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2015 (6) TMI 290 - ITAT AHMEDABAD

2015 (6) TMI 290 - ITAT AHMEDABAD - tmi - Exemption u/s.11 denied - AO disallowing capital expenditure and also making addition on account of gratuity under Sec. 40(a)(ia) - not carrying on activities which can be considered as charitable purpose within the meaning of section 2(15) - Held that:- The entire expenses of the assessee were directed towards providing services to donors who are affluent section of the society and wish to make donation for charitable purposes. The above activity of the .....

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and wildlife) or extending financial help for such activities. Rather we find that the assessee received the amount from the donor and before disbursing the same utilised the same for earning interest income. The interest income so earned by the assessee was also not utilised for payment to any charitable trust or for any other charitable activities.

Simply because the assessee was registered under section 12 AA of the Act does not entitle it to claim its entire income as exempt unde .....

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was not entitled for deduction under section 11 of the Act for application of income towards charitable activities. - Decided against assessee.

Software expenditure - Revenue or Capital expenditure - Held that:- No relevant facts were brought on record by the A.O. and no reason was given by the AO for not accepting the claim of the assessee of software expenses being of revenue in nature. In our considered view such an unreasoned order is not sustainable - Decided in favour of assess .....

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at the appellant trust carried on activity in the nature of business and profession under the guise of section 25 Company. Ld. CIT (A) ought to have held that the appellant trust registered u/s. 12AA of the Act working in the area of education, medical relief and relief to poor carried on activities of charitable purpose and not any business or profession. 2. Ld. CIT(A) erred in law and on the facts in confirming action of A.O.in assessing income of the appellant Trust at ₹ 48,61,533/- by .....

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amounting to ₹ 31,93,755/- holding the activities of the appellant trust as advancement of any other object of general public utility not granting benefit of section 11 & 12 of the Act. Ld. CIT (A) ought to have held appellant eligible for exemption u/s.11 of the Act.It be so held now. 4 Ld. CIT (A) further erred in law and on facts in ignoring submissions of the appellant that the proposal by AO to DIT (Exemption) to cancel registration of the appellant trust under provisions of sect .....

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) was not applicable to the appellant and further provisions of Section 13 (8) were also not applicable. It be so held now by granting exemption u/s. 11 of the Act as claimed. 6. Ld. CIT (A) erred in law and on facts in not appreciating the fact that the appellant was not engaged in any commercial /business activity but was carrying out charitable activity in accordance with its objects for which Registration u/s.12AA of the Act was granted to the appellant trust. 3. As the facts and issues invo .....

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377; 48,61,533/- by passing order on 30-12-2011 and raising a tax demand of ₹ 19,48,370/-. Assessing Officer computed the income after disallowing deduction claimed under the provisions of Sec.11 and also disallowing capital expenditure to the extent of ₹ 13,47,700/- and also making addition on account of gratuity under Sec. 40(a)(ia) of the Act. While doing so the Assessing Officer has observed as under:- 1 The assessee works as a consultant or facilitator to Donors who are corporat .....

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not disbursed to the trusts and shown as current liabilities. The said funds are invested in Bank as deposits and substantial interest is earned by the assessee. The assessee is claiming such income also as income from Charitable Purpose . 3. The assessee is constantly making profits and under the guise of section 25 company to evades the tax which the assessee is supposed to pay. The assessee has changed its object clause in New Year. In old object clause the profit motive was there which is ag .....

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mpany is not acceptable otherwise all who provides any service to trust for fees or profit will claim that as the services have been provided to trusts their income should be exempt u/s.11. 6. The quantum of personnel expenditure incurred the professional qualification of employees, the high amount of salaries /professional fees paid, the type of experience which the employees/professionals possess, suggests that it is the requirement of business or profession and not of a charitable institution .....

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provided to trusts for whom donations were paid by donors. The figures of income of the trust by way of consultancy fees, personnel expenditure incurred and interest income as discussed above have been provided in this assessment order. 8. The decision relied upon by the assessee and reproduced in this assessment orders have been carefully considered and on careful perusal it has been noticed that facts of the case of the assessee and facts of the case of the cases relied upon are different. In .....

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count and nature of activities carried on it can beyond doubt be concluded that the professional activity in the nature of business and profession is carried on under the organisation structure of Section 25 Company and Income tax on income earned is evaded. If this type of tax planning is meant to evade tax are allowed, all corporate hospitals will start their business of hospitals under the organisation structure of section 25 company. It is also concluded that novel tax planning is done by th .....

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the trusts where it should have accrued had the said donations credited in trusts to whom donations were to be given. Even application period of the trust to whom donations were given and not disbursed by the assessee gets extended as the trusts will show income only when amount would be disbursed. All the sequence of events discussed herein this para, leads to conclusion that such novel ideas of tax planning should not be allowed to continue and hence, the conclusion is arrived at the assessee .....

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ant has devised an innovative idea of collecting money or donation from individuals or corporate interested in donating for a charitable cause. Such money is collected and kept by the appellant and disbursed thereafter to various NGOs enlisted with it for which the appellant has carried out due diligence and the list of all such NGOs is available on its website. At this point, it is important to look at Section 2(15) which reads as under:- 15) charitable purpose includes relief of the poor, educ .....

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lation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;] {Emphasis added} . 4.11 Perusal of this definition indicates that the appellant is not directly doing relief of the p .....

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this order. A holistic perusal of purposes for which the donation is mobilized has led me to conclude that the appellant s activity falls under the 6th limb of Section 2(15) which is advancement of any other object of general public utility . Further, it is observed that the appellant is receiving fee from the donor as well as donee and such receipts are classified as its income under the head income from charity advice . The heading income from charity advice may drop a hint of a charitable ch .....

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rate donors who have deducted TDS since they consider such services as professional services for the advices given to them by the appellant, the income shown under the head income from charity advice is of the nature and character of fee charged for rendering services of facilitating funds for other charitable organizations. Accordingly, I am of the view that first and second proviso to section 2(15) are applicable in the appellant s case. It may be pointed out that irrespective of nature of use .....

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15) of section 2 become applicable in the case of such person in the said previous year.] To sum up, thus, the variety of causes for donation mobilization by the appellant also the registration u/s.12AA of Income tax Act indicate that the appellant is doing charitable work u/s. 2(15) but under the heading advancement of general public utility . To elaborate, some of the donations are earmarked for poor, others for medical needs of the people etc, but it is the actual donor who could only be doin .....

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p; 12 of the Income tax Act for this Assessment Year. In view of the discussion above I may also add that plethora of judgements relied upon by the appellant are on different set of facts as the issue under consideration is whether the charitable activities carried out by the appellant falls under category education , medical , relief to the poor , or under advancement of general public utility . Considering the above, I am of the view that the action of the A.O. not granting any benefit u/s.11 .....

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t the action for cancellation of Registration was started by the DIT (Exemption) only at the request of the A.O. and was because of the facts compiled for the purpose of assessment in the assessment order for A.Y. 2009-10 (the present year) as noted by the DIT (Exemption) (page 82A). 7. Further it is submitted that the assessee is engaged in the activities like relief to the poor, education, medical relief and preservation of environment . It is submitted that page Nos.5, 19-22, 33-34, 72-81 and .....

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ar 1995-96 till 2008-09 the Revenue had considered the activities of the assessee educational and had granted the benefit u/s.11. The view taken by the Tribunal that the activities of the assessee such as continuing education diploma and certificate programme; management development programme, public talks and seminars and workshops and conferences, were educational activities or is in the field of education was proper. The activities of the assessee would fall within the definition of charitabl .....

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) vs. PRADAN Property Holding Trust in ITA No.361/2007 order dated 16-08-2010 wherein the Hon ble High Court held as under:- It has been discussed by the Tribunal and has also come on record that PRADAN is essentially a Society engaged in charitable activities. A copy of the Trust Deed is filed by the respondent on the record of this case and a perusal thereof clearly demonstrates that the trust is created by PRADAN for the purposes of holding properties and certain assets of PRADAN so as to mor .....

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r properties are to be distributed among the trustees or even to the Settlor. We are, therefore, of the opinion that the Tribunal has rightly given direction to the appellant to grant the registration to the respondent under Section 12AA of the Act. Finding no infirmity with that order, we dismiss this appeal. 9. Alternatively, it was submitted that even if it is held that the assessee falls in the residuary clause on a true interpretation of the proviso to section 2(15) the same has no applicat .....

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e as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation - both within India and outside India. Cl .....

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ional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above, in Arun Kumar case (supra). It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, in this Act, unless the context otherwise requires . The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression charitable purpose , as define .....

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to which a reference has been made earlier in this judgment, the Division Bench held that it was evident from the said circular that the new proviso to Sec.2(15) of the said Act was applicable to assessees, who are engaged in commercial activities, i.e. carrying on business, trade or commerce, in the garb of public utilities to avoid tax liability as it was noticed that the object general public utility was sometimes used as a mask or device to hide the true purpose, which was trade, commerce or .....

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he attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008. In G.S.1 s case (supra) it was contended by the revenue that GS1 (India) had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from their p .....

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ile answering the said question, the court held as under:- .........As observed above, legal terms, trade , commerce or business in Section 2(15),mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce . The Court further held:- Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable acti .....

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itable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self-gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, p .....

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is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of profit motive and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible . The court also held:- As observed above, fee charged and qua .....

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all under the residuary clause - general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the la .....

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of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Sec. 10(23)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Sec. 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commer .....

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r its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a charitable purpose . On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitab .....

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itted that in the case of the assessee also prior to the Assessment Year 2009-10 the assessee was granted the benefit of charity for which paper book pages No.113 to 118 may be referred. Under the circumstances the said benefit cannot be denied to the assessee. He also placed reliance on the decision of Hon ble Gujarat High Court in the case of DIT (E) vs. Sabarmati Ashram Gaushala Trust (2014) 362 ITR 539 (Guj.) where it was held that the main objectives of the Trust were to breed cattle and en .....

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n the nature of trade, commerce or business, the assessee was entitled to exemption u/s.11. 11. He further relied on the decision of Hon ble Delhi High Court in the case of Instituted of Chartered Accountants of India & Another v/s. D.I.T.(E) (2013) 358 ITR 91 (Delhi) where it was held that the activities of providing coaching classes or undertaking campus placement interviews for a fee were in relation to the main object of the Institute which cannot be held to be trade business or commerce .....

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rtered Accountants of India & Another vs. DIT (E) (2012) 347 ITR (99) (Del.) wherein it was held that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled Chartered Accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business. The Institute had framed the Chartered Accountants Regulations, 1988 and the regulations provided for training stud .....

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ding this question had not been considered. The order denying the exemption was not a valid. 13. The Departmental Representative supported the orders of the lower authorities. 14. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The assessee is a company registered under Section 25 of the Companies Act,1956. The assessee company is also registered under section 12AA of the Income Tax Act,1961.The assessee company claimed i .....

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med the action of the Assessing Officer. 16. We find that the main object of the assessee company as per its Memorandum of Association is as under :- To carry out education, medical relief, relief of poor and preservation of environment (including watersheds, forests and wildlife), either directly, or by supporting financially and otherwise, organizations to carry out the aforesaid activities for charitable purposes and not for profit. 17. From the order of assessment it is observed that during .....

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Exp. 53,00446 Dep. (117868 - 43487) Less Tr. From Cap.Grant Res. 74,381 Total 1,64,82,786 Excess of Income over Exp. 31,93,755 19. Thus the assessee disclosed net income at ₹ 31,93,755/-. 20. The assessee in its return claimed the above income of ₹ 31,93,755/- as fully exempt under section 11 of the Act. 21. We find that the entire expenses incurred by the assessee are for providing advisory services to the affluent corporate and high net worth individuals who desire to make donatio .....

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income of the assessee was utilised for providing educational activity medical relief, relief of poor and preservation of Environment (including watersheds, forests and wildlife). The entire expenses of the assessee were directed towards providing services to donors who are affluent section of the society and wish to make donation for charitable purposes. The above activity of the assessee of providing services to affluent section of the society cannot be, in our considered view held as activity .....

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from the donor and before disbursing the same utilised the same for earning interest income. The interest income so earned by the assessee was also not utilised for payment to any charitable trust or for any other charitable activities. 22. Simply because the assessee was registered under section 12 AA of the Act does not entitle it to claim its entire income as exempt under section 11 of the act but for getting that exemption the assessee is required to further satisfy condition of applying 85% .....

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Authorised Representative relied on the decision of Hon ble Gujarat High Court in the case of [2014] 366 ITR-85 (Guj.) Director of Income Tax (Exemption) vs. Ahmedabad Management Association wherein it was held as under:- The assessee, a public charitable trust, was dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas for the past 50 years. The Assessing Officer, for the assessment year 2009-10, held that considering th .....

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denied the exemption under section 11 and assessed the income of the assessee at ₹ 1,42,11,129 making a further addition of ₹ 26,38,500/- on account of voluntary donations to the corpus received by the assessee during the year. The order of assessment was confirmed by the Commissioner of Income tax (Appeals). The Tribunal held that the activities of the assessee were in the field of education and the assessee was eligible for exemption under section 11. Held dismissing the appeal, t .....

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ies of the assessee would fall within the definition of charitable purpose in terms of Section 2(15) and, therefore, would be entitled to exemption under Secton11. 24. We find that in the instant case the AR of the assessee could not bring any material before us to show that the activities carried out by the assessee during the year was treated by the Revenue in earlier years as activities towards education, medical relief, relief of poor and preservation of environment (including watersheds, fo .....

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rrying on of any activity in the nature of trade, commerce or 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, irrespective of the nature of use or application, or retention, of the income from such activity: [ Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty five lakh rupees] or less in the previous year; .....

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the assessee cannot be regarded as of charitable purpose of advancement of general public utility during the Assessment Year 2009-10. Therefore the above decision is not applicable on facts of the case. 27. The second decision relied upon by the assessee is of Hon ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra). In this case, Hon ble High Court has held as under:- that the main objectives of the Trust were to breed cattle and endeavour to improve the quality of the .....

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siness, the assessee was entitled to exemption u/s.11. 28. We find that the facts of the instant case are distinguishable from the facts of the case before the Hon ble High Court. In that case the assessee was engaged in the activities of breeding cattle in an endeavour to improve the quality of cows and oxen and as an incidental activity to that it sold milk and received surplus. The Hon ble High Court held that breeding cattle was activity of public utility and merely because some incidental s .....

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limit specified in second proviso to section 2(15) of the Act. Therefore, it cannot be held that the receipt generated was incidental to the attainment of the main object of the trust. Rather the receipt was generated in respect of main and only activity carried out by the assessee. Therefore, this decision does not help the case of the assessee. 29. The assessee has also relied on the decision of the Hon ble Delhi High Court in the case of DIT (E) vs. Pradan Property holding Trust in ITA No.361 .....

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ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra) this decision is not applicable to the facts of the assessee s case. 31. For the above stated reasons we hold that the assessee is not entitled for deduction under section11 of the Act during the year under consideration. In view of our observations made above we confirm the order of the CIT (A) and dismiss the grounds of appeal of the assessee. 32. Ground No.7 of the appeal reads as under:- Ld. CIT (A) erred in law a .....

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