TMI Blog2013 (11) TMI 1280X X X X Extracts X X X X X X X X Extracts X X X X ..... invoke the provisions of Sec.2(15) of the Act - by reason of the statutory amendment to the definition of “Charitable Purpose” u/s.2(15) of the Act by insertion of a second proviso, by the Finance Act, 2010 with retrospective effect from 1.4.2009, even if there are receipt from commercial activities - it was not open to the DIT(E) in an action u/s. 12AA(3) of the Act to examine the objects of the trust to see if the same were charitable in nature - That had already been done when a registration was granted to the assessee u/s. 12AA(1) of the Act - It was not open to the DIT(E) to re-examine the objects of the trust in proceedings u/s.12AA(3) of the Act. The DIT(E) in exercise of his powers u/s 12AA(3) of the Act, cannot curtail the right of an assessee which was charitable trust or institution which pursues the advancement of objects of general public utility from claiming the exemption u/s 11 & 12 of the Act in a year in which the receipts of the charitable organization from commercial activities is less than the limits prescribed in the second proviso to Sec.2(15) of the Act - It was clear from the reading of the provisions of Sec.2(15) of the IT Act, 1961 as well as Sec.12AA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, Social service camps, Hospitals, Nursing Homes, Old age homes, Working women s and Student hostels, Sports and Games Centers, social and Cultural Centers for the benefit of the Kodava Community in particular and the General Public at large. e) To promote Social Welfare, Health Care, Employment opportunities, Infrastructure development, Resettlement of Ex-Servicemen, Para Military personnel, War Widows, Disabled and to support those who are in financial need in Kodava Community and the general public at large. f) To promote Sports, recreation clubs, libraries, public reading rooms and other places of learning. 3. The Provisions of Sec.2(15) of the Act, which defines the expression Charitable purpose for the purpose of the Act had undergone an amendment by the Finance Act, 2008 with effect from 01-04-2009. The expression of charitable purpose, prior to the aforesaid amendment read as follows:- (15) Charitable purpose includes relief to the poor, education, medical relief and the advancement of any other object of general public utility The definition after the amendment reads as follows; Charitable purpose includes relief of the poor, education, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration u/s. 12A of the Act. The assessee also submitted that marriage hall was let out by the assessee to all persons irrespective of their caste or religion. The assessee also submitted that letting out of properties and deriving income therefrom cannot be treated as business income and in this regard, relied upon the following decisions:- (i) CIT v. Sengunthar Thirumana Mandapam (2008) 298 ITR 330 (Mad) (ii) CIT v. Sri Rao Baghadur ADK Dharmaraja Educational Charity Trust (2008) 300 ITR 365 (Mad) (iii) Marwar Textiles (Agency) (P) Ltd. v. ITO (2008) 119 TTJ (Mumbai) 131 6. The assessee also pointed out that it also carries on sports and recreational activities. The assessee pointed out that sale of liquor was only to members and not to outsiders and therefore principle of mutuality would apply and the income so derived cannot be brought to tax. In particular, the assessee pointed out that it was also carrying out the activity of education to poor and middle class people of Karnataka. 7. The DIT(E) however was not convinced with the explanation given by the assessee. The DIT(E), after extracting the objections of the assessee, which we have already set ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon ble Madras High Court in the case of Sengunthar Thirumana Mandapam (supra), was a case of where the question involved was utilization surplus funds for other charitable purposes. Similarly, he held that the decision of the Madras High Court in the case of Sri Rao Bahadur ADK Dharmaraja Educational Charity Trust (supra) was a case, where the letting out of property was on lease basis and not on daily basis whereas in the case of the Assessee letting of the property was on a daily basis. On similar reasoning, the DIT distinguished the decision of the Mumbai ITAT decision in the case of Marwar Textiles (supra). 10. The DIT(E) also made a reference to the judgment of Hon ble Karnataka High Court in the case of Sri Subharam Trust in ITA No.380/2009 dated 30.5.2011, wherein the Hon ble Karnataka High Court held that leasing kalyana mantap is commercial in nature and such objects are not wholly charitable. He also held that where there are charitable and non-charitable activities, one has to look at the predominant activities of the assessee and in this regard referred to the judgment of the Hon ble Delhi High Court in the case of Daulat Ram Public Trust v. CIT, 112 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her hand, relied on the order of the DIT(E). He also relied on the decision of the Hon ble Andhra Pradesh High Court in the case of Andhra Pradesh State Seed Certification Agency v. CCIT, [2012] 28 Taxmann.com (AP). In this decision, the Hon ble Andhra Pradesh High Court considered the claim made by an assessee with regard to rejection of an application for approval u/s. 10(23C)(iv) of the Act, which provides for exemption from tax of any income received by any person on behalf of institution established for charitable purpose which is approved by a prescribed authority. The Hon ble Andhra Pradesh High Court after making a reference to the definition of charitable purpose u/s. 2(15) of the Act as amended by the Finance Act, 2009, held that the activity of the petitioner facilitated sale of certified seeds to farmers and was facilitating trade, commerce or business in certified seeds and was therefore hit by the proviso to section 2(15) of the Act. 15. We have considered the rival submissions. The power to cancel registration already granted u/s.12AA of the Act is contained in Sec.12AA (3) of the Act and it reads as follows: (3) Where a trust or an institution has been gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. counsel for the assessee in this regard support the plea of the assessee. 18. With regard to rental income from letting out the community hall, we are of the view that the decision of the Madras High court squarely supports the plea of the assessee that they cannot be regarded as business income. In our view, DIT(E) has distinguished those decisions relied upon by the assessee on rather flimsy grounds. The fact that the letting out was on a daily basis or fixed period of time, will not change the character of income. We are also of the view that the decision of the Hon ble Karnataka High Court in the case of Subharam Trust (supra) are on a totally different set of facts. It was a case of grant of deduction u/s. 80G of the Act. On facts, it was found that the kalyana mantap had been let out to one of the trustees and on those facts, the Hon ble High court accepted the view of the Tribunal that the objects of the trust were not charitable and certificate u/s. 80-G of the Act cannot be granted. We are of the view that the aforesaid decision cannot help the case of the revenue in so far as the facts of the present case are concerned, where the letting out of the Kalyana Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the rationale behind the introduction of second proviso to Sec.2(15) of the Act, it has been mentioned as follows; Assessment of charitable organization in case commercial receipts exceed the specified threshold Sec.11 and 12 of the Act, exempt income of any charitable trust or institution, if such income is applied for charitable purposes in India and such institution is registered u/s 12AA of the Ac, 1961. Sec. 10(23C) of the IT Act, also provides exemption in respect of approved charitable funds or institutions. Sec.2(15) of the Act provides definition of charitable purpose. It includes advancement of any other object of general public utility as charitable purpose provided that it does not involve carrying on of any activity in the nature of trade, commerce or business. The second proviso to said section provides that in case where the activity of any trust or institution is of the nature of advancement of any other object of general public, utility, and it involves carrying on of any activity in the nature of trade, commerce or business, but the aggregate value of receipts from the commercial activities dos not exceed Rs.25,00,000/- in the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok the view that if, in a particular year, the receipts from commercial activities, is less than the limit prescribed above, then not withstanding the fact that the charitable organization is carrying on activity in the nature of trade or commerce or business, it would still be entitled to the benefit u/s.11 12 of the IT Act, 1961. The Tribunal also took note of the submission that if, in exercise of power u/s 12AA(3) of the IT Act, the DIT(E) cancels the registration granted to an assessee, then such assessee would not be entitled to benefit of exemption in a year in which the aggregate value of the receipts from commercial activity is less than the limit prescribed by the second proviso to Sec.2(15) of the Act. The Tribunal thereafter held as follows: 12. We have considered the rival submissions. In our view, the contention put forth on behalf of the assessee deserves to be accepted. In this regard, the first aspect which has to be taken note of is the principle that the grant of registration u/s12A of the Act, does not automatically enable an assessee to claim exemption u/s 11 12 of the Act. The AO even in a case, where a trust or charitable organization for which regi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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