TMI Blog2023 (9) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ss, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the general public utility object, and the income, profit or surplus or gains can then, be logically incidental Hon ble Supreme Court has set out certain parameters for different categories of charities/institutions/trusts and observed that if fee, rent or other charges are mandated under the statute for carrying out some essential public utility activities of development then the fee and charges for providing essential services or amenities for the purpose of public development work will not fall in the nature of business, trade or commerce or services in relation to such business, trade or commerce if the profit or markup is reasonable and not with motive to earn profit. CIT(A) has passed an ex-parte order by observing that in spite of adequate opportunity of proper delivery of notices assessee did not file any documentary evidence/proof in support of the grounds of appeal. Therefore, the appeals of the assessee were dismissed by the Ld. CIT(A) for want of proper representation and supporting evidence. Accordingly in the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicious and unlawful findings, therefore, be quashed and it be held that the assessee is not doing any business and has no income from business or profession. 4. That on the facts and in the circumstances of the case and in law, the learned A.O. erred and not justified in not allowing the deduction of Rs. 5220388 as an application of income. The said deduction as claimed in the return, therefore, be kindly allowed. 5. That on the facts and in the circumstances of the case and in law, the learned A.O. erred and not justified in not allowing the deduction of Rs. 13008220 as an application of income. The said deduction as claimed in the return, therefore, kindly allowed. 6. That on the facts and in the circumstances of the case and in law, the learned A.O. erred and not justified in not allowing/not giving set off of deficit of earlier years against the income of current year which be kindly allowed. 7. That on the facts and in the circumstances of the case and in law, that the levy of interest u/s. 234D at Rs. 183416 is unlawful, therefore, the said levy be kindly deleted. 2. The assessee is a society created by the State Government for the activities of publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment Authority 449 ITR 1 . 3.1. Ld. Sr. counsel has submitted that the Hon ble Supreme Court has discussed this issue thoroughly and observed that certain kind of receipt which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive. The definition of charitable activity provided u/s 2(15) ipso facto does not spell out whether certain kinds of income can be excluded however, the Hon ble Supreme Court has held that mere fact that these bodies have to charge amounts towards supplying goods or articles, or rendering services i.e., for fees for providing typical essential services ought not to be characterized as commercial receipts . The rationale for such exclusion would be that if such rates, fees, tariffs, etc., determined by statutes and collected for essential services, are included in the overall income as receipts as part of trade, commerce or business, the quantitative limit of 20% imposed by second proviso to Section 2(15) would be attracted thereby negating the essential general public utility object and thus driving up the costs to be borne by the ultimate user or consumer whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .V. reports etc. for the State Government against the charges are clearly falling in the proviso to section 2(15) being in the nature of trade, commerce and business and therefore, the assessee is not entitled for benefit of section 11 12 of the Act. She has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as relevant material on record. At the outset, we note that an identical issue has been considered by this Tribunal in assessee s own case for A.Ys.2009-10 2010-11 vide order dated 03.01.2019 in ITANo. 280/Ind/2014 and ITANo.692/Ind/2013 in para 8 9 as under: 8. We have considered the rival submissions of both the parties and gone through the material available on the file. We find that the Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(E) [2015] 53 taxmann.com 404 (Del) has held as under: 54. It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, in this Act, unless the context otherwise requires . The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at GS1 (India) was engaged in 'business, trade or commerce'. The petitioner herein refuted this. In this backdrop, this court asked the question - can it be said that the petitioner is engaged in activities which constitute business, commerce or trade ? While answering the said question, the court held as under:-- '21. ... As observed above, legal terms, trade , commerce or business in Section 2(15), mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce.' The court further held:-- 22. Business activity has an important pervading element of self-interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act. 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 fowl of the principle of equality enshrined in Article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts over expenditure (refer table reproduced in paragraph 7 above) and payment is made by the petitioner to GS1 Global Services, Belgium. 21. Can it be said that the petitioner is engaged in activities which constitute business, commerce or trade? As observed above, legal terms trade, commerce, or business in Section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce. 22. Business activity has an important pervading element of selfinterest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self- preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and advantage which are overwhelming. Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related i.e. dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GS1 identification on all their products. Non levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent. 25. Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, we find that the petitioner fulfills the charitable activity test. It is apparent to us that Revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head general public utility but simultaneously regards the said activity as business. Thus the contention of the Revenue that the petitioner ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased office space in HUDCO Complex, Bhikaji Cama Place and they have acquired plot at Noida. They require accumulated funds for running branch offices at Chennai and Mumbai. Office at Chennai is already operational and operations at Mumbai are contemplated shortly for which proposals are under consideration. Accumulation of money/funds over a period of 2-3 years may not be relevant in determining the nature and character of activity and whether the same should be treated as indicative of profit motive i.e. desire or intention to carry on business or commerce. In MCD vs. Children Book Trust's (1992) 3 SCC 390 a decision relating to property tax, the Supreme Court held that both qualitative and quantitative tests should be satisfied in view of specific language of Section 115(4)(a) of Delhi Municipal Corporation Act 1957. Nevertheless it negated and rejected the argument that data for one year should be taken into consideration. It was observed that data for block period for five years may and should be taken into consideration. It was held as under: It cannot be gainsaid that the municipal general tax is an annual tax. Therefore, normally speaking, the liability for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and submission of the respondents that the petitioner was not maintaining separate books of account for commercial activity and, therefore, denied registration/ notification, has to be rejected as fallacious and devoid of any merit. Similar allegation is often made in cases of charitable organization/ association without taking into account the activity undertaken by the assessee and the primary objective and purpose i.e. the activity and charity activity are one and the same. The charitable activity undertaken and performed by the petitioner relates to promotion, dissemination of knowledge and issue of unique identification amongst third parties etc. The 'business' activity undertaken by the petitioner is integral to the charity/charitable activities. As noted above, the petitioner is not carrying on any independent, separate or incidental activity, which can be classified as business to feed and promote charitable activities. The act or activity of the petitioner being one, thus a single set of books of account is maintained, as what is treated and regarded by the Revenue as the 'business' is nothing but intrinsically connected with acts for attainment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case. Even in the case of Bureau of Indian Standards (supra) no such contention was raised. 7th proviso to Section 10(23C) of the Act supports our interpretation and the legislature has not omitted or suitably amended the said proviso to support the contrary interpretation. Even otherwise, the beneficiaries of GS1 system are not confined or restricted to persons from trade, commerce or business. The beneficiaries are present everywhere and the advantages are permeating and universal and would include consumers, government, beneficiaries of PDS etc. 32. The second proviso, which refers to the aggregate value of receipt of activities of Rs. 10 lacs (now enhanced Rs. 25 lacs vide Finance Act 2011 with effect from 1.4.2012) or less in a previous year, cannot be invoked in the present case because the said provision will apply only if the institution covered by the last/residuary clause is involved or carrying on activity of rendering any service in relation to trade, commerce or business. Contention of the respondent, if accepted, would deny charitable status to a faintly moderate size institution under the last/residuary limb, when it charges even a token or insignificant amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weekly newspaper namely Rozgar Aur Nirman to supply the material related to advertisement of public welfare schemes of Government of Madhya Pradesh and its undertaking and do such all other acts that are necessary for achievement of the objectives of the society. Therefore, the Revenue Authorities are not justified in holding that the assessee was involved in carrying on the activity in the nature of trade, commerce or business. We find that prior to the introduction of the proviso to section 2(15), there was no dispute that the assessee was established for charitable purposes. The main object of the assessee is for the benefit of General Public to provide them information regarding employments, education institutions and other information of the govt. schemes, therefore, we find force in the contention of the assessee that profit making is not the driving force or objective of the assessee and income generated by the assessee does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the assessee. Further, the expression 'charitable purpose' should be construed not in a vacuum, but in the specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the sub-clause (i) of proviso to section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (i) to proviso to section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of section 11(4A). Further, the obligation under section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner. 171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic charity if the same also generate profits it can be granted exemption provided the quantitative limit is not exceeding as provided in proviso to section 2(15) of the Act. Further it was observed that for achieving general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the mischief of proviso to section 2(15) is not attracted if the quantum of such profits do not exceed 20% of its overall receipts. It is pertinent to note that these observations are have been made by the Supreme Court in case of statutory bodies involved in providing general public utility services and other public development work mandated under statute. However, these observations and guidelines so far as a marginal mark up over all cost is concern are also applicable in the cases of non-statutory bodies/institutions/organizations. Further the Hon ble Supreme Court has observed while dealing the cases of non-statutory bodies in para 208 209 as under: 208. Having regard to the nature of ERNET's activities, it cannot be said that they are in the nature of trade, commerce or bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 251 as under: 251. The first consideration would be whether the activity concerned was or is in any manner covered by the objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards supplying the services, the activity may fall within the description of one advancing the general public utility. If on the other hand, there is a significant mark-up over the actual cost of service, the next step would be ascertain whether the quantitative limit in the proviso to section 2(15) is adhered to. It is only in the event of the trust actually carrying on an activity in the course of achieving one of its objects, and earning income which should not exceed the quantitative limit prescribed at the relevant time, that it can be said to be driven by charitable purpose. 5.4 This has been reiterated by the Hon ble Supreme Court while summing up the conclusions in para 253 in clause A E as under: A. General test under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) (all w.r.e.f. 1-4-2009), reaffirm this interpretation and bring uniformity across the statutory provisions. E. Non-statutory bodies E.1. In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and NIXI are engaged in important public purposes. The materials on record show that fees or consideration charged by them for the purposes provided are nominal. In the circumstances, it is held that the said two assessees are driven by charitable purposes. However, the claims of such non-statutory organisations performing public functions, will have to be ascertained on a yearly basis, and the tax authorities must discern from the records, whether the fees charged are nominally above the cost, or have been increased to much higher levels. E.2. It is held that though GS1 India is in fact, involved in advancement of general public utility, its services are for the benefit of trade and business, from which they receive significantly high receipts. In the circumstances, its claim for exemption cannot succeed having regard to amended section 2(15). However, the Court does not rule out any future claim made and being independently assessed, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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