TaxTMI 
TaxTMI 
2015 (5) TMI 863
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....f appellant from Test Laboratory Services of Rs. 7.72 crores and Consultancy Services of Rs. 62.47 lakhs do not fall within the ambit of Section 2(15) of the Income Tax Act. b. The appellant is not eligible for claiming exemption u/s 11 of the Act on income derived from the above receipts. c. In proceedings u/s 143(3), the AO had not examined the issue of taxability of above receipts in light of provisions of section 2(15) of the Act. 3. That on facts and in law the order of DIT(E) suffers from an inherent contradiction vitiating his orde in as much as on one hand he decided the issue on merits while at the same time he directed the AO to make a de novo examination. 4. That on facts and in law the DIT(E) erred in setting aside the order of assessment dated 28th December 2011 passed by the AO u/s 143(3) of the Act. 5. That on fact and in law the order passed by DIT(E) u/s 263 of the Act is bad in law and void ab-initio." 3. Briefly stated the facts giving rise to this appeals are that the assessee filed its return of income on 30.3.2010 declaring return income at nil. Thereafter the assessment in this case was completed on 28.12.2011 at an income of Rs. 4,39,07,729....
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....material placed on record. The Ld. Assessee's Representative (AR) submitted that the assessment order passed u/s 143(3) of the Act was neither erroneous nor prejudicial to the interest of Revenue and the DIT(E) erred in holding and observing that the receipts of the assessee appellant from test laboratory services and consultancy services do not fall within ambit of Section 2(15) of the Act and therefore, the Assessee is not eligible from claiming exemption u/s 11 of the Act on the income derived from the above receipts. The Ld. AR vehemently contended that during the assessment proceedings u/s 143(3) of the Act, the AO examined and verified the issue of taxability of above receipts in the light of provisions of Section 2(15) of the Act and the DIT(E) was not justified in holding that the AO had not examined the same. The Ld. AR also contended that the impugned order suffers from inherent contradiction as much as on one hand he decided the issue on merits and at the same time he directed to AO to make a de novo examination setting aside the original assessment order dated 28.12.2011 passed u/s 143(3) of the Act. 7. The Ld. AR further drawn our attention towards order of Hon'ble ....
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....of imported technology in the field of transport; (ii) to secure and provide a technical consultancy service which can be availed of by the State Transport Undertakings. (iii) to render common service to the members and assist them in such matters as standardization of equipment, purchase of materials for their own use at economic prices, promotion of efficiency of Road Transport services and reduction in the operational costs of the members. (iv) To provide and promote facilities for advancing the skill of persons employed or to be employed in the State Transport Undertakings through instruction, training and research. (xii) To assist in the work of prescribing standards and specifications and in carrying out tests." 10. The Ld AR further, submitted that the assessee is registered under the provisions of Section12A of the act with effect from 27.4.1982 and the assessee has also been notified as a charitable organization u/s 10(23C) (iv) of the Act vide notification no. 1348 dated 31.10.2007 and these registration, approval and notification are still subsisting as on the date. 11. The Ld. AR further, pointed out that the impugned test charges have not been changed....
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....d examining necessary details and evidences and after providing due opportunity of being heard for the assessee. The Ld. AR finally contended that the DIT(E) misunderstood the proviso to section 2(15) of the Act which was inserted by Finance Act, 2008 with effect from 01.04.2009 as the same should be considered in the context of Section 10 (23C) (iv) of the Act, therefore, the notice u/s 263 of the Act as well as impugned order may kindly be quashed. 14. Replying to the above, the Ld. DR supported the impugned order and submitted that the AO had not examined the issue as per provisons of the Act specially as per proviso attached to Section 2(15) of the Act and the AO did not examined the issue of taxability of Revenue from Test Laboratory and Consultancy charges in the light of amended provisions of Section 2(15) of the Act and therefore, the DIT(E) was quite justified in holding that the order is erroneous and inasmuch as it is prejudicial to the interest of the Revenue. The Ld. DR also contended that the assessee would get due opportunity of hearing and to submit necessary details, evidences and explanations regarding his claim during reframing of de novo assessment in pursuan....
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....been brought to tax in view of the provisions of section 2(15) read with section 13(8) of the Income Tax Act, 1961. Thus, the AO has failed to assess this taxable income of the assessee and has erroneously treated its income amounting to Rs. 1,32,76,185/- as exempt u/s 11 of the Income Tax Act. 4. This has resulted in framing an erroneous assessment and causing prejudice to the interest of revenue. You are hereby given an opportunity of being heard to explain as to why the order passed by the AO may not be set aside u/s 263 to be made afresh. Date of hearing has been fixed for 14.2.2014 at 11.00 AM at my office. You may produce all evidence necessary in support of your explanation." 16. From the bare reading of the impugned order we further observe that the DIT(E) rejected the objection of the assessee and passed the impugned order by holding as under :- "I have gone through facts of the case and submissions of the assesses. There is not merit in the submissions of the assessee. The assessee has contended that it activities are charitable in nature as it is catering the State Road Transport Undertakings (STUs) needs for expertise which in turn are carrying out activities o....
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....ns mentioned by the DIT(E) in the notice u/s 263 of the Act (supra) and conclusion of the DGIT(E) in the impugned order (supra) from page no. 34 and 35 of the Stay Application folder we note that the assessee filed detailed reply to the DIT(E) to the notice u/s 263 of the Act. The Ld. AR has submitted that the purpose of introducing the proviso to u/s 2 (15) of the Act can be understood from the page speech of the Finance Minister while introducing the finance bill, 2008 the relevant extract of the speech has been mentioned as under :- "charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purpose would also fall under "charitable purpose." Obviously, this was not the function of parliament and, hence, apropos to amend the law to exclude the aforesaid cases, genuine charitable organizations will not in any way be affected." 18. The Ld. AR has also contended that during ....
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....r which it was incorporated then the receipts of the assessee from ancillary activities cannot be held on business activity and such income cannot be held as business income of the assessee. The Ld. Counsel vehemently pointed out that the assessee association never carried any business activity with profit motive, therefore, allegation of the department are baseless. 21. The Ld. AR of the assessee, further, placing reliance on the recent decision of Hon'ble Delhi High Court in the case of ICAI vs. DGIT (E) 258 ITR 91 (Delhi) submitted that the expression "business", "Trade" or "Commerce" as used to proviso to Section 2(15) of the Act is not objected to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fees without any profit motive and these words use in the first proviso must be interpreted restrictively and where the main object of association is charitable then any incidental activity for furtherance of the object does not fall within the expression of "business", "Trade" or "Commerce" for profit motive. 22. The Ld. AR completed his submission and contention by contending that when the Assessing Office....
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....2(15) of the Act. 24. The Ld. Departmental Representative also contended that there is reliable evidence and material to show that the activities were carried out on sound and recognized business principles and pursued with reasonable continuity it would constitute business even if there is no profit motive. The Ld. DR, further, contended that it is not the motive of the person doing on Act which decides whether the act done by him is the carrying on business, profession or vocation but a person carrying on what otherwise would be a business may say that he did not carrying on business because it was not his function to make any income out of it. Supporting the impugned notice and order u/s 263 of the Act, the Ld. DR also pointed out that simply because certain details were called by the AO and also placed on record do not in fact that the AO has applied his mind to the case while granting exemption u/s 11 of the Act to the assessee. The Ld. DR vehemently contended that as the impugned assessment order is silent on the issue of applicability of proviso to section 2(15) of the Act then it was rightly held that the AO did not examine the issue of taxability of revenue from test la....
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....table purpose' . obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected." The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions "business", "trade" or "commerce". 26. It would be also appropriate to consider the ratio of the decision of Hon'ble Punjab and Haryana Court in the case of CIT Vs. Truck Operator Association (Supra), as relied by the Ld. DR, wherein facts of that case and observations of Hon'ble High Court reads as under :- "On examination of the objects and the purpose of the association in the present case, it emerges that the respondent-association is union of truck operators constituted for facilitating its members to carry on the trade of transportation and not to allow the outsider or non-member to undertake any business activity within the precincts of Hansi town/village. The asso-ciation charges fees from it....
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.... with the main object of improving public transport system in the country and its objects as per memorandum of association as reproduced hereinabove in para 9 of this order clearly reveals that the objects of the assessee association are dedicated towards improving road safety standards and to promote facilities for advancing the skill of employees of State Transport Undertakings through regular training and research which cannot be held as business activities. It is also pertainment to note that the Ld. DR has not disputed this fact that the assessee association was provided exemption u/s 11 of the act in the earlier assessment orders on the revenue receipts from test laboratory charges and consultancy charges. 30. Now we consider the effect of insertion of proviso to section 2(15) of the Act. As per recent judgment of Hon'ble High Court of Delhi in the case of ICAI Vs. DGIT (Supra). We respectfully note that their lordship has explicitly held that the first proviso to section 2(15) of the Act carves out and exception which excludes advancement of any object of general public utility from the scope of charitable purpose to the extent that it involves carrying on any activity in....
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....assessee association it is clear that the assessee association did not carry on any "business", "trade" or "commerce" with the main object of earning profit. The activity of imparting support services to State Road Transport Undertakings without any profit motive are being conducted in furtherance of the object for which assessee association had not constituted by the Government of India. The activities of providing laboratory test services and consultancy to the State Road Transport Undertakings of all over India cannot be held to be "trade", "business" or "commerce" merely because some fee or charges are being received by the assessee association. Accordingly, even if some fees or charges are being charged by the assessee association for providing laboratory test services and consultancy services in accordance with its charitable objects, the activities cannot be held to be rendered in relation to any "trade" , "commerce" or "business"as such activities are undertaken by the assessee association in furtherance of its main objects which are undisputedly of charitable nature and which is not an activity of "trade", "commerce" or "business" with main object of earning profit. 34.....
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....ases this fact must be determinative and the profit motive test should be specified and viewed in the context of section 10 (23C) (iv) of the Act. As we have already noted that we found force in the contention of the Ld. AR that the Assessing Officer raised query about the revenues received from test laboratory charges and consultancy charges and the assessee placed required details and explanation before the AO in this regard and this fact was also noted by the CIT(A) in paragraph 4.4 of the impugned order. We are unable to approve the observations of the CIT that the AO did not examine the issue of taxability of revenue from test laboratory and consultancy charges in the light of proviso to section 2 (15) of the Act. We may also point out that the AO has considered this issue in paragraph no. 2 and 3 of the assessment order and conclusion of the AO cannot be held as erroneous merely because the AO has not decided the issue in so many words as per expectation of the Ld. CIT. 36. Under above noted facts and circumstances, we reach to a conclusion that the CIT was not justified in holding that the view taken by the AO was granting exemption u/s 11 of the act was not inaccordance ....