New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (8) TMI 916 - ITAT CHENNAI

2016 (8) TMI 916 - ITAT CHENNAI - TMI - Revision u/s 263 - 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 - Held that:- We have gone through the assessment order passed u/s.143(3) of the Act dated 28.02.2013. In 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 M .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was of “General Public Utility” and the activities of the assessee were in the nature of trade, commerce 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 s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 jurisdiction of Commissioner of Income Tax (Exemptions) u/s.263 of the Act and thereafter, observing that there is a failure on the part of the AO to apply the correct provisions of law to the facts of the assessee case, and hence set a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he A.O, was of the opinion that the AO had not made sufficient enquiry while framing the said assessment order. AO also failed to consider the decision of the Madras High Court in assessee's own case reported in (2011) 330 ITR 0024 wherein held that Commercial activity is being carried on by the assessee by using building a a Kalyanamandapams, Auditoriums and Working Women Hostel and the AO failed to examine the applicability of the first and second proviso to Sec.2(15) of the Act, which was .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

would get taxed. That period ends in A.Y 2010-11. But, the AO failed in his duty to bring this amount of 1.25 Crore to tax. Undoubtedly, this omission on the part of the AO rendered made the assessment order erroneous and prejudicial to the interest of revenue . 3.2. Regarding the next issue whereby the AO has allowed application on account of capital work-in-progress to the extent of 9,12,60,6981- in the assessment order, the AR of the assessee has not raised any objection - either written or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and arrange lectures and arrange or support cultural activities of a charitable nature ensuring for the benefit of the public and also to establish endowments for such purposes. (v). To provide relief for the poor and the distressed. (vi). To provide for the carrying out of protection or animals useful to mankind and generally to spend amounts for charitable purposes ensuring for the benefit of the public. (vii). To collect and maintain a fund to be contributed by voluntarily donations and subsc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n fit and proper cases. (x) To construct and maintain any buildings or works necessary or convenient for the purpose of the trust. (xi). To incorporate with itself any institution, society or association having objects wholly or in part, similar to those of the trust and are of a charitable nature ensuring for the benefit of the public and to cooperate with any person or body of persons in adi of such object, provided such object is of a charitable nature ensuring for the benefit of the public. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tility . For example, the two marriage halls viz. Rajah Muthiah Hall and Rani Meyyammai Hall are utili±ed for conducting marriages, social functions, corporate meetings and other assemblies. The tariffs 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 col .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rty 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 be drawn is that activities of the society clearly fall in the last limb of the definition of charity .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erence: Section 2(15): 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re four limbs of charity and all limbs had equal weightage in the scheme of the Act. They were (i) relief to the poor (ii) education (iii) medical relief and (iv) the advancement of any other object of general public utility. However, w.e.f. 01.04.2009, two more additional limbs were added to the concept of charity. They are (I) preservation of environment (including watersheds, forests and wildlife) and (ii) preservation of monuments or places or objects of artistic or historic interest. While .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tility; 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 comme .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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. 3.8 According to CIT, the effect of the above amendment is that if a case falls under advancement of any other object of general public utility , the same shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

09, and the Society s activities, it is found that the Society is engaged in commercial activities of running Kalyanamandapams, Auditoriums, Working Women Hostel and Hostel for Girls. Since both its present activities and many of its objects are primarily aimed at advancement of objects of general public utility , the assessee s case is squarely hit by the amended first proviso to Section 2(15) of the IT. Act. Since its receipts were also more than ₹ 10 lakhs during the year from such acti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have applied these two newly- introduced provisos to the facts of the present case and brought the entire excess income to tax, applying such provisions. Instead, he completed the assessment without resorting to any discussion or even raising the issue of application of newly introduced Section 2(15) in assessee s case. He also lost sight of the later 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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.2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y when the business is incidental to the attainment of object of the trust; matter is remanded to the AO to find out the actual entitlement of exemption by considering the materials placed before him, who shall decide as to whether such bas income is used for the attainment of the object and thereafter proceed in accordance with law. Further, ld.A.R submitted that the main object of the assessee is in promoting the charitable object of the Trust and attempt to re-write the object of the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

), the revision u/s.263 is bad in law. According to him, the income generated from the activities listed by the CIT(E) was used for the purpose of charitable activities. Hence, the assessee trust is entitled for exemption u/s.11 of the Act. 6. On the other hand, The Ld.D.R submitted that after the amnendment of the section2(15), 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 a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 applicab .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(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 for exemption u/s.11 of the Act. The claim of assessee is that the income derived from such commercial activities is used for the purpose of education. Thus, the assessee s claim u/s.11 of the Act can be allowed and therefore, CIT(E) cannot invoke the provisions of the section 263 of the Act. 8. Further, in similar circumstances, the co-ordinate Bench of the Tribunal in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

specified therein. The term 'charitable purpose' has not been defined under the statute; but for the inclusive nature of the term as specified under s. 2(15) of the Act, which as existed before the amendment is as follows : "Sec. 2(15) : "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." As per s. 2 of the Finance Act, 2008, the said provision was amended adding a 'provis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act. 6.1 The ld. AR submitted that, the idea and understanding of the Department with regard to the scope of amendment to sec.2(15) is thoroughly wrong and misconceived. There is no trade or business in the activities pursued by the assessee in publishing of newspaper will not take it outside the purview of charity and hence, that the proviso added to sec.2(15) of the Act, is not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l 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] : " Ch .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected" (para 180). 6.3 The learned counsel pointed out that, the amendment was brought about as a measure of rationalization and simplification, streamlining the definition of charitable purpose and not as a measure of taxation. It is also stated that the concept of charity in India is wider, simultaneously adding that, by virtue of the amendment, the position that existed prior to 1st F .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es of charity. Contrary to this, the ld. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not carry those charitable activities, and it was only carrying on publishing of newspaper in a commercial manner, which cannot be construed as charitable activity. In other words, it was contended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee, cannot be oust the involvement of trade, commerce or business or any service in connection with trade, commerce or business as contemplated 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ention 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 to the service in relation to the trade, commerce or business mentioned therein. To put it more clear, when the matter comes to the service in relation to the trade, co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ity of the assessee involving any trade, commerce or business, is already excluded from the charitable purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to stipulate further, by way of cl. (b), adding the words "or any activity of rendering any service in relation to any trade, commerce or business ..................". As it stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion unde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version