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2016 (8) TMI 865 - ITAT DELHI

2016 (8) TMI 865 - ITAT DELHI - TMI - Denial of exemption claimed under section 11 & 12 - as the assessee society does not fall within the scope of charitable purpose defined in section 2(15) of the Act and therefore, benefit of section 11 and 12 of the Act was not allowed to the appellant in the instant year - Held that:- The appellant society has engaged in education which has been accepted in the preceding assessment years consistently by the Revenue in assessments framed under section 143(3) .....

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the activities of the assessee are not in the nature of education only on the pretext that income from education is confined to Distance Learning course fee of ₹ 20.65 lacs out of total receipts of ₹ 21.45 crores is incorrect. On the contrary, we notice that the activities of the appellant are in the nature of participatory research. In the order of assessment of the appellant for assessment year 1983-84, it has been observed that the participatory research is a new development of th .....

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rganizers, adult educator, health care workers, social workers etc. in training them to use participatory research methodology in their work. The appellant produces own educational materials for use in educational programmes and for wider dissemination. - Punjab & Haryana High Court in the case of Pinegrove International Charitable Trust v. UOI [2010 (1) TMI 49 - HIGH COURT OF PUNJAB AND HARYANA AT ] wherein it was held that merely because profits have resulted from the activities of imparti .....

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n, Adv. and Ms. Shaily Gupta, CA For The Respondent by Smt. Parmita M. Vishvash, CIT (DR) ORDER PER O.P. KANT, A.M.: This appeal filed by the assessee is directed against the order dated 28.02.2013 of the CIT (Appeals)-XXI for the assessment year 2009-10. 2 The assessee has taken the following grounds of appeal: 1. That the learned commissioner of Income Tax (Appeals) has erred both on facts and in law in confirming the order of assessment and has further erred in upholding the denial of exempti .....

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15) of the I.T. Act. 4. That the finding of the Commissioner of Income Tax (Appeals) that the assessee is engaged in commercial activity is perverse. In fact, such a finding has been reached on a mere fact that in respect of such receipts which was for providing educational activities, the payees had deducted the tax at source and despite the fact that the activities so conducted by the assessee were not in the nature of commercial activity. The CIT (A) has overlooked that merely because the pay .....

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f ₹ 1,36,03,945/-had been earned on the surplus funds of the Society, which surplus funds had been invested in accordance with the provisions of section 11(5) of the I.T. Act and was thus the trust property not liable to be included in the total income. The reliance of the judgment of Apex Court in the case of Banglore Club is entirely misconceived which had no application. 7. That the findings of the learned CIT(A) that the assessee has generated surplus of ₹ 1.09 Crores as well as .....

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Trust Ward II, Delhi be set aside and it be held that the demand raised o ₹ 46,13,065/- was unsustainable both on law and on facts. 3 Grounds No. 1 to 5 of the Grounds of Appeal raised by the appellant challenge the denial of exemption claimed under section 11 and 12 of the Act. 4 The brief facts of the case are that appellant is a society, which came into existence in the year 1982 under the Societies Registration Act, 1860. It was granted registration u/s 12A of the Income-tax Act, 1961 .....

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directed to justify the receipts in light of the amended provision of section 2(15) of the Act. The assessee in its response dated 13.12.2011 contended that since the activities of the society are educational activities therefore, the amended provisions of section 2(15) of the Act are inapplicable. The Assessing Officer has noted that during the instant year, the appellant has shown receipts of ₹ 20.65 lacs from educational activities out of total receipts of ₹ 21.46 crores. He furt .....

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ducation. He further held that most of the income of the assessee is from short term projects and recovery of professional services on which, TDS was also deducted which are clearly of commercial in nature. He also noted that during the year, the assessee has also shown surplus of ₹ 1,09,99,469/- which also established the profit motive behind the activities carried out by the appellant society. He also held that nomenclature of the transaction is not relevant and all what is relevant is t .....

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ore, benefit of section 11 and 12 of the Act was not allowed to the appellant in the instant year. 4.2 On appeal, the CIT(A) upheld the denial of exemption by holding as under: 3.1 To verify the claim of the appellant, I have gone through the Schedule 9 of the Balance Sheet, as per which there is Research & Training grants amounting to ₹ 15,91,42.039/- which has been received from (12) organizations. These details are available at page No. 822 of the Paper Book. Further details are ava .....

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f commercial activities by observing at page no. 6 of the order wherein, AO has given full details as per which assessee has made transaction with different parties on which TDS has been deducted. The details are as under:- "Details available on record by way of TDS certificate in respect of following parties also confirm the fact that assessee is engaged in engaged in commercial transactions:- S. No. Name of the Party Nature of Transaction/Section Under which tax is deducted. Amount 1. Unn .....

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e by the Hon'ble Supreme Court in the case of Bangalore Club vs. CIT, wherein, Hon'ble Supreme Court has upheld the judgment of Hon'ble Karnataka High Court, ITA No. 115/1999 4 by observing that, "amount of interest earned by the assessee from the banks will not fall within the ambit of mutuality principle and will therefore, be eligible to income tax in the hands of the assessee (order dated 14.1.13 )". So, this is a latest judgment of Hon'ble Supreme Court on the simi .....

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ast limb. Now only question is to be decided whether activities are in the nature of trade, commerce or business or not. For the same AO has very categorically discussed the instances in the body of order by mentioning the name of the parties who had deducted TDS on various services offered by the appellant. Further appellant has also generated surplus of ₹ 1.09 crores as well as earned interest income on the fixed deposit which has been held as taxable by Hon'ble Supreme Court in the .....

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he Act. He specifically highlighted that the orders for assessment year 2004-05 to 2008-09 have been framed under section 143(3) of the Act allowing the claim under section 11 and 12 of the Act. It was thus submitted that since the activities of the appellant are in the nature of education which has been accepted in the preceding and succeeding years, the amended proviso to section 2(15) of the Act has no application. It was further submitted that the purpose and objects for which the appellant .....

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Masters in Participatory Development. The memorandum of understanding dated 8.9.2008 between the appellant and IGNOU was highlighted, a copy of which is placed at pages 59 to 67 of Paper Book. Reliance was placed on the following judicial pronouncements to contend that carrying out research falls within the ambit of education under section 2(15) of the Act: (a) 321 ITR 73 (Delhi) ICAI Accounting Research Foundation vs. DGIT (E) (b) ITO (E) vs. Society for Essential Health Action Trust (ITA No. .....

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nefit of the members of the society in any manner whatsoever. It was thus contended that mere fact that there was a surplus could not be a basis to conclude that activities of the society were in the nature of trade, commerce or business or any activities rendered in connection with service or business for any other consideration. It was submitted that the receipt of the society is by way of aids and grants which grants had been made by government and other N.G.O s and were made in order to enab .....

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mitted that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It was contended that predominant activity of the institution was not business, trade or commerce and neither institution given primarily to earn profits or to do charge through advancement of objects of the activities and in any case general public utility which could not be made a basis to deny exemption un .....

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e appellant are in the nature of education and now the appellant otherwise is entitled to claim of education. It was submitted that the activities of the appellant society are purely commercial in nature and therefore, the denial of claim was in order. 5 We have considered the rival submissions, perused the material on record and orders of the authorities below. Section 2(15) of the Act is amended by the Finance Act, 2009 reads as under: "2. Definitions.-In this Act, unless the context othe .....

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ture 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 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;" 5.1 Charitable purpose as indicated abov .....

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e 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 ge .....

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other consideration, irrespective of the nature of use or application, or retention of the income from such activity. 2. The following implications arise from this amendment. 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even .....

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n 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(23C) 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. Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institution .....

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uch 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. 5.2 Thus the amended provision of section 2(15) of the Act will have no application viz-a-viz the clauses other than object of general public utility. The Hon ble Court further in the case of Indian Trade Promotion Organization v. DGIT(E) 371 ITR 333 (Del) on examination of the proviso, has held that th .....

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s. However, it was noted specifically that the proviso applies to only the last part of the clause of section 2(15) of the Act i.e. of any other advancement of any other object of general public utility. The Hon ble Court has also held that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It has been held that what is important is to examine as to what is the dominant .....

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ities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in longterm and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause - general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last .....

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nd Director General of Inccometax, the assessee had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from third parties in India. The Hon ble Delhi Court held on such facts as under: "22. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognize .....

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ould be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it bu .....

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e purpose of advancement of any other object of general public utility and that exception is limited to activities 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. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be s .....

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s engaged in education which has been accepted in the preceding assessment years consistently by the Revenue in assessments framed under section 143(3) of the Act. 6 Coming to the facts of the case, it is stated that objectives of the society under the Memorandum of Association are as under: i. To explore, develop, refine and promote the concept and practice of Participatory Research; ii. To strengthen and advance the Participatory Research Network; iii. To promote research, training, action and .....

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all media-print, oral or electronic; viii. To establish and maintain libraries, documentation and resource centers; ix. To develop and distribute learning, public education and advocacy materials in print, audio-visual and software modes and to create facilities for the acquisition, production, storage and dissemination of the same; x. To organize seminars, workshops, conferences, exchange visits, study tours etc. on all subjects of interest in the context hereof for the time being; xi. To prom .....

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with similar projects being conducted by like-minded institutions; xvi. To promote new organizations in furtherance of the objectives hereof; xvii. To offer fellowships, scholarships, prizes, stipends, grants etc. in furtherance of the objects of PRIA; xviii. To issue appeals, proposals and applications for money and funds in furtherance of the said objects and to accept gifts, grants, donations and subscriptions of cash and securities and of any property, movable or immovable; xix. To invest a .....

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property, movable or immovable, of PRIA for the furtherance of the objects of PRIA; xxii. To construct, maintain, alter, improve or develop any buildings or works necessary of convenient for the objects of PRIA; xxiii. To create administrative, academic and other positions needed to run PRIA and to make appointments accordingly; xxiv. To borrow or raise funds on mortgage, promissory notes or other securities founded or based upon all or any of the properties of PRIA or without any securities; x .....

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ak-up of the aforesaid income is as under: a) Research and training grants - ₹ 15,91,42,039/- b) Contribution - ₹ 4,18,69,272/- c) Other income - ₹ 1,36,27,555/- 6.2 According to the learned Assessing Officer, since in the instant year, there was surplus of ₹ 1.09 crores, the same clearly shows the profit motive behind the activities carried out by the appellant society. It has been held that receipts of the appellant society are contractual in nature on account of deduct .....

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, in the case of the appellant society in ITA No. 4791/Del/86, the claim of the appellant under section 10(22) of the Act was denied and the matter travelled to the Tribunal. On appeal by the Revenue, claim of exemption stood accepted by Tribunal. The Tribunal in an order dated 30.7.1987 has held as under: 4. After taking into consideration of the rival submissions and looking to the facts to and going through sec.10(22) as per which any income of society or other educational institutions existi .....

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rning material about the theme. We are in agreement with the learned Appellate asstt. Commissioner that the books published for purely educational purpose, the income from the same deserves to be exempt u/s. 10(22). Action of the AAC is, therefore confirmed and in the result, the revenue s appeal is dismissed. 6.4 Moreover, we also notice that the Assessing Officer in the order for assessment year 1994-95 under section 143(3) of the Act has held as under: There is no change in the aims, objects .....

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scope of education under section 2(15) of the Act and also under section 10(22) of the Act. In such circumstances, the conclusion of the Assessing Officer to hold that the activities of the assessee are not in the nature of education only on the pretext that income from education is confined to Distance Learning course fee of ₹ 20.65 lacs out of total receipts of ₹ 21.45 crores is incorrect. On the contrary, we notice that the activities of the appellant are in the nature of particip .....

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, primary health care, women s income generating efforts, occupational and environmental health etc. The appellant has also emphasized that it work with the community organizers, adult educator, health care workers, social workers etc. in training them to use participatory research methodology in their work. The appellant produces own educational materials for use in educational programmes and for wider dissemination. 6.6 Similar view has also been expressed in the case of Praxis Institute of Pa .....

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rocess of the organization development etc. mainly in respect of HIV and Sex Workers. At page Nos. 8 & 9 of the annual report relevant activities and photograph study for community mobilization have been provided. For the Leprosy Mission Trust India (TLM) the role of the assessee is to focus its approach to work with people and communities effected leprosy and disability and to address poverty and industries through enhanced quality people centered intervention. One of the points to be ensur .....

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lity, Socially Excluded People to know about their aspirational and attitudinal behavior which they are looking for. The assessee will also hold discussion with officials of leprosy mission. Page No. 10/A of the annual reports contains the relevant activities and page 19C contains photograph depicting the plans. For the Plan International ( a child rights organization working to elevate child poverty) the objective is to understand the CC based microplanning through classrooms and field based tr .....

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t activities and photographs depicting the immersional lending program). For international labour office (ILO), the task of the assessee is to carry out rapid assessment on the vulnerability of workers to bondages/labour exploitation in Tamilnadu by organizing separate works job/consultation meetings with employer, NGOs and government etc. Also to find out specific issues of women workers such as Child Care including sexual harassment/violence etc. Page No. 12 of the annual report contains the r .....

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impact of such violation etc. 18. We find that during the year, the assessee undertook 25 such projects, the details of which were submitted before the authorities below but the Learned CIT(Appeals) or the Assessing Officer did not determine the nature of the activities for the very purpose of the objects. The Assessing Officer was of the view that the assessee involves in carrying on the activities in the nature of rendering services in relation to trade, commerce or business as assessee is pro .....

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essee are itself charitable institutions like WHO, UNICEF etc. and they ensure that the grant etc. given to the assessee are fully utilized only for the purpose of charitable activities and not for any business. The assessee did not have any receipt in excess of expenditure during the year. The books of account clearly show that no amount of current receipt or out of unutilized receipt of the past has been treated as profit in the sense it would be treated, had it been a business and that no amo .....

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rce, so as to be headed by the first proviso to sec. 2(15) of the Act even if it is treated as advancement of any general public utility. Similar are the facts in the case of Society for Essential Health Action & Training (supra). In that case also, the assessee had received an amount of ₹ 42 lacs from SAS for research conducting on implementation of various medicine related to children invocation. This research was part of the research activities which were to be carried out by SAS, b .....

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. The services provided by the assessee to SAS were taken as being of commercial nature. The Assessing Officer held that the proviso to sec. 2(15) of the Act is applicable to "any other object of general public utility and not to charitable organization engaged in providing either relief to the poor or medical relief or education and that since the activities of the assessee did not fall under either relief to the poor or medical relief or education, it could be safely presumed that they fa .....

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ion. The Assessing Officer also sent a proposal for withdrawal of registration to the assessee under sec. 12AA of the Act to the DIT(E), separately. The grievance of the revenue before the ITAT was that the Learned CIT(Appeals) has erroneously held the activities of the assessee society to be falling under "advancement of any other object of general public utility" as defined therein. The ITAT held that the aims and objects of the assessee society, as per its Memorandum of Association .....

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e assessee society continues to enjoy registration under sec. 12A of the Act, as a charitable trust, confirming that the charitable purposes for which the assessee society was established remains unchanged. The activities of assessee during the year was in pursuance of such purposes thereafter following the ratio laid down by the Coordinate Bench of the ITAT in the case of Harnam Singh Harbans Kaur v. DIT (Exemption) [2012] 49 SOT 387/17 taxmann.com 103, Delhi, the ITAT upheld the action of the .....

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cting/collecting the poor and needy people like destitute orphans, sex workers, drug addicts in which assessee society has gained experience over a period of time and has capacity to collect these particulars classes of people and motivate them to get out of it. Besides, there is no change in the activity of the assessee which all along has been covered under the first three limbs of charitable activities laid down under sec. 2(15) of the Act as in the assessment years for 2006-07, 207-08 and 20 .....

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tion to any trade, commerce or business for a cess or fee or any other consideration. Respectfully following the above referred decisions on identical issues on almost similar facts as of the present assessee before us, we hold that the activities as discussed hereinabove of the present assessee cannot be held to be engaged in the activity of advancement of any other object of general public utility. The activities carried on by the assessee cannot be said to be beyond its main aims and objects .....

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plication of the assessee for continuance of the approval granted under sec. 80G(5)(vi) of the Income-tax Act, 1961. The grounds of the appeals are thus allowed in favour of the assessee. 6.7 Also Hon ble Delhi High Court in the case of CIT v. Praxis Institute of Participatory Practices ITA No. 672/2015 dated 23.9.2015 approving the above judgment has held as under: 3 The question that arose is whether the activities of the Assessee would fall within the scope of general public utility under Sec .....

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tructions. They ensure that the grants given to the Assessee are utilized for the purpose of charitable activities and not for any business. The consultants fees were also paid out of such grants. Further, the Revenue was not able to show that any part of the profit or gains has been transferred to any member of the Assessee society. 7 As regards the basis of surplus, the Hon ble Apex Court in the case of Queen s Educational Society v. CIT 372 ITR 699 has referred to the judgment in the case of .....

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