TaxTMI 
TaxTMI 
TaxTMI 
2015 (6) TMI 4
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....in direction to allow depreciation on Rs. 73,68,590/-. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in direction to allow deduction of Rs. 9,05,460/- on account of provision for leave encashment. 5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in direction to allow deduction of Rs. 65,00,000/- on account of provision of gratuity." 3. Grounds raised by the Revenue in ITA No. 1572/Del/2013 read as under: 1. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding that the activities of the assessee are charitable in nature; 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding that the assessee is eligible for exemption u/s 11 of the Income Tax Act, 1961; 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding that the assessee is eligible for exemption on earned surplus of Rs. 2,41,40,492/- on the basis of principle of mutuality; 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in directing the AO to allow deprec....
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.... activities. Therefore, the AO was correct in denying exemption u/s 11 of the Act and rightly taxed all the receipts collected from the members and non members. 7. The ld. DR supporting the order of the AO for A.Y. 2009-10 submitted that after the amendment to section 2(15) of the Act w.e.f. A.Y. 2009-10 the assessee's claim of exemption the sixth limb of the charitable activity mentioned in section 2(15) of the Act is not tenable. The ld. DR also drawn our attention towards paragraph no. 14 of the assessment order for A.Y. 2009-10 and submitted that the assessee's claim of exemption on the mutuality was rightly rejected as the assessee was under the purview of newly inserted proviso to sec. 2(15) of the Act. The ld. DR, justifying the action of the AO further submitted that after proviso inserted to sec. 2(15) of the Act w.e.f. 2009-10 in a case of General Public Utilities the entities will no longer be enjoying charitable status if they involve carrying on any activity in the nature of trade, or business or any activity of rendering any service in relation to any trade, or business for a cess or fee or any other consideration irrespective of the nature of use or application, or....
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....hemently contended that the aforesaid findings of the Hon'ble High Court that the assessee is a charitable institution and had been set up with a charitable object and there was no need to maintain separate books of accounts. The ld. Sr. Counsel further pointed out that for A.Y. 2009-10 the assessee has maintained separate books of accounts and details of receipts and allocation of expenses has been placed at page no. 49 to 51 of the paper book of the assessee. The ld. Sr. Counsel also drawn our attentions towards this fact that the factual situation remains the same in the two subsequent assessment years under consideration before us as there is no change of facts that the assesee carried on the same activities as were carried by it in the earlier assessment years and such activities are in accordance with its memorandum and article of association right from its incorporation till date. 10. The ld. Sr. Counsel reiterated its arguments and contended that the AO had gone wrong in denying exemption u/s 11 of the Act to the assessee in respect of its surplus as is reflected in the income and expenditure account on the ground that it either did not carry out its activities in accordan....
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....embers of the company, or to any of them or to any person claiming through any of them; provide that nothing herein contained shall prevent the payment in good faith of remuneration to any officer or servants of the company, to any member thereof, or to any other person in return for any services actively rendered to, for or on behalf of the company or of interest on money borrowed by or for the purposes of the company, from any person, whether a member of the company or otherwise." 15. We further respectfully note that the Hon'ble High Court in para 22 at page 311 has clearly observed that the activities as driven by charitable motive in the sense in which a charitable purpose is defined in section 2(15) of the Act. The provisions of section 11(4A) of the Act are not attracted to the case of the assessee i.e. PHD Chamber of Commerce & Industry. Respectfully following the judgment of the Hon'ble High Court of Delhi in assessee's own case (supra), we are inclined to hold that the assessee's activities are being driven by a charitable motive according to its objects as per Memorandum of Association. 16. Turning to the issue of newly inserted proviso to section 2(15) of the Act firs....
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....rue identities as per assurance given by the then Hon'ble Finance Minister while introducing Finance Bill, 2008. Their lordships also made it clear that in order to save the constitutional validity of the proviso to sec. 2(15) of the Act the same would have to be read down and interpreted in the context of sec. 10(23C)(iv) of the Act because context requires such interpretation. It was also held that when the expression "charitable purpose" as defined in sec. 2(15) of the Act is read in the context of sec. 10(23C)(iv) of the Act, we would have to give up the strict and literal interpretation sought to be given to the expression "charitable purpose" by the legislature. 18. We respectfully reproduced relevant operative paragraph of the decision of Hon'ble High Court of Delhi in the case of India Trade Promotion Organization vs. DGIT(E) (supra) which reads as under: "43. From this, it is clear that prior to the introduction of the proviso to Section 2(15) of the said Act, there was no dispute that the petitioner was established for charitable purposes and, therefore, its income was not to be included in the total income and was, therefore, granted the benefit of exemption. We have a....
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....an institution has an income that the question of not including that income in its total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption under Section 10(23C)(iv) would have to be determined by the prescribed authority having regard to the objects of the institution and its importance throughout India or throughout any State or States. There is no denying that having regard to the objects of the petitioner and its importance throughout India in the field of advancement of promotion of trade and commerce, the petitioner would be entitled to be regarded as an institution which would qualify for that exemption. The only thing that we have to examine is - whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any way, detract from the position that it is an institution established for charitable purposes. Therefore, in our view, merely because the petitioner derives rental income, income out of sa....
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....." From this, it is evident that the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008." 19. Turning to the factual matrix of the present case the AO and the ld. DR has not pointed out any fact that there was a change in the activities conducted by the assessee society during F.Y. 2008-09 and 2009-10 from the activities which the assessee society carried on during the earlier assessment years. Therefore, we may safely infer that the activities of the assessee society were simi....
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....s relief of the poor, education, medial relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility". Provided that the advancement of any other object of general public utility shall not be charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity 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 sue 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 ten lakh rupees or less in the previous year.] 4.2 In this regard the issue whether the appellant chamber is carrying on any business activity arose in A.Y. 2006-07 and A.Y. 2007-08 and wherein the Hon'ble Delhi High Court vide order dated 19.10.2012 in ITA No. 368-369/2012 has allowed the appeal of the appellant and has held as under: PARA 7 OF ORDE....
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.... by repetitive activities, which can rightly be termed as business. Having regard to the authorities which we have noticed above it is not proper to characterize the activities of the chamber as activities amounting to a business in the generally understood sense of the word, the most important feature of business being profit motive. It has not been suggested by the income tax authorities that the activities carried out by the assessee chamber were propelled by any profit motive. In such circumstances, it is proper to view the activities as driven by a charitable motive in the sense in which a charitable purpose is defined in section 2(15) of the Act. In this view of the matter, we are satisfied that the provision of section 11(4A) are not attached to the present case and a remand to the AO for finding out whether the activities were maintained for such business was unnecessary. We accordingly answer the substantial question of law framed by us in the negative, in favour of the assessee and against the Revenue. However, there shall be no order as to costs." On going through the aforesaid order passed by the Hon'ble Delhi High Court in the case of the appellant chamber, it is seen....
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....e of India Trade Promotion Organization vs. DGIT(E) (supra) that the expression "charitable purpose" as defined in 2(15) of the Act is read in the context of section 10(23C)(iv) of the Act and we would have to give up the strict and literal interpretation sought to be given to the expression "charitable purpose" by the Revenue and if an Institution established for charitable purpose did not receive an income at all then what would be need for taking any benefit u/s 10(23C)(iv) of the Act. 23. Therefore, in our humble understanding, if the expression "charitable purpose" is given meaning that in case an Institution, with an object of advancement of general public utility, derives an income then it would be falling within the exception carved out by the first proviso to sec. 2(15) of the Act then no entity would qualify for the exemption u/s 10(23C)(iv) of the Act and this meaning obviously provide the effect that the provision of sec. 10(23C)(iv) of the Act would be rendered redundant. 24. Finally respectfully following the ratio of the decision of Hon'ble Jurisdictional High Court of Delhi in the case of India Trade Promotion Organization vs. DGIT (E) (supra) we note that we are ....