TaxTMI 
TaxTMI 
TaxTMI 
2015 (2) TMI 450
X X X X Extracts X X X X
X X X X Extracts X X X X
....neral public utility as a commercial activity and so the entire surplus is taxable. 3. The ld CIT(A) confirmed the actions of the AO by observing as under:- 3.3 In this regard I am inclined to agree with the view of the AO, wherein, he has very categorically demonstrated that assessee has generated a surplus of Rs. 18,83,528/-, thus, resulting net profit of 19.25% of the total income. Furthermore, it has been noted by AO that assessee is operating a Dharamshala which is a general public utility and getting receipts from the patients for bed charges, accommodation charges, incidental services including canteen, cafeteria etc. Thus, it has been found that assessee is running its operation like a Hotel. Furthermore, the activities done by the appellant are not in the nature so as to be termed as relief to the poor because running a Dharamshala can never be held as relief to the poor. Thus, contention of the appellant that its activities are under the ambit of first three limbs of section 2(15) of the Act, is found to be misconceived as it has been found that appellant is running a Dharamshala which cannot be accepted as relief to the poor. So, finding of the AO remains conclusive, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f may cease to function one day due to the paucity of funds. The ld AR submitted that free meals are provided to the patients three times a day, but nominal charges are recovered from the attendants when they eat in the canteen called 'cafeteria'. Likewise, whenever TV is provided in the room, its running cost on electricity & maintenance is nominally recovered by the assessee. So the ld AR submitted that collection of subsidized charges does not mean that these services are being commercially exploited by the assessee. In fact, recovery of expenses is subsidized by the assessee since as against total recovery of Rs. 71.86 lacs made from Dharamshala facilities (i.e., apart from the rental income of Rs. 25.94 lacs received from banks), total expenses of Rs. 78.97 lacs were incurred for providing the said services during the relevant previous year as per the Income & Expenditure Account for the year ended on 31/03/09. The ld AR further submitted that in addition to providing dharamshala facilities, the assessee also provided ambulance services to its resident-patients and recovered the operational cost only. During the relevant previous year total recovery of Rs. 1.29 lacs w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Dharamshala. 5. On the other hand the ld DR, supported the orders of the authorities below. 6. We have carefully considered the rival submission and perused the material on record. We find that in the instant year, assessee declared a surplus of Rs. 18,83,528/-. The surplus has originated on account of excess of receipts of Rs. 97,80,123/- and expenditure of Rs. 78,96,595/-. Further out of the receipt of Rs. 97,80,123/-, rent receipt aggregates to Rs. 25,94,148/-. If theaforesaid rental income is excluded, then the receipts from Dharmshala would be of Rs. 71,85,975/-. Whereas, corresponding expenditure is Rs. 78,96,595/-. In other words there is no surplus on operation of Dharmshala by the assessee society. It appears that the AO, without having regard to above factual position has misdirected himself, by holding that since there is surplus and assessee is getting receipts from operation of dharmshala, it automatically implies commercial activity so as to fall within the ken of proviso to Section 2(15) of the Act and thus making the assessee ineligible to claim exemption u/s 11 and 12 of the Act. The Hon'ble Gurjarat High Court in the case of DIT Vs. Sabarmati Ashram Gaushal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ther consideration. Such statutory amendment was explained by the Finance Minister's speech in the Parliament. Relevant portion of which reads as under:- 'I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue explanatory circular containing guidelines for determining whether any entity is carrying on 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. Whether the purpose is a charitable, purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as "advancement of any other object of general public utility".' 7. In consonance with such assurance given by the Finance Minister on the floor of the House, CBDT issued a Circular No.11 of 2008 dated 19th December 2008 explaining the amendment as under:- "3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... no generalisation is possible. Assessee, who claim that their object charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business." 8. What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular, is that the activity of a trust would be excluded from the term' charitable purpose' if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as 'charitable purpose'. 9. Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity ma....