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Assistant. Commissioner of Income Tax Versus M/s. Shri Panchyati Dharamshala

2016 (1) TMI 316 - ITAT JAIPUR

Entitlement to exemption u/s 11 & 12 - activity of running a Dharamshala and receipt of rent - whether assessee trust is involved in commercial activities, hit by first proviso to section 2(15) r.w.s. 13(8)? - Held that:- There does not appear to be any profit motive in the case of the assessee as the excess of income over expenditure cannot be distributed amongst its members either in the course of its activity or in the event of its dissolution. Therefore, one of the important ingredients for .....

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the case of trust or institution is the primary or dominant purpose. If the dominant purpose is charitable, another object which by itself may not be charitable, would not prevent the trust or institution from being a valid charity. It is noted in this case that the charges for the room are very nominal, starting from a mere ₹ 40/-. This also indicates that there is no profit motive involved in this case. Considering all the legal and factual position, it is apparent that the dominant mot .....

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exemption - Decided in favour of assessee - ITA Nos. 809/JP/2013 - Dated:- 1-1-2016 - Shri T. R. Meena, AM And Shri Laliet Kumar, JM For the Petitioner : Shri Kailash Mangal (JCIT) For the Respondent : Shri Vijay Goel (C.A.) ORDER Per Shri Laliet Kumar, J. M. The present appeal filed by the revenue is arising from the order dated 01.08.2013 passed by the learned CIT (A)-I, Jaipur for the A.Y. 2010-11. The revenue has raised the following grounds of appeal :- (1) Whether on the facts and in the .....

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12. 2. Brief facts of the case are that the assessee is a Trust registered under section 12A(a) of the I.T. Act, 1961. It has filed return of income on 20.09.2010 declaring NIL income for the year under consideration. The case was scrutinized under section 143(3) of the IT Act. The activities of the trust are performed within the Municipal Limits of Jaipur. The assessee is engaged in charitable activity of running a Dharamshala and receipt of rent is in the nature of maintenance charges and is .....

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dated 31.01.2013 required the assessee to explain as to why in view of the amended provisions of section 2(15), appropriate action u/s 13(8) be not taken. In response, the ld. Counsel of the assessee vide his submission dated 08.02.2013 furnished the explanation. The reply of the assessee was considered by the AO but could not find it acceptable. The AO observed that as per the amended provisions of the Income TAX Act, 1961, any trust or society registered u/s 12A of the IT Act having advanceme .....

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377; 41,17,572/- added the balance amount of ₹ 27,27,782/- to the income of the assessee. The AO has also not allowed capital expenditure to the tune of ₹ 72,35,233/- on the ground that he has forfeited the exemption, but allowed the depreciation to the extent of ₹ 7,45,149/-. 3. Being aggrieved by the order of AO, the assessee carried the matter before ld. CIT (A), who allowed the claim of the assessee after discussing the matter at length in para 4 to 6 of his order. The ld. .....

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but in the present case under consideration the matter remains to be decided is whether the assessee is engaged in commercial activities or not. In this regard, the ld. CIT (A) placed reliance on the judgment of Hon ble Delhi High Court reported in 133 ITR 470 wherein it has been held that for any activity to be defined as business , profit motive is an important factor. Profit motive may not be the sole criteria for an activity to be defined as business but nevertheless it is an important crit .....

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and immovable property, in present or in future, shall belong to the society and all the savings of income and expenditure account shall be utilized for the developmental work of the society. Clause 4(c) of the Society s constitution reads as under :- The ld. CIT (A) observed that there does not appear to be any profit motive in the case of the assessee as the excess of income over expenditure cannot be distributed amongst its members either in the course of its activity or in the event of its .....

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Addl. CIT vs. Surat Art Silk Cloth Mfg. Association, 121 ITR 1 (SC) wherein it is held that what is important in the case of trust or institution is the primary or dominant purpose. If the dominant purpose is charitable, another object which by itself may not be charitable, would not prevent the trust or institution from being a valid charity. The ld. CIT (A) after going through the tariff rate of room rent charged by the assessee opined that the charges are very nominal starting from a mere &# .....

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essee by observing as under :- 6. I have considered the facts of the case. The capital expenditure made by the appellant has been disallowed by the AO on the ground that the appellant was not entitled to exemption u/s 11 & 12. However, as has been held above, the appellant is entitled to exemption under these sections. Therefore, the disallowance of claim of the capital expenditure as application of income also appears to be uncalled for and is, accordingly, deleted. 5. Now the Revenue is be .....

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now the Rajasthan Societies Registration Act, 1958 regulates the affairs of the societies established for charitable purposes. The AO noted that the activities of the assessee trust, its charitable purpose is that of advancement of general public utility. The AO placing reliance on the decision of Hon ble Jurisdictional High Court in the case of CIT vs. Paramhans Ashram Trust (2009) 184 Taxman 204 (Raj.) observed that the charitable purpose of the assessee society is that of advancement of gene .....

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he has forfeited the exemption. The ld. CIT (A) allowed the claim of the assessee for the reasons given in para 4 to 4.3 of his order as under :- 4. I have considered submissions of the appellant and have also gone through the assessment order. It is seen that the AO has disallowed the exemption on the ground that maintaining of Dharamshala was an activity of advancement of general public utility and was, therefore, hit by the amended provisions of section 2(15) as its receipts exceeded the max .....

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o entities whose purpose is advancement of any other object of general public utility i.e. the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent an .....

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rplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutualit .....

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rce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose within the meaning of Section 2(15) .....

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vity to be defined as business , profit motive is an important factor. Profit motive may not be the sole criteria for an activity to be defined as business but nevertheless it is an important criteria, particularly when it is a case of a trust or society and it is with reference to a fiscal statute. In the present case it is seen that the society is registered under the Societies Registration Act, 1860 and is now governed by the Rajasthan Society Registration Act, 1958. Sec. 14A of this Act prov .....

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in the case of the assessee as the excess of income over expenditure cannot be distributed amongst its members either in the course of its activity or in the event of its dissolution. Therefore, one of the important ingredients for treating the activity of the appellant as business i.e., profit motive is missing in this case. Since there is no profit motive involve, the activities carried out by the appellant cannot be described as business. In such a situation, as explained by CBDT vide its Ci .....

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