TaxTMI 
TaxTMI 
2015 (9) TMI 800
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....jects of general public utility and the entities pursuing the said objects will not be eligible for exemption in respect of any activity in the nature of trade, commerce of business. 3. The Learned CIT Appeals failed to appreciate that, first of all, the Appellant Trust's activities would fall strictly only under the first three limbs of Section 2(15), viz., Relief of the poor, Education and Medical relief and will not come under the limb, advancement of any other object of general public utility'. Secondly, the appellant trust is not carrying on any trade, commerce or business. The running of Women's Hostels and canteen etc., were only for the benefit of the beneficiaries and not meant for the use of the general public and was incidental to the Objects under the first three limbs of Section 2(15). 4. The Learned CIT Appeals erred in holding that the activities of the appellant trust are outside the purview of the meaning of 'relief of the poor' used in Section 2(15) of the Act on the ground that the main activity of the Trust was running of Working Women Hostel and Working Women Centre. 5.The Learned CIT Appeals erred in not appreciating that the activ....
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....erved that in view of the amended provisions of sec.2(15) of the Act, with effect from 1.4.2009, the assessee looses the character of "general public utility" and not entitled for exemption u/s.11 of the Act. Against this, the assessee carried the matter in appeal before the CIT(Appeals). 5. On appeal, the CIT(Appeals) observed that though the assessee has form its objects, which includes relief to the poor, marginalized and exploited women living in difficult circumstances and children in distress especially the street children, child workers and children in slums, the assessee has undertaken the following activities during the year: Sl. No Nature of activity Income Expenditure Surplus 1. Local Contribution Account 87,61,830 1,25,01,567 -37,39,737 2. Foreign Contribution Account 50,29,018 76,80,361 -26,51,283 3. Balwadi 53,750 5,03,617 -4,49,867 4. Canteen 26,76,083 27,35,991 -59,908 5. CM's Noon Meal Programme 0 26,320 -26,320 6. Creche 1,77,667 1,33,398 44,269 7. Working Womens Hostels 35,68,975 21,37,289 41,31,686 8. Welfare of Street Children ....
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....ect of general public utility", as it involves carrying of any activities which are in the nature of carrying on of trade, business, commerce. Accordingly he observed that in this case, the predominant activities are running of working womens hostels, women service centers and canteen, which are totally commercial in nature and hence, the assessee was not considered as the one engaged in commercial activities and not charitable activities and confirmed the denial of exemption under sec.11 of the Act. Since, the assessee has already claimed cost of its business assets as application of income in the earlier years u/s.11 of the Act, he directed the AO to withdraw the depreciation, which was allowed on written down value of the fixed assets and to allow depreciation only on the assets acquired in the financial year 2008-09 and recompute the income of the assessee. Against this, the assessee is in appeal before us. 6. The ld. AR submitted that the assessee society's activities would fall strictly only under the first three limbs of Section 2(15), viz. relief of the poor, education and medical relief and not under the limb, "advancement of any other object of general public utili....
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.... the income to be given effect in the manner as specified therein. The term 'charitable purpose' has not been defined under the statute; but for the inclusive nature of the term as specified under s. 2 (15) of the Act, which as existed before the amendment is as follows : "Sec. 2(15) : "Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility." As per s. 2 of the Finance Act, 2008, the said provision was amended adding a 'proviso' w.e.f. 1st April, 2009 as follows : "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the 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." The Department has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act. 8.1. The ld. AR submitted that, the idea and....
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....all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that in running of working women hostels, women service centres and canteen will not constitute any trade or business. According to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Contrary to this, the ld. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not carry those charitable activities, and it was only carrying on running of working women hostels, women service centres and canteen in a commercial manner, which cannot be construed as charitable activity. In other words, it was contended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, i....
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....ommerce or business, is already excluded from the charitable purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to stipulate further, by way of cl. (b), adding the words "or any activity of rendering any service in relation to any trade, commerce or business ..................". As it stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms "any trade, commerce or business" refers to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving in running of working womens hostel, womens service center and canteen. 8.6. Further, in similar circumstances, the co-ordinate Bench of the Tribunal in the case of Young Women's Christian Association of Madras v. JDIT in ITA No.823/Mds/2013 dated October 30, 2013 (62 SOT 65) has held as under : * "Generally speaking, the activities carried on by the assessee such as running orphanages, old age homes, rehabilitation centres, day care centres for elderly, vocational training to girls from slum....
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.... not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities. * In the present case, even if activities of the assessee were stated to be relief of poor, medical relief and education, it was not possible to conclude that running of business in the form of IGH and WWH were business incidental to the carrying on of main objective of the assessee-trust. Therefore, the assessee is not protected by the provision stated in section 11 (4A), either." 8.7. Thus, as observed earlier, running of working womens hostel, womens service center and canteen is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption under sec.11 of the Act. 8.8. Now, coming to the denial of depreciation on the assets purchased before the financial year 2008-09, we are of the opinion that the income of the assessee has to be computed in accordance....
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.... Rs. 3,35,36,029/- along with revised memo of Income, copy of accounts for the year ended 31/03/2006 and copy of resolution dated 19.9.2008. A report on assessee's condonation petition was submitted to the DIT(E). The condonation was not received till 31.12.2008. Hence, the assessment under sec.143(3) was completed on 31.12.2008 rejecting the Form 10 filed by the assessee. The CIT(A) vide ITA No.103/08-09 dated 31.12.2009 dismissed the appeal by the assessee. The assessee then went to ITAT against the order of the CIT(A) which restored the entire issue to the file of the Assessing Officer to decide the case afresh vide ITA No.253/Mds/10 dated 24.03.2010. 11. In the meanwhile, the DIT(E) has condoned the delay in assessee's filing of Form No. 10, vide DIT(E) Nos.26(10)/08-09 dated 11.11.2009. 12. While passing order giving effect to the order of the Tribunal, the AO observed that there is violation of provisions of sec.11(2) of the Act and not granted exemption of its income. He brought shortfall of Rs. 3,35,36,030/- being the unspent income of the society while applying 85% of income, to tax, is as per law. However, on appeal, the CIT(Appeals), on this issue as in ass....
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....ildren from Chennai City slums in the field of HIV / AIDS, Drug abuse, Alcohol. vii) To organize women into Madhar Sangams, self-help groups and domestic workers both in the organized and unorganized sectors, residential and non-residential and create public opinion and conduct social awareness programmes. viii) To impart education both formal and non-formal for the children and women of the weaker sections of the community organizing sponsorship and scholarship programmes and other relevant means and methods wherever it is necessary. ix) To organize savings schemes and credit societies procure insurance policies and promote co-operative efforts to enhance their purchasing power and to improve their socioeconomic status of the communities. 13.1 The ld. AR submitted that the assessee filed its return of income for the assessment year 2006-07 on 30.10.2006 admitting income of Rs. NIL after claiming exemption u/s 11 of the Act. The Assessing Officer observed that the assessee had failed to apply the requisite 85% of the income for taxable purposes u/s. 11 (1) of the Act and Form No.10 for the accumulation of unspent income for future years, was not filed along with the ret....
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....4 On appeal, the CIT(A) upheld the action of the Assessing Officer and confirmed the denial of exemption for the 'excess' accumulation. It is submitted that the CIT(A) has not appreciated that the assessee had not reproduced all the objects in a mechanical fashion. The purpose mentioned in Form No.10 clearly referred to the construction of centre homes, non-formal education centres and working women's hostels etc., which is an on-going process. The construction of the buildings to achieve the charitable objects involved capital expenditure and other incidental expenditure necessary for the creation of new assets. The annual reports of the assessee society will bear out these facts. The decisions relied on by the CIT(A) are not applicable to the facts of the assessee's case. In those cases, the assessee had simply produced all the object clauses. In CIT v. MCT Muthiah Chettiar Family Trust cited supra, the Madras High Court observed that the assessee had verbatim repeated all the objects of the Trust as under: "(i) to establish and maintain and manage hospitals, clinics, laboratories and medical research centres and to provide the poor with medical relief, surgica....
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....vice centres and canteen amounted to business activities. For this purpose, strangely, the CIT(A) has relied on reasons given by the Assessing Officer for denying exemption u/s 11 wholly. At the outset it is submitted that the CIT(A) went wrong in relying on the reasons given by the Assessing Officer for the assessment year 2009-10, which itself was a separate matter challenged in appeal before the CIT(A). Moreover the AO, had relied on the amendments made to Section 2(15) by the Finance Act 2008 with effect from 01.04.2009. By this amendment the definition of charitable purpose was altered to exclude any activity in the nature of business where the purpose of the charitable institution was an object of general public utility. The CIT(A) therefore acted contrary to the provisions of Law as it stood for the assessment year 2006-07. The enhancement, it is submitted, is therefore not sustainable in Law. The ld. AR has brought to our notice that the C.I.T.(A) himself has not made any such enhancement for the assessment year 2008-09 while disposing of the appeal for that year. 14. On the other hand, the ld. DR relied on the order of the CIT(Appeals). Further, he relied on the order o....
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....dia, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:- (a) such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years; 16. There is no dispute that it is mandate for sec.11 of the Act to specify the purpose and period for which accumulation is sought for. The above position was upheld by the Jurisdictional High Court in the case of CIT v. MCT Muthiah Chettiar Family Trust (supra), wherein it was held as under: "The trust is allowed to accumulate its income for a maximum period of ten years. The condition is that the trust should specify in the prescribed form the purpose for which the income is accumulated or set apart. It is not enough for the trustees to repeat the objects of the trust, but they must specify a particular purpose for which the income is being accumulated." Similar view was also expres....
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....of caste or creed to develop co-operation and collaboration in order to solve their social and economic problems. v) To provide vocational training in tailoring, embroidery, handicrafts acquire self-reliance and opportunities for gainful self-employment and rehabilitation for the socially, intellectually and physically handicapped persons. vi) To encourage community health practices and to impart health care and social awareness education to the weaker sections and marginalized sections of the people especially the women and children from Chennai City slums in the field of HIV / AIDS, Drug abuse, Alcohol. vii) To organize women into Madhar Sangams, self-help groups and domestic workers both in the organized and unorganized sectors, residential and non-residential and create public opinion and conduct social awareness programmes. viii) To impart education both formal and non-formal for the children and women of the weaker sections of the community organizing sponsorship and scholarship programmes and other relevant means and methods wherever it is necessary. ix) To organize savings schemes and credit societies procure insurance policies and promote co-operative effort....
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.... distinction between the objects of a trust and the powers given to the trustees to effectuate the purpose of the trust. Though the objects of the trust were charitable, they were mere powers conferred upon the trustees to carry on the business and the profits from such business would benefit the charitable objects. The exemption u/s. 11 cannot be granted on the reason that the business itself was not in existence at the time of formation of the trust and the property held under trust at the time of formation of the trust was not spelt out in the Memorandum of Association of the assessee. The running of working women's hostel, women's service center and canteen was not at all in existence at the time of formation of the trust so as to say that the business is property held under trust. Thus, the activities relating to running of working women's hostel, women's service center and canteen was not even in the contemplation of the Memorandum of Association on the basis of which the Society is formed and, therefore, could not have been settled upon trust. The business carried on behalf of a trust rather indicates a business which is not held in trust, than a business of ....
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....g of working women's hostel, women's service center and canteen was spent towards charitable activities and therefore, the assessee is entitled for exemption u/s. 11(4) of the I.T. Act. We are unable to accept this contention. Initially, the assessee carried on the business itself which is not at all property held under trust. This activity is a business activity and the provisions of section 11(4A) of the Act is applicable. 25. It was contended that if the profits of the business carried on by the trust are utilized by the trust for the purposes of achieving the objectives of the trust, then the business should be considered to be incidental to the attainment of the objects of the trust as observed by the Supreme Court in the case of ACIT vs. Thanthi Trust (2001) 247 ITR 785 which is as under: "As it stands, all that it requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust ...........In any event, if there be any ambiguity i....