TMI Blog2016 (5) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... case. - Decided in favour of assessee - I.T.A. Nos. 1522 & 1523/HYD/2014, C.O. Nos. 66 & 67/HYD/2014 - - - Dated:- 29-4-2016 - Shri B. Ramakotaiah, Accountant Member And Shri S. S. Viswanethra Ravi, Judicial Member For the Petitioner : Smt. Vasundhara Sinha Shri M. Sitaram, DRs For the Respondent : Shri D. V. Anjaneyulu, AR ORDER Per B. Ramakotaiah, A. M. These appeals are by Revenue and cross-objections are by assessee against the orders of Ld. Commissioner of Income Tax (Appeals)-II, Hyderabad dated 30-07-2014 for the AYs. 2009-10 2011-12, on the issue whether assessee is involved in charitable activity or not? 2. Briefly stated, assessee is a Government company owned by Government of Andhra Pradesh, engaged in the business of providing essential commodities to the poor people at the subsidized rates. It filed return of income on 30-09-2009 claiming exemption u/s. 11 of the Income Tax Act [Act] of entire income of ₹ 1,47,35,757/-. The return was processed u/s. 143(1). Subsequently, a notice u/s. 148 was issued on the ground that: i. That the corporation is not eligible for exemption u/s. 11; ii. Provision of gratuity of ₹ 3,40,11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ensure supply of food grains, edible oils, dall etc., to the masses/ general public through the approved outlets by State Civil supplies department by grant of substantial subsidies given by the Govt. of A.P. and is a Corporation governed and controlled by the Govt. of A.P. (b) The main activities of the Corporation are, purchase/ procurement, storage and distribution essential commodities to the poor and needy people of the society. The Corporation is dealing in levy items like rice, edible oils, sugar etc. (c) The Assessee Corporation has, been carrying out its object of distribution of essential commodities to the people of Andhra Pradesh particularly to the poorer section of the society at lower prices with the support of subsidy being provided by the Government of Andhra Pradesh. Without the subsidy the Corporation cannot survive. (d) It is carrying on its business with no PROFIT MOTIVE. Whereas in the case of a trader or an ordinary business man all these issues does not exist. (e) The purchase quantity and rates are fixed by the Govt. which is not a case of normal trade or business. (f) The distributions of all levy commodities are to be done acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of charitable trust. The statutory provisions, as explained on the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term charitable purpose if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for a cess, .fee or any other consideration. It is not aimed at excluding activities genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as charitable purpose . Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from such activity: 5.1 It is pertinent to mention that the CBDT vide Circular No.11 of 2008 dated 19.12.2008 had explained in detail the purpose of this amendment as under: Section 2(15) of the Income Tax Act, 1961 ('Act') defines charitable purpose to include the following:- (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) the advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in w.e.f. 01.04.2009 is not to deny the benefits to the organisations providing relief to the poor, rather it is aimed to deny exemption to the organizations claiming the benefit under the guise of providing relief to the poor. 5.2 It is pertinent to mention that the Hon'ble High court of Andhra Pradesh in the appellant's own case in case Reference No. 59 of 1992 held that the Corporation is a Charitable Institution within the meaning of section 2(15). After elaborate discussion this judgement was delivered on 21.08.1990 much prior to the amendment to section 2(15). Nevertheless, the activities of the corporation remain same for decades right from inception to till date. After having considered all the information on record, the primary objective of the Corporation is to provide food to the poor at the subsidized rates which certainly falls within the ambit of section 2(15). In the process of providing food grains to the crores of people, the corporation should run itself in a commercial manner so that it can sustain itself, that does not mean the corporation is doing business activity. The primary purpose and objective of the very existence of the Corporation is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that Government gives subsidy but not reimbursement. Therefore, assessee s activity cannot be considered as relief of poor . It is a trading/business activity and there can be incidental benefit to poor but not main activity. 8. Ld. AR referring to the order of ITAT as well as Hon'ble High Court submitted that there is no doubt about the activities of assessee being charitable in nature and the issue was crystallized by the orders in earlier years. The amendment to Section 2(15) does not in any way effect assessee and there is no profit element in assessee s activity of providing ration to the poor and weaker sections. 9. We have considered the rival contentions. In our view, the AO has unnecessarily disturbed the stand taken in earlier years when facts are same. All the arguments now raised by the AO have already been considered earlier and the ITAT in assessee s own case A.P. State Civil Supplies Corpn. Vs. ITO [37 ITD 0001]{TM} has held as under: The Memorandum of the assessee in item III has made a bifurcation between the main objects sub-division (a) and objects incidental or ancillary to the attainment of the main objects sub-division (b). Clause 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal also noticed that in the particular assessment year, the State Government granted subsidy of ₹ 44,66,51,914/-, but for which, the Corporation would have suffered huge losses. It is under those circumstances, the Appellate Tribunal found that the assessee-institution itself has come into existence with an object to ensure distribution of food grains and edible oils to the masses through the approved outlets. For the purposes of the Act, the Appellate Tribunal found that the income derived by the Corporation is utilized for charitable purpose. Charitable purpose as defined in sub-section (2) of Section 15 of the Act includes the relief of poor, education, medical relief and the advancement of any other objects of general public utility. It is under those circumstances, the Appellate Tribunal held that the primary object of the assessee-Corporation is a charitable one. The Tribunal applied the ratio laid down by the Supreme Court in C.I. T. v. APSRTC and also another decision rendered by t.h.is Court in GIRIJAN COOPERATIVE CORPORATION LIMITED v. COMMISSIONER OF INCOMETAX. The findings so recorded by the Appellate Tribunal, in our considered opinion, are not vitiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he next question is concerned, the Appellate Tribunal took the correct view that whether the amendment to clause 28 of the Memorandum of Articles of Association took effect from 16-11-1981, the date which fell prior to the commencement of the accounting period on 2-1-1989 or a date which fell subsequent to the accounting period is of no consequence and has no relevance. Since the Tribunal had arrived at the conclusion that the activities are charitable in nature within the meaning of Section 2(15) of the Act, the view taken by the Tribunal is absolutely correct and does not suffer from any infirmity. For the aforesaid reasons, it is unnecessary to answer the question referred for our opinion at the instance of the assessee. . 11. The assessee was established with an object to ensure supply of food grains, edible oils, dall etc., to the masses/general public through the approved outlets by State Civil supplies department by grant of substantial subsidies given by the Govt. and is a Corporation governed and controlled by the Govt. of A.P{then}. The main activities of the Corporation are purchase/procurement, storage and distribution essential commodities to the poor and needy peo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose, 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 income from such activity; Prima facie upto and assessment year 2008-2009 charitable purpose includes relief of poor, education, medical relief and any other object of public utility. The sec 2(15) amended wef 1-4-2009 that advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of a) Any activity in the nature of trade, commerce or business or, b) Any activity of rendering of any service in relation to any trade commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity. 14. Therefore from the above proviso point of view it is clear that in order to deny the benefit of exemption the activity must be advancement of any other object of general public utility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of trade, commerce or business, only if same is carried on with the intention to earn profit , This view was again upheld by the Gujarat High Court in Director of Income Tax (Exemption) Vs Sabarmati Ashram Gaoushala Trust 362 ITR 539 (Guj.) wherein held: In plain terms the first proviso to section 2(15) of the Income Tax Act, 1961, inserted with retrospective effect from April 1,2009, by the Finance Act, 2010, provides for exclusion from the main object of the definition of the term charitable purposes and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of charitable trust. The statutory provisions, as explained on the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term charitable purpose if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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