TaxTMI 
TaxTMI 
2015 (6) TMI 290
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....,61,533/- by invoking proviso to section 2(15) of the Act denying of exemption u/s.11 of the Act. Both the lower authorities erred in not appreciating submissions that the appellant trust being registered u/s. 12AA of the Act as a public charitable trust, the exemption u/s.11 cannot be denied. The order of Ld. CIT (A) being unjust and against principles of Natural Justice deserves to be quashed. 3. Ld. CIT (A) erred in law and on facts in confirming action of A.O. in taxing surplus of income over expenditure amounting to Rs. 31,93,755/- holding the activities of the appellant trust as 'advancement of any other object of general public utility' not granting benefit of section 11 & 12 of the Act. Ld. CIT (A) ought to have held appellant eligible for exemption u/s.11 of the Act.It be so held now. 4 Ld. CIT (A) further erred in law and on facts in ignoring submissions of the appellant that the proposal by AO to DIT (Exemption) to cancel registration of the appellant trust under provisions of section 12AA(3) of the Act on the basis of the assessment order for year under consideration was quashed holding appellant trust a charitable entity. Ld. CIT (A) ought to have held the appell....
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....vested in Bank as deposits and substantial interest is earned by the assessee. The assessee is claiming such income also as income from 'Charitable Purpose'. 3. The assessee is constantly making profits and under the guise of section 25 company to evades the tax which the assessee is supposed to pay. The assessee has changed its object clause in New Year. In old object clause the profit motive was there which is against the principle of forming section 25 companies. 4. The Corporate House who have paid consultancy charges have deducted tax at source u/s.194J as per details given elsewhere in this assessment order which also suggests that the type of services provided by the assessee are professional in nature and it is the beneficiary services rendered and hence, it has nothing to do with charity. 5. The stand taken by the assessee that the ultimate benefits of said consultancy results into benefits to company is not acceptable otherwise all who provides any service to trust for fees or profit will claim that as the services have been provided to trusts their income should be exempt u/s.11. 6. The quantum of personnel expenditure incurred the professional qualification ....
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....e social responsibility statement, the receipts of donations would have been issued on behalf of trusts, but income by way of receipts are not shown by the trusts in their income and expenditure account and hence, question of application of said income is not requires to be shown, the income on said non used funds is also not included in the trusts where it should have accrued had the said donations credited in trusts to whom donations were to be given. Even application period of the trust to whom donations were given and not disbursed by the assessee gets extended as the trusts will show income only when amount would be disbursed. All the sequence of events discussed herein this para, leads to conclusion that such novel ideas of tax planning should not be allowed to continue and hence, the conclusion is arrived at the assessee is not carrying on activity which can be considered as Charitable purpose within the meaning of Section 2(15) of I.T. Act,1961 but a well planned business and profession under shelter of section 25 company." 5. On appeal the CIT (Appeals) held as under:- "4.10 I have carefully considered the order of the A.O. and the submissions made in this regard. It is....
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....her, it is observed that the appellant is receiving fee from the donor as well as donee and such receipts are classified as its income under the head "income from charity advice". The heading "income from charity advice" may drop a hint of a charitable character of the receipts but the same is nothing but a fee received from rendering the services by identifying a donor and donee organizations which are looking for funds to carry out charitable activity. The argument that such fee is only to cover cost of verification, processing due diligence points out to the fact that such amount is collected for the services rendered both to the donor as well as the recipient NGOs which are listed as approved by the appellant. Similarly, in the case of corporate donors who have deducted TDS since they consider such services as professional services for the advices given to them by the appellant, the income shown under the head "income from charity advice" is of the nature and character of fee charged for rendering services of facilitating funds for other charitable organizations. Accordingly, I am of the view that first and second proviso to section 2(15) are applicable in the appellant's case.....
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.... invoking Section 12AA (3) for the purpose of withdrawal of registration" it is not open to the A.O. or the CIT (A) to take a contrary view. It may be noted that the action for cancellation of Registration was started by the DIT (Exemption) only at the request of the A.O. and was because of the facts compiled for the purpose of assessment in the assessment order for A.Y. 2009-10 (the present year)" as noted by the DIT (Exemption) (page 82A). 7. Further it is submitted that the assessee is engaged in the activities like "relief to the poor, education, medical relief and preservation of environment". It is submitted that page Nos.5, 19-22, 33-34, 72-81 and 83-89 may be referred for the details. Further table on page-9 of the paper book shows where the monies have been contributed; solely for the said objectives. It is further submitted that if that be so, the proviso to Section 2(15) has no application. For this contention he relied on the decision of Hon'ble Gujarat High Court in the case of DIT (E) vs. Ahmedabad Management Association (2014) 366 ITR (85) (Guj.) where it was held that all throughout for the preceeding year from the assessment year 1995-96 till 2008-09 the Revenue....
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....true interpretation of the proviso to section 2(15) the same has no application, for this, he relied on the recent decision of Hon'ble Delhi High Court in the case of India Trade Promotion Organization v/s. Director General of Income Tax (E) & Others, 371 ITR 333 (Del.) wherein it was held as under:- " From the said decision, it is apparent that merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation - both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object of general public utility to which t....
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....ttempt 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. In G.S.1's case (supra) it was contended by the revenue that GS1 (India) had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from their parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to the revenue, all this entailed that 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:- '.........As observed above, legal terms, "trade", "commerce" or "business" in Section 2(15),mean activity undertaken with a view to make or ear....
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....rying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable an d fall under the residuary clause - general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such 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." 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 Sec. 10(23C)(iv) of the sai....
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....o 118 may be referred. Under the circumstances the said benefit cannot be denied to the assessee. He also placed reliance on the decision of Hon'ble Gujarat High Court in the case of DIT (E) vs. Sabarmati Ashram Gaushala Trust (2014) 362 ITR 539 (Guj.) where it was held that the main objectives of the Trust were to breed cattle and endeavour to improve the quality of the cows and oxen in view of the need of all India is prominently and agricultural country. All these were objects of general public utility and would squarely fall under Sec. 2(15) of the Act Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the object of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business, the assessee was entitled to exemption u/s.11. 11. He further relied on the decision of Hon'ble Delhi High Court in the case of Instituted of Chartered Accountants of India & Another v/s. D.I.T.(E) (2013) 358 ITR 91 (Delhi) where it was held that the activities of providing coaching classes or undertaking campus pl....
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....idered as charitable purpose within the meaning of section 2(15) of the Income Tax Act, 1961 but a well planned business and profession under shelter of section 25 of companies Act. 15. On appeal, Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer. 16. We find that the main object of the assessee company as per its Memorandum of Association is as under :- "To carry out education, medical relief, relief of poor and preservation of environment (including watersheds, forests and wildlife), either directly, or by supporting financially and otherwise, organizations to carry out the aforesaid activities for charitable purposes and not for profit." 17. From the order of assessment it is observed that during the year under consideration the assessee's income is as under:- Particulars. Year ending 31.03.2009 Revenue Grants Drawn 23,04,760 Income from Charity Advise(S.11) 1,08,57,115 Income from current Inv.(S.12) 57.92,631 Other Income (S.13) 7,22,035 18. The expenses or payment debited by the assessee in its income and expenditure account are as under:- Particulars Year ending 31.3.09 Personnel expenditure S.14....
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....y because the assessee was registered under section 12 AA of the Act does not entitle it to claim its entire income as exempt under section 11 of the act but for getting that exemption the assessee is required to further satisfy condition of applying 85% of its income for charitable activities. In absence of the same only the amount which is utilised by the assessee for doing charitable activities can only be allowed as deduction to the assessee. In the present case as it is observed that no part of the assessee's income was actually applied for any charitable activities as defined in section 2(15) of the Act, the assessee was not entitled for deduction under section 11 of the Act for application of income towards charitable activities. 23. The Authorised Representative relied on the decision of Hon'ble Gujarat High Court in the case of [2014] 366 ITR-85 (Guj.) Director of Income Tax (Exemption) vs. Ahmedabad Management Association wherein it was held as under:- " The assessee, a public charitable trust, was dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas for the past 50 years. The Assessing Officer....
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....charitable purpose as under:- "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves 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;] 26. Therefore, in view of the above amendment in law the activities which were regarded as advancement of general public utility in earlier years cannot be regarded as activities for charitable purposes if the activities are hit by first proviso and is not covered by exemption provided in second proviso. In the instant case we find that the receipt of the assessee from advisory fee charged for rendering services exceeds the limit provided in section 2(15) of the Act. Therefore, the activity of the assessee cannot be regarded as of....
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....rt in the case of DIT (E) vs. Pradan Property holding Trust in ITA No.361 of 2007 order dated 16-08-2010. In view of our observation given above while discussing the case of Hon'ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra) this decision is not applicable to the facts of the assessee's case. 30. The assessee has also relied on the decision of the Hon'ble Delhi High Court in the case of India Trade Promotion Organisation vs. DIT (E) and others 371 ITR 333 (Delhi). In view of other observation given above while discussing the case of Hon'ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra) this decision is not applicable to the facts of the assessee's case. 31. For the above stated reasons we hold that the assessee is not entitled for deduction under section11 of the Act during the year under consideration. In view of our observations made above we confirm the order of the CIT (A) and dismiss the grounds of appeal of the assessee. 32. Ground No.7 of the appeal reads as under:- "Ld. CIT (A) erred in law and on facts in confirming action of AO holding software expenditure of Rs. 19,25,285/- as capital in nature and allow....