TaxTMI 
TaxTMI 
2016 (4) TMI 1003
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....ny trade, commerce or business for a cess or fee or any other consideration irrespective of the nature of use or applicable or retention of the income from such activity. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not making any decision that running of cafeteria is incidental to the main object of providing relief to the poor. 4. The appellant craves to add, to alter or amend any ground of appeal raised above at the time of hearing." 3. From the above grounds it is clear that the only grievance of the department relates to the deletion of addition of Rs. 46,43,003/- made by the AO on account of surplus generated from "Premwati Cafeteria". 4. Facts of the case in brief are that the assessee Trust is registered u/s 12A of the Income Tax Act, 1961 (hereinafter referred to as the Act) vide order dated 28.07.2006 of DIT(E), Delhi and also approved u/s 80G(5)(vi) of the Act vide order dated 27.09.2006. The assessee filed the return of income on 29.09.2009 declaring total income at Nil after claiming application of income as per the provisions of Section 11 of the Act. The said return was processed u/s 143(1) of th....
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....tention is once again invited to the conditions of Registration, clause (iv), clearly stating, "Separate accounts in respect of profits and gains of business incidental to the attainment of objects shall be maintained in compliance to Sec. 11 (4A) of the I.T, Act,1961. 6. We would further like to submit that Sec. 11 (4A) is still very much part of Sec. 11 to 13 of the Income-tax Act (provisions governing the taxation of trust) which authorizes the trust to apply the income received from the business held under trust for the objects of the trust. So the above distinction of law is very much borne out from the provisions of Sec. 11 (4A) i.e. the objects of the trust is one thing and the powers of the trustees is another thing. 7. your Honors neither of us can sit in judgment over the Will of the legislature, nor can we lay any insinuation on the legislature of any "naive" or fraudulent introduction of provisions in the Act, which contradict each other. The proviso to Sec. 2(15) has not been introduced to take away the exemption in Sec. 11 (4A). If this would have been the intention of the legislature, then this Sec.11(4A) would have been omitted and/or deleted, whic....
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....amam Trust, in ITA No.247/Hyd/2009 (ITAT Hyderabad) 6. The AO observed that the assessee was carrying on business by way of running of a restaurant with the object of making profit and the profit motive is not only the sole or relevant consideration that has to be kept in mind. According to the AO, 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. The reference was made to the following decisions: • European Union and England Housing Association Ltd. Vs Revenue and Customs Commissioner (2006) EWHC 2383 (Ch) • House of Lords in Town Investment Ltd. and Others Vs Department of the Environment (197) 1 All ER 813 7. The AO pointed out that the assessee had declared sales of Rs. 6.75 crores at restaurant run by it which is against the spirit of amended provisions of Section 2(15) of the Act. Hence, the benefit of Section 11/12 of the Act is not allowed to the assessee. The AO assessed the income of the assessee at Rs. 46,43,003/- which was the surplus declared during the year on running the ....
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.... to the existing trusts, even if these are for the advancement of other objects of general public utility and they are continuing the same activity as in the past, irrespective of that any such object or activity would not be covered by the amendment. Your kind attention is invited to the provisions of the amendment and the amended section 2(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: 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: Provided further that the first proviso shall not apply if the aggregate value of the ....
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....itable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of a) any activity in the nature of trade, commerce or business, or b) 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 applicable, or retention of the income from such activity. 2. The following implications arise from this amendment - 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15) i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. 2.2 'Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantage or needy. It ....
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....he proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with nonmembers, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to S. 2(15). 3.2 In the final analysis, however, 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 relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim 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 the ren....
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....lained, was registered with the Sub-registrar, Delhi on 17.9.2005 and is involved in charitable activities, as specified in its object clause in Trust Deed. The trust is providing medical relief to the poor sections of the society totally free of cost through its fleet of Mobile Van Dispensaries. The trust is also engaged in supporting other organizations having similar objects with direct donations from time to time to achieve its objects. Sir, as already explained, in order to achieve and fulfill its objects, the trust runs a cafeteria at Swaminarayan Aksharsham Mandir Complex (owned by BAPS Swaminarayan sanstha, a public charitable trust registered under Bombay Public Trust Act, 1950 and registered as per Regd. No.A/2500/AMDAVAD dated 2.2.1977 having PAN. AAATB1429J and assessed at Ward/Circle- DDIT (Exemlption) ABD, Ahmadabad), by catering to the needs of thousands of people/devotes visiting the Akshardham Mandir every day - by providing hygienic vegetarian food prepared without the use of garlic/onions/ eggs at reasonable rate. The surplus generated from this activity of the trust is used exclusively for achieving the objects of the trust i.e. medical relief ....
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....AO is that he has invoked the provisions of Sec. 2(15) of the IT Act. By doing so, the activity of running the Premwati Cafeteria has been brought under 4th limb of proviso to Sec, 2(15) of the IT Act, which is in other object of public utility. In this regard 1 have perused the assessment order and written submission of the appellant, wherein, appellant has brought full details of the activity done by Suvasini Charitable Trust and the definition of the Sec. 2(15) which includes charitable purpose included as under;- a) Relief to the poor b) Education c) Medical relief d) Advancement of any other object of general public utility. 4.1 In the submission dated 5.3.2012 Id. AR of the appellant has explained that advancement of any other object of general public utility includes:- a) Activity in the nature of trade, commerce or business b) Any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. Furthermore, in the relevant paragraph No.2.2 of the above mentioned submission he has been v' able to demonstrate that activities done by the app....
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....at business should be incidental to the attainment of the objectives of the entity and separate books of accounts should be maintained in respect of such business. Furthermore, it has also been explained that newly inserted proviso to Sec. 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e. 4th limb of the definition of 'charitable purpose'. The relevant paragraphs of the above Circular are reproduced hereunder- "2.1. The newly inserted proviso to section 2(15) will not apply in respect of the firstthree limbs of section 2(15), i.e. relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. 2.2. 'Relief of the poor' encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantages women or children, small....
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....ver, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 3.2 In the final analysis, however, 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 relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim 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 the rendering of any service in relation to any trade, comme....
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....chieve the objects of the assessee trust and as such as per the provisions of Section 11(4A) of the Act, such activity can be considered as incidental to the main object of the assessee. The reliance was placed on the following case laws: • Divya Yog Mandir Trust Vs JCIT, Haridwar (2013) 37 Taxman.com 227 (Delhi-Trib.) • Asst. DIT(Exemption) Vs Sri Sri Radha Damodar Charitable Trust (2012) 24 Taxmann.com 141 (Mum) 13. It was submitted that the AO made the arbitrary addition and the ld. CIT(A) was fully justified in deleting the same. 14. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee is having the registration u/s 12A of the Act and also having the approval for exemption u/s 80G of the Act. The assessee is engaged in the charitable activities and having followings aims and objectives: "1. To establish and maintain schools, colleges, universities, gurukuls, balmandirs, study centers, research centers etc. for the spreads and advancement of different languages and knowledge of various faculties; engage, appoint....
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....e standard of health of the people. The main objects of the assessee i.e. imparting education and to provide relief by giving medical treatment and to improve the standard of health are undoubtedly charitable in nature. However, the income generated by the assessee from the Cafeteria which was run to achieve the main objects, was not considered by the AO to be charitable in nature and the impugned addition has been made. To resolve this controversy, we have to analyze and considered the provisions contained u/s 2(15) of the Act which read as under: "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 or 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 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 c....
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....e 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; ** "(Emphasis supplied) Therefore, the aforesaid proviso does not apply to a trust/institution engaged in the charitable object of providing relief to the poor, imparting education and providing medical relief. The vision with which the applicant trust has been set up and which is being followed over the years are as under:- ' - To make a disease free world through a scientific approach to Yoga and Ayurved and to fulfil the resolution of making a new world free from disease and medicine; - To establish Pran as medicine for the treatment of all curable and incurable diseases by research on Pranayam /Yoga. - To propagate Pranayam as a "free" medicine for treatment of diseases round the globe, through in-depth research in accordance with the parameters of modern medical science, so that the rich and poor may avail i....
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....5) does not apply to the facts of the assessee's case. In our opinion, the proviso is an exception to the main section, the definition of the charitable purpose has been given in sub-Section (15) of Section 2 of the Act, which is an inclusive definition and includes relief to the poor, education and medical relief. The assessee is also providing medical relief to the society at large and the registration u/s 12A of the Act has been allowed to the assessee vide order of DIT(E) Delhi dated 28.07.2006, the assessee trust is also having approval u/s 80G(5)(vi) of the Act vide order dated 27.09.2006. In the present case, the AO was of the view that the sales of the Cafeteria 'Premwati' were in the nature of commercial receipts in the course of advancement of any other objects of public utility as laid down in the proviso to Section 2(15) of the Act and not were the receipts within the meaning of Section 11(4A) of the Act. However, nothing is brought on record to substantiate that the income generated from the said Cafeteria was not utilized by the assessee for achievement of the main objects i.e. to provide medical relief to the poor or to impart the education. To resolve this controver....
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....ed on by the trust is (a) incidental to the attainment of main objects (b) feeds the charitable objects (c) separate books of accounts are maintained in respect of the same, even on fulfillment of the aforesaid conditions profit from such business are exempt u/s 11/12 of the Act. Thus it is clear that the charitable trust can carry on business and utilize its profits therefrom for the charitable purposes but a charitable trust cannot have its purpose, an activity that involves the buying and selling of goods and making profits. The business undertaking of the appellant as discussed above are thus the means for effectuating a charity, but not a charitable object itself. We find that in the case of appellant before us the activity of manufacturing and sale of ayurvedic preparations has been undertaken only for the purpose of effectuating the charitable objective of providing 'medical relief to the society at large on a genuine need was felt to provide superior quality ayurvedic preparations at economical prices in order to attain effective medical results. Only because the activity carried on yielded" profits a negative inference cannot drawn that the activity was undertaken with....
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....(supra) has been pleased to hold with reference to income tax Act 1922 that if the trust carried on business and the business itself is held in trust and the income from such business is applied or accumulated for application for the charitable or religious purpose of the trust, the conditions prescribed in section 4(3)(i) and fulfilled and the income is exempt from taxation. In that case before the Hon'ble Supreme Court business of making and selling ayurvedic medicines was settled and held in trust and 60% of income from such business was applied for charitable purpose. The AO denied exemption on the ground that part of the income from business was not applied for charitable purposes, the Hon'ble Supreme Court held that where business is held for charitable purposes the conditions prescribed in proviso (b) to section 4(3) (i) of the Income Tax Act is not applicable and the assessee was held to be eligible for exemption. The decision of Delhi High Court in the case of Hamdard Dawakhana (Waqf) (supra) though rendered in the context of the pre amended law i.e. before insertion of section 11(4A) in the 1961 Act. But the Hon'ble Court held that it was immaterial how money ....
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....ines from non-members and claimed to have utilized the amount so collected for running the dispensaries. In the preceding assessment years, benefit of section 11 was given to the assessee. The assessee claimed the benefit u/s 10(22A) which was refused by the assessing officer mainly on the basis that the dominant object of the trust was to sell medicines and derive profit therefrom. The first appellate authority rejected the assessee's appeal. The Tribunal has however given relief with this finding that the mere fact that the assessee trust has objects other than medical relief was not a condition aliunde to which the exemption u/s 10(22A) could be denied to the assessee. The surplus derived from running the dispensaries was utlised for philanthropic purposes. CBDT circular No. 194/16-17-II(A-1) makes it clear that if a surplus is used for philanthropic purposes the income of the institution will be eligible for exemption u/s 10(22A). We are thus of the view that in the present case the authorities below have grossly erred in holding that the appellant's activities in relation to production and sale of ayurvedic preparations are not incidental to its main objective as the s....