TMI Blog2013 (9) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the assessee that sometimes the guardians of the girl participants come to the centre to meet them and canteen staff had been instructed not to stop them from taking snacks and lunch if they so want, keeping in mind the fact that the location of the trust was not close to the commercial areas where the guardians of these girls visiting them could have gone. The mere affording of such a courtesy does not lead to the conclusion that the trust was operating on commercial lines. In the courtesy so afforded if the lady Inspector accompanied by two tax advisors were allowed to have lunch/snacks without requiring them to show any identification in no way detracts from the merits of the case - Therefore, decided against Revenue. - ITA No.5502/Del/2012 - - - Dated:- 23-8-2013 - Diva Singh And T S Kapoor, JJ. For the Appellant : Ms Shamuna Sen, DR For the Respondent : Shri Ved Jain and Rano Jain, CA ORDER:- PER : Diva Singh This is an appeal filed by the Revenue against the order dated 31.08.2012 of CIT(A)-XXI, New Delhi pertaining to 2009-10 assessment year on the following grounds :- 1. On the facts and in the circumstances of the case and in law, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running a business on commercial lines. The AO observed that main heads of income of the assessee were as under :- S.No. Items Amount (in Rs.) 1. Hostel/Canteen Activities 28,776,064 2. Auditorium Conference Hall 14,379,330 2.2. The main heads of expenditure noted by the AO were as under :- S.No. Items Amount (in Rs.) 1. Employee/Staff Cost 7,676,857 2. Hostel/Canteen Activities 4,147,031 3. Training Courses Seminars 7,183,175 4. Electricity Water 1,442,410 5. Depreciation 3,056,716 2.3. Considering the legal position on rendering services in lieu of charges. The AO was of the view that the assessee satisfied all the features of business as its nature of activities include providing canteen services to persons using hostel etc, the profit motive is satisfied as the activity is not undertaken merely for a sport and pleasure and instead the persons using the facilities are charged by the assessee. Similarly another feature of business is that the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Youth Centre including the Auditorium. Naturally, the participants is that those who used the canteen have come there are those who have come to the youth Centre connected with the activities conducted. Hence as a matter of courtesy the canteen staffs normally do not able for the identification. These are perhaps the reason that is why your officers when they visited the canteen were entertained without being questioned. 5.3. You would also appreciate that the Youth Center is not located in an area of any commercial activities (surrounded by govt. quarters, embassies i.e. Shantipath, Chanakyapuri Police Station and MP Flats) and therefore, is not intended to be run on a commercial activity basis. It would not be out of place to mention that the Govt. of India has also issued a certificate (copy of the same has already been submitted) that the hostel run by the Kendra is intended for catering to the Youths, Scholars and Professors on temporary basis also if they visits Delhi- Youth Center for any conference / workshop etc. of the Trust. 5.4 As regards your observation that members for Hostel are admitted on arrival basis it may be stated that there is no incongr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies are open for everyone. The statement that the canteen staff did not ask for identification out of courtesy was held to be incorrect. 2.6.1. Similarly the arguments that it was not located in the commercial area was also held to be not tenable. Cognizance was taken of the fact that it was one of the prime locations and the volume of receipts demonstrated that it was regularly visited by customers. The reliance placed on the Certificate issued by the Government in 1970s was held to be not relevant as the assessee had diverted its activities from its original to profit motive. The example of making the facilities of the Auditorium/Conference Hall available to Engineer India Ltd. on rent basis was considered to be an act of business as neither Engineer India Ltd. constituted the youths, scholar or professor visiting Delhi as it was only a corporate entity. 2.6.2. The AO also observed that the production of Membership list called for was only from 01.04.2008 to 31.03.2009 and could not be regarded as a Membership list. Similarly a perusal of the Revenue, summary of the hostel from 01.04.2008 to 31.03.2009 also mentioned various amounts of the fee ranging from Rs.50 to Rs.100 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punjab Urban Planning and Development Authority order of the Chandigarh Bench of the Tribunal to hold that the assessee cannot be said to be engaged in any charitable activity as its activities fall within the purview of the trade, business or commerce. Reliance was also placed upon Small Medium Exporter vs DIT(Exemption), Delhi Bench of the Tribunal and the judgement of the Hon ble Apex Court in MCD vs Children Book Trust (1992) 3 SCC 390. Accordingly it was held that the assessee s claim that it was a charitable institution could not be accepted and a proposal for withdrawal of registration u/s 12AA had already been moved and the assessee was taxed at the rate applicable to AOP, and taxable income of the assessee was computed at Rs.1,74,89,655/-. 3. In appeal before the First Appellate Authority, the assessee filed various grounds which were subsequently revised. It is also seen that in the course of the appeal proceedings letter dated 06.07.2012 was received from the AO which is extracted hereunder from para 4 of the impugned order :- "Assessment order in case of Indian Youth Centre Trust, PAN-AAAT10141C was made on 29.12.2011 and the case was hit by amendment in Sec.2(l5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hi, Shri Ram Krishna Bajaj, etc. whereby the object are a) To establish, maintain and conduct one or more National or 1nternational Youth Centers at Suitable centers in India for promoting international understanding and cooperation and developing youth leadership. b) Each such youth centre may be multi-purpose in character, functioning as a model youth centre for intellectual and recreational service to youth; a cooperating agency for youth organization; a centre for building up youth; leadership through a variety of programs and a counseling bureau 0 advise on various problems confronting youth. c) For the benefit of foreign students and youth delegates as well as individuals visiting India, the youth centre may provide hostel facilities, it may serve as an information centre and provide them with an opportunity for coming in close contact with their counterparts in India and for studying India's efforts to achieve progress through democratic methods. d) The hotel facilities at the youth centre shall be available to students or other persons on payment of such charges as the trustees may decide from time to time. e) The centre may also sponsor programs fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee made further written submissions on merits which is found reproduced in para 6 to para 6.6 of the impugned order. A perusal of the same shows that inviting attention to section 2(15) of the Income Tax Act, it was submitted that the definition of the charitable purpose is an inclusive definition which includes relief to poor, education, medical relief and advancement of any other object of general public utility; that the trust has been engaged in charitable activity all along and getting exemption; that there is no change of activity during the year; that the trust set up way back in the year 1961 with eminent persons who had the privilege of being the Prime Ministers of the country later on, as Trustees; that the object of the Trust was to establish, maintain and conduct national or international youth centres at suitable centres in India; that each youth centre is supposed to be multi-purpose in character; that as per its object the youth centre is to provide youth hostel and boarding house, auditorium for educational/cultural activities, sports centre, cafeteria; that in accordance with this object the trust has set up this Trust Centre at Chanakyapuri and using the same f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attendants, it was argued does not mean that the activities have become non-charitable from charitable. The certificate issued in 1970 disregarded by the AO it was stated continues to be in operation and the belief of the AO that it was not relevant was assailed. The trust it was submitted had been set up for the cause of the youth and the hostel facilities are provided to the youth. It was submitted that the trust is entitled to generate its income from rent, interest by way of bonus, sponsorship etc. 3.5. Accordingly it was contended that the AO is not right in denying the exemption u/s 11(1)(a) of the Act by relying upon the section 2(15) of the Income Tax Act. It was submitted that the reliance placed on the decision in the case of Jalandhar Development Authority is incorrect. As the said authority it was submitted was engaged in selling land and making a profit thereon and there was no charitable activity within the meaning of section 2(15) of the Act. 3.6. Similarly, the reliance placed upon the judgement of the Hon ble Apex Court in the case of Indian Chamber of Commerce was also assailed on the ground that there was a breach by which the profit generated by the Chamber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the activities were commercial in nature were held to be incorrect as the activities were found to be in furtherance of the aims and cause of the objects of the welfare of the youth as such it was held that the view of the AO that it was not covered within the meaning of section 2(15) of the Act was found to be not correct. 4.1. The CIT(A) further elaborated the finding arrived at in para 6.2 by holding that the AO has not been able to appreciate the nature of the hostel and canteen activities and the AO had also not appreciated that the receipt on account of the auditorium and Conference Hall of Rs. 1.43 crore odd included the sum of Rs.1.02 crore odd on account of the rental and the balance amount represented the receipt on account of conferences organized in the auditorium. He held that all these activities were part of the objects of the trust and for the cause of the youth only. Considering the finding of the AO that the assessee had received money from corporate houses, he held that the receipts were in the nature of sponsorship fees received for organizing conference in the Auditorium as such could not be considered to be a commercial activity. Examining the allegations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hostel/canteen facility were utilized by the assessee and run on commercial lines. Inviting attention to Section 2(15) of the Income Tax Act, it was her submission that the activities which were in the nature of trade, commerce, business as per the proviso cannot termed to be coming under the umbrella of other charitable activities as envisaged by the statute and the claim of the assessee has rightly been rejected by the AO. The AO it was her submission has identified the features which distinguish an activity which is in the nature of trade and business and all the requirements are fulfilled by the assessee. The judgements relied upon by the AO it was her submission have been distinguished on frivolous reasons by the assessee. Inviting attention to the list of sponsors as were available in the 26AS information available to the department vis- -vis the list given by the assessee, it was her submission that there were a lot of discrepancies. It was also her submission that membership list given by the assessee pertaining to specific period i.e 01.04.2008 to 31.03.2009 and could not be said to be a membership list per se. The charges levied to different people for the so-called m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sushma Rani Inspector Trust Circle-II, New Delhi Witness 1. Omvir Singh, Sr. TA 2. Arun Kumar, TA 5.2. Ld. AR on the other hand heavily relying upon the impugned order contended that the CIT(A) has met each and every argument/objections of the AO with cogent reasoning. It was his submission that the AO on the other hand has failed to appreciate that the activities of the trust were towards the aims and objects of the trust alone. It was also his contention that undue emphasis has been laid upon the Inspector s Report by the AO as apart from that this which has been explained there are only suspicious which it was submitted cannot take the place of evidence. It was argued where the inmates of the hostel necessarily utilize the facility for short duration the hostel inmates frequently change in such a scenario it is practically impossible for anyone to ensure control to the extent that no stray incident of outsider eating occurs. It was argued that the assessee cannot be penalized to do the impossible based on suspicious. The very fact that the hostel is not situated in a commercial hub and is situated in a diplomatic area ensures that stray outsiders do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oodwinking the serving staff than the assessee trust cannot penalized. Inviting attention to paper book page no-27 which contains the copy of the trust deed whose objects are enshrined at page 31, the said deed it was submitted underwent a change in regard to its name by way of a supplementary deed of trust copy placed at page 23-35 of the paper book. Addressing the same it was submitted that the name of the assessee trust was changed from World Assembly of youth India to India Youth Centre . The objects continued to remain the same. Inviting attention to page 30 it was submitted that the trust was having a corpus of Rs.1000/- as the trust s funds and inviting attention to page 619-814 it was submitted that this contains a copy of list of the Organizations/NGOs, Members and the documents which have been submitted or collected showing their eligibility of membership and before the hostel facility or seminar halls/auditorium is allowed to be used evidence demonstrating the organization/trust etc. who is utilizing the services are always taken and they have been shown to the AO all along who chose to talk only of Inspector s Report. A sample copy of membership and enrollment form w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Grant, Watershed Grant, Zilla Panchayat Grant etc. 5.2.4. Herein also, it was submitted that the relevant documents are attached namely copy of Registration Certificate, copy of the trust deed, Annual Report, Audited statement of account, Memorandum of Association, etc. are attached along with this. Accordingly it was his submission that the suspicion raised by the Sr. DR by referring to the fact that there is no name recorded in the bill is incorrect and each and every bill will show that not only the name but even the Copy of the Trust Deed or Registration etc. of the organization required to be furnished and is available on record and an abbreviation of the NGO recorded does not mean that the documentation is wanting. It was his submission that the documents were available before the AO, he does not care to look at them and operates on suspicion and even today the paper book is available on record which has been considered by the CIT(A) and the Sr. DR does not assail at the same and merely relies on the AO s version based on the Inspector s Report without faulting the assessee in the stringent documentation maintained by the assessee trust. All these documents it was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Addressing pages 4 6 of the impugned order which contains the objections which the AO made before the CIT(A) which have been reproduced in the order, attention was invited to copy of the advertisement placed at page 845 of the paper book. Referring to the same it was pointed out that it merely points out the fact that Vishwa Yuvak Kendra i.e Indian Youth Centre was situated at the address given and was described as centrally located Kendra hostel had 38 well-furnished AC room and 2 dormitories (20-bedded each), which are let out to member NGOs/ other members when not used for kendra programmes and it also advertises the fact that new dormitory building with 120 beds for which booking has commenced is also available. The said advertisement, it was submitted apart from giving the location, photographs of the rooms and dormitories also spells out that it was set up on 10.08.1961 as multi-purpose youth centre having the active support of India s first Prime Minister; had grown to be a premier training institute for youth workers and has been recognized by a large number of agencies in India and abroad. It also advertises the fact that it functions as a model centre for building up y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... National or international Youth Centre at suitable centres in India for practicing international understanding and cooperation and developing youth leadership; (b) Each such Youth Centre may be multi-purpose in character functioning as a model youth centre for intellectual and recreational services to youth; a co-ordinating agency for youth organizations a centre for building up youth leadership through a variety of programmes; and a counseling bureau to advise on various problems confronting youth; (c) For the benefit of foreign students and youth delegations ias well as individuals visiting India, the Youth Centre may provide hostel facilities, it may serve as an information centre, and provide them with opportunity for .. (d) The hostel facilities at the Youth Centre shall be available to students or other persons on payment of such charges as the Trustee may decide from time to time. (e) The centre for also sponsor programmes for bilateral ..of youth leaders, young workers and students with a view to better National Integration and international understanding and co-operation. (f) The Trustee may join, contribute to or ..financially or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the Deed of Registration, financial statements, sources of fund, the purpose of the stay, the aims and objects the thrust area, the target group etc. are required to be mentioned. It has also been stated that the facilities are available to outsiders only when they are not being utilized by the assessee trust or NGO s etc. having identical aim and then too the receipts thereof are utilized for the objects of the trust as in response to the Sr. DR s objections based on paper book page -78. Ld. AR has pointed out that Bill No-26949 has been issued for NAWO giving customer No-12306 dated 07.09.2008. The specific organization had booked 15 rooms for 17 persons belonging to NAWO and the period of booking was 07.09.2008 to 10.09.2008. Details of this are available on the list at page 465 Sl. No-631 given again to the AO. Note mentioned at the bottom of the Bill has been pointed out showing that membership fee is valid only for 28 days and the Ld. AR has said that as per the Rules the hostel cannot be used for more than 28 days by the person/organization as evidently hostel inmates are not admitted for an academic year as is normally done in hostel of colleges etc. where students ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Please retain copy of this bill to avoid the repayment of membership fees. This membership fees is valid for Room(s) only and cannot be adjusted against the other services. Indo-Global Social Service Society Note:-This membership fees is valid for the next 28 days from the date of checkin 31-Jun-2008 and Upto Date 27-Aug-2008 for rooms only. Please retain copy of this bill to avoid the repayment of membership fees. This membership fees is valid for Room(s) only and cannot be adjusted against the other services. 6.3. It is also seen on a perusal of documents placed at pages 517 814 which are the documents made available to the AO alongwith accompanying letter dated 19.12.2011, copy of which is also placed at pages 510-516. It is seen that the assessee at the time of booking its hostel rooms is strictly adhering to maintaining, recording and keeping the documentation evidencing the aims and objects of the organization the purpose of visiting the target group and thrust area qua the visit or programme contemplated. A perusal of the sample form of enrolment placed at page 517 and Membership Form at page 518 has been demonstrated to show that it is strictly adhered to in str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation dtd. 19.12.2011 afforded by the assessee before the AO, copies placed at pages 510-516 of the paper book in response to show cause notice dated 19.12.2011 wherein apart from relying upon the letters dated 8.8.2011, 8.9.2011.13.10.2011, 20.11.2011, 28.11.2011, 5.12.2011 and 12.12.2011 the assessee as an illustration has made reference to a certificate course conducted by the trust for the duration 01st December to 23rd December 2011 which was held for unemployed youth and participants who were stated to be from different parts of India as well as from abroad including girl participants. It is found explained on behalf of the assessee that sometimes the guardians of the girl participants come to the centre to meet them and canteen staff had been instructed not to stop them from taking snacks and lunch if they so want, keeping in mind the fact that the location of the trust was not close to the commercial areas where the guardians of these girls visiting them could have gone. The mere affording of such a courtesy does not lead to the conclusion that the trust was operating on commercial lines. In the courtesy so afforded if the lady Inspector accompanied by two tax advisors w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enable. As per the provisions of Section 11(1)(a) income to the extent which is applied for charitable purpose is exempt. The application here includes capital as well as revenue expenditure. This does not mean that the depreciation on the capital assets acquired stands allowed. It is a provision which enable a trust to apply its surplus for the purpose of its object as well as capital expenditure. This does not restrict that the next year the computation of the income should not he done applying normal commercial principles. Accordingly while computing income of year under consideration a normal commercial principle will be applicable and it will include depreciation on the assets uses during the year. In the present case it cannot he said that the asset which have been acquired in the earlier year were not used during the year. This issue is squarely covered by the judgment of the Delhi Tribunal in case of ACIT vs. Tiny Tots Educational Society ITA NO. 3182/Del/2008. The above judgment also is confirmed by the Punjab and Haryana High Court in the case of ACIT Vs. Tiny Tots Education Society 330 ITR 21. Similar view has also been taken in the case of DIT vs. Vishwa Jagriti Mission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets used in earning such income. After having determined such income, the application thereof has to be seen. The provision of section 11(1)(a) allows deduction of such income towards revenue as well as capital expenditure both. So if the income is used for purchasing of assets that is an application of income, not allowance of the depreciation. If in the subsequent years asset is used to generate income, the income has to be computed after allowing depreciation on the assets so used. The Assessing Officer is not justified in not allowing depreciation because these assets have been claimed as application of income in earlier years. 8.3 Application of income and depreciation are two different aspects. This view has been upheld by Hon'ble Delhi High Court in the case or DIT vs. Vishwa Jagriti Mission reported at, wherein, Hon 'ble Delhi High Court has observed as under:- "There is no dispute that the assessee has been granted registration under Section 12AA vide order dated 11th September, 2009 and, therefore, it was entitled to exemption of its income under Section 11. The only question is whether the income of/he assessee should be computed on commercial principles and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view was earlier expressed by the Andhra Pradesh High Court in Commissioner of Income-tax. v. Nizam's Suppl. Religious Endowment Trust (1981) 127 ITR 378 and by the Madras High Court in Commissioner of Income - Tax vs Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485. The Madhya Pradesh High Court in CIT vs. Raipur Pallottine Society (supra) has held, following the judgement of the Karnataka High Court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgements of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes. 7.1. In the afore-mentioned facts where there is no infirmity pointed out by the Revenue nor any contrary decision has been referred to for our consideration we find no merit in the departmental ground. Being satisfied with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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