TaxTMI 
TaxTMI 
2016 (4) TMI 1003
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....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 the Act. Later on, the case was selected for scrutiny. The AO during the ....
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....pect 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, which has not been done. Thus it would be highly impudent to conclude, by any arbitrary or conjectural interpretation that the proviso h....
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....nd 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 restaurant. The reliance was placed on the following case laws: * State of Gujarat Vs Raipur Manufacturing Co. (1967) 19 STC 1 (SC) * Director of Supplies and Disposal Vs Ember Board of Revenue (1967) 2....
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....nt. 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 receipt from the activities referred to therein is ten lakh rupees or tests in the previous year. 1C. The negative words used are for future registration of the trust under S. 12AA of the Act as these are 'shall not be a charitable purpose, if it involves the....
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.... 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 will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, s....
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....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, commerce or business. (Pradip Mehrotra) Director (TPL-1).' 1E: Thus the amendment does not effect any institution with any charitable object, if an independent business is carried on for resources to attain the objectives of the trust, as no amendment has been made in Sec. 11(4A). IF: Further in view of the insertion of second proviso r....
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....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 to the poor. We would like to assert and reiterate that in case the trust has to pay any rent to BAPS for the use of their premises and infrastructure facilities provided at Swaminarayan Akshardham Mandir complex then running of cafeteria at such moderate rates would result into net loss and would not be able to generate any surplus for the trust and the trust will not be able to generate any surplus for the trust and the trust w....
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....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 appellant come under the purview of the relief of the poor because appellant society is doing work for the welfare of the economically and socially disadvantaged people and they are maintaining separate books of accounts as required u/s. 11(4A) of the IT Act. The Id. AR of the appellant has been able to demonstrate 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'. The instant case does not fall under the 4th li....
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....viso 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 and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that:- i) the business should be incidental to the attainment of the objectives of the entity, ii) separate books of account should be maintained in respect of such business. Similarly, entities....
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....o 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, commerce or business." 4. The instant case falls under 1st and 3rd limb of Sec. 2(15), so, action of AO applying 4th limb of Sec. 2(15) of the IT Act is found to be erroneous and misconceived. In view of above discussion, in my considered opinion, grounds No. 1 and 2 of the appellant are allowed." 11. Now the department is in appeal. The ld. DR reiterated the observations made by the AO and strongly supported the assessment order dated 28.12.2011. She further submitted that running of cafeteria cannot be considered as charitable activities, although it ....
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....ed 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 and maintain teachers, professor lecturers and experts as may be necessary for the said purpose to grant awards, freeships, scholarships, fellowships, loans etc. to encourage deserving students in different educational faculties; to establish hostels and boardings and to provide facilities for residence and food to students; to provide monetary or other help to suitable educational institutions which are interested in building character of and promoting moral values amongst children, adolescents and youths; to establish and maintain libraries, reading halls, museums, etc. and to spread educa....
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....ical 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 consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 17. If the aforesaid provisions are considered in juxtaposition to the assessee's case, it can be said that the main objects of the assessee which relates to the imparting of education and medical relief to the poor is undoubtedly charitable in nature. In the present case, establishment of Cafeteria to provide hygienic vegetarian foods to the people/tourist visiting Akshardham is claimed to be established for attaining the main object of improving the standard of health. In the instant case, the use of Cafeteria i....
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....ld 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 its benefits in order to attain sound health; - To form a new integrated system of treatment, consisting mainly of the techniques of Yoga and Ayurveda, for Surgery and Emergency cases, Allopathy, Homoepathy, Unani and Acupressure to soothe patients suffering from unbearable pains and rid them of disease. - To evaluate methods of treatment of Physical Body, Etheric Body , Astral Body, Mental Body and Casual Body beyond the present incomplete system of treatment for cure of physical body alone; - Imparting Yoga and health education and to begin degree and diploma courses for students in disciplines of Yoga and Ayurveda.' As discussed above the proviso to section 2(15) of the Act applies only to trusts/ins....
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....ancement 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 controversy, it is also relevant to discuss the provision contained in Section 11(4) & (4A) of the Act which reads as under: "(4) For the purposes of this section "property held under trust" includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the [Assessing] Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes[* * *]. [(4A) Sub-sec....
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....edic 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 the sole intention of earning profits. It is also pertinent to note that the total donations/voluntary contributions received by the appellant trust during the assessment year under consideration amounted to Rs. 3,89,14,100/- only. Whereas the total revenue expenditure incurred by the appellant trust in the assessment year under consideration for undertaking its charitable activities amounted to Rs. 48,54,93,383/- (excluding depreciation). Further it is apparent from page 26 of the paper book i.e. income and expenditure account for the year ending 31st March, 2009 that substantial capital expenditure has also been incurred by the appellant trust in pursuing its charitable activities. We also find that the donations/contributions received by the appellant trust c....
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....urposes 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 which was obtained by running of an activity for profit did not make the objective non charitable. If that money was used for charitable purpose and not for the carrying on any business at a profit, then the object of the trust was charitable notwithstanding the source of the income. The Hon'ble Supreme Court again in the case of Thanthi Trust (supra) held that the trust was entitled to exemption when the business of the trust was incidental to the attainment of the objectives of the trust, namely the objectives of education and relief to the poor. Their lordships observed that after amendment of section 11(4A) in 1992, all that is required for the business income of the trust or institution to be exempt from tax is that the business should be incidental to the att....