TaxTMI 
TaxTMI 
2016 (4) TMI 955
X X X X Extracts X X X X
X X X X Extracts X X X X
....iso 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 that the Maharaja Gaj Singh of Jodhpur is holding substantial shares in M/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, the appellant set up a museum in the precincts of the Fort for displaying the articles / antiquities settled in the appellant ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 647,42,176 (comprising revenue expenditure of Rs. 593,37,891 and capital expenditure of Rs. 54,04,285) against income of Rs. 812,53,705 and claimed exemption under section 11(1)(a) of the Act qua inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sociation: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 the Finance Act, 2008, with effect from 01.04.2009, reads as under: "............ 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 activit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny 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 trusts/ institutions falling in the last limb of the definition of 'charitable purpose' namely advancement of any other object of general public utility. Further, when clause 15 of section 2 was amended to separately include 'preservation of monuments or places or objects of artistic or historic nature' in the definition of charitable purpose,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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'? The Hon'ble Supreme Court in the case of Distributers Baroda P. Ltd. (83 ITR 377) has held that 'business' refers to real, substantial, organized course of activity for earning profits as 'profit motive' is essential requisite for conducting business. Following the above decision, the Special Bench of the Tribunal, in the case of BJP vs. DCIT : 258 ITR 1 (Del.) (AT), has held that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove 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 the exemption claimed by the assessee on the ground that activities of the assessee were commercial since it was charging fees. The Court, while upholding the claim of the assessee, held that the activities of the assessee amounted to advancement of an object of general public utility. On the issue of charging of fees for undertaking research projects, the Court held that mere charging of fees would not render the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. In this case, the trust is of a portion of the income of the Hamdard Dawakhana. Although the source of the income is a business, the object of the trust is not to run that business, but to utilise the income of that business for a charitable purpose. The income has been divided into two portions, i.e., khandani income and the qaumi income. That portion of the income which is not earmarked for charity is subject to tax, but the remaining portion has to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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 projects were undertaken make it clear that it was at the instance of the Government of India or the State Government for improving the accounting and budgetary systems in these local bodies. The expertise of the Petitioner Foundation in carrying out research in this field was sought to be utilized. Therefore, it cannot constitute 'business/commercial activity'. Merely because some remuneration was taken by the Petitioner Foundation for undertaking these projects would not alter the character of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t 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 to pay taxes or comply with the statute when the charge, or incidence of tax, is on the "economic activity". This concept is today well recognized in European Union and England (see Riverside Housing Association Ltd. v. Revenue & Customs Commissioner, (2006) EWHC 2383 (Ch) and the case law cited therein). It may also be also appropriate here to refer the decision of the House of Lords in Town Investments Ltd. v. Department of the Environment [1977] 1 All ER 813. In this case, a Government department was claiming benefit under....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 contribution from beneficiaries cannot be said a commercial activity. After close perusal of these facts and taking the pleadings into consideration, we hold that the assessee trust is a genuine trust registered for charitable purpose, hence deserves registration under section 12A of the Income-tax Act and the exemption under section 80G. Therefore, we set aside the order of the DIT (Exemptions) and direct to grant the registration under section 12A and also to grant exemption under section 80G." 3.15 In the case of Bombay Presidency Golf Club Ltd. vs DIT: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 business, trade or commerce, unless there is some intention to carry on business, trade or commerce on a permanent basis or with a reasonable continuity. If there is some incidental or ancillary receipts during the course of carrying out its promotional activity of game of golf or for maintenance of its club and the facilities, it cannot be held to be in the nature of business, trade or commerce. The Tribunal in this case also observed that where principle of mutuality was applicable, registration cannot be cancelled simply by relying on the proviso to section 2(15). The relevant extracts of the judgment a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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. Accordingly, the DIT (Exemption) rejected the application for renewal filed by assessee. The assessee in this regard filed an appeal before the Tribunal. The Tribunal held that when a person sponsors a music programme and sponsorship fee is paid to the artist concerned, it could not be said that the sponsorship fee was a receipt in the hands of the assessee which was 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 was an integral part of cultural life of people of Tamil Nadu, could also not be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 cultural life of people of Tamil Nadu, cannot also be considered to be an activity in the nature of trade, commerce and business. This can at the best be considered as an educational pursuit. When there are colleges run for coaching music, we cannot say that training imparted in music is not education. In our opinion, the ld. DIT(E) took a very narrow view in this regard and came to a conclusion that the sponsorship fee and music coaching fee received by the assessee were from the activity in the nature of trade, commerce or business. Assessee, in our opinion, was not carrying on any activity in the nature of trade, commerce or business but was carr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rned 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 possible' and 'each case will have to be decided on its facts'. The question then arises whether on the present set of facts it can be said that the assessee was engaged in trade, commerce or business or in rendering of a service to trade, commerce or business. As far as assessee being engaged in trade, commerce or business is concerned, it is not even learned Commissioner's case that running a organization, set up under the statute law, for controlling, preventing and abating pollution, is pursuing trade, commerce or business. Obviously, a trade, commerce or business implies an activity with profit motive even though public good may be a secondary benefit from such an ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons) 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 imposed by the DIT without backing from the law. The Tribunal, accordingly, expunged the aforesaid condition from the certificate of registration issued by DIT (Exemptions). The Department subsequently filed an appeal before the Delhi High Court. The Hon'ble Delhi High Court vide its order dated 20-9-2011 dismissed the appeal of the department agreeing with the view taken by the Tribunal. Therefore, the legal position that emerges from the aforesaid decisions is that where a charitable trust/ institution engaged in advancement of object of general public utility undertakes/ carries on commercial activities in the nature of business, trade or commerce with a view to make profit, then such trust/ i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 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. CIT [1991] 188 ITR 57 (SC) * CIT vs. Andhra Chamber of Commerce: 55 ITR 722 (SC) * CITv. Dharmodayam Co. [1977] 109 ITR 527 (SC) * CIT vs. Federation of Indian Chambers of Commerce and Industry: 130 ITR 186 (SC) * CIT (Addl) vs. Automobile Association of Southern India: 127 ITR 730 (Mad) * CIT (Addnl) vs. Madras Jewellers and Diamond Merchants Association: 129 ITR 214 (Mad) * CIT vs. Mahendra Mohta Sewa Nidi: 152 ITR 516 (P&H) * CIT vs. Arya Vysya Kalyana Nilaya Sangam: 159 ITR 324 (AP) * CIT vs. Adarsh Gram Trust: 159 ITR 41 (Raj) * CIT vs. JK Charitable Trust: 196 ITR 31 (All) * CIT vs. Hyderabad Race Club Charitable Trust 262 ITR 194 (AP) * CIT v. Cochin Chamber of Commerce and Industr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id 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 monolith, which is of historical, archaeological or artistic importance, interest or value, and includes - (a) any remains thereof, (b) the site thereof, (c) the portion of land adjoining such site which may be necessary or required for the preservation, protection, upkeep and maintenance of the same, and (d) the means of access thereto and of convenient inspection and repairs thereof; but does not include an ancient monument as defined in the Central Act, to which the provisions of that Act apply for the time being; Section 3 of the said Act empowers the State Government to declare a historical monument as "protected monument". The relevant extracts of the section is reproduced as under: "3. Power to declare monuments etc. to be protected - (1) The State Government may declare for the purposes of this Act - (i) any ancient or historical monume....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd 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 qualifies as 'preservation of monuments of artistic or historic in nature' as provided in section 2(15) of the Act. In view of the above, the case of appellant does not fall in the last limb of section 2(15) of the Act. 3.22 Even if it were to be held that the activities of the appellant fall under 'advancement of any other object of general public utility', the appellant would still be entitled to claim exemption under sections 11/12 of the Act, in view of the purely charitable objects pursued by the applicant in the assessment year under consideration. In this regard, it is respectfully submitted that the appellant was formed for objects of national interest. It does not and cannot undertake any commercial activity in the nature of business. Our attention was invited to the correspondence with Embassy of the Federal Republic of Germany and Lady Helen Hamlyn Trust, sanctioning release of grants-in-aid, on sample basis. The said sanction is subject to several conditions, which inter alia, ....