TMI Blog2018 (8) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... nd even the incidental income has been ploughed back and applied for carrying the aims and objects of the assessee society. Therefore, we hold that though the assessee Chandigarh Lawn Tennis Association is carrying out the activities towards the advancement of objects of general public utility, which is its dominant activity, however, it has also involved in carrying out the incidental activity in the nature of trade, commerce or business in the course of actual carrying out of advancement of object of general public utility by way of commercially exploiting the rights of hosting the “Davis Cup Match”. As per the amended provisions of section 2(15), 10(23C), 11(4), 11(4A), 13(8) and 143(3) and in view of our discussion and interpretation of the relevant provisions as given above, the income of the assessee from the incidental and commercial activity i.e. income from organizing of Davis Cup up to the limit prescribed as per the second proviso to section 2(15), which for the assessment year under consideration is ₹ 25 lacs, will be treated as income from ‘charitable purposes’ and the assessee will be entitled to claim the exemption u/s 11 of the Act up to that extent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es/schemes for players. During relevant year under consideration, the assessee hosted an international event Cloud India v/s New Zealand Davis Cup Tie for which separate income and expenditure account had been maintained. This event was hosted by providing various services and facilities like infrastructure, boarding and lodging, logistics, advertisement etc. These facilities were provided by receiving money for advertisement for souvenir, corporate box income, sale of tickets, sponsorship etc. and thus a surplus of ₹ 1,08,36,902/- was generated. Assessing Officer observed that the assessee society was registered u/s 12AA on 27.09.2006 and the objects were charitable but after the amendment in section 2(15) of the Act, the definition of charitable purpose had undergone change and that the proviso to the said section laid down that advancement of any other object of general public utility would not be a charitable purpose if it involved 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 us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96,663/- was generated as per the activities taken by the assessee which has been listed on page 5 of the assessment order which are incidental to the dominant object of the assessee. However, by holding India V/s New Zealand Davis Cup Tie, appellant has thrown open the sale of tickets, advertisements and sponsorships to private sponsors and business entities with the main motive to earn maximum profits or commercial gains from this activity. Therefore, the holding of Davis Cup Tie cannot be said as incidental to the main objective of general public utility carried on by the assessee. 5.3.1 Appellant has placed reliance on the decision of the improvement trust of ITAT Chandigarh Bench in which the order of ITAT, Amritsar Bench in the case of Hoshiarpur Improvement Trust has been followed. In these cases these trust were constituted under the Punjab Town Improvement Act with the main objectives of bringing about improvement in towns. In these cases, assessee sold residential and commercial units and residential and commercial lands and earned profits and these activities were held by the jurisdictional tribunal as incidental to the attainment of its main object. The case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order has although agreed with the assessee that it is engaged in the promotion of the game lawn tennis and also agreed that all the objects are charitable in nature but yet he gave a finding that these objects were/are pursued for commercial gains. That this finding of the AO is contrary to the finding of the CIT in as much the CIT has allowed the registration u/s 12AA by holding the objects of the trust as charitable and that the registration is still continued till date. That at the time of making assessment, all that Assessing Officer has to verify as to the activities of the assessee are according to the objects of the trust. That it is well settled law that when the motive of the trust is not of making profits but for the attainment of the objects, if any commercial activity is carried on, the exemption u/s 11 cannot be denied. That the assessee Chandigarh Lawn Tennis Association had hosted the Davis Cup matches earlier also in the year 1989-90 and 1992-93 and the exemption to the income of the trust was allowed during these year u/s 11 and further that this exemption has consistently been allowed to the assessee ever since its inception in 1975, therefore applying the rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes as defined u/s 2(15) and that the proviso is not applicable to the assessee. 8. Apart from oral submissions made by Smt. Chandarakanta, the Ld. DR, written submissions have also been filed by Smt. Sangeeta Sharma, the Ld. Income Tax Officer (Exemptions) on behalf of the Department wherein it has been contended since the activities of appellant is directly in contrast of the first proviso to Section 2(15) of the Act, so, the exemption u/s 11 and 12 of the Act has rightly been denied. That Section 2 (15) of the Act clearly defines that as far as the first three limbs are concerned, it constitute charitable purpose even if they incidentally involve in carrying on of commercial activities but as far as the fourth limb i.e. advancement of any other object of general public utility is concerned, the entities are not eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. That while interpreting the object and scope of this Section, the various Tribunals/Courts have decided many important cases in favour of the revenue. That in the case of PUDA v. CIT , reported as (2006) 103 TTJ CHD 988 , the application for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts therefrom crosses the prescribed limit (which for the year under consideration was 25 Lakhs or more) then they are not eligible to continue with registration u/s 12A and the same is required to be withdrawn. That the limit of receipt in second proviso to section 2(15) was ₹ 25 lakhs for the year under consideration. Further that that the judgment in Jammu Development Authority was later upheld firstly by Hon ble J K High Court in ITA No. 164 of 2012 vide its order dated 07.11.2013 and also by Hon ble Supreme Court in Special Leave to Appeal (C) No. 4990 of 2014 vide its order dated 21.07.2014. That the aforesaid decisions of the tribunal passed in the cases of PUDA (supra), Jalandhar Development Authority (supra) and also the Jammu Development Authority v. CIT (supra) have been consistently followed by the Tribunals all throughout the Country, reliance in this respect has been placed on the following decisions of the coordinate benches of the Tribunal: (a) Andhra Pradesh State Housing Corp. Ltd. Hyderabad v. DIT (E), Hyderabad ITA No. 1845/Hyd/2012 (Hyderabad bench)vide order dated 19.04.2013. (b) Housing Board Haryana, Panchkula v. CIT, Panchkula, (Chandig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge any sum like sponsorship, advertisement or make collection through sale of corporate tickets. That the event was exploited commercially as the major focus of the appellant was to utilize this event for commercial gains. Reference has also been made to the Income and Expenditure account and percentage of profit as gathered from the consolidated books of accounts maintained by the appellant for financial years 2008-09 to 2015-16 to submit that the appellant s surplus took an upturn from the financial year 2012-13, the year under consideration and in which Davis Cup tie was organized. That from the financial year 2008-09 to 2011-12, the appellant earned accumulated surplus of ₹ 7,96,473/- and during the financial year 2013-14 to 2015-16, the appellant earned accumulated surplus of ₹ 94,88,969/-. However, in total contrast, the appellant, during the year under consideration i.e. financial year 2012-13, earned surplus of ₹ 1,06,14,830/- and earned 88% profit which clearly established that dominant object of the appellant was to maximize profit. A table in respect of Corpus fund, Fixed Deposit Receipts, Bank balances and interest income received for the financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the registration which the AO has not done. That there is no law laid down by the J K High Court which has approved the order of Amritsar Bench on facts and since there was no question of law involved, the Hon ble Supreme Court dismissed the SLP. This issue has already been considered by the jurisdictional P H High Court in the case of Moga Improvement Trust 291 CTR 352 wherein in para 84 of the judgment at page 407 the Hon ble High Court has dismissed the plea of the revenue of getting support from Jammu Development Authority case. That so far the reliance of the Department in the case Tribune Trust (supra) is concerned, the Hon ble High Court has observed that profit was the pre-dominant motive, purpose and object of the assessee The Tribune Trust . That the Tribune Trust had over the year accumulated huge profits and there was nothing in the case to show that the surplus accumulated over the years had been ploughed back for charitable purposes. That, however, in the case of the present assessee (Chandigarh Lawn Tennis Association) profit making is not the motive of the assessee and the only object of the assessee is to promote the game of Lawn Tennis and hold various to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or charitable purposes, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto. (ii) to (vii . In this sub-section charitable purposes includes relief of the poor, education, medical relief and the advancement of any other object of general public utility. 14. The issue relating to the interpretation of the above provisions of the 1922 Act came into consideration of the Privy Council in the case of The Trustees of the Tribune Press v. CIT [(1939) 7 ITR 415: AIR 1939 PC 208]. The Privy Council took into consideration the will of Sardar Dyal Singh, the founder of the Tribune Trust, and observed that it seemed unreasonable to doubt that his object was to benefit the people of upper India by providing them with an English newspaper - the dissemination of news and the ventilation of opinion upon all matters of public interest. That the object of the paper could fairly be described as the object of supplying the Province with an organ of educated public opinion and that it should prima facie be held to be an object of general public utility. It was, therefore, held that proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e setting up of educational institutions, were mentioned in the trust deed as the objects of the trust, however, the trust at that time was carrying out only the last mentioned object of the trust, namely, supplying the Kannada speaking people with an organ or organs of educated public opinion viz the publication of newspaper and magazine. His Lordship further relying on the decision of the Judicial Committee in the case of In re Trustees of the Tribune [1939]7 ITR 415 (PC) held that the object of the assessee-trust (Lok Shikshana Trust) was the advancement of any other object of general public utility . It was further observed that as a result of the addition of the words not involving the carrying on of any activity for profit at the end of the definition in section 2(15), even if the purpose of trust was advancement of any other object of general public utility, it would not be considered to be charitable purpose unless it was shown that the above purpose did not involve the carrying on of any activity for profit. That in order to bring a case within the fourth category of charitable purpose, it would be necessary to show that: (1) the purpose of the trust is advanceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essentially on charity . That if profit making results from the activity and these profits could be utilised for non- charitable purposes, the trust would not be exempt from paying income-tax. However as per both the majority and minority view, it was concluded that the activity of the Trust was not charitable purpose but for making profits and the relief was denied. 19. Further the matter came for discussion in the case of Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC) and the matter was decided in favour of the revenue. Commenting on the expression, not involving the carrying on of any activity for profit , their Lordships observed: Notwithstanding the possibility of obscurity and of dual meaning when the emphasis is shifted from advancement to object used in s. 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total income is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit. 20. The Hon ble Supreme Court, thus, emphasized that if in the advancement of the objects of general public utility a trust resorts to carrying on of any activity for prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poor, education or medical relief were allowed to carry on business activity also, but subject to the condition that such business is carried on in the course of the actual carrying out of a primary purpose of the trust or institution to claim their activity as for charitable Purposes . However, for the institutions carrying on the activity as mentioned in the fourth limb i.e. for advancement of object of General Public Utility, the profit making was barred in view of the crucial words not for making profit added in section 2(15) of the Act of 1961. 23. However, it is to be noted here that the above decisions in the cases of Sole Trustee, Lok Shikshana Trust v. CIT (supra) and Indian Chamber of Commerce v. CIT (supra) were overruled by the Majority View of the Larger Bench Judgement of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Assn reported in [1978 ] 121 ITR 1 [1979] 2 Taxman 501 (SC). Justice P.N. Bhagwati writing Majority view for the bench, in para 17 of the said order held that the activity of the trust or the institution must be for profit in order to attract the exclusionary clause. It is not therefore enough that as a matter of fact an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profit should be added to the definition. (emphasis supplied by us) 24. The Hon ble Supreme Court thus took departure from the plain English grammar meaning of the words in the provisions, but interpreted the phrase not involving the carrying on of any activity for profit suffixed to the advancement of any other object of general public utility in the provisions of section 2(15) of the 1961 Act in the manner that if the income from the profit making activity is ploughed back to subserve the charitable purpose to achieve the end or ultimate motive of charity, the activity of such an institution will not be excluded from the definition of charitable purposes. The Hon ble Supreme Court held that it was obvious that the exclusionary clause was added with a view to overcoming the decision of the Privy Council in the of The Trustees of the Tribune Press [AIR 1939 PC 208 : (1939) 7 ITR 415] where it was held that the object of supplying the community with an organ of educated public opinion by publication of a newspaper was an object of general public utility and hence charitable in character, even though the activity of publication of the newspaper was carried on comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd its income from business would not be immune from tax liability. This contention cannot, however, be accepted as its consequence would be as follows: i. The trust or institution established for promotion of an object of general public utility would not be able to engage in business for fear that it might lose the tax exemption altogether and a major source of income for promoting objects of general public utility would be dried up. It is difficult to believe that the Legislature could have intended to bring about a result so drastic in its consequence. If the intention of the Legislature were to prohibit a trust or institution established for promotion of an object of general public utility from carrying on any activity for profit, it would have provided in the clearest terms that no such trust or institution shall carry on any activity for profit, instead of using involved and obscure language giving rise to linguistic problems and promoting interpretative litigation. ii. Section 11(4) , which declares that property held under trust shall include a business undertaking enjoying immunity from tax and which gave statutory recognition to this principle decided by thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, is that while interpreting the scope of the words not involving the carrying on of any activity for profit. suffixed with the advancement of any other object of general public utility both the views as to whether literal interpretation of the above clause is to be taken or the same is to be read down to remove hardship to the trusts whose end motive is charity as they apply all such profits earned in charitable activity, went on side by side. Earlier in the case of Lok Shiksha Trust (supra) the majority view prevailed for the literal interpretation of the provisions of the section 2(15) of the Act, however later on in the case of Surat Art Silk Manufacturers Assn. (supra) the provisions were read down and purpose test or the end object or to say predominant object theory was applied. 27. However, shortly after the above judgment was delivered by the Five Member Bench Hon ble Supreme Court in the case of Surat Art Silk Manufacturers Assn. (supra) , Sub-section (4A) was introduced in section 11 by the Finance Act, 1983 with effect from 1-4-1984 to provide that a trust or institution for charitable or religious purpose will not get the benefit of exemption under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 @165] 15.8 In order to bring exemption of charitable or religious trusts in line with the corresponding provisions in section 10(23C)(iv) or (v), sub-section (4A) of section 11 has been amended to permit trust and institutions to carry out business activities if the business activities are incidental to the attainment of its objective. The charitable or religious trust will no longer lose complete exemption from income-tax. However, the profits and gains from such business activity will be subjected to tax. CBDT circular no 642 dated 15th December 1992 In partial modification to para 15.8 (as extracted above) of the Circular No. 621, dt. 19th Dec., 1991 issued from F. No. 133/389/91-TPL, it is clarified that according to the provisions of section 11(4A) of the Income tax Act, as amended through the Finance (No. 2) Act, 1991, with effect from 1st April, 1992, profits and gains of business in the case of a trust or institution will not be liable to tax if the business is incidental to the attainment of the objectives of the trust or institution, as the case may be. In addition, separate books of account are to be maintained by the trust or institution in respect of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... colleges, hostels and orphanages. The Court held that a business, whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution, is, surely, a business which is incidental to the attainment of the objectives of the trust. The findings of the Hon ble Supreme court can be divided into three parts: (i) Discussing the position for the period from the assessment years 1979-80 to 1983-84, when the provisions of section 13(1)(bb) remained on the statute, the court held to claim the exemption under section 11 the business must be carried on in the course of the actual accomplishment of relief of the poor, education or medical relief. As an example, a public charitable trust for the relief of the poor, education and medical relief that carries on the business of weaving cloth and stitching, clothing by employing indigent women carries on the business in the course of actually accomplishing its primary object of affording relief to the poor and it would qualify for the exemption under section 11 of the Act. The court however observed that In the instant case, (Thanthi Trust) the business that the trust carried on was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of the Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb), the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that is required for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purpose of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. Since it was not in dispute that the income of its newspaper business had been employed to achieve its objectives of education and relief to the poor and that it had maintained separate books of account in respect thereof, it was therefore, held that the trust was entitled to the benefit of section 11 for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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 any activity of rendering any service in relation to any trade, commerce or business, (b) irrespective of the nature of use or application, or retention, of the income from such activity; 37. The above amendment was carried in section seeks to overcome the decisions of the hon ble Supreme Court in the cases of Surat Art Silk (supra) and Thanthi Trust (supra) as relevant to the period post substitution of the section 11(4A) of the Act. Firstly, the position that the carrying of business incidental to the attainment of the objectives of the trust as was allowable to the intuitions u/s 11(4A) carrying the activity under the all the limbs of section 2(15) of the Act is no more available to the institutions carrying on the advancement of object of public utility. The institutions carrying out the object of public utility have been barred from doing any activity in the nature of trade, commerce or business for claiming their activity for charitable Purposes . Secondly this bar is irrespective of application of income from such comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- 3. The newly amended s. 2(15) will apply only to the entities whose purpose is advancement of any other object of general public utility i.e., the fourth limb of definition of charitable purpose contained in s. 2(15). Hence, such entities will not be eligible for exemption under s. 11 or under s. 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 based on the nature, scope, extent and frequency of activity. 3.1 There are industry and trade associations who claim exemption from tax under s. 11 or on the ground that their objects are for charitable purposes as these are covered under the any other object of public utility . Under the principle of mutuality, if trading takes place between the persons who are associated together and contribute to a common fund for the financing of some venture or object, and in this respect have no dealings or relations with any outside body, then the surplus returned to such persons is not chargeable to tax. Therefore, where industry or trade associations claim both to be charitable ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the section 2(15) of the 1961 Act, were akin to the wording introduced vide Finance Act 2008 w.e.f. Ist April 2009 i.e. 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. The Hon ble High court has observed that while the legislature in the 1984 amendment which continued up to the year 2009 altered the position by deleting the words not involving the carrying on of any activity for profit , it reintroduced an exclusionary clause albeit in different and wider terms in the 2009 amendment. The exclusionary clause related to the object of general public utility and not the advancement thereof. The Hon ble High Court thereafter referring to the words 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 as mentioned in the proviso to section 2(15), as amended in 2009, observed that such activities are carried for profit only. The Hon ble High Court rejected the contention of the revenue that the meaning of the above words nature of trade, commerce or business was of wider import and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 wherein it was held as under:- An activity would be considered business if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 58. In conclusion, we may say that the expression charitable purpose , as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running foul of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished for charitable purpose. The Hon ble High Court took the notice that prior to the amendment introduced w.e.f Ist April, 2009 the institute had been recognized as an institution established for charitable purposes and that this had been done having regard to the objects of the institution and its importance throughout India. The Hon ble High Court further observed that if a meaning is given to the expression charitable purpose so as to suggest that in case an institution, having an objective of advancement of general public utility, derives an income, it would be falling within the exception carved out in the first proviso to Section 2(15) of the said Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act and the said provision would be rendered redundant. 42. The Hon ble Punjab Haryana High court in the case of The Tribune Trust (supra) following the decision of the Hon ble Supreme Court in Surat Art Silk (supra) and in the light of the several decisions of the Hon ble Delhi Court has held that the predominant object of the trust or institution is the deciding factor , if the profit is the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of general public utility but not to the other limbs of the activity as included in the definition provided u/s 2(15) of the Act. We may further add here that the prohibition put by the above proviso is not applicable in respect of non-business income of the institution or the trusts carrying on the advancement of other objects of general public utility but only in respect of income earned from the activity in the nature of trade, commerce or business. In other words, this exclusionary provision will not exclude the institutions having income other than the business income. 44. It is pertinent to mention here that Parliament also realized that the absolute restriction on any receipt of commercial nature imposed by the proviso inserted w.e.f. 1.4.2009 to section 2(15) may create hardship to the organizations which receive sundry or incidental considerations from such activities. Therefore by the Finance Act 2010, there was yet another proviso (i.e. second proviso) inserted with retrospective effect from 1.4.2009; now the section read as under: 2 (15) charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 10 lakhs from the ancillary activity in the nature of trade business or commerce by the institutions carrying out the object of General Public Utility was increased to ₹ 25 lakhs vide finance Act 2011 w.e.f.1.4.2012. 47. By the Finance Act 2015, the first and second provisos also stand substituted, with effect from 1st April 2016, with a new proviso to Section 2(15). The section now is read as under: 2 (15) charitable purpose includes relief of the poor, education, medical relief, 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, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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, unless,- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent. of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year . These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years. (emphasis supplied by us) 49. Thus, the respective memorandums explaining the clauses in 2015 explain that the purpose of insertion of second proviso to section 2(15) and subsequent amendments there to was to remove the hardship faced by the institutions gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson, any income falling within any of the following clauses shall not be included- (23C) any income received by any person on behalf of- .. (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is properly applied for the objects thereof; . Provided also that the income of a trust or institution referred to in sub-clause (iv) or sub-clause (v) shall be included in its total income of the previous year if the provisions of the first proviso to clause (15) of section 2 become applicable to such trust or institution in the said previous year, whether or not any approval granted or noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position to that was operative or as interpreted by the courts of law from the year 1961 to the year1983. That is why immediately in the next financial year vide Finance Act 2010 with retrospective effect from 1.4.2009, the date with effect from which the first proviso to section 2(15) was introduced, the second proviso was brought in with the sole purpose of diluting the rigours of the first proviso and to mitigate the hardship created to the institutes genuinely carrying out the object of general public utility. Since with the introduction of second proviso, the rigour of the first proviso was diluted to ensure appropriate balance being drawn between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization, hence the interpretation given by the courts taking into consideration the hardship caused by the first proviso , in our view, can not be applied as such at this stage, but the same is required to be looked into in the light of the second proviso and the amendments brought in other related sections also, as discussed above. In our view, it will not be proper to just ignore the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade, commerce or business. Newly inserted proviso to section 10(23C) also controls or restricts the benefit available to the institutions claiming benefit thereunder, however none of the provisions, in our view, in any manner, makes the other section inoperative, otiose or redundant. On the other hand, in our view, adopting the interpretation as given by the courts to the first proviso to section 2(15) bereft of second proviso and ignoring section 13(8) of the Act and other related amendments brought into section 10(23C) and section 143(3) of the Act with retrospective effect from 1.4.2009, would make these provisions redundant, otiose and inoperative. 56. It is pertinent to point here that the hon ble supreme court in the case of Thanthi Trust (supra) while interpreting the relevant provisions as they stood for the period from AY 1984-85 to AY 1991-92, denied the benefits of exemption to the assessee trust applying and adopting the literal interpretation of the more stringent provisions of section 11(4A) of the act as were there in the statute for the aforesaid period. Though, the provisions of Sub-section (4) of section 11 remained on the statute book which defines the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication, or retention, of income from such activity . The addition of the above crucial words obviously is to overcome the decision of the Hon ble Supreme court in the case of Surat Art Silk (supra) as well in the case of Asstt. CIT v. Thanthi Trust (supra) wherein it was held that if all the surplus or profit from the business activity is invested or ploughed back into the assets of the assessee or applied to the main activity, the business will be a business incidental to the attainment of the objects of the trust. However, this proposition has been made inapplicable or to say bygone by the Legislature for the institutions carrying on object of general public utility by way inserting the crucial words irrespective of the nature of use or application, or retention, of the income from such activity in the first proviso to section 2(15) of the Act. 58. The Government realized need to curb the practice of business houses to claim exemption on the ground that they were carrying out of objects of general public utility and thereby making the benefit of exemption in respect of business carried out by them in the mask of charity and that is why they introduced first proviso to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Courts, realized the consequence that were likely to arise from the above amendment. Therefore, taking into consideration the harsh and strict meaning of the first proviso, it was felt that the plain and literal meaning to the first proviso would be of great hardship to the trust or institution which were genuinely carrying out the object of general public utility and that in the course of which it also generates some incidental or ancillary income. It was under such circumstances that the second proviso was brought in the next financial year itself with retrospective effect so as to make the first proviso to section 2(15) workable and to remove the ambiguity in the provisions of section 2(15) of the Act. Now with the insertion of second proviso, meaning and interpretation which is more rational has to be arrived at. However, if the interpretation of section (2(15) as per the decision of the Hon ble Pb. Hry. High court in the case of Tribune Trust (supra) and in other decisions of the Delhi High court as discussed above considering the first proviso to section 2(15) alone and ignoring the subsequent amendments, is applied to the amended section 2(15), then it will not only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from 1.4.2009 allowing the carrying out of the business activity up to the prescribed limit of receipts from such activity would be applicable in those cases where an institution or trust is carrying out the activity of advancement of general public utility but at the same time its object is also to make profits as observed by the hon ble Supreme Court in the case of Surat Art Silk Cloth Manufactures Association (supra) in respect of the privy Council decision in the case of Trustees of the Tribune (supra) and then by the Hon ble Pb. Hry. High court in respect of activities carried out by the Tribune Press Trust in the case of The Tribune Trust (supra), in that event such institutions would also be eligible to claim exemption u/s 2(15) subject to the condition that their total receipts would not exceed the prescribed limit of ₹ 10 lacs or ₹ 25 lacs or 20% of the total receipts as applicable from time to time. In that scenario, each and every trust or institution indulged into business activity involving the providing of some sort of public utility services will claim exemption if total receipt of such institution does not exceed the prescribed limit. As held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the second proviso to section 2(15) would lead to absolute absurdity, confusion and unwanted and uncalled for consequences. Even it will be also an issue in dispute as which of the activity/activities of an assessee is/are towards the advancement of object of General Public Utility though may be with profit making object also and which of these is/are of a pure commercial venture. Thus. in our view, the different but related provisos of the Act are to be read in harmony with each other. The interpretation as canvassed for the period prior to the introduction of the second proviso, if adopted now, will render the newly inserted amended provisions of the Act as infructuous and redundant. 62. The issue relating to the effect of insertion of first and second provisos to section 2(15) of the Act vide Finance Acts 2008 and 2009 respectively came into consideration in the case of Jammu Development Authority v. CIT (supra) wherein, it has been held that if activities of any Institution/Trust/Society under the fourth limb i.e. the advancement of any other object of general public utility are in the nature of trade, commerce or business for cess or fee and the receipts therefrom c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of registration of trust, however, where the receipts are hit by the proviso to Section 2(15) of the Act, the benefit of exemption to its income for the previous year relevant to the subject assessment year will not be available. However it has been further held that if this happens on continuous/regular basis, it could justify further probe/inquiry before concluding that the trust is not genuine. 63. Though in the above referred to decisions of Mumbai Bench of the Tribunal and that of the Hon ble Bombay High Court (supra), the question was whether the registration granted u/s 12 to the charitable institution can be cancelled if the monetary receipts from its business activity crosses the limit prescribed as per the second proviso to section 2(15) of the Income Tax Act and it was held that the registration on this ground granted to a charitable institution cannot be cancelled. However, it is to be noted that it was also held that in the previous year during which such income from business activity of the trust or institution crosses the prescribed limit, benefit of exemption u/s 11 for that year will not be available to such trust or institution. It is, therefore, to be noted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. The advancement of any objects of general public utility and engagement in trade, commerce and business etc. were thus seen as mutually exclusive in the sense that either the assessee was pursuing the objects of general public utility or pursuing trade, commerce or business etc. in the garb of pursing the objects of general public utility. As the CBDT circular itself demonstrates, there could not have been any situation in which the assessee was pursing the objects of general public utility as also engaged in trade, commerce of business etc. In the new proviso, however, even when the assessee is engaged in the activities in the nature of trade, commerce or business etc. and such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility it is excluded from the scope of charitable purposes only when the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year . In other words, even when the activities are in the course of advancement of any other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are clarificatory or explanatory, rather the same ,in our view, is reiteration of the wording which already was there in the first proviso to section 2(15) of the Act. Rather the scope otherwise, of the provisio has also been curtailed by bringing in the more restrictive words in the course of actual carrying out of such advancement of any other object of general public utility in clause (a) to the proviso to section 2(15) of the act. These words are crucial in the light of differentiation drawn between the phrases in the course of the actual carrying out of their primary purpose and the phrase the business is incidental to the attainment of the objectives of the trust. by the Supreme Court in the case of CIT v. Thanthi Trust (supra). 66. Now coming to the point as to when the provisions of section 2(15) are read along with other related or corresponding provisions in plain English grammar meaning, whether they would render each or any of them redundant or inoperative, if it is so, which provision is to be read and in what manner to arrive at the correct interpretation? The relevant arguments and decisions that can be referred in this respect to are enumerated as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral 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, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year; (24) income includes- (i) .; xxxxx (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. (4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. xxxxxxxx xxxxxxxx Section 13. . (8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year. xxxxxxxx ASSESSMENT : 143. (1) . (3) On the day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and its importance throughout India or throughout any State or States exempt from taxation. Now for approval to claim exemption u/s 10(23C)(iv), the institute for the fund must fall in the definition of charitable purposes which includes activity under all or any limb as discussed above and can not be said to be applicable solely for activity of General Public Utility. So far institutes established for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest, their income may be claimed as exempt u/s 10(23C) (iv) if they otherwise fulfill the conditions as enumerated u/s 10(23C)(iv) of the Act. So far as the institute carrying on the advancement of any other object of general public utility, as noted above, their commercial income has also not been excluded in the light of second provision to section 2(15) of the Act but subject to the limit prescribed of the quantum of receipts. In respect of the question that if an institute or a trust will not be engaged in the commercial activity, it will not have any income and where is the question of claiming exempti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons claiming exemption u/s 11 of the Act carrying out activity for charitable purposes. Definition of the Charitable purposes as provided u/s 2(15) of the Income Tax Act includes relief to the poor, education yoga, 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. Sub-section 4A do not bar the carrying on of business activity , however, puts restriction that such business should be incidental to the attainment of the objectives of the trust or institution and separate books of account are maintained. The restriction put by earlier section 13(1)(bb) and after its omission and by the subsequently inserted section 11(4A) have been well considered, interpreted and applied by the Hon ble Supreme Court in the case of Thanthi Trust (supra) and thus it can not be said to be said there is any anomaly created by the above provisions . 69(6). Then there is sub-section (8) to section 13 of the Income Tax Act which states that nothing contained in sections 11 or 12 shall operate so as to exclude any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11(4A) or section 13(8) do not in any manner comes into play or otherwise restrict the business activity of the fund or institutions established for charitable purposes and claiming exemption u/s 10( 23C)(iv) of the Act. But the restriction inter alia created by the provisos to section 2(15) read with the newly inserted 18th proviso to section 10( 23C) (as reproduced above) and newly inserted proviso to section 143 (as inserted by Finance Act 2012 w.e.f. 1.4.2009) will apply that too only to the Institutions carrying on the activity of advancement of any other object of General public utility and not to the institutions established under other limbs of the definition of Charitable Purposes . Thus the provisos to section 2(15) or to section 10(23C) or to section 143 do not make the provisions of section 10(23C)(iv) redundant or inoperative, but only put some restrictions on the institutions carrying on the object of General Public Utility in respect of their business activity. 71. As per the second proviso to section 2(15) of the Act, income from incidental business activity should not cross the limit as prescribed from time to time as per the amendments carried out in second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 10(23C)(iv) of the Act irrespective of the quantum of such income i.e without any cap or limit on such income subject to fulfilling the other conditions as prescribed therein such as approval of such fund or institution by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States. However, the trusts or institutions carrying on such activity or established to carry on such activity, as the case may be, that is falling in the last limb of the definition of charitable purposes as defined u/s 2(15) of the Act i.e. for the advancement of any other object of public utility which also involves the carrying of incidental 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, the restrictions inter alia put by the provisos to section 2(15) such as that the incidental business activity should be in the course of actual carrying out of the main object and the receipts therefrom should not cross the limit or cap (as applicable from time to time) and further that it will be immaterial that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the receipts which are not directly connected with the carrying of the incidental activity in the nature of trade, commerce or business. Such an anomaly will create utter confusion and will operate as restriction on the institution genuinely involved in carrying out the objects of general public utility. The Institutes which are rather carrying of the activity of general public utility on large scale will not be entitled to claim the benefit under the provisions of sections 11 12 of the Income Tax Act. Even the non-business income in the form of voluntary contribution and donations or directly relating to charitable activities (as discussed in para 61 (2) above) and not relating to the activity in the nature of trade, commerce or business would also become taxable. The moment the receipts from the commercial activity crosses the stipulated limit, the provisions of section 13(8) of the Act and provisos to section 10(23C) and section 143 , as the case may be, will come into play. It will mean that the entire income of an institution carrying on the object of general public utility on a small scale involving incidental commercial activity will be treated as exempt as it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant provisions. However, the income from activity in the nature of trade, commerce or business over the above limit prescribed from time to time as per the second proviso to section 2(15) of the Income Tax Act, should be treated as income from the business activity and liable to be included in the total income. In this way, the receipts of incidental business income while carrying out the objects of advancement of general public utility, when these cross the limit prescribed u/s 2(15) of the Act, will not render such institute as non-charitable bringing into taxation its entire income including non-business income or even income from charitable activity itself including voluntary contributions and donations. Only the business income which will be over and above the prescribed limit will be subjected to taxation. The above interpretation of the different provisions of the Act will lead to a harmonious construction of the provisions removing hardship created by the first and second proviso to section 2(15) read with section 13(8) of the Act and will also strive to achieve the objects and purpose of sections 11(4) and 11 (4A), 10(23C)(iv) as well as the provisions of section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... His Lordship Justice H.R. Khanna, writing the majority view (for himself and Justice A.C. Gupta) observed as under : The sense in which the word education has been used in section 2(15) in the systematic instruction, schooling or training given to the young is preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. The word education has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. Again, when you grow up and have dealings with other people, some of whom are not straight, you learn by experience and thus add to your knowledge of the ways of the world. If you are not careful, your wallet is liable to be stolen or you are liable to be cheated by some unscrupulous person. The thief who removes your wallet and the swindler who cheats you teach you a lesson and in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Indian Income-tax Act of 1922. The above decision of the Judicial Committee applies directly to the present case and, in view of this decision, we would hold that the object of the appellant-trust was the advancement of any other object of general public utility . 76. So far as the reliance of the ld. Counsel on the decision of the Delhi Bench of the Tribunal in the case of Pitanjali Yog Peeth Nyas v. ADIT (Exemptions) (supra) is concerned, the Bench has considered the specific and distinct features of yoga as compared to a game or sport. Apart from holding the systematic and regular classes in Yoga as educational activity , the Tribunal has also held the Yoga as falling under the other limb medical relief . It has been considered that the subject Yoga has been recognized as a separate stream of science and educational degrees courses such as M.A. (Yoga Science), M.Sc. (Yoga Science), B.A. (Yoga Science) Post Graduate Diploma in Panchkarma, Post Graduate Diploma in Yoga Science and Post Graduate Diploma in Yoga Health and Cultural Tourism have been offered in the University set up by the assessee trust in that case, which was duly recognized by the Govt. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments placed on record, for the year 2008-09, the assessee society organized six domestic championships in tennis and four international matches. However, it suffered loss of ₹ 1,81,949/-in organizing domestic tournament and a loss of ₹ 6,24,724.14 in organizing the international tournament in tennis and thereby total loss of ₹ 8,06,673.14. For the year 2009-10, the assessee society suffered loss of ₹ 2,89,190/- in organizing domestic tennis, whereas, it received income of ₹ 6,28,468/- from organizing international tournament thereby net profit of the assessee was at ₹ 3,39,278/-. For the year 2010-11, the assessee society conducted 13 domestic tournaments suffering loss of ₹ 4,14,600/- and one international event for junior players suffering loss of ₹ 20,253/- and thereby totalling loss to ₹ 4,34,853/-. For the year 2011-12, the assessee suffered loss of ₹ 5,20,968/- from domestic tournament whereas it got profits of ₹ 5,95,078/- from international matches and the net income of the assessee stood at ₹ 74,110/-. For the year 2013-14, the assessee got positive net income from holding of domestic as well as int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minal coaching fees which is charged so as to attract only the genuinely interested trainees/players can be said to be its business income as it sans the profit motive. The Ld. Counsel has explained in detail that the holding of matches for commercial purpose is not a regular feature or regular activity of the assessee. Even the Davis Cup was also organized as part of the objects of the assessee and even the incidental income has been ploughed back and applied for carrying the aims and objects of the assessee society. Therefore, in the light of the decision made above, we hold that though the assessee Chandigarh Lawn Tennis Association is carrying out the activities towards the advancement of objects of general public utility, which is its dominant activity, however, it has also involved in carrying out the incidental activity in the nature of trade, commerce or business in the course of actual carrying out of advancement of object of general public utility by way of commercially exploiting the rights of hosting the Davis Cup Match . However, as per the amended provisions of section 2(15), 10(23C), 11(4), 11(4A), 13(8) and 143(3) of the Income Tax Act and in view of our discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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