TMI Blog2013 (6) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... trust are audited. The assessee filed Audit Reports dated 22/09/2009 and 26/10/2006, in Form No. 10-B 10CB/CD, as required u/s 12A (b) 44AB of the Act respectively. The assessee produced the books of account during the assessment proceedings. 2.1 The objects of the assessee-trust as per the Trust-Deed are described as under:- Whereas the settler is in possession of large number of pictures, paintings, portraits, works of art, coins of antiquity, artistic (silver, china, glass, ivory) ware, cut glass, books of art, priceless rugs, anitiques, curios, weapons of all types, absolute and otherwise, old armor, shields, swords, daggers etc. and other various miscellaneous items representing the collection of many generation of Rulers of Jodhpur and is desirous of setting port of the collection for charitable purposes and in order to secure this object, is desirous of establishing a museum for the benefit of the public at large. The Trustees shall protect, preserve, enlarge and improve the articles and things to be received by them from time to time. 2.2 After perusing the above objects of this trust the A.O has found that this Trust falls under the category of 'gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditions in this part of Rajasthan) the number of visitors drastically fall and the number of visitors are also affected by other external causes such as terrorist activity in any part of the world, communicable disease such as plague, bird flu, swine flu and the number of visitors also falls drastically on happening of such events whereas the fixed cost of maintaining and preserving the objects and monuments throughout the year remains almost the same. To meet the gap of this shortfall the Assessee Trust is carrying on certain other activities to enhance its income so that it could maintain the Museum throughout the year and meet its fixed costs. In this connection it is permitting Films Shooting and charging the fees from the monument in which it is operating the Museum and some of its objects set popularity all over the world. The film Shooting Company also gives credit to the Assessee Trust and, this also became a source of its publicity for attracting more visitors from all over the world. Similarly some Indian and Foreign tourist like to visit the fort during evening hours because they remain much occupied in other during the day hours. To fulfil their desire some hotelier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and being hit by the proviso to Section 2(15) of the Act which says that the advancement of any object other than the object of general public utility shall not be a charitable purpose if it involves commercial activities in it. He has found that the Trust falls under the category of other object of general public utility which is the fourth limb of the Charitable purpose. Hence, qua these receipts exemption u/s 11 of the Act has been denied to the assessee. 2.4 Further the assessee-trust has been found to have incurred expenses of ₹ 39,61, 880/- towards the renovation of Ranvas Hotel; of ₹ 31,92,556/- towards Ahichhtragarh Fort Project; and of ₹ 18,90,914/- towards Nagaur Fort maintenance. The assessee was asked to explain the nature of these expenses and also to explain as to how these expenses should be treated as an application of income of the trust for the purpose of section 11 of the Act. The assessee-trust replied vide letter dated 27/12/2011, which is reproduced as under : The objects of the Assessee Trust are to establish and operate the Museum, In the course of its activities the Assessee trust has taken for management, preservation and restor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial. The funds of the trust were used to renovate this fort. After renovation the Hotel Ranvas has been constructed inside the fort premises. This is a luxurious hotel with all the facilities of a five star hotel such as Swimming Pool, Deluxe rooms and Royal suites, Wi-fi services. Air Conditioned Restaurants and Bar, Spa, Doctor on call etc. 2.6 The Ranvas hotel is charging heavy tariffs from the tourists. It is also offering tour programs to visitors. The two nights/three days at Ranvas is costing from ₹ 15,000/- to 30,000/- as per the quality of rooms. On special occasions the tariffs are even higher. In the relevant year the assessee trust has incurred expenditure of ₹ 39,61,880/- for renovation of Ranvas in which ₹ 17,54,235/-have been expended for purchase of Air-conditioners from Toshiba Carrier Co. Ltd and ₹ 22,07,645/- were incurred to purchase artistic furniture from Jain Exports. The air conditioners and furniture were installed in the hotel premise. The sole purpose of these expenses was to construct the hotel by using the trust fund. The profit of the hotel is going to Jodhana Heritage Resorts Pvt. Ltd. This hotel is now being run by one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With above discussion the A.O. has found that the funds of the trust are being utilized for the benefit of the settler and the managing trustee Shri Gag Singh Ji. Therefore, he has held that the trust is not qualified for exemption u/s 11. Accordingly, he has disallowed exemption u/s 11 to the assessee trust. 2.9 The assessee has received foreign contribution of ₹ 66,20,524/-during the year and claimed expenses of ₹ 65,55,9907-. The A/R was asked to explain the nature of this grant and how the expenses claimed are allowable. The A/R of the assessee replied vide letter dated 27.12.2011. The content of the reply are being reproduced as under: The assessee trust has received donations/grants in foreign currency equivalent to ₹ 67,31,311/- from foreign organizations and individuals (as Annexure /'B-1 ). The assessee trust has refunded foreign currency equivalent to ₹ 1,10,787/- being the unutilized grant received from the Embassy of The Federal Republic of Germany. As per the provisions of foreign Contribution Regulation Act, the amount of donations/ grants received in foreign currency are being deposited in a separate Bank account and separate books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pent during the year is almost the same hence whole of the amount received this year has been utilized during the year itself. Accordingly it cannot be treated as the income of the trust as it has been received for utilizing for specific purposes and is refundable in case of non-utilization. For the reasons mentioned above, such amount cannot included in the Income and Expenditure of the assessee trust . 2.10 After considering the above reply the A.O. has found that the assessee trust had received amounts as donations but has not disclosed them in the income and expenditure account. Because the expenses have been found to have been incurred beyond the objects of the trust towards the renovation of Ranvas Hotel accordingly the exemption on these receipts has also been disallowed. 2.11. The assessee has claimed expenses of ₹ 1,42,31,760/- on repair and maintenance. Among these expenses ₹ 49,11,261/- were incurred for repair of building and ₹ 78,88,152/- were incurred for repairs of other assets. The A/R of the assessee was asked to explain the nature of these expenses. The assessee replied that these expenses were incurred for repairs and maintenance of buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 100/- which itself if being disputed by your goodself in the case of the H H Maharaja Gaj Singh. The Lessor (Owner of Jodhpur Fort) and your goodself has proposed to enhance the ALV of this Fort at more than ₹ 1.20 Crores whereas the Lessor is getting ₹ 100/- only. As held by the Hon'ble Rajasthan High Court in the case of HH Sh. Gaj Singh. That the Assessee was not in a position to maintain this historical monument hence it has been let out to the Assessee any part of the property for indefinite term, hence the amount spent by it for repairs maintenance and preservation of the Fort cannot be said to be any benefit provided to the owner of the property. As mentioned above the fort was constructed in 1459 and if it is not kept in the state repair and maintenance, the Assessee Trust could not operate the museum in the ruins of a fort, rather than operating in a well maintained fort itself. If it is not being repaired any part of it may fall being an old monument in which case neither visitors would like to enter the premises nor the Assessee Trust could take the risk to permit any such visitor to enter in the property having a risk of injury to the body of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the trust are being utilized for renovation Nagaur Fort and for renovation of Mehrangarh Fort which is the property of the settler and managing Trustee. After renovation both the places the Ranvas hotel and the Chokhelao Garden in the fort premise are being run by a company in which the settler and the Managing-Trustee is having substantial interest. Provisions of section 13 (1)(c) (ii) are clearly applicable in this case. Therefore, the trust cannot be given the benefit of section 11. The exemption to the trust is disallowed accordingly. The A.O. has substantiated his above conclusion with the help of the following decisions: (i) Little Tradition v. Dy. DIT(Exmpton) [2009] 119 ITD 127 (Delhi) (ii) Action for Welfare Awakening in Rural Environment (AWARE) v. Dy. CIT [2003] 263 ITR 13/130 Taxman 82 (AP). 2.14 On perusal of the administrative and other expenses, it was noticed that some expenses were incurred for personal purpose such as: Bill Ho. 562 dated 23-08-2008 of ₹ 5,121/- Bill Mo. 9843 dated 13-06-2008 of ₹ 5,541/- Bill No. 562 No. 10645 dated 10-09-2008 of ₹ 2,888/- Bill No. 56284 dated 13-09-2008 of Rs, 4,050/- Bill No. 562684 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution ₹ 66,20,524 Total Receipts ₹ 8,00,72,517 Less: Expenses allowed Admin, and other exp. ₹ 3,72,73,562 Less: Expenses disallowed ₹ 1,90,627 ₹ 3,70,82,935 Repair and maintenance ₹ 1,42,31,760 Maharaja mansingh pustak ₹ 10,05,499 Depreciation ₹ 17,43,600 ₹ 5,40,63,794 Total income ₹ 2,60,08,723 Add: 1. Income from business of souvenir shop ₹ 57,01,873 2. Prevision for staff welfare ₹ 3,56,239 Total Income ₹ 3,20,66,835 Rounded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siderable expenditure expected to be incurred to restore and maintain the Fort, nominal annual rent of ₹ 100 p.a was fixed for initial 10 years [refer Clause 1 @ Pg 73 of the PB]. Vide letter dated 20.05.1992, annual rent of the Fort continued to remain @ ₹ 100 p.a. [refer Pg 75 of the PB], Thereafter, all expenses on maintenance were agreed to be borne by the appellant. Since 01.04.1972, the appellant set up a museum in the precincts of the Fort for displaying the articles / antiquities settled in the appellant trust. 3.4 Per contra, the ld. D.R. has reiterated all the reasons given in the A.O.'s and ld. CIT(A)'s orders. 3.5 The main object of the Trust was to establish a Museum. The relevant clauses of the Trust Deed are extracted below: WHEREAS the SETTLOR is in possession of large number of pictures, paintings, portraits, works of art, coins of antiquity, artistic (Sliver, Ivory, China glass) ware, cut glass, books of art, priceless rugs, antiques, curios, weapons of all types, obsolete and otherwise, old armour, shields, swords , daggers etc. and other various miscellaneous items representing the collection of many generations of rulers of Jodhpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant has, in accordance with the approved objectives, been consistently pursuing its charitable activities for the past several decades and the appellant had always been allowed exemption under sections 11/12, including in various assessments completed under section 143(3) of the Act. It may also be pertinent to mention here that there has been no change in facts during the year under consideration. The appellant, during the year consideration, applied ₹ 647,42,176 (comprising revenue expenditure of ₹ 593,37,891 and capital expenditure of ₹ 54,04,285) against income of ₹ 812,53,705 and claimed exemption under section 11(1)(a) of the Act qua income of ₹ 121,88,056. The remaining income of ₹ 43,23.470 derived from business carried by the appellant trust was offered to tax. The assessing officer/CIT(A), held that the objects/activities of the appellant trust fell under the fourth limb of the definition of charitable purpose given under section 2(15), i.e. 'advancement of any other object of general public utility' but since the appellant trust carried on commercial activities for consideration, in view of proviso to that section, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discussed hereunder: Section 2(15) of the Act defines charitable purpose as under:- ** ** ** (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: ** ** ** Proviso inserted thereto by the Finance Act, 2008, with effect from 01.04.2009, reads as under: ** ** ** 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 trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is 'charitable purpose' within the meaning of section 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade commerce or business. (Emphasis supplied). 3.11 As can be seen from above, the aforesaid Circular clarifies that the proviso applies to trusts/ institutions falling in the last limb of the definition of 'charitable purpose' namely advancement of any other object of general public utility. Further, when clause 15 of section 2 was amended to separately include 'preservation of monuments or places or objects of artistic or historic nature' in the definition of charitable purpose, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee involve carrying on of any activity in the nature of trade, commerce or business for cess or fee or any other consideration, then, irrespective of the nature of use or application of income, the assessee shall not be regarded as existing for charitable purpose. Similarly, if any of the objects of an assessee involve carrying on of activity of rendering service in relation to trade, commerce or business for consideration then, too, the assessee shall not be regarded as carrying on any activity for charitable purpose. The Circulars clarify that the proviso to section 2(15) of the Act applies to trust/ institution falling in the last limb of the definition of 'charitable purpose' if such trust/ Institution carries on commercial activities in the nature of business, trade or commerce. What is the definition of the term 'business'? The Hon'ble Supreme Court in the case of CIT v. Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 has held that 'business' refers to real, substantial, organized course of activity for earning profits as 'profit motive' is essential requisite for conducting business. Following the above decision, the Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade and if the transactions are on large scale they are called as commerce: Gannon Dunkerley Co v. State of Madras [1954] 5 STC 216 (Mad.). 3.12 The conjoint reading of the above decisions make it amply clear that the words, 'trade', 'commerce' and 'business', connote and indicate a series of organized activities primarily undertaken on commercial lines for profit motive. After the Insertion of the proviso to section 2(15) by the Finance Act, 2008, w.e.f. 1.4.2009, the position that emerges is that the proviso applies if any of the objects of an assessee involve carry on of any commercial/ business activity or earning 'fees' for rendering services in relation thereto. In this regard, is invited to the judgment of the Delhi High Court in the case of ICAI Accounting Research Foundation v. DGIT (Exemptions) [2010] 321 ITR 73/[2009] 183 Taxman 462. In the said case, the assessee undertook three research projects and charged fees for the same. The assessing officer denied the exemption claimed by the assessee on the ground that activities of the assessee were commercial since it was charging fees. The Court, while upholding the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated in section 2(l5) of the Act. This definition as in the 1961 Act is as follows:- 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. Thus, the emphasis is on the fact that this charity is carrying on a business, namely, the Hamdard Dawakhana. In fact, the dedication is of a business because the dedicated property is neither any building, nor any trade mark, but the business of the Hamdard Dawakhana. It is, therefore, urged that this is not a charitable purpose at all and, hence, no exemption can be granted. It is pointed out that out of the business of this trust, the khandani income is being earned by the mutawallis themselves, so there is no scope for saying that this is a charitable purpose. We find that on a proper construction of the Act, this is not the meaning to be given to the definition. In order to have a charity, you must have a source of income. The income may come from gifts, or it may come from running a business. In this case, the trust is of a portion of the income of the Hamdard Dawakhana. Althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure'. It is, therefore, clear that the two essential requirements for an activity to be considered as 'business' are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive . (p. 21) 20. The principles which are laid down in both the aforesaid cases provide complete answer to the issue at hand. It is to be noted that the aforesaid projects undertaken on behalf of these local bodies is not a regular activity of the Petitioner Foundation. Primary activity remains the same, namely, research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of 'research projects', which can be termed as ancillary activity only. The circumstances under which the projects were undertaken make it clear that it was at the instance of the Gove ..... 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 manufactured. The intention of the legislature is to make the definition extensive as the term inclusive has been used. The legislature has deliberately departed from giving a definite import to the term business but made reference to several other general terms like trade , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture . ** ** ** 29. It may he, however, pointed out that the term profit motive is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however it does appear has shifted and the concept and principle of economic activity has gained acceptability. The definition of the term business may also vary when we are examining taxability under Sales Tax, Excise Duty, Value Added Tax, etc, because these are not taxes on income but the taxable event occurs because of the economic activity involved. Even if a person/on organization is carrying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribe in Raipur Mfrs. Co.'s case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts.' 3.14 In the case of Pave v. DIT (Exemptions) [IT Appeal No. 6057 (Delhi) of 2010], the DIT (Exemptions) had rejected the registration under section 12A and grant of exemption under section 80G of the Act on the ground that the Trust was charging service fee for providing services. The Delhi Bench of the Tribunal, on considering the issue and taking into account the aims and objects of the Trust, held that the Trust was a charitable institution and was entitled to registration under section 12A as well as recognition under section 80G, notwithstanding that it was charging some fee for providing the services. The relevant observations of the Tribunal are as under: The aims and objects of the trust are charitable. From details, we find that the assessee is constructing toilets for public which is also a charitable work. These public toilets are made out of the grants from Government of Uttar Pradesh and also some petty contribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of trade, commerce, business or any activities of rendering any service in relation to trade, commerce or business for a cess or a fee or any other consideration. Its main object is to provide facilities relating to Golf and to afford to the members of the club all the usual privilege, advantages and convenience associated with the game of Golf. It was also authorized to carry out activity which were incidental and auxiliary to promote the said game. All the receipts as have been pointed out in the show-cause notice revolved around the said promotion of golf only. The DIT(E), however, rejected the contention of the assessee and after referring to the amended provision of section 2(15) read with proviso and held that the receipts were in the nature of business income. On appeal before the Tribunal, on examining the newly inserted proviso to section 2(15) of the Act and placing heavy reliance on the Delhi High Court judgment in the case of Institute of Chartered Accountants of India (supra) held that the test of business, trade or commerce has to be viewed from the angle that the activity of the trust has continued on business principle and pursued with reasonable continuity. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is seen that there, is a operating deficit of 978.96 lakhs i.e. expenditures are far more than the receipts. In such a situation a club or trust does try to generate receipts to cover its expenditure which are only for fulfilment of its objects. However, such receipts should be strictly confined to attainment of its object and not for simply accumulating surplus. Thus, the embargo or rider given in proviso to section 2(15), cannot be the ground for cancellation of registration in the case of the assessee. Even otherwise this aspect has to be examined in the course of assessment proceedings and not for the purpose of cancellation of registration u/s.12AA(3) which is confined to twin conditions laid down therein. (Emphasis supplied) 3.16 In the case of Hamsadhwani v. DIT(Exemptions) [2012] 50 SOT 89/19 taxmann.com 10 (Chennai), the assessee-society was formed with the objective of advancement of music, other fine arts and traditional arts to State of Tamil Nadu. It was registered under section 12AA and applied for renewal of its approval under section 80G of the Act. The DIT (Exemption) found that receipts of assessee from sponsorship fees, sale of tickets and music coaching wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the receipts from the activities referred to therein is [ten lakh rupees] or less in the previous year; No doubt, it has been, specifically provided in the first proviso that advancement of any other object of general public utility shall not be a charitable purpose if it involves any activity in the nature of trade, commerce or business, or rendering any service in connection with trade, for a cess or fee or any other consideration. The third proviso excludes from the restraints imposed by first proviso, where such receipts were less than ₹ 10 lakhs. The question here is whether sponsorship fee, which forms substantial part of the amounts listed above, can be considered as receipt from activity in, the nature of trade commerce and business. In our opinion, advancement of traditional musical culture of Tamil Nadu and conducting music programmes for that purpose, where such music, and dance programmes were sponsored by various persons and sponsorship fee so received, distributed among the artists, can never be considered as an activity in the nature of trade, commerce or business. When a person sponsors a music programme and sponsorship fee is paid to artist concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal held that the proviso does not apply to cases where the services rendered are purely incidental to or subservient to the main objective of 'general public utility'. The relevant observations of the Tribunal read as under: '14. As the above CBDT circular, which is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of law to be decided on the facts of the assessee's own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in charitable activity within meanings of section 2(15) of the Act. As a corollary to this approach adopted by tax administration, in our considered view, it cannot be open to learned Commissioner to contend that where an object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such ' services are being rendered as purely incidental to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in a situation in which services are rendered without a profit motive, such rendering of service will not have anything is common with trade, business or commerce. The application of the principle of noscitor o sociis, therefore, will require that in order to invoke second limb of Explanation to Section 2(15), 'rendering of service to trade, commerce or business' must be such that it has a profit motive.' (Emphasis supplied) 3.18. Further, the Nagpur Bench of the Tribunal, in the case of Seva Gram Ashram Pratisthan v. CIT [2010] 129 TTJ 506, has categorically observed that the amended proviso to Sec. 2(15) of the Act is constraint for those assessees who attempt to defraud the Revenue in the garb of charitable purpose, but is not meant for those assessees who are really engaged in activities of charitable purpose. In this context it may also be pertinent to mention the decision of the Delhi High Court in the case of DIT (Exemption) v. Commerce Teachers Association [2011] 203 Taxman 171/15 taxmann.com 236. In this case the DIT (Exemptions) while granting registration under section 12AA of the Act to the assessee vide its order dated 28-9-2010 had, inter alia, impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an carry on charitable activity with the donations received as well as with the help of the receipts from rendering services. Charging of fees to meet part of the cost for rendering charitable services cannot, it is submitted, result in rendering of services being construed as business activities and, accordingly, the institution would continue to be a charitable institution, notwithstanding proviso to section 2(15) of the Act. 3.20. Accordingly, reliance is also placed on the view expressed by the Hon'ble Supreme Court in the landmark case of Surat Art Silk Cloth Manufacturers Association (supra) wherein it was held that it is not that in every case where the activity is being carried on which gives rise to profit, that would amount to non-charitable activity, resulting in forfeiting exemption available to the Trust. The Hon'ble Supreme Court in this case observed that where an activity was not pervaded by profit motive but was carried on primarily for serving the dominant charitable purposes, it would not be correct to describe the same as an activity for profit; but where an activity was carried on with the predominant object of earning profit, it would be an activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated in the Trust deed. The Trust Deed entered into by the appellant was signed in year 1972, at which time, the appellant could not have anticipated the language of law to be brought in subsequently, viz. 'preservation of monuments'. Nevertheless, in actual conduct, the appellant is engaged in preserving monuments. This activity of the appellant gets covered in preservation of monuments of artistic or historic in nature. It would not be out of place to mention that Mehrangarh Fort and Ahichhatragarh Fort, Nagaur are historic monuments, notified under section 3(4) of the Rajasthan Monuments Archaeological Sites Antiquities Act, 1961, as stated by the ld. A.R. This Act has been enacted by the Rajasthan State Government to provide for the preservation, protection, upkeep, maintenance, acquisition and regulation of, and control over, ancient and historical monuments, archaeological sites and antiquities in the State of Rajasthan with a view to prescribe standards for preservation of historical monuments. Section 2(i) of the said Act defines historical monument to include archaeological building which is of historical, archaeological or artistic importance, interest or val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tte - (i) an ancient or historical monument to be a protected monument, or (ii) an archaeological site to be a protected area, or (iii) an antiquity to be a protected antiquity. Section 5 of the said Act, further provides as under: A notification published under sub-section (4) shall, unless end until it is withdrawn, be conclusive evidence of the fact that the ancient or historical monument, archaeological site or antiquity to which it relates is a protected monument, a protected area or a protected antiquity for the purposes of this Act. In terms of the above provisions, the Director, Archaeology Museums Department, Government of Rajasthan, Jaipur, has by specific order, in connection with Mehrangarh Fort and Ahichhatragarh Fort, Nagaur declared as under: PROTECTED MONUMENT Under section 3(4) of the Rajasthan Monuments Archaeological Sites Antiquities Act, 1961, this is a protected monument. Whoever destroys, injures, mutilates, alters, removes disperses misuses, imperils or allows to fall it into decay or removes any sculptures, carved image bas relief inscription or other like objects shall be punishable with imprisonment for a term which may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure having historical importance. To meet such objective, the appellant expends huge amount for preservation, safety, maintenance of antiquities and the monuments. Such expenses are met from the fee charged from the visitors of the museum. It will be appreciated that footfalls in the museum are not even in all months of the year. While in the tourist season, tourists visit the museum in good numbers, in summer and rainy season, the number of visitors drastically falls. Apart from weather conditions, there are several other factors that impact the footfall of tourists. In order to meet such shortfall, the appellant undertakes ancillary activities to enhance its receipts, which is then utilized to maintain the museum and meet other fixed costs. Some of them, which in view of the assessing officer are allegedly commercial in nature, are briefly explained hereunder: (a) Licence fee - the appellant permits few craftsmen to give live demonstration of their activities, such as cobbler making Jodhpuri juttis, local painter making paintings, weaver weaving durries, etc. The appellant collects fees from such craftsmen for services provided to them while they occupy space in the monument. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Nagaur/Ahichatargarh Fort and Havelies of Former Ranies in Nagaur Fort are beyond the objects of the Trust, hence expenses incurred for the same are not application of income for the purpose of section 11 of Income Tax Act, 1961. 6. Confirming the findings of the ld. AO of not allowing expenditure incurred towards renovation of Ahichhatragarh Fort ₹ 31,92,556/- (Revenue Expenses) and maintenance of Naguaur Fort ₹ 18,91,914/- (Revenue Expenses) and ₹ 39,61,880/- on renovation of Ranvas Havels (Capital Expenditure) and ₹ 1,90.627/- out of the Administrative Expenses as application of income for the purpose of section 11 of the Income Tax Act, 1961 and in not following the provisions of the law on the subject. 4.1 These grounds relate to the availability of exemption under section 11/12 of the Act on expenses incurred at Nagaur Fort and are dealt together. Facts apropos them are that HH Maharaja Hanwant Singh Charitable Trust ( Hanwant Trust ), a charitable trust registered under section 12A of the Act, owner of Ahichhattragarh Fort of Nagaur (hereinafter referred to as Nagaur Fort ), in terms of the agreement dated 14.11.1992, gave Nagaur Fort on le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it from the trust funds to the settlor and the managing trustee, viz., Maharaja Gaj Singh ji. 4.2 The CIT(A) also confirmed action of the assessing officer on the following grounds: (a) As per the Trust deed, appellant was required to incur expenses on maintenance of Museum and not on fort building and other forts; (b) Trust fund was utilized to construct a hotel; and (c) Such expenditure did not fall under the object as contained in the Trust Deed. 4.3 The Courts have in the following cases allowed the claim of exemption under section 11/12 of the Act and treated expenses incurred by one charitable trust for another charitable trust/donation by one charitable trust to another charitable trust, having similar objects, as application of income for charitable purposes. The Delhi High Court in the case of DIT(Exemption) v. Pariwar Sewa Sansthan [2002] 254 ITR 268/[2001] 118 Taxman 587 had occasion to deal with aforesaid issue. In that case, the assessee was a charitable trust claiming exemption under section 11/12 of the Act. The assessee had: (a) advanced loan to another society controlled by Chief Executive Officer (CEO) of the assessee; (b) paid salary to the CEO and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no substantial question of law involved in the present appeal and accordingly, the appeal is dismissed but with no order as to costs.' (Emphasis supplied) 4.4 Reference may also be made to the following decisions, wherein it has been consistently held that donation given by one charitable trust to another charitable trust tantamounts to application of income for charitable purposes: CIT v. Thanthi Trust [1999] 239 ITR 502 (SC), CIT v. Hindustan Charity Trust [1983] 139 ITR 913 (Cal.), CIT v. Shri Ram Memorial Foundation [2004] 269 ITR 35/140 Taxman 263 (Delhi), DIT (Exemption) v. Bagri Foundation [2012] 344 ITR 193/[2010] 192 Taxman 309 (Delhi), CIT v. Nirmala Bakubhai Foundation [1997] 226 ITR 394/91 Taxman 236 (Guj.), CIT v. HPS Social Welfare Foundation [2010] 329 ITR 310/[2011] 198 Taxman 63 (Delhi) (Mag.), ITO v. RKKR Foundation [ITA No. 253/Luck./09 (Luck.) Applying the aforesaid legal position to facts of the appellant's case, it is found that the expenses borne by the appellant in establishment of Museum in Nagaur Fort, is an application of income. As per clause 9 of the Trust deed, extracted below, the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwant Trust, on behalf of which the aforesaid sums were expended by the appellant was also a public charitable trust registered under section 12A of the Act. The said trust intended to establish a museum, similar to the one set up and being maintained for the benefit of the public at large by the appellant. The appellant is duly empowered under the Trust Deed to aid and assist any other charitable trust [refer clause 9 supra]. The Trust Deed was duly examined by the DIT (Exemption) before granting registration under section 12A of the Act, which clearly proves beyond any doubt that giving of aid to another charitable trust pursuing similar object cannot at all be the basis to deny exemption under section 11/12 of the Act. The appellant's predominant objective as discussed above is preservation of monuments that are of historical importance. Thus, expenditure incurred on preservation of Nagaur Fort has to be regarded as having incurred in furtherance of charitable objects / purposes for which the appellant was set up and their application of income for the said purposes. 4.5 Even otherwise, the appellant cannot be regarded as passing benefit to the settlor of the Trust in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med by assessee Trust being the amount of expenses incurred amounting to ₹ 6,47,42,l76/- (Revenue 5,93,37,891/- and Capita1 ₹ 54,04,285/-) Since we have already held that the appellant is a charitable institution, eligible for exemption under section 11/12 of the Act, this ground would not require specific adjudication. Both capital and revenue expenditure incurred for the objects / charitable purposes of the appellant trust would be regarded as application of income. 6. Ground No. 8 of this appeal reads as under: 8. On the facts and in the circumstances of the case Ld. CIT(A) has erred in including in the income of the assessee Trust the amount of foreign exchange contributions amounting to ₹ 66,20,524- which is a donation towards corpus and in not allowing the deduction of ₹ 65,55,990- being the amount of expenditure incurred out of such foreign exchange contributions and in holding that the activities of the Trust are not of charitable nature but are of commercial nature. 6.1 Facts apropos this ground are that during the year under consideration, the appellant received contributions aggregating to ₹ 67,31,311 from foreign organization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with the aforesaid section 12 of the Act, contributions made with a specific direction that the same shall form part of the corpus of the trust or institution is not includible in the total income of the charitable trust/ institution claiming exemption under those sections. Corpus donation was initially excluded from the definition of income . However, as per the amendment by the Direct Tax Laws Amendment Act, 1987 with effect from April 1, 1989, the words 'not being contributions made with a specific direction that they shall form corpus of the trust' were deleted from section 2(24)(ii)(a). Simultaneously, section 11(1)(d) was inserted by the Direct Tax Laws Amendment Act, 1989. As a result of the aforesaid amendments, 'contributions received with a specific direction that the same shall form part of the corpus of the trust or institution' excludible from the income of the trust/ institution eligible for exemption under section 12 of the Act. In view of the aforesaid, in terms of section 11(1)(d) and section 12 of the Act, Corpus donation is specifically not treated as income of a charitable trust/institution eligible for exemption under those sections. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance in this regard has been placed on the decision of the Delhi Bench of the Tribunal in the case of Little Tradition (supra), which explains the meaning of the term 'corpus', at page 154-155, which is reproduced below: '9. Voluntary contributions are different in nature than the corpus donations. - The Income-tax Act, 1961 has not given the definition of the word corpus . According to the Oxford Dictionary corpus means capital sum originally lent or invested. According to webster's Dictionary its means 'The principal of a fund or an estate as distinct from income of interest . According to Osborn's Concise Law Dictionary it means. The capital of a fund as contrasted with income. The corpus donations are given with the specific direction of the donor. Corpus donations are made for specific purpose specified by the donor. Section 12 of income-tax Act refers to a specific direction by a donor. As such, the option, whether a donation would be for the corpus or not, lies with the donor, and not the donee trust, if there is no specific direction, charactering a donation for the corpus, it may be deemed to be a voluntary one, even though the rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it is not be treated as income, it was laying emphasis on the wish, will and desire of the donor. The donor must grant it with a direction that it shall form part of the corpus. The section did not either by implication, or overtly or otherwise, enjoin upon the trust that the trustee shall retain it for even as corpus, even if when an occasion arises that in order to keep the trust alive and to prevent if from failure, it should not spend any amount out of it. If a donor donates money with a specific direction that it shall form part of the corpus, the trustee is expected to honour the wish of the donor. Both if the trustee utilizes it for a different purpose, then it is simple case of breach of trust for which delinquency, the trustee can be proceeded against the Indian Trusts Act, 1882, or other appropriate legislation but that is not to say that for the misbehaviour of the trustee, the trust loses exemption under the Act. 16. In view of the above, we hold that the donation received towards corpus of ₹ 3,91,678 is not income chargeable to tax.' (Emphasis supplied) 6. In view of the above, any contribution received with a specific direction that the same sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the same cannot be utilized for any other purpose such as distribution for the poverty in furtherance to the object of the Schemes, it cannot be treated as income of the assessee. (Emphasis supplied) It has been held likewise in following cases; U.P. Export Corpn. Ltd. v. IAC [1987] 23 ITD 389 (All.). ITO v. Gujarat Handicraft Handloom Development Corpn. Ltd. [1984] 9 ITD 488 (Ahd.). Dharma Pratishthanam v. ITO [1985] 11 ITD 40 (Delhi). CIT v. Appeals Export Promotion Council [1991] 190 ITR 163 (Delhi). Siddhartha Publication (P.) v. CIT [1981] 129 ITR 603/[1980] 4 Taxman 177 (Delhi). 6.8 In the present case, donations were received for capital outlays, with a specific stipulation to spend the sum towards restoration of Mehrangarh Fort, hosting Sufi Fest at Nagaur Fort, etc. The agreements also provided that the unutilized amounts would be refunded to the donor and that such sum would not be used for another purpose. Considered in the light of the aforesaid legal principles/position, the said receipts qualified as 'corpus donations', exempt under section 11(1)(d) of the Act. 6.9 However, in case we treat the grants received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Expenses amounting to ₹ 20,67,730 (included in ₹ 49,11,261) were incurred for maintenance of Chokhelao Palace, which is being run as a restaurant and operated by Marudhar Hotels Pvt. Ltd., in which Maharaja Gaj Singh ji is a director. Accordingly, the expenses were disallowable under section 13(1)(c)(ii) of the Act. (c) Administrative expenses were incurred for the benefit for either director of the trust or for his relatives. It was submitted by the Ld. A.R. that these expenses were incurred for Preserving and maintaining the Mehrangarh Fort taken on lease from Maharaja Gaj Singh Ji, in line with objects of the appellant. The fact that the lessor is the managing trustee of the appellant trust is not a valid ground for invoking provisions of section 13(1)(c) of the Act. It was further argued that as per the lease deed, the appellant was responsible for preserving and maintaining the property taken on lease and incur expenses in that regard. In fact, this is the reason why nominal lease rent of ₹ 100 per annum was fixed by the lessor Maharaja Gaj Singh ji. 7.2 After considering the rival submissions we are of the considered opinion that the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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