TMI Blog2017 (2) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exemption claimed under section 11 12 of the I.T. Act. 2. That the learned CIT (A) has failed to appreciate that the registration granted to the Society under section 12A has not been withdrawn and as such it is a fact accompli that its objects are-charitable. 3. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that the assessee society is a charitable institution and is existing for charitable purpose within the meaning of section 2(15) of the I.T. Act. 4. That the findings of the Commissioner of Income Tax (Appeals) that the assessee is hit by the mischief of proviso of section 2(15) and as such the AO is justified to deny the exemption u/s 11(1) and accordingly confirmed the action of AO. In fact, such a finding has been reached completely relying on the CIT(A)-XXI, New Delhi order for the A Y 2009-10 in the assessee's own case, and that to without going in to the merits of the Assessee's case. Therefore, the CIT(A) has completely ignored and overlo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Definitions.-In this Act, unless the context otherwise requires- (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 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 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 above is an inclusive definition and includes relief of the poor, education, medical relief, advancement of any other object of general publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill continue to be 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(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 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 base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act. 5.3 In fact, in an earlier judgment dated 26.09.2013 , in the case of civil writ petition No. 7797/2009 between M/s GS1 India and Director General of Inccome-tax, 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 selfinterest, 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 recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue 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 education for people s participation in developmental process nationally and internationally; iv. To catalyze, advocate and support use of Participatory Research in various developmental projects and programs in different countries of Asia and elsewhere; v. To use participatory methodologies to promote and enhance democratic governance in society; vi. To collaborate and maintain links with other networks and institutions for fulfilling objectives of PRIA; vii. To disseminate information through 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affairs of PRIA and add to, amend, vary or rescined them from time to time; xxvi. To do, or cause to get done, all such other lawful things as are conducive or incidental to the attainment of the objects of PRIA; xxvii. To utilize all income of PRIA towards promotion of aims and objectives of PRIA only. 6.1 We note that pursuant to the above objects, the appellant society in the instant year, has declared income of ₹ 21,46,38,866/- , the break-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 deduction of TDS. Further, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 From the aforesaid, it is apparent that the activities of the appellant have been accepted to be within the 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 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 the last decade and was arisen out of the experience of grassroots educational efforts in the Third World Countries. It has been noted that the Participatory Research can be utilized depend upon the needs of the poor and deprived. It has been noted that it has worked on the problems of forest, land, rural development, drinking water, primary health care, women s income generating efforts, occupational and environmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and field based training evolves a process and identity mythology for a participatory needs assessment to develop line centered community level microplan and field work etc., page Nos. 18/19A of the annual report contains the relevant activities and photographs depicting therein online high and micro level planning for UNICEF, the task of the assessee involve fixing understanding the living condition of the tribal people and dynamics of their social exclusion (page No. 16 of the annual report contains the relevant 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 relevant activities and photographs depicting the living and working condition of workers. 17. For Pellastakaa Laspset-Radda Banen(save the children, contract Finland), the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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, but SAS could not carry out. This research was carried out by the assessee society in pursuance of a written arrangement with SAS. As per the arrangement/agreement, the assessee provided techno-medical research support and compilation of DATA in a project called ROTA VIROS . In consideration thereafter, SAS agreed to pay the assessee a lump sum amount of ₹ 50 lacs. It was termed as service fee. The Assessing Officer construed the above said agreement to be a commercial agreement. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncement of any other object of general public utility. 19. Similar view has been expressed by the Hyderabad Bench of the ITAT in the case of GVK EMRI (UP)(supra). Similar are facts in the case of assessee as most of the NGOs related to WHO/UNO etc. do not have any experience of connecting/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 2008-09 in the assessment framed under sec. 143(3), the activities of the assessee trust have been treated as charitable in nature and within the meaning of sec. 2(15) of the Act. As discussed above, the activities of the assessee firstly cannot be treated as advancement of any other object of general public utility nor it can be said that the activity of the assessee involves the carrying of any activity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferred 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 American Hotel Lodging Association, Educational Institute v. CBDT 301 ITR 86 (SC) and noted as under : 11. Thus, the law common to Section 10(23C)(iiiad) and (vi) may be summed up as foll0ws: (1) Where an educational institution carries on the activity of education primarily for educating persons, the fact that it meaks a surplus does not lead to the conclusion that it ceases to exist solely for educational purposes and becomes an institution for the purpose of making profit. (2) The predominant object test must be applied the purpose of education should not be submerged by a profit making motive. (3) A distinction must be drawn between the making of a surplus and an institution being carried on for profit . No inference arises that merely because imparting education results in making a profit, it becomes an activity for profit. (4) If after meeting expenditure, a surplus arises incidentally from the activity carried on by the ed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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