TaxTMI 
TaxTMI 
2016 (7) TMI 107
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....cial examinations do not fall within the definition of education. The assessee was running certain seminars and training programmes on account of which it collected Rs. 31401915/- and conducted examinations for which it collected fees of Rs. 1224751/-. These two activities were classified as activities to promote education. The AO relying on the Hon. Supreme Court decision in the case of Loka Shikshana Trust 101 ITR 234 and Bihar Institute of Mining 208 ITR o*Q4 Patna, Saurashtra Educatio.n Foundation Vs. CIT 273 ITR 139 (Guj), Gujarat State Co. op. Union Vs. CIT 195 ITR 279 (Guj) held that the activity of holding commerce classes, arranging seminars and lectures and the activity of running of private commercial courses and consequent conducting of examinations would not come under the head education. He held that the assessee's activities would fall under the sixth category of charitable purpose that is the advancement of any other object 'of general public utility .. He further held that in. view of amendment to section 2(15) by insertion of proviso w.e.f. 1.4.2009 for AY:2009-10 onwards the assessee would not be entitled to exemption as it is conducting activities in the....
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....28(iii) of the Act being profit of business. For this assessee association has raised following seven grounds. . "1. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the denial of exemption u/s 11 of the IT Act, 1961 failing to observe that on the same facts such exemption was consistently allowed to the appellant since the AY 1984-85. 2. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant's case was covered within clause (iii) of section 28 of the I.T Act, 1961 whereby income derived by a trade, professional or similar association from its specific performance for its members was held to be taxable under the head profits and gains of business or profession. 3. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant was hit by the first proviso to section 2(15) of the Income Tax Act inserted w.e.f. 01/04/2009, inasmuch as the appellant was allegedly involved in the rendering of service in relation to any trade, ....
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....tility", thus covered by the proviso to section 2(15) of the Act. In connection to the above it would be relevant to know the amended section 2(15) of the Act in view of legislative intent behind such amendment. We have gone through section 2(15) of the Act, which is relevant for assessment year 2009-10 year under consideration, which lays down the definition of "charitable purpose" as under: "(15) "charitable purpose" includes relief of the poor, education, medical relief, 79 [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;" The rationale for bringing....
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.... public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 20008 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 application, 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 ....
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....s are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, 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. Assessee, who claim that their object is 'charitable purpose' within the meaning of Section 2(....
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....rying on "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." According to us, part of the proviso being "any activity of rendering any service in relation to any trade, commerce or business" intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity in relation to the trade commerce or business must be for a cess or fee or any other consideration. From the proviso, it is seen that the most material and relevant words in the proviso are "trade, business or commerce". The activities which are undertaken by the institute should be in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. We will analyse the term "business" from the definition of the term 'business' as defined in section 2(13) of the act and whether assessee's activities falls within the terminology of "business". The term "Business" read as under:- "2. Definitions: ... ... ... (13) "business" includes a....
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....ave stated above that the main and dominant activity of the Trust in furtherance of its object is to spread message. Hence, such activity does not amount to "business". Publication for the purpose of spreading message is incidental to the main activity which the Trust does not carry on as business. In this view, the activity of the Trust in bringing out publications and selling them at cost price to spread message of Saibaba does not make it a dealer under Section 2(11) of the Act. Further Hon'ble Supreme Court in para16 elaborated the term 'business' as under:- "16. The words 'carrying on business' require something more than merely selling or buying, etc. Whether a person 'carries on a business' in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive (Board of Revenue v. A. M. Ansari (1976) 38 STC 577 (Supreme Court); (1976) 3 scc 512). Such profit motive may, however, be statutorily excluded from the definition of 'business' but still the person may be 'carrying on business." Further ....
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....aid decision is that in the cases of many institutions / associations whose main activity is not 'business' the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct 'business' in these connected, incidental or ancillary activities is established by the revenue. Therefore, the issue whether a professional institution is or is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. The AO and CIT(A) in their orders relied upon the following judicial decisions: * Barendra Prasad Ray v. Income-tax Officer (129 ITR 295) SC * Commissioner of Income-tax v. Dharma Reddy (A) (73 ITR 751) SC * Sole Trustee, Loka Shikshana Trust v. Commissioner of Incometax (101 ITR 234 SC) We have already discussed the case law of H....
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....ucting Environment Management Centre, Meetings, Conferences & Seminar and issuance of Certificate of Origin, being the activities stated to be "services in relation to trade, commerce or business" were all well covered by the main object being fully connected, incidental and ancillary to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the development of trade and industries in India. Further it is to be noticed that the Memorandum has also specifically authorized the Chamber "to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them." Thus it was only for the purpose of securing its primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit motive in any of the said activities. The surplus arising out of the same was merely incidental t....
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....bject of the Institution was "charitable" in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be "charitable" in nature. Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. It was laid out by the Court that, "That if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g. promotion of or opposition to legislation concerning that purpose, was contemplated." It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce o....
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.... any income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and common good of the country's trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961" Again reiterating the dominant purpose theory, the Hon'ble SC in the case of Sai Publication Fund (supra) laid out as follows: "... If the main activity is not business, then any transaction incidental or ancillary would not normally amount to "business" unless an independent intention to carry on "business" in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on "business": connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of "business". In the recent decision which deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR ....
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....ncome is derived and that in the course of such business specific services must be rendered for its members. The concept behind s.28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services for its members in a commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore the principle of mutuality and reach the surplus arising to the mutual association and this is clear from the fact that these provisions are confirmed to services performed by the association "for its members". Such income would either be charged as business income or under the residual head, depending upon the question whether the activities of the association with the non-members amount to a business or otherwise. Section 28(iii) constitutes certain income of the association to be business income without affecting the scope of the exemption under Section 11. Section 2(15) which incorporates the definition of "charitable purposes" simply shows that several mutual associations may also fall within the definition. The receipts derived by a chamber o....