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TMI Blog2022 (2) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable purpose in the section 2(15) of the Act in the following table: Sr. No Object as given in memorandum Relevant Charitable purpose mentioned in section 2(15) and if any actual activity undertaken 1. To inculcate and promote new social values, secularism and national integration and spread a humane, self-reliant and rational outlook on life. Advancement of General Public utility 2. To perpetuate the memory of late Shri Jawaharlal Nehru by undertaking educational social cultural medical relief and other charitable activities for the welfare of children and especially weaker sections of the community. No systematic education by normal schooling has been undertaken by the assessee. No activities related to medical relief are undertaken by assessee. The rest of the objects can be termed as Advancement of General Public utility. 3. To promote the cause of education, art, culture and communal harmony and to undertake scientific, statistical and other research in social and other sciences and technology for the advancement and emancipation of our countrymen. No systematic education by normal schooling has been* undertaken by the assessee. The rest of the objects can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Compensation received for providing art persons throughout the year 9,77,850 At the most as General Public utility. It is in the nature of business and rendering services to trade, commerce of parties. Hit by first proviso to section 2(15). Not incidental as gallery was used by outside agencies mostly. No separate books of accounts maintained. 5 Compensation received for a providing Hall of harmony for 126 outsider conferences throughout the year 7,61,800 At the most as General Public utility. It is in the nature of business and rendering services to trade, commerce of parties. Hit by first proviso to section 2(15). Not incidental as hall was used by outside agencies mostly and that too for commercial purposes/conference s/meetings No separate books of accounts maintained. 6 Compensation received for providing lecture hail for various 258 outsiders functions throughout the year 5,59,277 At the most as General Public utility. It is in the nature of business and rendering services to trade, commerce of parties. Hit by first proviso to section 2(15). Not incidental as hall was used by outside agencies mostly. No separate books of accounts maintained. 7. Compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s asked why receipts of the assessee should not be taxed denying exemption claimed u/s.11 of the Act vide letter dated 25/02/2013. In response, assessee submitted vide letter dated 6.3.2013 that basic objects of the Centre or to inculcate and promote Indian arts, educate children in the field of science, arts, history and social response by Centre not only educates people at large but about astronomy through professional astronomers but also generate interest in physics the Centre also conduct exhibitions to exhibit the art of poor artists, coming from remote parts of India and thus provides relief to the artists in the form of sale of their art as well as promoting their skills. It also conducts various competitions which include rowing competitions/poetry/painting and match fees for children including physically challenged children, thereby educating them and improving their artistic skills. All these activities are in the nature of education as well as relief to the poor in the context of definition of charitable purpose as defined in IT act 1961. As per Madras High Court judgement in the case of CIT v. Sri Theodore Brahma Gana Sabha [188 ITR 160], raising artistic tastes is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its gallery for professional artists letting its gallery theatre for outside theatre and media companies, providing dubbing units for outside media and theatre companies etc. considering its frequency, nature and volume of activities it can be said that its activities are in the nature of business and rendering services in relation to business and commerce of other parties like other commercial companies whose products are exhibited at its space and media companies and commercial entertaining companies whose shows etc are organized at its premises. Hence it is hit by provisions of proviso to section 2(15) of IT act 1961. 10.4. Assessee's argument that it is undertaking educational activities and activities of relief to poor is stretching the things to unrealistic limits in the light of of fact of what actually it is doing as its major activity. It claims that it is educating people in astronomy and in, enriching the cultural and artistic taste of people. However is not engaged in systematic educational manner about imparting the same. It might be spending some of its income on its own activities of the museum, cultural and artistic competition and exhibitions but that is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions: Kindly refer to the aforesaid matter in which the written submission was made by the appellant Trust vide its submission dated 6" February 2016. Further the Additional Grounds were also filed. Consequently your predecessor was pleased to call for a Remand Report from the Learned AO on the Additional Grounds. During the course of the remand report proceedings we have also made written Submission to the AO. The Learned AO has already submitted the remand report in compliance to directions of your predecessor. As there are quite a few submissions been made in this case, thus as desired by your good-self we are submitting a Consolidated Written Submission herein under: 1) This is an appeal by the Appellant against the orders of DCIT(E) Mumbai. 2) Briefly stated, assessee, the appellant trust filed total income at NIL. The Assessee claimed exemption under section 11. AO denied the claim stating when assesse is hit by proviso to section 2(15) how it spends its income is not relevant; the assessee is primarily exploiting its property in a commercial way by rendering its services in relation to business of parties to whom it is allowing its space to be utilised commercially. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, discussion, teaching, training, and drrected research. Education frequently takes place under the guidance of educators, but learners may also educate themselves. Education can take place in formal or informal settings and any experience that has a formative effect on the way one thinks, feels, or acts may be considered educational. Source - wikipedia. With reference to the promotion of educational activities undertaken by Nehru Centre, it has been stated that there is no systematic education by normal schooling method. It is submitted that apart from imparting instructions in a@ class room of a school following a prescribed syllabus, there are other methods of imparting education as well. Science, be it physics, chemistry or biology, can best be taught through demonstrations in a laboratory. There are a large number of schools without laboratory facilities and students of those schools learn the basic principles of science through rote method. Nehru Centre organizes workshops in physics, chemistry, biology and microbiology for students (particularly of Vill to X Standards) of such schools in which focus is on demonstration of relevant experiments. Nehru Centre invites some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Harappan and Aryan civilizations and can witness the empires of the Mauryas, the Mughals and the British. One can walk along the rugged and invincible forts of the Marathas and one can relive the freedom movement and the dawn of independence. If this is not education what else is? (Over 2 lakh people visited the exposition during the year). Details of the educational activities carried out by Nehru Centre are attached as (Enclosure A) to this submission. it has been clarified above how Nehru Centre's activities do not fall under the category of advancement of any other object of general public utility. It is now clarified that no activity of Nehru Centre falls under the category of trade, commerce or business nor is it related to trade, commerce or business. After Nehru Centre was set up it was obvious that its running would involve certain expenditure by way of salaries of the staff and conducting activities to meet its objectives in education particularly science education. It is for this reason that the Centre has been approved by the Council of Scientific and industrial Research for the purpose of Clause (ii) of Sub-section (1) of Section 35 of the Income Tax Act 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that the properties held by the Appellant Trust are all properties held under Trust. Hence any income arising from such properties are income derived from property held under trust for charitable purposes and hence exempt u/s 11(1) of the Act. The Appellant Trust does not hold any business undertaking and hence the provisions of Section 11(4) of the Act are not applicable. Here also the decision of the Hon. Delhi High Court sighted above is relevant and we rely upon the same. Hence, the income derived from hiring of the property held under trust continues to be exempt from tax. 3) Ground of Appeal No. 3 : The Assessing Officer erred in taking the view that the receipts (compensation charges), from temporary usage of certain portion of its property, are in the nature of receipt from commercial activities and the same are taxable under the Income Tax Act, 1961. Now it is clear that the AO has only changed the interpretation of the activities of the Appellant Trust to fit into the category of general public utility only to fit it into the amended proviso without any justification. Further he has allowed as deduction only part of the expenses incurred towards the objects of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the charitable trust. The Service Tax is applicable to a Charitable Trust in case of services which are availed of. That by itself cannot make the activities of the trust as commercial activity. A charitable trust has also to deduct tax at source from several payments including salary to staff as required by the Provisions of Income Tax Act. That by itself cannot make the income of the Trust taxable. 8) General The AO has grossly erred in not allowing all the expenses of the Appellant trust including capital expenditure amounting to Rs..1,22,28,971/ as application of income contrary to the provisions of the Act. 9) Other submissions RULE OF CONSISTENCY AO Failed to follow Principle of Consistency. The provisions of Sec 11(4A), were introduced in the I.T Act w.e.f Assessment year 1976 onwards. in the Assesses Case for Assessment yr. 2009-10 and earlier Assessment years, the AO had not invoked this provision. The Nature of Charitable Activities for Assessment year 1976, when the Sec 11(4A) was introduced, till date are also same. The exemption U/S 12 A granted by CIT (E) till date continues and was never withdrawn. Without bringing on record any new Facts, the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess there was any material to justify the Department to take a different view of the matter." While deciding the appeal, the Hon'ble Court had taken note of the proceedings of the earlier AY.s. As the rule of consistency has not followed without bringing distinguishing features of the year under appeal, as compared to the facts of the earlier years, so, in our opinion the order of the FAA cannot be endorsed on this count. A.Y. 2009-10 Assessment Order u/s 143(3) received, total income assessed as NIL. (Enclosure -C) LETTING OUT OF HALL WAS NOT COMMERCIAL OR BUSINESS ACTIVITY The GOM by its sanction had allowed the Assessee to let out the premises, when not utilised for its Charitable Activities. The receipts received from letting out activities, subsidized the Assessee cost of Charitable Activities. These rental -receipts were not received or shared by any of the Members who were in principle involved with the Activities of the Trust as is the normal practice in Business / Commercial. All the Trustees of the Trust are Eminent Persons (Enclosure - D) and cannot by any stretch imagination be considered as involved with the Trust in any "Commercial or Business Activity" as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is used for the educational institute and not for any particular person, separate books of account are also maintained, then, this income cannot be brought to tax. This conclusion is also not perverse and given the facts and circumstances which are undisputed". [Emphasis supplied] We again rely upon the recent Bombay ITAT judgment in the Case of SH - Trust, wherein at para 6 it is stated - "We find that the main objection of the departmental authorities was that the SH was rented out most of the time and that it was a commercial activity. In our opinion, act of letting out of hall cannot be and should not be considered in isolation. Eligibility or otherwise of benefit u/s. 11 of the Act cannot depend solely on one factor. What has to be seen is as to whether the trust is incurring the expenditure for the objects and purposes for which it was established. We find that the issue of letting out of a hall by a charitable institute was deliberated upon by the Hon'ble Madras High Court in the case of Madras Stock Exchange Ltd (supra) and Women's India Trust (supra). We would like to reproduce the relevant portion of the judgment of the Hon'ble Bombay High Court in the case of Wom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on of trade, commerce or business, that the activity undertaken did not partake of the character of trade, commerce or business nor of rendering of any service in relation thereto but was only to teach or impart skills and to instill confidence that the produced goods or articles were sold. To that extent also deficit had occurred. The Tribunal took a view that occasional sales or the trust's own fund generation were for furthering the objects but not indicative of trade, commerce or business. The proviso did not apply. ...... considering the fact that the trust had been set up and was functional for the past several decades and it had not deviated or departed from any of its stated objects and purpose, utilisation of the income, if at all generated, did not indicate the carrying on of any trade, commerce or business. The Tribunal's view was to be upheld. It was a possible view and could not be termed perverse. The view was taken on an overall consideration and bearing in mind the functions and activities of the trust. In such circumstances, it was not vitiated by any error of law apparent on the face of the record." 6.1. We also find that the assessee had suffered loss in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not entitled to declare the activities of the trust as non-charitable, even otherwise also it is not a case of the AO that the activities of the trust are non-charitable. (i) The Gujarat High Court in the case of Ahmedabad Urban Development Authority 335 ITR 575 held as under: "Thus granting the registration u/s 12AA, therefore, cannot be ignored or wished away by Assessing Officer by adopting a stand that the trust or institution is not fulfilling the conditions for applicability of section 11 and 12. (ii) The Jurisdictional Mumbai Tribunal in the case of Shamukhanand Fine Arts and Sangeeta Sabha 1975/M/2016 & 6858/M/2016 held as under. "In our opinion, during the continuation of registration, it is not possible to the department to challenge the charitable nature of the object of the trusts". (iii) In view of the above we submit that the Ld AO should not have denied the benefit u/s 11 when the Registration u/s 12A exist in the case of the Appellant Trust. CIRCULAR No. 11/2008 DATED 19-12-2008. ENCLOSURE-E (i) We would like to submit that the CBDT has issued a detailed circular clarifying the intent and object behind enacting this proviso vide circular no. 10 134 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is 'education' or 'medical relief' would also continue to be eligible for exemption as chantable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proviso of section 2(15) will have no effect. We submit that the case of the appellant is covered under the first limb as the main object of the appellant Trust is imparting of the education, so the proviso of section 2(15) will have no effect the case of the appellant trust. (iii) Further the main intent and purpose of enacting the proviso to section 2(15) was to take action in those cases where Assessee under the garb of the carrying out Charitable Activates carried out business & commercial activities. By no stretch of any imagination, in the appellant trust this proviso can apply. (iv) We further submit that in the case of the appellant trust all the managing trustee of the concerned trust are person of great repute of National level and also having great standing. Nobody shares any portion of surplus of receipt over the expenditure. This also proves that activities of the Trust are not business activities. (v) We would like to again rely on the Judgment of the Mumbai Tribunal in the case of Shri Sanmukhanand Fine Arts & Sangeet Sabha supra in this case the Mumbai ITAT held as under: 6.4. Finally, we would like to address the argument of the FAA about applicability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses but are conducting some activities for a consideration or a fee. The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is 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 is 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." Considering the above, we hold that the assessee is running music school and providing medical services and it is utilising SH for augmenting its funds In these circumstances in our opinion, it cannot be held that the it is carrying out business activities and the charitable activities are by product, as alleged by the departmental authorities. What has to seen in such cases is a holistic view of the things and not a narrower view. We would like to refer to the matter of Institute of Chartered Accountants of India (358 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id judgment squarely covers the case of the appellant as the appellant is also do not involve in any trade or commerce or business for the purpose of earning the profit but the appellant trust is essentially for charitable purpose. 1. We would like to submit that the Supreme Court in the case of ACIT vs Thanti trust 247 ITR 785 (SC) held that "The scope of Sub section (4A) of section 11, as amended since 1992, is more beneficial to trust or institution than the scope of the sub-section before the amendment. As it stands amended in 1992, all that is required for the business income of a trust or institution to be extent from tax is that the business should be incidental to the attainment of the objectives of the trust or institutions. A business, whose income is utilized by the trust or the institution for the purpose of achieving objective of the trust, is a business which is incidental to attainment of the object of the trust or institutions. 2. We submit without prejudice that even if the hall rent income is being treated as business income then also such income is fully utilized for the object of the trust and accordingly following the judgment of the Thanti Trust Supra must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAY OF DEMAND GRANTED BY CIT (E), Kindly appreciate that the Learned CIT(Expenditure) vide letter CIT (Expenditure/ Stay/2016-17 dated 06.10.2016 granted the Stay on demand raised by the AO. While granting the stay the learned CIT(E) mentioned as under: "In this regards, the assesse trust mainly relied on the decision in the following three cases of the Jurisdictional Bombay High Court: DIT(E) vs. MS Lala Lajpatrai Memorial Trust, haji Ali, Mumbai (13.04.2016) DIT vs. Vile Parle Kelvani Mandal DIT(E) vs. Fellowship of Physically Handicapped in Mumbai (10.03.2015) It is noted that the addition made by the AO is covered in favour of the assessee by the above three judgments of Jurisdictional Bombay High Court and accordingly as per Board Instruction no. 1914 dated 21.3.1996 and partially modified vide F.No. 404/72/93-ITCC dated 29.2.2016 the demand in the case of the assesse trust is stayed till the disposal of appeal by the first Appellate Authority'. The CIT(E) also accepted that the appellant case is covered by the judgment of Jurisdictional Bombay High Court. (Enclosure - G) 3. In view of the above submission and binding decision including the recent decision of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the field of education. Similar is the case of holding painting exhibitions in the art gallery and holding exhibitions of historic and general importance in the 'discovery of India hall' from time to time and most of these exhibitions are free of charge and any member of public can visit these places during visiting hours. The assessee charges nominal fees from artists and/or exhibitors/organisers of these exhibitions but these are free for public. Dissemination of information about painting and photographs and also about history of India and other facets of INDIA free of charge for the general mass of people is similar to educating general public about 'painting', 'photography', history' and other aspects of life in general. Take for example the services rendered by Famous Art Galleries (any Govt. run Art Galleries) in the field of exhibition of fine arts like paintings, photographs, sculptures and artistic installations for the last several decades, these Galleries charge nominal fees from artists but the visits to them are or at a nominal fee. But look at the service rendered by these institutions in the field of spread of knowledge and information in the field of paintings ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(15) and further proviso whereof inserted by Finance Act 2010 w.e.f. 1st April 2009 read, thus- 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. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year. 5. The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term "Charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue to provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility. Under the principle of mutuality, if trading takes place between 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 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 chargeable organizations would now be governed by the additional conditions stipulated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Gujarat High court as reproduced above explains the distinction between the trust engaged in charitable purpose and the trust engaged in the nature of trade, commerce or business. In my opinion the assessee is not hit by the proviso to Sec 2(15) of Income-tax Act, 1961 In the light of the above facts and circumstances of the case and based on several decisions of the Hon'ble High Courts and Hon'ble ITAT, it is concluded that the assessee was engaged in charitable activity and for the purposes of advancing its objects, it earned income which was incidental to its activities. In nutshell, it is held that it is an institution which imparts education and hence fulfills the basic condition laid down in section 2(15) of the I.T. Act, 196 and hence AO's contention in this regard is rejected. In view of this the question of applicability of the proviso to section 2(15) of the I.T. Act, 1961 does not arise." 9. Aggrieved with the above order, revenue preferred an appeal before us raising following grounds in its appeal: - "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) Is right in view of the fact that the definition of chari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are Public Charitable Trust and was never considered as 'any other object of general public utility' even though the assessee's trust existed as per the definition of Charitable Purpose u/s. 2(15) of the Act. He submitted that it is only after the amendment to the proviso to Section 2(15) of the Act the Assessing Officer has treated the activities of the assessee Trust as object of general public utility which was earlier treated as educational activities, he also submitted that there is no change in the activities during the year under Appeal. He submitted that the activities of the assessee are same over the years and no change. He submitted that the activities of the assessee continues to be educational and in order to stress the above point he brought to our notice submissions made by the assessee before the Ld.CIT(A). He also refers to the Circular No. 11 of 2008 issued by CBDT on the issue of applicability of proviso to section 2(15) of the Act which are in line with the Finance Minister's speech in the parliament. Finally, he relied on the finding of the Ld.CIT(A) and prayed that it may be upheld. 13. Considered the rival submissions and material placed on record, we observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hiring charges and planetarium receipts are in the nature of business or not, we observe that Assessing Officer treated the hiring and planetarium receipts are in the category of business and not for charitable activities. We observe that Ld.CIT(A) by relying in the case of Institute of Chartered Accountant of India v. DIT(E) [(2013) 35 140 (Delhi)] held that ICAI does not carry on any business, trade or commerce. The activity of imparting education in the field of accountancy and conducting courses are activities in furtherance of the objects for which the ICAI has been constituted. By relying on the above decision Ld.CIT(A) held that activity of running the planetarium for general public at normal rate and earning revenue from shows does not make the activity as non-charitable. Therefore, we do not find any reason to interfere with such finding of the Ld.CIT(A). 16. Further we observe that the objects and activities carried on by the assessee are predominant activities have been to run Nehru Planetarium, 'Discovery of India Hall' and organize the Painting and Photographic Exhibitions and organize seminars on the history of India and Nehruvian thoughts from time to time. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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