X X X
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