TMI Blog2020 (3) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... ption u/s. 11 of the I.T. Act as the activity of kuri business is not done in the course of carrying on the primary objects of the assessee-Trust. The activity carried on by the assessee-Trust in the form of kuri business is hit by the proviso to section 2(15) of the Act as mentioned in earlier para. We are in full agreement with the findings of the lower authorities that as the proviso to section 2(15) puts an embargo on carrying on business by the charitable Trust only if the business is incidental to the main and pre-dominant objects of the the assessee-Trust. AR placed reliance on the decision of the Cochin Bench of the ITAT in the case of Dharmodayam Co. [ 2002 (2) TMI 313 - ITAT COCHIN] which is misplaced because the decision pertains to cases prior to 1-4-1992 when section 11(4A) of the I.T. Act was not on statute. Section 2(15) was amended with effect from 1.4.2009 by Finance Act, 2008. - Decided against assessee. - ITA No.590/Coch/2019 - - - Dated:- 8-1-2020 - S/Shri Chandra Poojari, AM And George George K., JM For the Assessee : Shri C.A. Verghese, FCA For the Revenue : Shri Mritunjaya Sharma, Sr. DR ORDER PER CHANDRA POOJARI, AM: This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income for AY 2012-13 on 29/09/2012 declaring nil taxable income after claiming exemption u/s. 11 of the I.T. Act. The Assessing Officer observed that as per income and expenditure statement filed by the assessee along with the return of income, the assessee had income from kuri business of ₹ 12,28,637/-. The Assessing Officer observed that kuri business cannot be considered an act for the accomplishment of object of charitable activities in terms of section 2(15) of the I.T. Act. According to the Assessing Officer, the main object of kuri business is to earn profit and is not incidental to charitable activities. Therefore, he denied exemption u/s. 11 of the Act relating to the income of ₹ 12,28,637/- from kuri business and assessed the same as business income separately. 4. On appeal, the CIT(A) observed that the conduct of kuri business would not constitute an activity incidental to the attainment of objectives of the Trust. According to the CIT(A), the whole rationale behind kuri business was mutual benefit of its members or subscribers whose main aim was to earn profit or avail a financial loan. The CIT(A) observed that the assessee s case was not covered und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable purpose on the reason that only a minor surplus was generated in the hands of management and profits of business were earned predominantly in the hands of subscribers and not public at large. 4.3. The Ld. AR placed reliance on the judgment of the Supreme Court in CIT vs.Thanthi Trust (247 ITR 785) wherein it was held has follows:- As it stands, all that it requires 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 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. In any event, if there be any ambiguity in the language employed, the provision must be construed in a manner that benefits the assessee. The trust, therefore, is entitled to the benefit of Section 11 for the Assessment Year 1992-93 and thereafter. But the CIT(A) distinguished the above decision of the Tribunal by observing that the proceeds of kuri business in the case of the assessee substantially be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in appeal before us. The Ld. AR submitted that the assessee-Trust is registered under section 12AA of the I.T. Act and is engaged in providing medical relief to the public. Therefore, the assessee s case falls under third limb of the section 2(15) of the I.T. Act and the entire activity of the appellant will constitute charitable purpose even if it incidentally involves the carrying of commercial activities. According to the Ld. AR, section 11(4) is squarely applicable to the assessee wherein the Trust is allowed to do incidental business activities for the purpose of the attainment of its objects and the surplus generated from the kuri business was entirely used by the assessee for its charitable purposes and therefore, became eligible for exemption u/s. 11 of the Act. The Ld. AR relied on the judgment of the Supreme Court in the case of CIT vs. Thanthi Trust (247 ITR 785) and of this Tribunal in the case of Dharmodayam Co. cited supra. 5.1 The Ld. AR relied on the CBDT Circular No. 11/2008 dated 19/12/2008 and drew our attention to paras 2.1 to 3.2 which reads as follows: 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(35). 3.2 In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long as the purpose does not involve the carrying on of any activity for profit, the requirement of the definition would be met and it is immaterial how the monies for achieving or implementing such purposes are found, whether by carrying on an activity for profit or not. This departure in the case of Dharmodayam Company (1977) 109 ITR 527 was justified by the Supreme Court in the case of Addl. CIT vs. Surat Art Silk Manufacturers Association (1980) 121 ITR 1 on the ground that when Krishna lyer, J. made the observations regarding the Kerala High Court's decision in CIT vs. Dharmodayam (1974) 94 ITR 113, the facts in the latter decision were not raised before him. The decision in Dharmodayam (1974) 94 ITR 113 (Ker) was followed by the Madras High Court in the case of CIT vs. Ashoka Charities (1987) 163 ITR 579. In the case of Dharmaposhanam Co. vs. CIT (1978) 114 ITR 463 wherein one of the objects of the assessee-company, registered under section 25 of the Companies Act, 1956 was to do the needful for the promotion of charity, education, industries, etc., and public good, the Supreme Court observed that the operation of an industry ordinarily envisages a profit making activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. During the assessment year under consideration, the assessee earned income from kuri business to the tune of ₹ 12,28,637/-. This activity of kuri business cannot be considered as incidental to earning profits of the assessee. None of the primary objects of the assessee-Trust have nexus with the business activity of the assessee. Therefore, the assessee- Trust cannot claim exemption u/s. 11 of the I.T. Act as the activity of kuri business is not done in the course of carrying on the primary objects of the assessee-Trust. The activity carried on by the assessee-Trust in the form of kuri business is hit by the proviso to section 2(15) of the Act as mentioned in earlier para. We are in full agreement with the findings of the lower authorities that as the proviso to section 2(15) of the I.T. Act puts an embargo on carrying on business by the charitable Trust only if the business is incidental to the main and pre-dominant objects of the the assessee-Trust. 7.4 The Ld. AR placed reliance on the decision of the Cochin Bench of the ITAT in the case of Dharmodayam Co. (2003) 84 ITD 259 which is misplaced because the decision pertains to cases prior to 1-4-1992 when section 11( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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