TaxTMI 
TaxTMI 
2017 (1) TMI 1145
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.... and Rs. 154,61,77,037/- for Assessment Year 2007-08 and 2008-09, respectively which is wrong and contrary to the facts of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. (b) the learned Commissioner of Income Tax (Appeals) erred in dismissing this ground of appeal as related to applicability of section 11 for the year without appreciating that this ground of appeal is independent and not at all related to income of current year in any manner and the reasons given by him for doing so are wrong and contrary to the facts of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. (c) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals )has erred in dismissing this ground of appeal without considering the detailed submissions of the appellant which is wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. (d) the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of amount accumulated u/s 11(2) of the Act ofRs.94,38,84,008/- and Rs. 154,61,77,037/- for Assessment Year 2007-08 and 2008-09, respectively without ....
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....red in dismissing this ground of appeal without considering the detailed submissions of the appellant which is wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. (d) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the contribution received from GOI and SIDBI, the settlers is not donation or voluntary contribution but is an obligation being initial agreed contribution for corpus of the trust as per the Trust Dee executed by them. (e) On the facts and in the circumstances of the case and in law, the learned authorities below failed to appreciate that if the trust is held to be not for charitable purpose within the meaning of section 2(15) of the Act and is not eligible for benefits u/s 11 to 13 of the Act, then no addition of the contributions can be made by invoking the deeming provisions of section 12(I)of the Act. (f) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) failed to appreciate that all receipts of the appellant and in particular receipt of capital nature cannot be deemed to be income and covered u/s 2(24) of the Act. 3. On the fact....
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....i.e., relief of the poor, education or medical relief. (iv) that the appellant Trust has no profit motive and to fall within the proviso to section 2(15) of the Act, rendering of service to trade, commerce or business must be such that it is in the course of carrying on business and for has a profit motive. (v) that the services rendered by the appellant Trust are purely incidental or subservient to the main object of the Trust which is a "charitable purpose". (vi) that the fees received by the Trust is only to recover the administrative operational cost and not to earn any profit/income or as a business activity. (c) Without prejudice to the above, the authorities below failed to appreciate that the main income of the trust for the year is the interest on the investment of funds/property of the Trust to which deduction u/s.11 and 12 of the Act cannot be denied and the deduction u/s 11 and 12 ought to have been granted in respect of the interest income." 3. In this appeal, a perusal of the above stated Grounds of appeal reveal that the entire controversy revolves around the stand of the income tax authorities in denying the claim of exemption made b....
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.... members being drawn from the officials of the Government of India. The Management and administrative affairs of the Trust are under the overall supervision and superintendence of the Board of Trustees. The objectives and provisions of the Trust, which have been enumerated in the trust-deed read as under:- " 7.1 The objects and purposes of the Trust are:- (a) To Guarantee the loans and advances upto Rs. 10 lakh (term loan and/or working capital assistance), sanctioned and disbursed by the lending institutions without any collateral security and/or third party guarantees to the new or existing SSI manufacturing units including information technology (IT) and software industries or such other industry(ies) as may be decided by the settlers from time to time; and levy guarantee fee/annual service fee/other charges on the lending institutions as may be decided by the Trust from time to time. (b) To undertake securitisation of the guaranteed loans and to do all other acts or things as may be necessary therefore, either directly or otherwise, in such manner as may be decided by the Board of Trustees; (c) To appoint staff, to acquire, hold and dispose of property, to meet all ....
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.... granted to the assessee under section 12A of the Act earlier on 18/10/2001 was withdrawn vide an order passed under section 12AA(3) of the Act on 07/12/2011 by the DIT(E), Mumbai. 4.2 Now, we may come to the assessment year under consideration, wherein assessee originally filed a return of income on 30/09/2010 declaring total income of Rs. 357,98,99,601/- without availing exemption under sections 11 & 12 of the Act. However, in the course of the assessment proceedings before the Assessing Officer, assessee Trust filed a revised computation of total income claiming the statutorily permissible accumulation of 15% under section 11(1)(a) of the Act amounting to Rs. 53,69,84,940/-, thereby scaling down its total income to Rs. 304,29,14,661/-. In the assessment finalized by the Assessing Officer the total income has been assessed at Rs. 773,40,60,646/-. The difference between the returned and the assessed income can be understood as follows. Firstly, the Assessing Officer denied the claim of the assessee for exemption under sections 11 & 12 of the Act and noted that so far as the receipts of income by way of interest on investment, guarantee fee, annual service fee, miscellaneous rec....
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....come of the appellant during the year". Secondly, as per CIT(A), even if the activities of the assessee Trust are considered for advancement of any other object of general public utility, the same are hit by the proviso to section 2(15) of the Act and, therefore, it could not be said that assessee was engaged in carrying out any charitable activities in terms of section 2(15) of the Act. 5.1 In this background, rival counsels have made their submissions. In so far as the stage of assessment is concerned, it is quite clear that sum and substance of the stand of the Assessing Officer was the withdrawal of registration by the DIT(E) under section 12AA(3) of the Act. Ostensibly, the said reason no longer holds good as the Tribunal vide its order dated 28/05/2014 has restored the registration, a fact which has also been considered by the CIT(A). Regarding the stand of the CIT(A) that the activities of the assessee per-se do not fall within the scope of section 2(15) of the Act, Ld. Representative for the assessee pointed out that in view of the subsistence of the registration under section 12A of the Act, the CIT(A) could not have come to such a conclusion. It is pointed out that ....
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....iety (supra) observed that registration of an institution under section. 12A is "sufficient proof" of the institution having been established for charitable purposes. Therefore, in view of the aforesaid undisputed judicial view about the effect of registration under section 12A, in our considered opinion, it was not open for the CIT(A) to have held that assessee is an institution, which is not established for charitable purposes. We may hasten to clarify here that we are not for the present dealing with the import of the proviso to section 2(15) of the Act, with which we shall deal separately in the later part of this order. Presently, we are only trying to examine as to whether it was competent for the CIT(A) to go behind the registration granted under section 12A of the Act to say that assessee was not existing for any charitable purposes. In fact, the Ld. Representative for the assessee has rightly relied upon the judgment of the Madhya Pradesh High Court in the case of Madhya Pradesh Madhyam (supra), wherein distinction between the proceedings for registration and the assessment proceedings has been appreciated. As per the Hon'ble High Court, the income-tax authorities are boun....
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....or any other consideration, irrespective of the nature of the use or application, or retention, of the income from such activity. On the strength of the said proviso, the CIT(A) noted that the objects of the assessee are to protect "business interest" of small scale industries and micro enterprise and, therefore, assessee's activities are not charitable in nature. Before us also, the Ld. CIT-DR has taken similar arguments and pointed out that the assessee Trust is providing guarantees and/or counter guarantees for credit facilities enjoyed by small scale industries from various lending institutions against charging of fee and other charges. Ld. CIT-DR also contended that even if the activities are to be taken as charitable, but said nature is vitiated by the fact that it was collecting charges for providing services to small scale industries and micro enterprises and it is hit by the proviso to section 2(15) of the Act. 5.5 Per contra, the Ld. Representative for the assessee vehemently pointed out that the implication of the proviso to section 2(15) of the Act has been wrongly understood by the income-tax authorities. It is pointed out that the activity and the objects of the as....
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....artered Accountants of India & Another (supra), the claim for exemption under section 11 of the Act was sought to be denied on the strength of the proviso to section 2(15) of the Act. The case of the Revenue was that the Institute of Chartered Accountants of India which was established to regulate the profession of Chartered Accountants in India was imparting education by, inter-alia, conducting coaching classes against a charge or fee and, therefore, it was contended by the Revenue that the first proviso to section 2(15) of the Act ousted the assessee from the purview of charitable purposes. The Hon'ble High Court considered the expression, 'trade, commerce or business' occurring in the first proviso to section 2(15) of the Act and observed that it must be interpreted restrictively so as not to exclude entities, where the dominant object is charitable. The Hon'ble High Court held that the 'purpose and the dominant object' for which an institution carries on its activities is material to determine whether the activities are in the nature of business or not. The Hon'ble High Court noted that Institute of Chartered Accountants of India was established to regulate the profession of Ch....
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....om food and beverage outlets in Pragati Maidan, etc. it was hit by the proviso to section 2(15) of the Act. The stand of the assessee was that its activities did not fall within the ambit of trade, commerce or business and further that it was also not engaged in rendering of any service in relation to trade, commerce or business so as to fall within the purview of section 2(15) of the Act. Though the Hon'ble High Court has passed a detailed judgment upholding the constitutional validity of the proviso, but what is of essence for our present purpose is the manner in which Hon'ble High Court has read down the proviso. It has been explained that in deciding whether an activity is in the nature of 'trade, commerce or business', for the purpose of the proviso to section 2(15) of the Act, it has to be examined as to whether there is an element of profit making or not. Similarly, it has been held that while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the existence or otherwise of an element of profit making cannot be ignored. 5.10 In view of the legal position explained in the aforesaid judgments, it can be safely ded....
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.... it is established that the purpose and object is profit motive. Considering the entirety of circumstances we are unable to find any credible reasoning taken by the Revenue to say that the purpose and object of the assessee Trust falls within the meaning of expression 'trade, commerce or business' used in the proviso to section 2(15) of the Act. In fact, as we had noted earlier, the assessee Trust has been settled on 27/07/2000 by the Government of India and SIDBI. The trust deed brings out the objects and purpose for which the assessee Trust has been set up, namely, to mitigate the difficulties faced by the small scale industries and micro enterprises in availing credit facilities from various lending institutions. It is also to be noted that the object and purpose of the Trust is focussed on small scale industries and micro enterprises and is not available to entrepreneurs at large. Apart there-from, it is also prescribed in the scheme operationalized by the Trust that the benefits are to be made available only to credit facilities aggregating upto Rs. 10.00 lacs sanctioned and disbursed by the lending institutions. Therefore, considering the focused area of the Trust, it could n....