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TMI Blog2019 (1) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... To promote understanding and amity between the different communities of the world by undertaking or promoting the study of their past and present cultures, by disseminating or exchanging knowledge thereof, and by providing such facilities as would lead to their universal application; (b) To organize and maintain, as far as possible, on a no-profit/no loss basis, limited residential accommodation, with cultural and educational amenities for the members of the society as well as non-members specially invited to participate in the activities of the Centre." 3. On perusal of accumulation chart and Income & Expenditure Account, he observed that the major activities of the assessee revolve around accommodation and catering facilities and these activities are not on no profit/no loss basis since there is continuous surplus being reflected in the account for many previous years. Profiteering negates the character of the Trust of being charitable. He further noted that the second objective mentioned is not charitable in itself and it becomes charitable only when it is read with first objective. But, beneficiary in the first category is general citizens of the world whereas beneficiary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the assessee. That activities pertaining to accommodation, food and beverages is also one of the activities of the assessee, is neither hidden or is not something new that has been undertaken by the assessee for the first time and in any case, was glaringly visible and known to AO while passing the assessment order. It was perhaps in the background of these activities that AO has raised a specific query as to whether assessee is carrying out any business. On being satisfied based on the information filed that AO after due application of his mind, had passed the order. The latest amendment u/s.2(15) were also in the mind of the AO and thereon also he made a specific query which was also replied to. These activities are very much part and parcel of overall objectives contained in the Memorandum of Association of the assessee. It is the same Memorandum of Association and Rules & Regulations which are continuing ever since the assessee has been formed and there is no change in the rules and regulations or in the Memorandum of Association of the assessee. It is the same Memorandum of Association of the assessee based on which assessee has been granted registration u/s.l2A(a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arn.) * Jagadhary Electricity Supply Co., 166 ITR 143 (Punjab) * 163 ITR 129,137 (Mad.) - Venkata Krishna Rice Co. Vs. CIT. * 160 ITR 123 (Karnataka) - Shivaputrappa Chanappa Mangoli * 189 ITR, 772 (Allahabad)-K.N.Agarwal Vs. CIT * 243 ITR 83, 87 (S.C.) - Malabar Industrial Co. Ltd. Vs. CIT * 243 ITR 490, 500 (Madras) - CIT Vs. Seshasiyas Paper 5. However, the ld.CIT (E) was not satisfied with the arguments advanced by the assessee and held that the order passed u/s 143(3) dated 7th March, 2013 is erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the order passed by the Assessing Officer with a direction to examine the issues discussed and frame the assessment afresh. The relevant observations of the CIT(E) from para 3 onwards read as under:- "3. I have carefully considered the submissions made by the assessee and gone through the facts of the case. It is seen that the assessee is a Society registered under Society Registration Act, 1860 on 09.04.1959 and is also registered u/s 12A of I.T. Act. It is also approved u/s 10(23C)(iv) of the IT Act. From the details submitted by the assessee, as also from its Memorandum of Association ( M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serving as under :- "The assessee is registered u/s 12A(a) of the I.T. Act, since 18.06.1973 and also approved u/s 80G(5)(vi) of the I.T. Act, valid from 2010-11 to 2012-13. The assessee is notified exempt u/s 10(23) (c)(iv), of the I. T. Act, 1961 for the assessment year 2006-07 and onwards vide notice No. 13 /2007 dated 19.1.2007 from the detail submitted the assessee, it is seen that the assessee the society is engaged in cultural, educational and intellectual activities. During the year under consideration, it conducted many seminars, talks, discussions and cultural activities. After examining the details and explanations and the books of accounts, which were examined on test check basis, the assessee is appears be carrying out its activities as per provisions of section 11 to 12 of the Income Tax Act, 1961. Hence the total income of the assessee returned at Rs. Nil is accepted." 3.3 As regards the claim of the assessee that its entire income is exempt u/s 10(23)(c)(iv), it is to be noted that the exemption u/s 10(23)( c ) (iv), is subject to fulfillment of conditions laid down in the order notifying the assessee u/s 10(23)( c ) (iv). It is, however, seen that assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is contended the activities of the assessee for the AY 2009-10 & 2010-11 after insertion of proviso to section 2(15) have not been hit by these provisions. As the Activities of the assessee are on no profit no loss basis, it is not having any commercial activity. However, as per the Income and Expenditure account of the assessee, the surplus generated in assessee's case os...... Rs. 292.17 lacs as against Rs. 230.08 lacs in the preceding assessment year. Therefore, the claim of the assessee that its activities are not on commercial lines is not tenable and provisions of proviso 1 & 2 to section 2(15) r/w 3rd proviso to section 143(3) of the Income Tax Act are applicable to the assessee as such exemption u/s 10(23C)(iv) is not allowable to assessee. Its income was to be computed under chapter IV of the Income Tax Act. The( AO has, however, failed to look into this aspect too. 3.6 As regards the assessee's claim that its income is exempt u/s 11 of IT Act, it being a trust, registered u/s 12A of the Income Tax Act, 1961. The same rejected on following accounts:- (i) Exemptions u/s 11,12 and 13 are allowable subject to fulfillment of conditions laid down under the respectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also placed on the decision of Hon'ble High Court of Rajasthan in the case of Smt. Renu Gupta 301 ITR 45 wherein it was held as under:- "Where Commissioner set aside assessment order on ground that though Assessing Officer seemed to hold deep investigation by selecting case for scrutiny, but, on otherhand, submissions of assessee were accepted without obtaining details and without considering further inquiry/investigation, as assessment had been completed in routine manner without applying his mind. Commissioner was justified in holding that assessment order was erroneous and prejudicial to interest of revenue." 4.2 This is a clear case of non application of mind and non application of law. The asstt. order by mere reading of it is erroneous as it has treated the whole of income of the assessee as exempt with reference to section 11,12 and 13 though the assessee had submitted report in form No. 10 BB only with respect of part income of Rs Rs. 807.19 lacs.. The Assessee's claim of exemption with respect to balance income has thus not been examined at all. Further, in view of the discussion as above, assessee's claim of exemption either u/s 10(23) (c) (iv ), u/s 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Revenue if due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue." 5 In view of the detailed discussion as above it is held that the order u/s 143 (3) dated 07.03.2013, is erroneous and prejudicial to the interest of revenue. The assessment order is, therefore, set aside with the directions to the AO to examine the issues discussed above and frame the asstt. afresh. The AO shall frame the assessment after properly examining for necessary supporting details / evidences and after giving the assessee due opportunity of being heard." 5.1 Aggrieved with such order of the CIT(E), the assessee is in appeal before the Tribunal by raising the following grounds:- 1. "That the Ld. CIT (Exemption) has grossly erred in law and on the facts of the appellant's case in holding that the order passed by the A.O. u/s 143(3) is erroneous and prejudicial to the interests of revenue. 2. That the order passed u/s 263 dated 31.03.2015 is bad in law and the revision order u/s.263 deserves to be cancelled. 3. That the Ld. CIT (Exemption) has erred in law in holding that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that under identical circumstances the order passed u/s 263 by the DIT(E), New Delhi was quashed. The ground raised by the Revenue challenging the order of the CIT(A) allowing the benefit of section 11 and 12 of the IT Act ignoring that the activities of the trust were not within the purview of section 2(15) of the Act during the year was upheld by the Tribunal, vide ITA No.5228/Del/2015, order dated 9th October, 2017 for assessment year 2011-12, and the ground raised by the Revenue was dismissed and on a further appeal by the Revenue the Hon'ble High Court has dismissed the appeal filed by the Revenue. He accordingly submitted that this being a covered matter in favour of the assessee where all the issues raised by the present CIT(E) have been considered, therefore, the order passed by the CIT(E) should be set aside and the grounds raised by the assessee should be allowed. 7. The ld. DR, on the other hand, heavily relied on the order of the CIT(E). He submitted that the Assessing Officer in a very summary manner has accepted the nil return filed by the assessee without going through the various issues as has been pointed out by the ld. CIT(E). He submitted that alth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,123.95 lakhs/Rs.2,644.20 lakhs/Rs.479.75 lakhs, respectively. According to him, the assessee has claimed only part of its income as exempt and compliance of condition laid down u/s 10(23)(c)(iv) is limited to the extent of income of Rs. 8,07,18,905/-. It is also his observation that the Assessing Officer has failed to examine as to whether the activities of the assessee are exempt in nature. In view of the same, he has invoked the provisions of Section 263 of the IT Act and restored the matter to the file of the Assessing Officer for fresh examination. 8.1 We find identical issue had come up before the Tribunal in assessee's own case for the immediately preceding assessment year. We find the Tribunal in ITA No.3124/Del/2014, order dated 11th May, 2015, has thoroughly discussed all the issues including the insertion of third proviso to section 143(3) and has decided the issue in favour of the assessee by observing as under:- 6. We have considered the rival submissions and have perused the record of the case. At the outset we may point out that as far as the objection of ld. DIT(E) as regards the income not being returned by assessee in its income-tax return or in form 10BB is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order was erroneous as well as prejudicial to the interest of Revenue. 6.3. Admittedly, the third proviso to section 143(3), requiring the AO to examine the applicability of proviso to section 2(15) in case of institutions notified u/s 10(23C)(iv) in view of insertion of 17th proviso to section 10(23C), was not on statute book at the time when assessment order was passed and since the notification remained in force, in any view of the matter, the invocation of section 263 by ld. DIT(E) was not justified in view of the decision of Hon'ble Supreme Court in the case of Max India Ltd. (supra), wherein it has been held as under:- "We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word "profits" in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, seminars, lectures. The Centre has two dining halls and two Lounges. The dining hall operates for breakfast, lunch and dinner. The lounge provides variety of snacks, tea coffee and soft drinks. In the Dining Hall of the Main Centre, a Member can book a table for maximum of 8 persons including guests. It may be stated that it is only the Members who can hold conferences, seminars and the centre is also providing catering services to them. The Rules relating to the booking and cancellation of IIC conferencing and catering facilities: 1. Outside catering or food items brought from outside are not permitted. 2. Cell phones should be switched of before entering into conferencing venues and the noise outside the conference rooms and auditorium must be avoided. 3. Sale of ticket, books, collection of donation or any commercial activity is not permitted. 4. Live band, Marriage Ceremonies, Children's parties or any another function where rituals involving pendit, phera, havan etc. are not permitted. 5. Meeting or political, Religious nature and AGM are not permitted. 6. It may not be out of place to mention here that the notice has also been granted exemption from income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintain, as far as possible, on no-profit no-loss basis, limited residential accommodation, with cultural and educational amenities, for the members of the Society coming to participate in the activities of the Society and of other bodies with cognate objectives, as well as, nonmembers, specially invited to participate in the activities of the Society", We give herein below a resume of the activities of the Centre. The Centre organizes very large number of programmes throughout the year, which included seminars, talks, discussions, music, dance, dance dramas, documentary films, art exhibitions, feature films etc. Of these roughly 50% can stated to be in the domain of academic and intellectual activities in terms of seminars, talks, discussions and the balance 50% in terms of cultural programmes, such as dance, music etc. All these programmes are open to the general public free of cost, the price of which is inestimable. The entire nerve centres of the institution revolve around these programmes. A very significant number of members I their guests come to the Centre or stay in the Centre and attend the discourses, conferences, seminars, lectures etc. sponsored by the IIC on it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve these objects and to provide facilities and also for establishing and maintaining libraries and undertaking such publications the assessee had to earn income to incur expenditure on the activities. At this juncture we may observe that unless there is profit motive in carrying out an activity, it cannot take colour of trade or commerce. 6.12. The predominant activities of the centre was not to earn income but to provide facilities for disseminating or exchanging knowledge as per the object of the society. There is no gainsaying that without creating a proper platform the primary object of dissemination and exchanging of knowledge could not be achieved. Therefore, merely because incidental income was earned by assessee society for achieving its dominant object from providing hostel and catering activities, it cannot be said that the assessee was doing trade or business as contemplated under proviso to section 2(15). The centre had to necessarily charge for the hostel, catering and use of such facilities from members/ participants since it had to recover cost and at the same time have enough funds to carry out the charitable activities. We are reminded at this juncture of an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers. Periodical articles also appeared in the various newspapers highlighting some of the special programmes conducted by the centre. 6.14. As regards ld. DIT(E)'s objection with regard to the membership of the centre, the assessee had pointed out before the AO itself that individual membership was open to all persons of India or foreign origin. Rule 4(A) of Rules & Regulations provides qualification for membership. There are several categories for members, as reproduced below: "4. Qualification for Membership A. Individual membership of the following classes, open to persons of Indian or foreign origin, shall be subject to the provisions set out below: (a) Honorary Members (i) Subject to their consent, the President of India, the Vice-President of India and the Prime Minister of India will be Honorary Members of the Centre. (ii) The Board may invite such other persons, as it may deem fit, to be Honorary Members. (b) Foundation Members Foundation Members are those persons who took an active interest or part in the establishment of the Centre and were enrolled as such. (c) Life Members Life Members are persons of high attainment in education, science, culture, art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... large by organizing various seminars for the welfare of people by disseminating knowledge in various fields in order to uplift the social consciousness of the society at large. (The composition of membership clearly exemplifies the real intention of assessee. We fail to understand as to how the hostel accommodation provided to various invitees could be considered as a commercial activity. Before any activity can be branded as being in the nature of trade or commerce, the AO has to demonstrate the intention of parties Backed with facts and figures of carrying out activities with profit motive. Mere surplus from any activity, which undisputedly has been undertaken to achieve the dominant object, does not imply that the same is run with profit motive. The intention has to be gathered from circumstances which compelled the carrying on an activity. In the present case, ld. counsel has clearly demonstrated that surplus was generated from interest income and not from catering or hostel activities. Therefore, the objection of ld. DIT(E) does not survive on this count also. 8.18. The primary object of insertion of proviso to section 2(15) was to curb the practice of earning income by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itution was 'not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation - both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object 0, general public utility to which the exception carved out in the first proviso to Section 2(15) 0, the Act would not apply. It is so said, because, if a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well-settled that the courts should' always endeavour to uphold the Constitutional validity of a provision and, in doing 50, the provision in' question may never to be read down; ++ the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from maskin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes; ++ thus, while this Court upholds the Constitutional validity of the proviso' to Section 2(15) 0, the Act, it has to be read down in the manner indicated. As a consequence, the impugned order dated 23.01.2013 was set aside and a mandamus was issued to the respondent to gram approval to the petitioner u/s 10(23C)(iv) of the Act within six weeks from the date of this judgment." 6.21. In view of above discussion we hold that, in the facts and circumstances of the present case, the ld. DIT(E) was not justified in initiating revisionary proceedings u/s 263 of the Act. According order passed by the DIT(E) u/s 263 of the Act is quashed and the assessment order passed by the AO is restored. 7. In the result, assessee's appeal is allowed." 9. Further, the Tribunal in assessee's own case for assessment year 2011-12, while deciding the issue of allowing benefit of section 11 and 12 read with section 2(15) of the IT Act, following the decision of the Tribunal for assessment year 2009-10, has decided the issue in favour of the assessee. We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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