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2015 (11) TMI 1068 - ITAT MUMBAI

2015 (11) TMI 1068 - ITAT MUMBAI - TMI - Income from the professional fees - charitable activity - whether the assessee is paying fees to professors and collecting charges from outside parties and net balance is offered as income, which is a commercial activity? - Held that:- In the present case, the assessee was established as a Department of Chemical Technology on 1st October, 1993 by the University of Mumbai and since in the year 2008 it was declared as an Autonomous Institute and deemed Univ .....

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rovided for the specific project or a specific purpose which has direct co-relation with the education imparted by the assessee-University should come within the realm of services imparted for the attainment of the object of the trust. But in the present case, a sample letter from Bharat Petroleum Corporation Ltd. placed on record clearly shows that the expert advice services were sought from Dr. V.V.Mahajani for the corporate R & D Centre, Greater Noida. The letter dated 29th October, 2010 has .....

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he fee is also coming to the chest of the assessee, therefore, in our opinion, the activity of the assessee is not covered by the provisions of section 2(15) of the Act and the assessee is not entitled to any exemption for the consultancy fees. Assessing Officer is justified in not granting exemption to the assessee - Decided against assessee. - ITA No. 3808/Mum/2015 - Dated:- 28-10-2015 - Shri B. R. Baskaran, AM And Shri Lalit Kumar, JM For the Appellant : Shri Anu A. G. Bhatkar ( CIT-DR ) For .....

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e circumstance of the case and in law the ld.CIT(A) erred in ignoring the fact that the assessee is paying fees to professors and collecting charges from outside parties and net balance is offered as income, which is a commercial activity. 3. The appellant prays that to the extent of above grounds the order of the Commissioner of Income tax (Appeals)-7, Mumbai be set aside and that of the Assessing Officer be restored. 3. Briefly stated the facts of the case are that the assessee is an Institute .....

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in para 6, 7 and 8 of the impugned order, which are reproduced as under:- 6. I have considered the above submissions of the appellant, the assessment order passed by the A.O., the documents furnished by the appellant as well as the decisions cited in this regard. There is no dispute regarding the fact that the appellant has been declared as a deemed university by the Government of India as per notification dated 12 September, 2008. So far as the consultancy services are concerned, it is seen th .....

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mobilize resources for its own objects. This is one of the ways to mobilize resources for the appellant Institute, in view of the expectations of the UGC, which has issued separate guidelines of incentive for resource mobilization during 11th plan from 2007 to 2012 , which, as one of its objectives has To encourage university to provide consultancy ON PAYMENT BASIS not only to the industries but to the government, and other bodies and society at large on vital issues of national importance (a c .....

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fessors of the appellant Institute, therefore, as a compensation for the breach of contract of the terms of employment, the appellant charges a part of the consultancy fees from its employee professors. Such consultancy fee received by the appellant is in the nature of passive income, as the appellant itself is not involved in providing consultancy. Hence, being ancillary / incidental object of the appellant Institute, the consultancy fees earned by the appellant cannot be denied exemption under .....

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s being carried out by its professors. And even if such activity is deemed to have been carried out by the appellant, it is only ancillary / incidental to the objects of the appellant, as has been discussed above. Thus, in my opinion, the appellant trust also benefits from the provisions of section 11(4A), because the business if any being carried out by the appellant is incidental / ancillary to the objects of the appellant trust. So far as maintenance of separate books of account is concerned, .....

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is seen that the assessee institute undertakes research projects, provides training and is also called upon to study and give its considered opinion on products / processes related to its activities. From the details of the consultancy fees received it is seen that the research / training is held practically every month and that too it is mostly held on the last day of the month. Further, on perusal of the TDS claims made by the assessee, it is seen that major Companies have deducted tax u/s 194 .....

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e has shown payment of ₹ 38,01,185/- made to the professors, which shows that it is mainly an activity of consulting by professors under the roof of institutes and there is no major role of students of educational purpose as stated vide the assessee s submission. 4.4 Considering the continuity, magnitude, quantum and frequencies of the activities, which is read in conjunction with the organized manner in which the same are being conducted, it is thus obvious that the same are being conduct .....

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. The assessee trust has not maintained any separate books of accounts so that such activities be hindered under the blanket of charitable activities. Thus, to the extent of revenue earned on such activities, by no stretch of imagination, can be regarded as charitable in view of provisions of Section 2(15) of the Income Tax Act, 1961 read with Section 11 and 12 of the Act. In view of the discussion held, the contention of the assessee is not acceptable and the net consultancy fees of ₹ 53, .....

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e, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 5.1 Section 2(15) provides as under: 2(15) : charitable purpose includes relief of the poor, education [yoga] medical relief, [preservation of environment (including water sheds, 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 .....

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tivities referred to therein is [twenty-five lakh rupees] or less in the previous year;] Since the case pertains to the assessment year 2010-2011, therefore, the amendment which came into force with effect from 01.04.2016, is not reproduced hereinabove. 5.2 Section 11(4) provides as under:- For the purposes of this section property held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income .....

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ion (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. 5.4 From the conjoint reading of section 2(15) and 11(4A), it is clear that any activity in the nature of trade, commerce or business, or any activity of rende .....

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Technology on 1st October, 1993 by the University of Mumbai and since in the year 2008 it was declared as an Autonomous Institute and deemed University by the Central Government. The main aims and object of the Institute are to provide instructions, study, teaching, training and research in various branches of Science and Technology. Though it is the case of the assessee that by virtue of the University Circular bearing No.508 of 1985 dated 7th September, 1985, the revised terms and conditions u .....

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staff by University authorities. 3. Consultation work may be either for a specific project or a specific period. 4. Every request for the services of a member of teaching staff as consultant to an industry, business house, etc., should be addressed to the Director / Head of the Department, but the industry or business house, as the case may be, be given the freedom to have a particular member of the teaching staff of their choice for being appointed as consultant. 6. Permission may be granted b .....

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strial training during vacation etc. and (iii) the sitting fees for attending meetings of Boards of Directors of companies in the Public or Private Sector taken together should not exceed ₹ 50,000/- provided, however, that the Executive Council may grant permission to a teacher to accept an amount in excess of ₹ 50,000/- per annum, on the merits of the case and on such terms and conditions as the Executive Council may lay down. 15. Sitting fees for attending meetings of the Board of .....

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ceed ₹ 50,000/-. 16. Honorarium received by a teacher in respect of assignments like expert advise or opinion, industrial training during vacation etc. may be permitted to be retained by a teacher in full, provided that the total amount of remuneration received for such work does not exceed ₹ 6,000/- per annum, subject to the condition that the total amount received by a teacher after deducting University s share in any one year as (i) honoraria for consultation work, (ii) honoraria .....

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ltancy ON PAYMENT BASIS not only to the industries but to the government, and other bodies and society at large on vital issues of national importance . The assessee, during the course of argument, had also handed over one of the sample letter issued by the Hindustan Petroleum Corporation Limited, which reads as under:- The Director Institute of Chemical Technology, N.Parekh Marg, Matunga (East) Mumbai 400 019, India Sub : Process consultancy by Professor (Dr.) V.V.Mahajani Dear Sir, We at Bhara .....

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ospitality such as accommodation in Noida / Delhi, local transport. We shall appreciate very much your consent to have services of Dr.V.V.Mahajani. Sd/- N.V.Choudhary. 5.7 The Assessing Officer, after relying upon the provisions of section 2(15) r.w.s. 11(4A) of the Act, submits that the income accrued to the assessee on account of consultancy work given by the Professors is required to be taxed separately and is not an exempt income within the meaning of law. Per contra, the assessee contends t .....

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tween the assessee and the Professors. It was also contended that two ledger account showing consultancy fees received and paid are the only accounts, which are required to be maintained and are being maintained by the assessee. The assessee in support of its case, relied upon various judgments, including - (i) Narain Swadeshi Weaving Mills [(1954) 26 ITR 765 (SC)], (ii) Ashish Super Marcato v. DDI (Exemption, Ernakulam), (iii) Sri Pedda Jeeyangar Mutt v. ITO 31 ITD 324, (iv) Tolani Education So .....

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from tax. 5.8 We find that invariably, the consultancy services provided for the specific project or a specific purpose which has direct co-relation with the education imparted by the assessee-University should come within the realm of services imparted for the attainment of the object of the trust. But in the present case, a sample letter from Bharat Petroleum Corporation Ltd. placed on record clearly shows that the expert advice services were sought from Dr. V.V.Mahajani for the corporate R & .....

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re rendering consultancy / advice services for a fee and the part of the fee is also coming to the chest of the assessee, therefore, in our opinion, the activity of the assessee is not covered by the provisions of section 2(15) of the Act and the assessee is not entitled to any exemption for the consultancy fees. The reliance on the definition of the business is of no help to the assessee. The judgment of Narain Swadeshi Weaving Mills (supra) clearly provides that no general principle could be l .....

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eld of charitable activities. The profit generated out of the said consultancy services is not required to be exempted. The Circular of the University dated 31.07.1985 clearly postulates various things including para 2A, which provides that the consultancy work should not interfere with the normal teaching / research work of the department / university and other duties which may be assigned to staff by University authorities. The Circular further provides in para 12, 15 and 16 that the annual fe .....

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from Mumbai to Delhi or any other destination without any other associate Professor or student, in our opinion, there will not be any value addition to the students. As a matter of fact, huge amount has been earned by the Professors through this consultancy work, though the same is separately taxed but on account of the work done by the Professors of the University, the University being the employer had also earned. In view of the above, the consultancy work done by the assessee-University (thr .....

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the regular studies of the students. 5.10 The judgment relied upon by the assessee in the case of Ashish Super Marcato (supra) is a case which provided the difference between section 11(4) and 11(4A). In the present case, the assessee s case does not fall in section 11(4). Because for the purpose of attracting section 11(4), the income is earned from the property held under the trust. In assessee s case, there is no property held by the assessee and the income generated is not from the property .....

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consultancy fees, but it was on the sale of prasadam, and therefore, not applicable to the facts of the present case. 5.12 In the case of Tolani Education Society (supra) relied upon by the assessee, was a case for admission of the student rather it was a case of generation of surplus income. Surplus income of the trust is separately dealt with u/s 11, therefore, the same is not attracted. 5.13 The other two judgments viz. in the case of Indian Chamber of commerce (supra) and Divya Yog Mandir T .....

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9] 311 ITR 182 (P&H) in the identical facts and circumstances had held that the assessee is not entitled for exemption under the Act. The relevant paragraphs of the judgment are reproduced herein below:- 11. The provisions of sections 11 (4) and 11(4A) of the Act fell for consideration of the hon'ble Supreme Court in the case of CIT (Asst.) v. Thanthi Trust MANU/SC/1555/2001 : [2001]247ITR785(SC) . Dealing with the controversy relating to the assessment years 1984-85 to 1991-92 and apply .....

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be determined in the manner set out in Sub-section (4). 12. It is true in respect of the assessment year 1992-93, the benefits of Section 11 was extended because Sub-section (4A) of Section 11 had further undergone change with effect from April 1, 1992. However, in respect of the assessment year of 1984-85, which is relevant to the case in hand, the benefit could not be extended. 13. In the present case, there are categorical findings recorded by the Tribunal that although one of the objects of .....

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ion 111(4A)(b) of the Act. The Tribunal has placed reliance on a report submitted by the assessee RCC itself, which provided that the assessee RCC was not only to become self-sufficient but it was also to become profitable. When the aforementioned findings are viewed in the light of bare perusal of Sections 2(15), 10(22), 11(4) and 11(4A) of the Act as well as in the light of the judgment of the hon'ble Supreme Court in the case of CIT (Asst.) v. Thanthi Trust MANU/SC/1555/2001 : [2001]247IT .....

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