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TMI Blog2016 (4) TMI 708X X X X Extracts X X X X X X X X Extracts X X X X ..... guest houses at different locations and was earning revenues from customers who were utilizing the guest houses. The Assessing Officer found that the assessee had earned the following revenues from the guest houses - (1) Revenue from rooms - Rs. 1,26,78,329/- (2) Revenue from food & beverages - Rs. 2,99,40,474/- (3) Revenue from service charges - Rs. 12,16,146/- 4. The assessee was issued a show cause to explain its stand with reference to the provisions of section 2(15) of the Act. The assessee took the plea that all the activities/earnings were covered under the principle of mutuality and hence the surplus generated was exempt. The assessee also submitted that it was a charitable organisation within the definition of section 2(15) of the Act with the objective of promoting education, health, leadership and skills training of the empowerment of women. However, the Assessing Officer was of the opinion that the assessee could not prove that its objects fall under the category of relief to the poor, education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , education, medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest ]. He submitted that the onus is on the assessee to prove the charitable purpose. Therefore, in absence of a valid proof, the activity of the assessee is to be treated under the object of general public utility. It was further submitted that from the amendment it emerges that charitable trusts falling within the classification of object of general public utility are required to refrain from any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business to remain charitable and to continue with registration u/s 12A of the Act. It was further submitted that trusts carrying out activities under the residuary limb of advancement of any other object of general public utility cannot do business even if they comply with provisions of section 11(4 A). It was submitted that the end use of business profits for charitable purposes is of no relevance due to the amendment in section 2(15). He submitted that, therefore, the profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that the assessing officer has labelled the activities of the association as being in the nature of business activities overlooking the following activities of the association which it carries and which are duly permitted u/s 2(15) of the Act viz. providing relief to the poor, education, awareness - AIDS / treatment or rehabilitation of affected patients, providing support to neglected old and infirm senior citizens under Adopt a Granny Project, providing relief/rehabilitation to victims of natural calamities, etc.. It was submitted that the aforesaid activities are carried on by the association at different places and for which it maintains separate books of accounts which are separately audited at the year end and ultimately consolidated for purposes of filing of return. As far as running of canteens is concerned, the Ld.AR submitted that since July 1998, YWCA of India is running a canteen in the Christian Medical College Hospital campus at Vellore to provide food to the patients of the hospital, nursing staff, poor hospital staff (such as poor and marginalized watchmen, washer men, security staff, gardeners and other menial staff), hospital students and doctors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and training of women with a focus on women empowerment, healthcare, hygiene, HIV awareness programmes and many other charitable activities. 9. Regarding YWCA Guest Houses/ Hostels in Delhi, Anandgiri, Chandigarh and Wyoming, the Ld. AR submitted that the basic purpose of these Guest Houses/Hostels is to provide accommodation to needy/poor women free of cost or at subsidized rates along with providing free vocational training in the streams of fashion designing, beautician, English speaking, computer training and teacher training. He submitted that these guest houses/hostels also provide rooms to the general public for the purpose of self sustenance. 10. YWCA Day Care Centre for Old Age people at Dehradun and YWCA Old age Home (Spreadacres) at Dehradun is for the benefit of senior citizens and women empowerment. It is a centre to help and provide accommodation to elderly homeless people. They are made to engage in small activities so as to keep them busy and free from depression and family sickness. They do activities like Lifafa making, Namkeen making, chair caning and earn some money in order to live a happy and prosperous life. YWCA also provides food, clothing and general it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial activities does not disentitle the association from the benefits conferred by section 11 of the Income tax Act. He further submitted that Section 2 (15) read with CBDT circular no 11 dated 19lh Dec, 2008 clearly permits any association which is carrying on all or any one of these activities:- Relief to the poor, Education, Medical relief to simultaneously carry on commercial activity also and is not debarred from the benefits of Section 11. He submitted that the assessing officer has paid no heed to these facts and has brought the assessee association under the tax net on the misconceived plea that the assessee association is engaged in business activity and hence, should be taxed at the maximum marginal rate and on this notion has brought the entire surplus for the year to tax. It was also submitted that the AO has failed to realise that the provisions of this section get attracted only on that part of income which has violated section 13 (1) ( c) and 13(1) (d) and the assessee association has not violated any of these sections. He also submitted a project-wise chart showing the revenue generated and the expenditure incurred for the various charitable projects during the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablish, maintain, run, develop, improve, extend, grant, donations for and to aid and assist in the establishment, maintenance, running, development, improvement, and extension of hospitals, clinics, dispensaries sanatoria, maternity homes and all similar institutions as will afford treatment, cure, rest, recuperation and other allied advantages in the way of alleviating the sufferings of humanity. d. To conduct poor feeding and generally to give food and clothing to the defectives and to afford relief to people in distress and affected by famine, pestilence and other accidents and conduct or grant donations for the inmates of orphanages." 12. The Hon'ble Apex Court held that business involving the poor and beneficiaries cannot be said to be business or activity for profit. The Hon'ble Apex Court provided two reasons (i) the business is only a means of achieving the object of the trust; it is a medium through which the objects are accomplished (ii) the business held as corpus property under trust produces or results in income, like any other property. In the light of this decision, business activities involving the beneficiaries and done only with the motive of providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4043 1091946 Hostel, Wyoming 894374 800493 93881 Women's Hostel, Chandigarh 1557327 1159107 398220 Day Care Centre, Dehradun 169064 300366 (131302) Senior Citizens Accommodation, Dehradun 122550 256338 (133788) Totals 53687019 49424940 4262079 A perusal of the chart shows that against a gross revenue of Rs. 5,36,87,019/-, the assessee has expended a sum of Rs. 4,942,490/- and the net surplus comes to Rs. 42,62,079/- which is only 7.93% of the gross receipts. It is also seen that the assessee has incurred deficits in its Guest House at Delhi, Day Care Centre at Dehradun and Senior Citizens Accommodation at Dehradun which had to be funded from the surplus at other projects. Hence, it can be logically inferred that the surplus earned is only incidental to the charitable activities. Also, there is no finding by the AO about any diversion of funds for the individual benefit of any member of the association or for the benefit of his relative. Also there is no finding by the AO regarding any kind of violation of any other conditions by the assessee, as laid down in section 13 of the Act. Therefore, in view of the factual matrix of the case as well as the judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 and frequency of the activity. " 16. It is seen that the opening line of Para 3 is clearly stating that Proviso to Section 2(15) will apply ONLY to entities whose purposes is advancement of any other object of general public utility. We have already held that the activities of the assessee association fall within the ambit of the first three limbs viz. relief to the poor, education or medical relief and it will not be hit by the newly inserted proviso to section 2(15). Accordingly, the benefit of this circular should also accrue to the assessee and, therefore, the benefit of exemption claimed by the assessee u/s 11 cannot be rightfully denied. We, accordingly, refuse to interfere with the order passed by the Ld. CIT (A) and uphold the same. 17. In the result, the appeal of the Department is dism ..... 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