TMI Blog2016 (8) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... rce or business In the present case, the issue relating to applicability of proviso to sec.2(15) of the Act, thereby its entitlement of exemption u/s.11 is not at all before the CIT(A) for the assessment year under consideration i.e. 2010-11. As rightly observed by the CIT(E) in para- 37, the proviso to sec.263(1) which provides that the powers of the Commissioner u/s.263 shall extend and shall always to have extended to such matters who had not been considered and decided in appeal. Being so, we do not find any infirmity in the order of CIT(E) and the same is confirmed on both legal as well as on merits. - Decided against assessee - I.T.A.No.873/Mds./2015 - - - Dated:- 20-7-2016 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND Shri Duvvuru RL Reddy, JUDICIAL MEMBER For The Appellant : Mr.S.Sridhar,Advocate For The Respondent : Mr.V.Vivekandan,CIT DR ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER This appeal of the assessee is directed against the order of the Commissioner of Income-tax (Exemptions),Chennai passed u/s.263 of the Act dated 30.03.2015 pertaining to assessment year 2010-11. 2. The ground in this appeal is with regard to assumption of juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough such claim was not made in its return of income. Since no objection has been raised by the assessee before CIT(E), it indirectly amounts to admission on the part of the assessee that action u/s 263 is proper on this issue. It is also a well settled proposition of law that the capital work-in-progress made out of borrowed funds cannot be considered as application of income as such application was out of loan funds and not out of income of the trust. The Assessing Officer has not furnished any reason as to why he has allowed excess application to the extent of `7,41,93,451/- (`9,12,60,698 - `1,70,67,247) especially when the assessee has not made any such claim. 3.3 Now, the most important issue is applicability of provisos to Sec.2(15) of the IT Act and the failure on the part of the Assessing Officer to consider the same. The main objects of the assessee society, as appearing in its Memorandum of Association are as follows:- (i). To establish, run or maintain educational, technical or technological institutions of all kinds in India for the benefit of the public. (ii). To institute and maintain or support hospitals, creches and dispensaries. (ii,). To maintain Homes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged are high enough to attract only people with better and higher economic status. The running of hostels for students and working women are also on commercial lines where accommodation is given both with A/C facilities and non A/C facilities on collection of prescribed fees. These collections are the main sources of the society and even after meeting all related expenses there is huge surplus left at the end of the year. These activities squarely fall within the last limb of charity viz. advancement of any other object of general public utility . In fact, the Hon ble High Court of Madras in the assesses own case in DIT(E) Vs. Wihingdon Charitable Trust 330 ITR 24 (Mad.) has categorically held in para 10.1 as under: It is not in dispute that the assessee Trust holds the property in Trust. It is also not in dispute that the commercial activity is being carried on by the assessee by using the building as marriage halls, auditoriums etc. 3.5 According to CIT, the assessee-society is engaged in commercial activities of running marriage halls, auditoriums, working women hostel and hostel for girls. Looking at the assessee s activities the inevitable conclusion that could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Finance Bill, 2008, read as under: 2 14.1 Section 2(15) of the Act defines charitable purpose to include relief of the poor, education, medical relief and the advancement of any other object of general public utility; It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 1O(23C) or under section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the advancement of an object of general public utility as is included in the fourth limb of the current definition of charitable purpose . Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. 2.14-2 The CIT observed that with a view to limiting the scope of the phrase advancement of any other object of general public utility , it is proposed to amend section 2(15) so as to provide that the 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 acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r portion of the second proviso which provided that once the proviso to Section 2(15) gets triggered in a particular case, then irrespective of the use or application or retention of such income for any charitable purpose, such income would have to be brought to tax. 4. Accordingly, CIT(E) directed the AO to redo the assessment after considering the points raised by him in the above impugned order of CIT(E). Against this assessee is in appeal before us. 5. According to ld.A.R simply because CIT(E) felt that the assessment order is erroneous and prejudicial to the interests of revenue by itself, would not be enough to vest the CIT(E) with the power of suo moto revision because the first recommend of the section, namely, the order is erroneous , is lacking. Further, the impugned order u/s.263 of the Act is not maintainable for the simple reason that the show-cause notice was issued for alleged failure by AO. Further on examining the impugned order, it goes to show that the assessment was proposed to be revised for further enquiry into the matter. According to ld.A.R, if there is no enquiry by the AO, assumption of jurisdiction u/s.263 of the Act by the CIT is justified. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this assessment order, AO admittedly not discussed anything about the proviso below to sec.2(15) of the Act and it is admitted fact that assessee is earning huge income from the Working Women s Hostel, Rani Meyyammai Hostel and also running Kalayanamandapam and Auditorium. After insertion of First and Second proviso to sec.2(15) of the Act with effect from 01.04.2009, the AO has to look into whether the above activities carried by the assessee is in commercial nature or not. There is no whisper in the order of the AO on this isuse and had the AO examined applicability of amended provisions of the section 2(15) of the Act, he would have denied the exemption u/s.11 of the Act as the assessee s object was of General Public Utility and the activities of the assessee were in the nature of trade, commerce or business. The above activities of assessee cannot be considered as charitable activities and it is also not an activity carried on with an intention of advancement of any other object of general public utility. Then, assessee is hit by proviso given u/s.2(15) of the Act. Therefore, the case of the assessee is hit by the proviso to sec.2(15) of the Act and assessee is not entitled f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words not involving the carrying on of any activity for profit . By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when the words not involving the carrying on of any activity for profit were deleted. Thus the contention is that after 1st April, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under sec. 11 of the Act. 6.2. To analyse the scope and object of the amendment, the learned counsel placed reliance on the Budget Speech of the Minister for Finance, which stated as follows [298 ITR (St.) 33, 65] : Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated under the statute. Further, we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption u/s.11 of the Act. and the position available after amendment to sec.2(15) brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to s. 2(15), the 4th limb as to the advancement of any other object of general public utility will no longer remain as charitable purpose, if it involves carrying on of : (a) any activity in the nature of trade, commerce or business, (b) any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. 6.5. The first limb of exclusion from charitable purpose under cl. (a) will be attracted, if the activity pursued by the institution involves any trade, commerce or business. But the situation contemplated under the second limb [cl. (b)] stands entirely on a different pedestal, with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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