TMI Blog2016 (4) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee are directed against the consolidated order of Commissioner of Income Tax (Appeals)-1, Jodhpur, dated 03/02/2015. 2. The Revenue has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-l, Jodhpur has erred in directing the allow exemption U/s 11 of the Act of the assessee. 2. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-I Jodhpur has erred in holding that the assessee's case falls in the category of preserving the monuments and place of historical objects as such the proviso to sec 2(15) of the Act does not apply in the assessee's case. 3. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-l, Jodhpur has erred in holding that the assessee's trust has not incurred expenses beyond the objects of the trust despite the fact that the trust has incurred expenses beyond the objects of the trust despite the fact that the trust has incurred expenses on the repair and maintenance of the commercial asset. 4. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-l, Jodhpur has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption claimed u/s 11 of Income Tax. Act, 1961 and in holding that the assessee Trust does not comply with provisions of section 2(15) of Income Tax Act, 1961 and further erred in not following provisions of law on the subject. 3.3 The facts of this ground have already been narrated. It was argued by the ld. A.R. that the appellant is a charitable trust, registered under section 12AA of the Act, vide order dated 13.08.2007, with effect from 01.04.2001. The appellant trust was settled on 15.03.1972 by Maharaja Gaj Singhji, with cash and collection of antiquities, with the object of setting up a world class museum in Jodhpur, for the benefit of public at large. It was further stated that in order to meet the object of setting up a Museum, Mehrangarh Fort was given on lease by Maharaja Gaj Singhji to the appellant, vide lease deed dated 19.06.1974, for an indefinite period. Mehrangarh Fort is an ancient and historical place, which is a protected monument in terms of provisions of section 3(4) of the Rajasthan Monuments Archaeological Sites Antiquities Act, 1961. This fact is evident from the photographs placed on record, which demonstrates that the Fort has been declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions or donations or subscriptions or legacies shall be made or given for the purposes of the Trust, hereby constituted or otherwise for the purposes of these presents upon or subject to special conditions, it shall be lawful for the Trustees to apply the same not in derogation of the purposes for which the Trust is constituted but otherwise as nearly as possible in conformity with the provisions of and purposes of the Trust. 9. The Trustees may help by donation or otherwise other Trusts or institutions having similar object or objects or may amalgamate the Trust or the Trust Funds of these presents or any portion or portions there of with any trust or trust funds or institutions having similar objects upon such terms as they may in their absolute discretion think fit and proper. .. 16. The Trusts shall have power to pull down renovate, rebuild , alter , improve, develop, and repair any property comprised in the Trust or construct any structure on any land forming the part of TRUST (emphasis supplied) It is on the basis of the aforesaid objectives, that the appellant was granted registration under section 12A of the Act which is in force till date. 3.6 We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f) Since the activities of the appellant were not as per the prescribed objects, the appellant was not entitled to exemption under section 11 of the Act; g) Receipts from shops, shooting, hoteliering, etc., showed that the Fort had been commercially exploited; h) According to the CIT(A), since the appellant trust was engaged in advancement of object(s) of general public utility, but at the same time, carried on commercial activities for consideration, the mischief of provisio to section 2(15) was clearly applicable, resulting in exemption under section 11 of the Act not being available to the appellant. i) Further, the CIT(A) distinguished the decision in the case of ACIT vs. Surat Art Silk Cloth Manufacturers Association:121 ITR 1 (SC) stating that in the appellant s case, major part of receipts were from commercial activities, while in that case, business carried by the assessee was ancillary/ incidental to the main object. 3.9 In light of the objects of and nature of activities carried on by the appellant, it will kindly be appreciated that proviso to section 2(15) of the Act is not applicable to the case of the appellant,, as elaborately discussed here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade association claims both to be charitable institutions as well as mutual members, these would not fall under the purview of Section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with the non members, their claim for charitable institution would now be governed by the additional conditions stipulated in proviso to Section 2(15). 3.2 In the final analysis, whether the assessee has for its object, the advancement of any other object of general public utility, is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of general public utility will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of trade, commerce or business, ii) a) no fees is charged for rendering the service; or b) in case fees is charged, rendering of such service is not in relation to trade, commerce or business. Even otherwise, if the objectives of the appellant trust fall within the last limb of the definition of charitable purpose as defined under section 2(15), it cannot result in the denial of exemption under sections 11/12 of the Act, as the aforesaid activity of establishing museums is clearly in furtherance of the charitable objectives of the appellant trust and is not a business/commercial activity carried on with the motive of earning profit. The aforesaid proviso provides that if any of the objects of the assessee involve carrying on of any activity in the nature of trade, commerce or business for cess or fee or any other consideration, then, irrespective of the nature of use or application of income, the assessee shall not be regarded as existing for charitable purpose. Similarly, if any of the objects of an assessee involve carrying on of activity of rendering service in relation to trade, commerce or business for consideration then, too, the assessee shall not be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransportation from place to place . According to Chamber's Twentieth Century Dictionary, Commerce means interchange of merchandise on a large scale between nations or individuals; extended trade or traffic . While applying the above definitions, the Delhi High Court in the case of Ram Swaroop vs. Janki Dass Jai Kumar (AIR 1976 Del 219), observed that commercial means pertaining to commerce; mercantile , thus, commerce involves essentially an exchange of buying and selling of commodities. If a person buys goods with a view to selling them at a profit, it is an ordinary case of trade and if the transactions are on large scale they are called as commerce: Gannon Dunkerley Co v. State of Madras (1954) 5 STC 216 (Mad.). 3.12 The conjoint reading of the above decisions make it amply clear that the words, trade , commerce and business , connote and indicate a series of organized activities primarily undertaken on commercial lines for profit motive. After the insertion of the proviso to section 2(15) by the Finance Act, 2008, w.e.f. 1.4.2009, the position that emerges is that the proviso applies if any of the objects of an assessee involve carrying on of any commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this Court in the case of Addl. CIT v. Hamdard Dawakhana (WAKF) [1986] 157 ITR 639. In that judgment unamended definition of charitable purpose contained in section 2(15) of the Act was considered. Following discussion contained in the judgment reproduced unamended definition as well, along with its interpretation:- The main point urged by Mr. Wazir Singh was based on the definition of charitable purpose stated in section 2(15) of the Act. This definition as in the 1961 Act is as follows:- charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. Thus, the emphasis is on the fact that this charity is carrying on a business, namely, the Hamdard Dawakhana. In fact, the dedication is of a business because the dedicated property is neither any building, nor any trade mark, but the business of the Hamdard Dawakhana. It is, therefore, urged that this is not a charitable purpose at all and, hence, no exemption can be granted. It is pointed out that out of the business of this trust, the khandani income is being earned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definitions, the Court expressed the following view:- In that connection, while dealing with the same question under the Hyderabad General Sales-tax Act, the Supreme Court in State of Andhra Pradesh v. H. Abdul Bakshi Bros. [1964] 15 STC 644, observed as follows (head note):- The expression business though extensively used is a word of indefinite import. In taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure . It is, therefore, clear that the two essential requirements for an activity to be considered as business are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive. . . (p. 21) 20. The principles which are laid down in both the aforesaid cases provide complete answer to the issue at hand. It is to be noted that the aforesaid projects undertaken on behalf of these local bodies is not a regular activity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itute of Chartered Accountants of India v. Director General of Income-tax (Exemptions): 245 CTR 541, concurred with the view taken in the above decision and observed as under:- 19. The word Business is a word of large and indefinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the legislature is to make the definition extensive as the term inclusive has been used. The legislature has deliberately departed from giving a definite import to the term business but made reference to several other general terms like trade , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture . 29. It may be, however, pointed out that the term profit motive is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however it does appear, has shifted and the concept and principle of economic activity has gained acceptability. The definition of the term business may also vary when we are examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is infact in the nature of business. The test as prescribe in Raipur Mfrs. Co.'s case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts. 3.14 In the case of Pave v. DIT (Exemptions): ITA No.6057/Del./2010, the DIT (Exemptions) had rejected the registration under section 12A and grant of exemption under section 80G of the Act on the ground that the Trust was charging service fee for providing services. The Delhi Bench of the Tribunal, on considering the issue and taking into account the aims and objects of the Trust, held that the Trust was a charitable institution and was entitled to registration under section 12A as well as recognition under section 80G, notwithstanding that it was charging some fee for providing the services. The relevant observations of the Tribunal are as under: The aims and objects of the trust are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treated as in the nature of trade, commerce, business etc. In response, the assessee submitted that it was not hit by proviso since the Club was not carrying out any activities in the nature of trade, commerce, business or any activities of rendering any service in relation to trade, commerce or business for a cess or a fee or any other consideration. Its main object is to provide facilities relating to Golf and to afford to the members of the club all the usual privilege, advantages and convenience associated with the game of Golf. It was also authorized to carry out activities which were incidental and auxiliary to promote the said game. All the receipts as have been pointed out in the show cause notice revolved around the said promotion of golf only. The DIT(E), however, rejected the contention of the assessee and after referring to the amended provision of section 2(15) read with proviso and held that the receipts were in the nature of business income. On appeal before the Tribunal, on examining the newly inserted proviso to section 2(15) of the Act and placing heavy reliance on the Delhi High Court judgment in the case of Institute of Chartered Accountants of India vs. DGIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motional activity of game of golf or for maintenance of its club and the facilities, it cannot be held to be in the nature of business, trade or commerce. From the perusal of income and expenditure account, it is seen that there is a operating deficit of 978.96 lakhs i.e. expenditures are far more than the receipts. In such a situation a club or trust does try to generate receipts to cover its expenditure which are only for fulfillment of its objects. However, such receipts should be strictly confined to attainment of its object and not for simply accumulating surplus. Thus, the embargo or rider given in proviso to section 2(15), cannot be the ground for cancellation of registration in the case of the assessee. Even otherwise this aspect has to be examined in the course of assessment proceedings and not for the purpose of cancellation of registration u/s.12AA(3) which is confined to twin conditions laid down therein. (emphasis supplied) 3.16 In the case of Hamsadhwani vs. DIT (Exemptions): ITA No. 494 (MDS.) of 2011 (ITAT-Chennai), the assessee-society was formed with the objective of advancement of music, other fine arts and traditional arts in State of Tamil Nadu. It was re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 [ten lakh rupees] or less in the previous year;] No doubt, it has been specifically provided in the first proviso that advancement of any other object of general public utility shall not be a charitable purpose if it involves any activity in the nature of trade, commerce or business, or rendering any service in connection with trade, for a cess or fee or any other consideration. The third proviso excludes from the restraints imposed by first proviso, where such receipts were less than ₹ 10 lakhs. The question here is whether sponsorship fee, which forms substantial part of the amounts listed above, can be considered as receipt from activity in the nature of trade, commerce and business. In our opinion, advancement of traditional musical culture of Tamil Nadu and conducting music programmes for that purpose, where such music and dance programmes were sponsored by various persons and sponsorsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 008 (221 CTR (St.)1), the proviso applies only where the object of general public activity is a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto. In other words, the Tribunal held that the proviso does not apply to cases where the services rendered are purely incidental to or subservient to the main objective of general public utility . The relevant observations of the Tribunal read as under: 14. As the above CBDT circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of law to be decided on the facts of the assessee s own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within meanings of section 2(15) of the Act. As a corollary to this approach adopted by tax administration, in our considered view, it cannot be open to learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... su i.e. the coupling of words that they are to be understood in the same sense . A profit motive is surely the essence of trade, commerce or business, and, therefore, in a situation in which services are rendered without a profit motive, such rendering of service will not have anything is common with trade, business or commerce. The application of the principle of noscitor o sociis, therefore, will require that in order to invoke second limb of Explanation to Section 2(15), rendering of service to trade, commerce or business must be such that it has a profit motive. (emphasis supplied) 3.18 Further, the Nagpur Bench of the Tribunal, in the case of SevaGram Ashram Pratisthan Vs. CIT: 129 TTJ 506, has categorically observed that the amended proviso to Sec. 2(15) of the Act is constraint for those assessees who attempt to defraud the Revenue in the garb of charitable purpose, but is not meant for those assessees who are really engaged in activities of charitable purpose. In this context it may also be pertinent to mention the decision of the Delhi High Court in the case of DIT (Exemptions) v. Commerce Teachers Association: 203 Taxman 171. In this case the DIT (Exemptions) whil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying on charitable activities. It has been correctly observed in a number of cases that a charitable institution can carry on charitable activity with the donations received as well as with the help of the receipts from rendering services. Charging of fees to meet part of the cost for rendering charitable services cannot, it is submitted, result in rendering of services being construed as business activities and, accordingly, the institution would continue to be a charitable institution, notwithstanding proviso to section 2(15) of the Act. 3.20 Accordingly, reliance is also placed on the view expressed by the Hon'ble Supreme Court in the landmark case of ACIT vs. Surat Art Silk Cloth Manufacturers Association: 121 ITR 1, wherein it was held that it is not that in every case where the activity is being carried on which gives rise to profit, that would amount to non-charitable activity, resulting in forfeiting exemption available to the Trust. The Hon'ble Supreme Court in this case observed that where an activity was not pervaded by profit motive but was carried on primarily for serving the dominant charitable purposes, it would not be correct to describe the same as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the Trust deed. The Trust Deed entered into by the appellant was signed in year 1972, at which time, the appellant could not have anticipated the language of law to be brought in subsequently, viz. preservation of monuments . Nevertheless, in actual conduct, the appellant is engaged in preserving monuments. This activity of the appellant gets covered in preservation of monuments of artistic or historic in nature. It would not be out of place to mention that Mehrangarh Fort and Ahichhatragarh Fort, Nagaur are historic monuments, notified under section 3(4) of the Rajasthan Monuments Archaeological Sites Antiquities Act, 1961, as stated by the ld. A.R. This Act has been enacted by the Rajasthan State Government to provide for the preservation, protection, upkeep, maintenance, acquisition and regulation of, and control over, ancient and historical monuments, archaeological sites and antiquities in the State of Rajasthan with a view to prescribe standards for preservation of historical monuments. Section 2(i) of the said Act defines historical monument to include archaeological building which is of historical, archaeological or artistic importance, interest or value. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Official Gazette (i) an ancient or historical monument to be a protected monument, or (ii) an archaeological site to be a protected area, or (iii) an antiquity to be a protected antiquity. Section 5 of the said Act, further provides as under: A notification published under sub-section (4) shall, unless and until it is withdrawn, be conclusive evidence of the fact that the ancient or historical monument, archaeological site or antiquity to which it relates is a protected monument, a protected area or a protected antiquity for the purposes of this Act. In terms of the above provisions, the Director, Archaeology Museums Department, Government of Rajasthan, Jaipur, has by specific order, in connection with Mehrangarh Fort and Ahichhatragarh Fort, Nagaur declared as under: PROTECTED MONUMENT Under section 3(4) of the Rajasthan Monuments Archaeological Sites Antiquities Act, 1961, this is a protected monument. Whoever destroys, injures, mutilates, alters, removes disperses misuses, imperils or allows to fall it into decay or removes any sculptures, carved image bas-relief inscription or other like objects shall be puni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of objects of art and culture having historical importance. To meet such objective, the appellant expends huge amount for preservation, safety, maintenance of antiquities and the monuments. Such expenses are met from the fee charged from the visitors of the museum. It will be appreciated that footfalls in the museum are not even in all months of the year. While in the tourist season, tourists visit the museum in good numbers, in summer and rainy season, the number of visitors drastically falls. Apart from weather conditions, there are several other factors that impact the footfall of tourists. In order to meet such shortfall, the appellant undertakes ancillary activities to enhance its receipts, which is then utilized to maintain the museum and meet other fixed costs. Some of them, which in view of the assessing officer are allegedly commercial in nature, are briefly explained hereunder: a) Licence fee the appellant permits few craftsmen to give live demonstration of their activities, such as cobbler making Jodhpuri juttis, local painter making paintings, weaver weaving durries, etc. The appellant collects fees from such craftsmen for services provided to them while th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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