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2015 (5) TMI 863 - ITAT DELHI

2015 (5) TMI 863 - ITAT DELHI - [2015] 40 ITR (Trib) 622 (ITAT [Del]) - Revision u/s 263 - DIT(E) erred in holding that Receipts of appellant from Test Laboratory Services and Consultancy Services do not fall within the ambit of Section 2(15) of the Income Tax Act - appellant is not eligible for claiming exemption u/s 11 on income derived from the above receipts - Held that:- Assessing Officer raised query about the revenues received from test laboratory charges and consultancy charges and the a .....

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f the AO cannot be held as erroneous merely because the AO has not decided the issue in so many words as per expectation of the Ld. CIT.

Thus the CIT was not justified in holding that the view taken by the AO was granting exemption u/s 11 of the act was not inaccordance with law and was unsustainable. Per contra, from bare reading of the assessment order, it is vivid that the assessing officer made reasonable inquiry on the issue of test laboratory charges and consultancy charges and .....

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g,JJ. For the Petitioner : Sh. Tarundeep Singh, CA For the Respondent : Sh. A.Misra, CIT DR ORDER Per C. M. Garg, Judicial Member : This appeal has been preferred by the Assessee against the order of the Director of Income Tax (Exemptions), New Delhi dated 28/03/2014 passed u/s 263 of the Income Tax Act 1961 (for short the act). 2. The main grounds raised by the assessee in this appeal reads as under : 1. That on facts and in law the Director of Income Tax (Exemptions), New Delhi {hereinafter re .....

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the ambit of Section 2(15) of the Income Tax Act. b. The appellant is not eligible for claiming exemption u/s 11 of the Act on income derived from the above receipts. c. In proceedings u/s 143(3), the AO had not examined the issue of taxability of above receipts in light of provisions of section 2(15) of the Act. 3. That on facts and in law the order of DIT(E) suffers from an inherent contradiction vitiating his orde in as much as on one hand he decided the issue on merits while at the same tim .....

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as completed on 28.12.2011 at an income of ₹ 4,39,07,729/- being accumulated amount in financial year 2003-04 not utilized within a period of 4 years which was expired on 31.3.2009. It is pertinent to note that the Assessing Officer accepted nil return of income u/s 143(3) of the act but made addition of accumulated amount as per Clause (a) given after third proviso to section 10 (23C) (iv) of the Act. 4. Subsequently on going through the records it was noticed by the DIT(E) that the asses .....

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f monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility; provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce of business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, if aggregate receipt exceeds .....

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the Revenue and the DIT(E) set aside the original assessment order with the directions to the AO to frame the assessment afreshing after due application of mind and law and after calling and examining necessary details / evidences and giving due opportunity of hearing to the assessee. Now the aggrieved assessee is before this tribunal with the grounds as reproduced hereinabove. 6. We have heard argument of both the sides and carefully perused the relevant material placed on record. The Ld. Asse .....

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ehemently contended that during the assessment proceedings u/s 143(3) of the Act, the AO examined and verified the issue of taxability of above receipts in the light of provisions of Section 2(15) of the Act and the DIT(E) was not justified in holding that the AO had not examined the same. The Ld. AR also contended that the impugned order suffers from inherent contradiction as much as on one hand he decided the issue on merits and at the same time he directed to AO to make a de novo examination .....

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nterpretation and where a institution is not driving primarily by desired or motive to earn profit but to do charity with an object of general public utility then it must be recorded as an institution established for charitable purposes. 8. The Ld. AR also placed a reliance on various decisions including decision of Hon ble Delhi High Court in the case of Institute of Chartered Accountant of India Vs. DGI reported in 347 ITR 99(Delhi) and submitted that the first proviso to Section 2(15) of the .....

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Central Government for working under aegis of Ministry of Road Transport and Highways. The Ld. AR, further, pointed out the Secretary to the Government of India, Ministry of Road Transport and Highways is ex-officio president of the assessee association and the Governing Body of the ASTRU comprises of Representative from all State Road Transport Undertaking. The Ld. AR further pointed out that the Assessee association was established with the main object of improving public transport system in t .....

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enous technology, adoption and development of imported technology in the field of transport; (ii) to secure and provide a technical consultancy service which can be availed of by the State Transport Undertakings. (iii) to render common service to the members and assist them in such matters as standardization of equipment, purchase of materials for their own use at economic prices, promotion of efficiency of Road Transport services and reduction in the operational costs of the members. (iv) To pr .....

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Act vide notification no. 1348 dated 31.10.2007 and these registration, approval and notification are still subsisting as on the date. 11. The Ld. AR further, pointed out that the impugned test charges have not been changed / revised since 2001 which supports the fact that the assessee is not running on commercial lines having profit as a pre-dominent motive the Ld. AR elaborated that in accordance with one of the main object of Central Institution of Road Transport was established by the asses .....

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esting are same without any change or revision since 2001. 12. About impugned consultancy charges the Ld. AR submitted that apart from Automobile components testing, the other primary activity of the Assessee is management development, research and consultancy in the field of automobile components and in the interest of the Road Transport Sector as a whole. The Ld. AR further, drawn our attention towards test application filed page 7 and submitted that the CIRT offers consultancy services specia .....

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ate is charged. The AR lastly pointed out that these activities are being carried out in the furtherance and advancement of the object of the assessee as set out in the Memorandum of Association and that too not on commercial lines, as the predominant object of Assessee is not to earn profit but to sub-serve and provide services to its member STUs and the Government of India. 13. The Ld. AR reiterates its argument and grounds of appeals submitted that the DIT(E) rejected detailed objection of th .....

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tice u/s 263 of the Act as well as impugned order may kindly be quashed. 14. Replying to the above, the Ld. DR supported the impugned order and submitted that the AO had not examined the issue as per provisons of the Act specially as per proviso attached to Section 2(15) of the Act and the AO did not examined the issue of taxability of Revenue from Test Laboratory and Consultancy charges in the light of amended provisions of Section 2(15) of the Act and therefore, the DIT(E) was quite justified .....

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ind appropriate to the produce notice issued by the DIT(E) dated 6.2.2014 to the assessee which reads as under :- The Principal Officer, Association of State Road Transport Undertaking Plot No. 4A PSP Block, Pocket-14 Sector 8 Dwarka, New Delhi-110075 Sir, Sub : Show cause notice for setting aside the assessment u/s 263 of the Income Tax Act, 1961 - Asstt. Year 2009-10. Please refer to the subject cited above It is noted that the assessment of the above mentioned assessee was completed in Decemb .....

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hich were commercial in nature and their aggregate exceeded ₹ 10 Lacs. 2. As per amended provisions of Section 2(15) of the Income Tax Act, 1961, charitable purpose includes relief of the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest ] and the advancement of any other object of general public utility; provided that the advancement of any other obj .....

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the amended provisions of section 2(15), the activities of the assessee are not charitable in nature. Hence, the assessee was not eligible for exemption u/s 11 of Income Tax Act and its income should been brought to tax in view of the provisions of section 2(15) read with section 13(8) of the Income Tax Act, 1961. Thus, the AO has failed to assess this taxable income of the assessee and has erroneously treated its income amounting to ₹ 1,32,76,185/- as exempt u/s 11 of the Income Tax Act. .....

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of the assessee and passed the impugned order by holding as under :- I have gone through facts of the case and submissions of the assesses. There is not merit in the submissions of the assessee. The assessee has contended that it activities are charitable in nature as it is catering the State Road Transport Undertakings (STUs) needs for expertise which in turn are carrying out activities of general public utility as the assessee is nto carrying out any business with parties other than STUs whic .....

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agency. Further STUs can get the same work done from any other agency too by paying the requisite charge. The assessee is only a preferred source of service for STUs. It is activities are clearly hit by the provision of section 2(15) of the Act. 4.2 Business normally has following ingredients . (i) Continuance and systematic activity, (ii) Transaction between two persons, (iii) Element of reciprocity; and (iv) Profit motive. Normally, profit motive test must be satisfied, but it is not final. I .....

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erwise would be a business may say that he did not carrying on business because it was not his intention to make any income out of it. The Supreme Court followed the 1888 British decision in the case of Incorporated Counsil of Law (3 Tax - Cas 105) wherein it was held that it was not essential to carrying on of trade that the people carrying it on should make profit nor is it necessary that the people carrying it on should desire or wish to make a profit. In the case of Customs and Excise Commis .....

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the DIT(E) to the notice u/s 263 of the Act. The Ld. AR has submitted that the purpose of introducing the proviso to u/s 2 (15) of the Act can be understood from the page speech of the Finance Minister while introducing the finance bill, 2008 the relevant extract of the speech has been mentioned as under :- charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some en .....

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questionnaire dated 1.8.2011. The AO directed the assessee to submit a reply in the light of recent amendment to section 2(15) of the Act and the assessee filed vide written submissions dated 5.9.2011 and 22.9.2011. The Ld. AR also contended that in reply to the carry of the AO the information sought by the AO was placed on record vide submissions dated 28.12.2011 of the assessee and assessee is placed copies of the bills approvals, certificates and rates- list evidencing the nature of activitie .....

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Chartered Accountant of India (2012) 347 ITR 86 (Delhi) and submitted that the purpose and object to do business is normally to earn and is carried out with a profit motive; in some cases the absence of profit motive may not be determinative. The Ld. AR contended that in that case the Hon ble Jurisdictional High Court has held that where the Commissioner without examining the concept of business had held that the institution was carried on business and coaching and programmes were held by them .....

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should be material and sustainable facts and other incriminating circumstances which justify and show that the activity under taken by the assessee is in fact in the nature of business. The Ld. AR pointed out that when the assessee association is not carrying out any business activities and simply rendering services to meet the purpose and objects for which it was incorporated then the receipts of the assessee from ancillary activities cannot be held on business activity and such income cannot b .....

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cted to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fees without any profit motive and these words use in the first proviso must be interpreted restrictively and where the main object of association is charitable then any incidental activity for furtherance of the object does not fall within the expression of business , Trade or Commerce for profit motive. 22. The Ld. AR completed his submission and contention by conte .....

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y of testing of Auto Mobile parts and the activity of consultancy are being carried out in furtherance and advancement of the object of the Assessee Association set out to in the memorandum of association (Clause no. ii) and not on commercial lines because the pre dominant object of the assessee association is not to earn profit but to subserve and provide services to its member State Transport Undertakings and Government of India without any profit motives within the limits of its charitable pu .....

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d consultancy charges then that the same could not be termed for general public utility and therefore, the assessee association cannot be held as entitled to the benefit of the registration u/s 12AA of the Act and exemption u/s 11 and other relevant provisions of the Act. Supporting the action of the CIT(A) the Ld. DR pointed out that the activities of providing lab test services and consultancy are being carried out by the Assessee Association like any other agency or business entity performing .....

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lso contended that there is reliable evidence and material to show that the activities were carried out on sound and recognized business principles and pursued with reasonable continuity it would constitute business even if there is no profit motive. The Ld. DR, further, contended that it is not the motive of the person doing on Act which decides whether the act done by him is the carrying on business, profession or vocation but a person carrying on what otherwise would be a business may say tha .....

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f proviso to section 2(15) of the Act then it was rightly held that the AO did not examine the issue of taxability of revenue from test laboratory and consultancy charges in the light of newly inserted proviso to Section 2(15) of the Act and therefore, the CIT rightly held that the order so framed by the AO was erroneous and prejudicial to the interest of the revenue as the receipts / income from test laboratory at ₹ 7.72 crores and consultancy charges of ₹ 62.47 lakh have not been b .....

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relevant operative part of this order at page 122 para 67 reads as under :- 67. The expressions trade , commerce and business , as occurring in the first proviso to section 2(15) of the Act, must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is bus .....

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introducing the Finance Bill, 2008. The relevant extract to the Speech is as under (see [2008] 298 ITR (St.) 33, 65) : … Charitable purpose includes reli8ef of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purpo .....

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sions business , trade or commerce . 26. It would be also appropriate to consider the ratio of the decision of Hon ble Punjab and Haryana Court in the case of CIT Vs. Truck Operator Association (Supra), as relied by the Ld. DR, wherein facts of that case and observations of Hon ble High Court reads as under :- On examination of the objects and the purpose of the association in the present case, it emerges that the respondent-association is union of truck operators constituted for facilitating it .....

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mbers. The welfare activities adopted for the truck drivers, cleaners and mechanics of the truck owners are in the nature of staff welfare activites, as are common in other business organization which cannot be termed for general public utility. 27. In view of above, we have not hesitation of hold that the facts of the present case clearly distinguishable. We are in agreement with the contention of the Ld. AR that the facts of the present case are clearly distinguishable from this case of Truck .....

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nclusively held that the assessee association was carrying on laboratory test and consultancy services with the main object of earning profit in the line of business , trade or commerce . Accordingly we respectfully held that the benefit of the ratio of the decision of Hon ble Punjab & Haryana High Court (Supra) is not available for the revenue as the facts of the present case are clearly distinguishable from that case. 28. Turning to the facts of the present case, we note that the assessee .....

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he State Road Transport Undertakings. 29. We also note that the assessee association was established with the main object of improving public transport system in the country and its objects as per memorandum of association as reproduced hereinabove in para 9 of this order clearly reveals that the objects of the assessee association are dedicated towards improving road safety standards and to promote facilities for advancing the skill of employees of State Transport Undertakings through regular t .....

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respectfully note that their lordship has explicitly held that the first proviso to section 2(15) of the Act carves out and exception which excludes advancement of any object of general public utility from the scope of charitable purpose to the extent that it involves carrying on any activity in the nature of Trade , Commerce or business or any activity of rendering certain services in relation to any trade , commerce or business for a cess or fee or any other consideration, irrespective of the .....

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dictional High Court of Delhi, their lordship also held that the first proviso to section 2(15) of the act does not purported to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee and the object of introducing first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose. It was also held that expression business trade or commerce as used in first proviso must, thus, .....

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t controverted or demolition this fact that the main object for which assessee association was created by Government of India is to impart services to the State Road Transport Undertakings and from careful reading of the objects of the assessee association as reproduced hereinabove clearly mandates its charitable objects and purpose. The contention of the assessee association also support from this fact that the assessee association have not revised its laboratory test charges since 2001 and the .....

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on had not constituted by the Government of India. The activities of providing laboratory test services and consultancy to the State Road Transport Undertakings of all over India cannot be held to be trade , business or commerce merely because some fee or charges are being received by the assessee association. Accordingly, even if some fees or charges are being charged by the assessee association for providing laboratory test services and consultancy services in accordance with its charitable ob .....

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ess principles and persuaded with reasonable continuity then it would constitute business even if there is no profit motive as we have already noted that in assessee s own case for A.Y. 1989-90, 1990-91 and 1993-94, ASRTU vs. DDIT(E) (Supra) it was held that the aims and objects of the assessee were to render common services to members and assist them in such matters as standardization of equipment, purchase of materials for thereon use at economical prices, promotional efficiency of Road Transp .....

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see s association cannot be termed either trade , commerce or business simply because the assessee association is receiving some charges or fees for rendering services on non-commercial principles to State Road Transport Undertakings and other concern members for a fee or charges. 35. At this juncture , we also respectfully follow the ratio laid down by the Hon ble Delhi High Court in the case of Indian Trade Promotion Organisation vs. DGIT (Supra) wherein it was held that thus, first proviso to .....

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GI 347 ITR 99 (Delhi) held that the object of the first proviso to section 2(15) of the Act is to include any transaction for a fee or money and the activity would be business if it is undertaken with the profit motive but in some cases this fact must be determinative and the profit motive test should be specified and viewed in the context of section 10 (23C) (iv) of the Act. As we have already noted that we found force in the contention of the Ld. AR that the Assessing Officer raised query abou .....

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