TaxTMI 
TaxTMI 
2016 (4) TMI 955
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....numents and place of historical objects as such the proviso to sec 2(15) of the Act does not apply in the assessee's case. 3. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-l, Jodhpur has erred in holding that the assessee's trust has not incurred expenses beyond the objects of the trust despite the fact that the trust has incurred expenses beyond the objects of the trust despite the fact that the trust has incurred expenses on the repair and maintenance of the commercial asset. 4. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-l, Jodhpur has erred in holding that the assessee's trust has not incurred expenses beyond the objects of the trust despite the fact that the trust has incurred expenses on Ahichhtragarh fort and Nagaur fort whose ultimate beneficiary is Maharaja Gaj Singh of Jodhpur who is the managing Trustee and person specified U/s 13(3) of the Act. 5. On the facts and in the circumstances of the case and in law the Ld CIT(Appeals)-l/ Jodhpur has erred in holding that the provision of sec 13(l)(c)(ii) are not applicable in the assessee's case despite the fact th....
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....Singhji, with cash and collection of antiquities, with the object of setting up a world class museum in Jodhpur, for the benefit of public at large. It was further stated that in order to meet the object of setting up a Museum, Mehrangarh Fort was given on lease by Maharaja Gaj Singhji to the appellant, vide lease deed dated 19.06.1974, for an indefinite period. Mehrangarh Fort is an ancient and historical place, which is a "protected monument" in terms of provisions of section 3(4) of the Rajasthan Monuments Archaeological Sites & Antiquities Act, 1961. This fact is evident from the photographs placed on record, which demonstrates that the Fort has been declared as an archaeological monument. It was further submitted that Mehrangarh Fort was constructed more than 500 years ago. In view of the considerable expenditure expected to be incurred to restore and maintain the Fort, nominal annual rent of Rs. 100 p.a was fixed for initial 10 years [refer Clause 1 @Pg 73 of the PB]. Vide letter dated 20.05.1992, annual rent of the Fort continued to remain @Rs. 100 p.a. [refer Pg 75 of the PB]. Thereafter, all expenses on maintenance were agreed to be borne by the appellant. Since 01.04.1972....
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....nstitutions having similar object or objects or may amalgamate the Trust or the Trust Funds of these presents or any portion or portions there of with any trust or trust funds or institutions having similar objects upon such terms as they may in their absolute discretion think fit and proper. ........ 16. The Trusts shall have power to pull down renovate, rebuild , alter , improve, develop, and repair any property comprised in the Trust or construct any structure on any land forming the part of TRUST" (emphasis supplied) It is on the basis of the aforesaid objectives, that the appellant was granted registration under section 12A of the Act which is in force till date. 3.6 We have found that the appellant has, in accordance with the approved objectives, been consistently pursuing its charitable activities for the past several decades and the appellant had always been allowed exemption under sections 11/12, including in various assessments completed under section 143(3) of the Act. It may also be pertinent to mention here that there has been no change in facts during the year under consideration. The appellant, during the year consideration, applied Rs. 647....
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.... mischief of provisio to section 2(15) was clearly applicable, resulting in exemption under section 11 of the Act not being available to the appellant. i) Further, the CIT(A) distinguished the decision in the case of ACIT vs. Surat Art Silk Cloth Manufacturers Association:121 ITR 1 (SC) stating that in the appellant's case, major part of receipts were from commercial activities, while in that case, business carried by the assessee was ancillary/ incidental to the main object. 3.9 In light of the objects of and nature of activities carried on by the appellant, it will kindly be appreciated that proviso to section 2(15) of the Act is not applicable to the case of the appellant,, as elaborately discussed hereunder: Section 2(15) of the Act defines "charitable purpose" as under:- "........... 15) "charitable purpose" includes relief of the poor, education, medical 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: ..........." Proviso inserted thereto by....
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....d by the additional conditions stipulated in proviso to Section 2(15). 3.2 In the final analysis, whether the assessee has for its object, the advancement of any other object of general public utility, is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is '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 rendering of any service in relation to any trade, commerce or business." (emphasis supplied)." 3.11 As can be seen from above, the aforesaid Circular clarifies that the proviso applies to trus....
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....not result in the denial of exemption under sections 11/12 of the Act, as the aforesaid activity of establishing museums is clearly in furtherance of the charitable objectives of the appellant trust and is not a business/commercial activity carried on with the motive of earning profit. The aforesaid proviso provides that if any of the objects of the assessee involve carrying on of any activity in the nature of trade, commerce or business for cess or fee or any other consideration, then, irrespective of the nature of use or application of income, the assessee shall not be regarded as existing for charitable purpose. Similarly, if any of the objects of an assessee involve carrying on of activity of rendering service in relation to trade, commerce or business for consideration then, too, the assessee shall not be regarded as carrying on any activity for charitable purpose. The circulars clarify that the proviso to section 2(15) of the Act applies to trust/ institution falling in the last limb of the definition of 'charitable purpose' if such trust/ institution carries on commercial activities in the nature of business, trade or commerce. What is the definition of the term 'business'? ....
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....commercial' means "pertaining to commerce; mercantile", thus, commerce involves essentially an exchange of buying and selling of commodities. If a person buys goods with a view to selling them at a profit, it is an ordinary case of trade and if the transactions are on large scale they are called as commerce: Gannon Dunkerley & Co v. State of Madras (1954) 5 STC 216 (Mad.). 3.12 The conjoint reading of the above decisions make it amply clear that the words, 'trade', 'commerce' and 'business', connote and indicate a series of organized activities primarily undertaken on commercial lines for profit motive. After the insertion of the proviso to section 2(15) by the Finance Act, 2008, w.e.f. 1.4.2009, the position that emerges is that the proviso applies if any of the objects of an assessee involve carrying on of any commercial/ business activity or earning 'fees' for rendering services in relation thereto. In this regard, is invited to the judgment of the Delhi High Court in the case of ICAI Accounting Research Foundation & Ors vs. DGIT (E): 321 ITR 73. In the said case, the assessee undertook three research projects and charged fees for the same. The assessing officer denied ....
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....rged by Mr. Wazir Singh was based on the definition of 'charitable purpose' stated in section 2(15) of the Act. This definition as in the 1961 Act is as follows:- 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit. Thus, the emphasis is on the fact that this charity is carrying on a business, namely, the Hamdard Dawakhana. In fact, the dedication is of a business because the dedicated property is neither any building, nor any trade mark, but the business of the Hamdard Dawakhana. It is, therefore, urged that this is not a charitable purpose at all and, hence, no exemption can be granted. It is pointed out that out of the business of this trust, the khandani income is being earned by the mutawallis themselves, so there is no scope for saying that this is a charitable purpose. We find that on a proper construction of the Act, this is not the meaning to be given to the definition. In order to have a charity, you must have a source of income. The income may come from gifts, or it may come from running a business.....
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....gh extensively used is a word of indefinite import. In taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure'. It is, therefore, clear that the two essential requirements for an activity to be considered as 'business' are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive. . ." (p. 21) 20. The principles which are laid down in both the aforesaid cases provide complete answer to the issue at hand. It is to be noted that the aforesaid projects undertaken on behalf of these local bodies is not a regular activity of the Petitioner Foundation. Primary activity remains the same, namely, research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of 'research projects', which can be termed as ancillary activity only. The circumstances under which the proje....
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....merce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the legislature is to make the definition extensive as the term "inclusive" has been used. The legislature has deliberately departed from giving a definite import to the term "business" but made reference to several other general terms like "trade", "commerce", "manufacture" and "adventure or concern in the nature of trade, commerce and manufacture". ... ... ... 29. It may be, however, pointed out that the term "profit motive" is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however it does appear, has shifted and the concept and principle of "economic activity" has gained acceptability. The definition of the term "business" may also vary when we are examining taxability under Sales Tax, Excise Duty, Value Added Tax, etc. because these are not taxes on income but the taxable event occurs because of the "economic activity" involved. Even if a person/an organization is carrying on trading on the principle of "no loss no profit", it may be liable....
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.... case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fisher's case (supra) are also relevant. Each case, therefore, has to be examined on its own facts." 3.14 In the case of Pave v. DIT (Exemptions): ITA No.6057/Del./2010, the DIT (Exemptions) had rejected the registration under section 12A and grant of exemption under section 80G of the Act on the ground that the Trust was charging service fee for providing services. The Delhi Bench of the Tribunal, on considering the issue and taking into account the aims and objects of the Trust, held that the Trust was a charitable institution and was entitled to registration under section 12A as well as recognition under section 80G, notwithstanding that it was charging some fee for providing the services. The relevant observations of the Tribunal are as under: "The aims and objects of the trust are charitable. From details, we find that the assessee is constructing toilets for public which is also a charitable work. These public toilets are made out of the grants from Government of Uttar Pradesh and also some petty contribution from the beneficiaries. The contribut....
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....Golf. It was also authorized to carry out activities which were incidental and auxiliary to promote the said game. All the receipts as have been pointed out in the show cause notice revolved around the said promotion of golf only. The DIT(E), however, rejected the contention of the assessee and after referring to the amended provision of section 2(15) read with proviso and held that the receipts were in the nature of business income. On appeal before the Tribunal, on examining the newly inserted proviso to section 2(15) of the Act and placing heavy reliance on the Delhi High Court judgment in the case of Institute of Chartered Accountants of India vs. DGIT (E) (supra) held that the test of business, trade or commerce has to be viewed from the angle that the activity of the trust has continued on business principle and pursued with reasonable continuity. The Tribunal observed that all the activities of the assessee were towards promotion of game of golf and other ancillary activities carried are only incidental to the said game only. Thus, any transaction which is incidental or ancillary towards fulfillment of object of other general public utility will not normally amount to busine....
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....ct and not for simply accumulating surplus. Thus, the embargo or rider given in proviso to section 2(15), cannot be the ground for cancellation of registration in the case of the assessee. Even otherwise this aspect has to be examined in the course of assessment proceedings and not for the purpose of cancellation of registration u/s.12AA(3) which is confined to twin conditions laid down therein." (emphasis supplied) 3.16 In the case of Hamsadhwani vs. DIT (Exemptions): ITA No. 494 (MDS.) of 2011 (ITAT-Chennai), the assessee-society was formed with the objective of advancement of music, other fine arts and traditional arts in State of Tamil Nadu. It was registered under section 12AA and applied for renewal of its approval under section 80G of the Act. The DIT (Exemption) found that receipts of assessee from sponsorship fees, sale of tickets and music coaching was in excess of Rs. 10 lakhs and, thus, held that assessee was hit by second proviso to section 2(15) of the Act. The DIT (Exemption) also held that such receipts were in nature of commercial/trade receipts and, therefore, activities of assessee-society were hit by first proviso to section 2(15) of the Act. Accordingl....
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....any activity in the nature of trade, commerce or business, or rendering any service in connection with trade, for a cess or fee or any other consideration. The third proviso excludes from the restraints imposed by first proviso, where such receipts were less than Rs. 10 lakhs. The question here is whether sponsorship fee, which forms substantial part of the amounts listed above, can be considered as receipt from activity in the nature of trade, commerce and business. In our opinion, advancement of traditional musical culture of Tamil Nadu and conducting music programmes for that purpose, where such music and dance programmes were sponsored by various persons and sponsorship fee so received, distributed among the artists, can never be considered as an activity in the nature of trade, commerce or business. When a person sponsors a music programme and sponsorship fee is paid to artist concerned, we cannot say that sponsorship fee is a receipt in the hands of the assessee which is in the nature of trade, commerce or business. Similarly, conducting music coaching for the purpose of advancement of various traditional music forms of State of Tamil Nadu, which is an integral part of cultur....
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....hich is binding on the Commissioner under section 119(1)(a) of the Act, aptly puts it, whether the assessee has, as its object, advancement of any other object of general public utility is essentially a question of law to be decided on the facts of the assessee's own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in a charitable activity within meanings of section 2(15) of the Act. As a corollary to this approach adopted by tax administration, in our considered view, it cannot be open to learned Commissioner to contend that where an object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of 'general public utility', the carrying on of bonafide activities in furtherance of such objectives of 'general public utility' will also be hit by the proviso to Section 2(15). 15. As CBDT rightly puts it, sweeping 'generalizations are not pos....
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....trade, commerce or business' must be such that it has a profit motive." (emphasis supplied) 3.18 Further, the Nagpur Bench of the Tribunal, in the case of SevaGram Ashram Pratisthan Vs. CIT: 129 TTJ 506, has categorically observed that the amended proviso to Sec. 2(15) of the Act is constraint for those assessees who attempt to defraud the Revenue in the garb of charitable purpose, but is not meant for those assessees who are really engaged in activities of charitable purpose. In this context it may also be pertinent to mention the decision of the Delhi High Court in the case of DIT (Exemptions) v. Commerce Teachers Association: 203 Taxman 171. In this case the DIT (Exemptions) while granting registration under section 12AA of the Act to the assessee vide its order dated 28-9-2010 had, inter alia, imposed the following condition: "The society should not charge any fee/amount from the beneficiaries. Also shall not collect any fees on account of talent exam." 3.19 The assessee challenged the above condition imposed by the DIT (Exemptions) before the Tribunal. The Tribunal vide its order dated 11-2-2011 held that above condition was unwarranted and was impos....
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.... notwithstanding proviso to section 2(15) of the Act. 3.20 Accordingly, reliance is also placed on the view expressed by the Hon'ble Supreme Court in the landmark case of ACIT vs. Surat Art Silk Cloth Manufacturers Association: 121 ITR 1, wherein it was held that it is not that in every case where the activity is being carried on which gives rise to profit, that would amount to non-charitable activity, resulting in forfeiting exemption available to the Trust. The Hon'ble Supreme Court in this case observed that where an activity was not pervaded by profit motive but was carried on primarily for serving the dominant charitable purposes, it would not be correct to describe the same as an activity for profit; but where an activity was carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in the advancement of the charitable purpose of the Trust or the institution. The ld. A.R. also relied on the following decisions, wherein it is held that if the primary or dominant purpose is charitable, it is immaterial that the ancillary purpose is non-charitable: • Victoria Technical Institute v. Addl....
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....red in preservation of monuments of artistic or historic in nature. It would not be out of place to mention that Mehrangarh Fort and Ahichhatragarh Fort, Nagaur are historic monuments, notified under section 3(4) of the Rajasthan Monuments Archaeological Sites & Antiquities Act, 1961, as stated by the ld. A.R. This Act has been enacted by the Rajasthan State Government to provide for the preservation, protection, upkeep, maintenance, acquisition and regulation of, and control over, ancient and historical monuments, archaeological sites and antiquities in the State of Rajasthan with a view to prescribe standards for preservation of historical monuments. Section 2(i) of the said Act defines "historical monument" to include archaeological building which is of historical, archaeological or artistic importance, interest or value. The relevant extract of the said section is reproduced hereunder: "ancient or historical monument" means any archaeological building, structure, erection or monument or any tumulus, tomb or place of interment or any cave, rock-sculpture, rock-painting or sculpture of or on stone, metal, terracotta or other immovable object or any inscription or monolit....
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....blished under sub-section (4) shall, unless and until it is withdrawn, be conclusive evidence of the fact that the ancient or historical monument, archaeological site or antiquity to which it relates is a protected monument, a protected area or a protected antiquity for the purposes of this Act." In terms of the above provisions, the Director, Archaeology & Museums Department, Government of Rajasthan, Jaipur, has by specific order, in connection with Mehrangarh Fort and Ahichhatragarh Fort, Nagaur declared as under: " PROTECTED MONUMENT Under section 3(4) of the Rajasthan Monuments Archaeological Sites & Antiquities Act, 1961, this is a protected monument. Whoever destroys, injures, mutilates, alters, removes disperses misuses, imperils or allows to fall it into decay or removes any sculptures, carved image bas-relief inscription or other like objects shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to five thousand rupees or both." On perusal of the aforesaid, it will be appreciated that the forts were historical in nature. Thus, the act of preservation of such monuments undoubtedly....
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..... Apart from weather conditions, there are several other factors that impact the footfall of tourists. In order to meet such shortfall, the appellant undertakes ancillary activities to enhance its receipts, which is then utilized to maintain the museum and meet other fixed costs. Some of them, which in view of the assessing officer are allegedly commercial in nature, are briefly explained hereunder: a) Licence fee - the appellant permits few craftsmen to give live demonstration of their activities, such as cobbler making Jodhpuri juttis, local painter making paintings, weaver weaving durries, etc. The appellant collects fees from such craftsmen for services provided to them while they occupy space in the monument. b) Location fee (film shooting) - the appellant permits production houses to conduct film shooting in the monument in which it operates museum, in lieu of recovery of fees from such users. This not only enables the appellant to earn incidental income but has also become a source of publicity for the appellant, which has resulted in attracting tourists from all over the world. c) Location fee (dinner parties) - the appellant also permits hotelier....