TMI Blog2019 (7) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact that the main objects of the assessee trust as well as the connection of testing activities vis- -vis main objects, has not been brought on record by lower authorities. Onus would be on assessee to establish that the testing activities were merely incidental to the attainment of the prime objective of the trust i.e. education and separate books were maintained by the assessee in respect of such business. On the other hand, if the objects of the assessee are found to be covered by last limb i.e. advancement of any other object of general public utility, the 1st proviso of Section 2(15) would squarely apply to the case of the assessee since the assessee is providing service in relation to any trade, business or commerce. In that case, the case has to be adjudicated in the light of the binding judicial pronouncements from the point of view of profit motive as cited by us in the opening paragraphs. Needless to add that, in the event of activity of testing fees found to be having no connection with assessee s primary objectives, the same would be a separate line of business activity for the assessee and no deduction would be available to the assessee u/s 11 on account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression would prima facie include all objects which promote the welfare of the general public. 1.2 The CBDT, vide Circular No. 11 of 2008 dated 19/12/2008, clarified that the first proviso will apply only to those entities whose purpose was advancement of any other object of general public utility and therefore, such entities would not be eligible to claim exemption u/s 11 if they carry on commercial activities. Whether the entity was carrying on an activity in the nature of trade, commerce or business would be a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. Para 3.1 of the said circular restricted the application of 1st proviso to Charitable Institution and mutual organizations whose activities were restricted to contributions from and participation of only their members. Para 3.2 clarified that if the assessee having its object as advancement of any other object of general public utility engages in any activity in the nature of trade, commerce or business or rendering of any service in relation to trade, commerce or business, it would not be entitled to claim that its object is char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Ahmedabad Urban Development Authority V/s ACIT [396 ITR 323 02/05/2017] has observed that the expression trade, commerce and business must be read in the context of the intent and purpose of Section 2(15) of the act and the same was not meant to exclude entities which are essentially for charitable purposes but conducting some activities for a consideration or a fees. The test which has to be applied is whether the predominant objective of the activity involved in carrying out the object of general public utility was to sub-serve the charitable purpose or to earn profit. Where profit making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity was to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. 1.6 Similarly, Hon ble Allahabad High Court in CIT V/s Lucknow Development Authority 265 CTR 433 16/09/2013 has held that where a trust is carrying on its activities for the fulfilment of its aims and objectives ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and to general public. The assessee maintain separate premises for Testing Lab and for educational activities. The Ld. AO formed an opinion that the testing activity was independent of the educational facility and a separate business activity of the assessee. Therefore, the rendering of these services against fees, in the opinion of Ld. AO, were hit by the 1st proviso to Section 2(15) and the testing activity could not be termed as charitable activity. Another fact noted by Ld. AO was that that the assessee was not maintaining any separate books for testing activity and therefore, even if the assessee was to be held as educational institution, the above income would still be taxed as business income. Accordingly, denying exemption u/s 11, the income of the assessee was computed at ₹ 54.06 Lacs. 3.1 Before Ld. first appellate authority, the attention was drawn to the fact that the registration u/s 12A was granted to the assessee which was valid and continuing. It was submitted that the assessee was conducting courses of formal education / training which has been accepted to be a Charitable Activity as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity was activity of rendering of services in relation to the business, trade or commerce. The Ld. first appellate authority, at para (vi) of his order, on sample basis, rebutted assessee s claim that it was providing service at a low cost to the general public. Proceeding further, Ld. first appellate authority, opined that the assessee was hit by 1st proviso to Sec. 2(15) as well as by the provisions of Sec.11(4A). The alternative claim of exemption u/s 11(1)(d) or reduction of specific donations from capital expenditure was not admitted since the assessee did not make out a case for additional evidence in terms of Rule 46A. Regarding the plea that the net income was to be taxed as per slab rates as applicable to Association of Persons [AOP], directions were issued to Ld. AO to dispose-off assessee s rectification application filed u/s 154, in this regard. 3.3 Aggrieved, the assessee is in further appeal before us with following grounds of appeal: - 1. The learned Commissioner of Income Tax (Appeals] has erred in upholding the denial of exemption u/s 11 of the Income Tax Act, 1961 ('Act'), and in confirming that the first proviso to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d towards the objects of the appellant as an application of income Or alternatively excluding donations received for acquisition of R D equipment from income, reducing it from the cost of R D equipment and levying income tax on the income at the slab rates of tax applicable to an Association of Persons. 4.1 We have carefully perused the arguments advanced by both the representatives and deliberated on judicial pronouncements as cited before us. The material facts as enumerated in preceding paragraphs are not in dispute. The plea of Ld. AR primarily revolves around the fact the profit motive would be an essential ingredient so as the adjudge the applicability of 1st proviso to Sec. 2(15). The Ld. Departmental Representative [DR], on the other hand, has placed reliance on the stand of lower authorities to submit that the assessee was hit by the 1st proviso to Section 2(15) as well as Section 11(4A) as invoked by Ld. AO. 4.2 So far as the decision of Tribunal for AY 2008-09, ITA No. 5781/Mum/2011 dated 22/03/2013 is concerned, the perusal of the same would reveal that in that year, Ld.AO had disputed assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the fact that the assessee received interest income and donations during the year and if the same are removed from gross receipts, only nominal surplus would accrue to the assessee. The said fact would establish that the activities of testing fees were merely incidental activities and the same were not carried out with any profit motive. Another fact to be noted is that the assessee s receipts from testing fees have increased considerably over the years which is evident upon perusal of orders of lower authorities. 4.4 So far as the object of the assessee are concerned, our attention has been drawn to the fact that the trust was established for charitable purpose of education and for encouraging and promoting theoretical and practical education in gemology and scientific study of precious stones of all types and the assessee was established to impart education. Another plea raised is that the assessee was engaged in carrying out Research Development Activities during the year and as a part of the same, carried out testing activities with a view to address the problem of imitation being faced by the Gem industry and therefore, the said activities would merely be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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