TMI Blog2016 (4) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial receipts in the course of advancement of any other objects of public utility as laid down in the proviso to Section 2(15) of the Act and not were the receipts within the meaning of Section 11(4A) of the Act. However, nothing is brought on record to substantiate that the income generated from the said Cafeteria was not utilized by the assessee for achievement of the main objects i.e. to provide medical relief to the poor or to impart the education The property held under trust includes business undertaking, so held, and if the business is incidental to the attainment of the objectives of the trust and separate books of accounts are maintained by such trust or institution in respect of such business then also the income is exempt so long as the business carried on by the trust; is incidental to the attainment of main object which is charitable in nature. In the present case also nowhere it is established that the income earned by the assessee trust was not used for attainment of the main object or it was used elsewhere. Therefore, the addition made by the AO was not justified and the ld. CIT(A) rightly deleted the same. See Divya Yog Mandir Trust Vs JCIT [2013 (10) TMI 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clared a total sale of ₹ 6.71 crores at its Cafeteria at Swaminarayan Akshardham Complex, NH-24, Opposite Nizamudin Bridge, Akshardham Setu, Delhi-110092. The AO asked the assessee vide letter dated 12.12.2011 to justify its activities as charitable in nature. In response, the assessee vide letter dated 21.12.2011 submitted as under: Firstly, we would like to submit that our Trust Deed has duly been registered with the Income-tax department. While granting initial registration u/s. 12AA of the Income-tax Act, 1961, we were specifically asked by the department to introduce the following specific condition in the rules:- Rule (18) - The Trust may establish or carry out Cafeteria Premwati at Swaminarayan Akshardham Complex, NH-24, Opposite Nlzamuddin Bridge, Akshardham Setu , Delhi-110092 to provide hygienic vegetarian dishes made without eggs/garlic/onion to thousands of people/tourists visiting the Akshardham everyday and the surplus generated from the activities will be utilized to fulfill and achieve the objects of the Trust only Sir, when this Rule (18) was submitted to the Department, only then the registration u/s 12AA was granted to the trust. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he definition clause takes away the independent section 11 or any benefit or exemption mentioned therein, more specifically, as specified in sub-section (4A). 5. The AO after considering the submissions of the assessee observed that the assessee had tried to call its activity of its restaurant as activities incidental to main aims and objects of the trust. The AO referred to the definition of charitable purposes as contained in Section 2(15) of the Act which says that charitable purpose includes relief of the poor, education, medical relief, preservation of environment (including watersheds, 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 object of general public utility shall not be a charitable purpose, if it involves the carrying 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue (1967) 20 STC 398 (SC) 8. Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submissions vide letter dated 05.03.2012, which is incorporated in para 3.1 of the impugned order which is reproduced verbatim as under: GOA.1:- The appellant denies his liability to tax and interest as determined and computed by the learned assessing officer and the manner in which it has been so determined or computed. The assessment made is arbitrary, contrary to law and without jurisdiction and without application of mind, against the principle of natural justice. 1A: Without prejudice to the above ground of appeal on merits of the case, the order and assumption of jurisdiction under the amended provisions of S. 2(15) is contrary to law and on this ground only the order needs to be declared as null and void, as the amended provisions are not applicable to the assessee, at all First of all the amendment is prospective and not retrospective. It is applicable to trusts formed and registered after the amendment and not to trusts formed and registered before the amendment of the act, even if the objects of such trusts or institutions include a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable purpose, if it involves the carrying on of any activity. The word 'shall' used here cannot be interpreted to mean that the registrations already granted prior to the insertion of these provisions in the Act to the existing trusts, duly registered under the existing provisions of the Act, shall be cancelled. There is no such amendment in S. 12A regarding conditions for applicability of S. 11 and 12 and S. 12AA providing for procedure for registration and cancellation of S. 13 providing for violations resulting in to withdrawal of exemption benefits u/s. 11. 1D: Secondly the amendment speaks of that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, etc. This means that the object itself should be such as to involve the carrying on of any activity. In the nature of trade, etc. in the course of the actual carrying out of a primary purpose/object of the trust or institution. Your kind attention, in this regard is invited to Circular No. 11/2008- F.No. 134/34/2008-TPL issued by Government of India. Ministry of Finance, Department of Revenue, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11 (4A) or the seventh proviso to section 10(23) which are that: i) the business should be incidental to the attainment of the objectives of the entity, and ii) separate books of account should be maintained in respect of such business. Similar entities whose object is 'education' or 'medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to 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 decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no amendment has been made in Sec. 11(4A). IF: Further in view of the insertion of second proviso reading as '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', only a limit has been provided, which means that trusts even with such negative objects as are covered in the 1st proviso, cannot be refused registration. In other words only exemption would be denied, if the turnover exceeds the specified limits albeit the activities are carried on in the course of the advancement of other objects of general public utility. This amendment erodes the entire concept of refusal envisaged in the 1st proviso, more so for the existing trust. 9. The assessee further submitted vide letter dated 03.05.2012 as under: This is further to the hearing on 20-4-2012 when your Honors directed us to produce the books of account along with the accountant to explain to establish that separate books of account has been maintained for the activity of Premwati Cafeteria, As such the books are being produced. Further regarding running o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be able to generate any surplus for the trust and the trust will not be able to generate any surplus for the trust and the trust will not be able to do any charitable activities which presently is being done regularly with the surplus generated from the activity of running a cafeteria indirectly we can say that the rent free accommodation by BAPS, is itself a 'contribution to Suvasini for providing medical relief to the poor. 1. Relief claimed as per grounds of appeal:- The assessment order be set aside as null and void, the additions made be deleted and/or such other relief as your Honors may deem fit, under the circumstances of the case be given. 2. Relief claimed as per written submissions dated 3.5.12: - The assessment order be set aside as null and void, the exemption disallowed be allowed and/or such other relief as your Honors may deem fit under the circumstances of the case be given. 3. The legal issue in the entire appeal is that according to the assessee its main object is 'medical relief to the poor' and this is the only object being pursued during the year; as such amended provisions of Sec. 2(15), proviso, are not applicable to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec. 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility'. The instant case does not fall under the 4th limb. In this regard I have seen the books of accounts of the appellant society, which were separately maintained for this purpose. Furthermore, appellant has also furnished certified copies of Gram Panchayat reports for free medical check ups for various Villages in the State of Gujarat which are available at Annexure-D filed as on 4.4.2012, which are self explanatory so as to show that appellant society is doing charitable work. Furthermore, I have seen details of charity expenses which include medicine expenses and include vehicle running for medical and Mobile Van repair. In the written submissions Id. AR of the appellant has also shown that the Cafeteria receipts have been utilized for charity expenses on cost of medicines, mobile medical van and honorarium to charity staff and volunteers. These details are available in the Schedule XI of the Balance Sheet which was perused by me. There is full detail as per Annexure-C filed with the written submission dated 4.4.2012, wherein, names of the Villages have been me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness should be incidental to the attainment of the objectives of the entity, ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to 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 and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax u/s. 11 on the ground that their objects are for charitable purpose as these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the observations made by the AO and strongly supported the assessment order dated 28.12.2011. She further submitted that running of cafeteria cannot be considered as charitable activities, although it may come under the general public utility. It was further submitted that Akshardham is a tourist place and cafeteria is used by the tourist who are paying the price for the eatables/goods purchased from there. Therefore, the running of cafeteria cannot be considered as charitable activities because it is run for the business purposes and even the rates are not subsidized. Therefore, the AO rightly charged to tax the surplus of income from Premwati Cafeteria and ld. CIT(A) was not justified in deleting the addition made by the AO. 12. In his rival submissions the ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that running of cafeteria is an incidental activity for attaining the objects of the assessee trust which are charitable in nature. It was pointed out that the main object of the assessee is to provide medical relief to the poor and whatever income was generated that was utilized to attain the said object. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational institutions which are interested in building character of and promoting moral values amongst children, adolescents and youths; to establish and maintain libraries, reading halls, museums, etc. and to spread education in diverse other way to make Indian culture more lively and popular. The word education should be constructed in its widest and comprehensive meaning and include knowledge in all its branches, such as literature, art, science, philosophy, economics, commerce, medicine and surgery, fine arts etc. 2. To establish and maintain hospitals, dispensary maternity homes, clinics, laboratory etc. to provide relief by giving medical treatment, medicines, and surgical relief to poors and to assist in maintaining and improving the standard of health of the people and to preserve and improve the standard of health. 15. The assessee vide supplementary trust deed dated 29.06.2006 inserted the following clause in its aims and objectives: The trust may establish or carry out Cafeteria Premwati at Swaminarayan Akshardham Complex, NH-24, Opposite Nizamudin Bridge, Akshardham Setu, Delhi-110092 to provide hygienic vegetarian dishes ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, establishment of Cafeteria to provide hygienic vegetarian foods to the people/tourist visiting Akshardham is claimed to be established for attaining the main object of improving the standard of health. In the instant case, the use of Cafeteria is not prohibited for any particular caste or creed. In other words, this Cafeteria is open to all and the income generated from the said Cafeteria is claimed to be utilized for the main objects of the assessee. The said claim of the assessee was not rebutted by bringing any cogent material on record. 18. On a similar issue the ITAT Delhi Bench B in the case of Divya Yog Mandir Trust Vs JCIT (supra) has held as under: 6.6.7 The first issue as to whether the appellant trust did fall within the purview of providing of 'medical relief 'imparting education' or 'relief to the poor' is thus decided in favour of the appellant. In view of the above finding on first issue the second and third issue have become infructuous. In these issues the questions are as to whether the activity of the appellant were in the nature of providing general public utility or of advancement of any other object o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mental Body and Casual Body beyond the present incomplete system of treatment for cure of physical body alone; - Imparting Yoga and health education and to begin degree and diploma courses for students in disciplines of Yoga and Ayurveda.' As discussed above the proviso to section 2(15) of the Act applies only to trusts/institution falling in the last limb of the definition of charitable purpose; that too, if such trust/institution carry on commercial activities in the nature of business, trade or commerce. The said proviso does not apply to trust/institution engaged in the charitable object of providing relief to the poor, imparting education and providing medical relief. The last limb of the definition of charitable purpose u/s 2 (15) talks about the advancement of any other object of general public utility. The aforesaid predominant objects and the vision make it clear that the objects of the appellant are to provide 'medical relief 'impart education' to the society at large and 'relief to the poor' hence the proviso to section 2 (15) does not apply in the case of the assessee/appellant. The forth issue as to whether donation of ₹ 38.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes[* * *]. [(4A) Sub-section (1) or sub-section (2) or subsection (3) or sub-section (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.] 20. From the combined reading of the above said provisions, it is clear that the property held under trust includes business undertaking, so held, and if the business is incidental to the attainment of the objectives of the trust and separate books of accounts are maintained by such trust or institution in respect of such business then also the income is exempt so long as the business carried on by the trust; is incidental t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mounted to ₹ 48,54,93,383/- (excluding depreciation). Further it is apparent from page 26 of the paper book i.e. income and expenditure account for the year ending 31st March, 2009 that substantial capital expenditure has also been incurred by the appellant trust in pursuing its charitable activities. We also find that the donations/contributions received by the appellant trust constituted only a minuscule portion of the heavy outlay of expenditure incurred in pursuing the charitable activities. The meaning of expression not for purpose of profit is no longer res integra the test being what is the predominant object of the activity whether it is to carry out a charitable purpose or to earn profit ? If the predominant object is to carry out as charitable purpose and not to earn profit the organization would not lose its charitable character merely because some profits arises from the activity. The Hon'ble Supreme Court in the case of Surat Art Silk Cloth Manufacturers (supra) has been pleased to observe that the expression 'for the purpose of 'profit' implies that the predominant object should be to earn profit. Further to determine the predominant object, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to exemption when the business of the trust was incidental to the attainment of the objectives of the trust, namely the objectives of education and relief to the poor. Their lordships observed that after amendment of section 11(4A) in 1992, all that is required for the business income of the trust or institution to be exempt from tax is that the business should be incidental to the attainment of the objects of the trust or institution. The Hon'ble Court further held that if business whose income is utilized by the trust or the institution for the purposes of achieving its objectives is a business which is incidental to the attainment of the objectives of the trust or institution. Respectfully following the ratio laid down in the above cited decisions we come to the conclusion that the authorities below have failed to appreciate that incomes from business undertaken by the appellant fulfills the aforesaid conditions in as much as (a) all the business, including the business of Divya Pharmacy, were incidental to the attainment of main objects: (b) profits from business are applied for charitable objects ; and (c) separate books of accounts are maintained. They were thus not ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate that the business set up and held by the appellant under trust is to sub serve the predominant charitable objects of providing medical relief education and relief to poor. Furthermore, since separate books of accounts were maintained and the entire profits are for charitable objects, the conditions prescribed in section 11(4A) of the Act, too were fulfilled. The authorities below have also failed to appreciate that out of total sales.of ₹ 168.12 crores of Divya Pharmacy medicines of ₹ 4.2 crores only were sold from the hospital sales counter (sic). As so far as ground No. 10 is concerned it is rejected as having become infructuous in view of the order dated 3.6.2013 of the AO u/s 154 and the issues raised in ground Nos. 11 to 14 have become infructuous in view of our finding in favour of the appellant in ground Nos. 1 to 9, hence do not need adjudication. The issue of charging of interest under sections 234A, 234B, 234D and 244A of the Act raised in ground Nos. 15 and 16 are consequential in nature. 21. We, therefore, considering the totality of the facts as discussed hereinabove and respectfully following the aforesaid decision of the Co-ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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