TaxTMI 
TaxTMI 
2017 (5) TMI 537
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....wing corpus under agriculture promotional practice (schedule C). 4. That the Ld. AO/ CIT(A) erred in interpreting the amendment to section 2(15) of the Act applicable from 01.04.2009 made through Finance Act, 2008. 5. The Ld. CIT(A) erred in upholding the action of the A.O. invoking the first proviso to section 2(15) of the Act against the appellants. 6. The Ld. A.O./CIT(A) erred in interpreting the terms "trade, commerce and business" in the facts of the present case and thereby holding the appellant to be engaged in any trade, commerce or business for non public/non charitable purposes. 7. That the addition made by the Ld. A.O. and confirmed by the CIT(A) is contrary to law. 8. That the Ld. CIT(A) has erred in confirming the action of denial of exemption under section 11(1) and 11(1)(d) of the Act. 9. That the Ld. CIT(A) erred in facts and law in confirming the action of the assessing income of the appellant at Rs. 3,42,30,880/- against income shown as nil return filed. 10. That the assessee reserves the right to amend, delete, add, substitute, modify or alter anyone or more of the grounds of appeal of the time of hea....
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.... is small compared to the fee received from the members. Main contention of the assessee is that the assessee takes nominal amount from the participants of annual seminar and the assessee is not engaged in any trade, commerce or business. The AO went on to discuss the amendment to Section 2(15) & the meaning of trade/business/commerce. Charitable Trusts with general object of public utility are required to eschew any activity which is in the nature of any trade, commerce or business or the rendering of any service in relation to any trade, commerce or business to remain charitable and to continue to claim benefits of Section 11 & 12 of the I.T Act. The phrase used in Section 2(15) is "irrespective of the nature of use or application, or retention of the income from such activity." It is evident that the fee collected by the assessee from its non-members amounting to Rs. 59,60,335/- is essentially carrying the characteristics of trade/business/commerce. The assessee has also generated surplus of Rs. 2,61,95,214/- from its activities. It was observed that all the activities undertaken by the assessee include element of rendering services in lieu if which it is charging fee. Hence, th....
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....he appeal of the Assessee. 7. We have heard both the parties and perused the records, especially the orders of the revenue authorities as well as order of the Tribunal's dated 27.3.2017 passed in assessee's own case in ITA No. 1325/Del/2015 relevant for the preceding assessment year i.e. 2010-11. After perusing the aforesaid documents/records, we find force in the contention raised by the Ld. Counsel of the Assessee that the issues involved in the present appeals are similar and identical to assessee's own case for the preceding assessment year 2010-11, hence, the issues involved in the present appeals are squarely covered by the Tribunal's order dated 27.3,2017, as aforesaid, passed in ITA No. 1325/Del/2015 (AY 2010-11) in assessee's own case. For the sake of convenience, we are reproducing hereunder the relevant para no. 7 to 8 mentioned at page no. 8 to 23 of the aforesaid Tribunal's order dated 27.3.2017. "7. We have heard the rival submissions and perused the relevant records. We find that the assessee was denied the benefit under section 11 and 12 of the Act solely for the reason of amendment in section 2(15) of the Act. It was noted that neither the AO nor the CI....
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....research discoveries, patents, and investigations made in connection with the above objects and to render services in connection therewith to the members and others and to charge thereof or not, as the association may in any case determine. 7.2 We further find that Section 2(15) of Income Tax Act, 1961 read as under:- "charitable purpose" includes relief of the poor, education, [yoga,] 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, unless- (i) such activity is undertaken in the course of actual carrying out of such advancement....
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....he purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of "charitable purpose". The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:- '....... "Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of P....
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....ll within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of promoting trade and commerce not for itself, but for the nation - both within India and outside India. Clearly, this is a charitable purpose, which has as its motive the advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. We say so, because, if a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well-settled that the courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above, in Arun Kumar (supra). 54. It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, "in this Act, unless the context otherwise requires". The expression "charitable purpose" appearing in Section 2(15) of the said Act has to be....
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.... 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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. In both the activities, in the nature of trade, commerce or ....
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....ects and prohibits, the payment of any dividend to its members. This makes it clear that nay income generated by the petitioner does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the petitioner. 45. To be clear, if an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. We have seen that by virtue of Section 25 of the Act, the petitioner is enjoined to plough back its income in furtherance of its object and the declaration of dividends is prohibited. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But we feel that in deciding whether any activity is in the nature of trade commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of....
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....- "10. The principal objects of the assessee are to promote and protect trade, commerce and industries and to aid, stimulate and promote the development of trade, commerce and industries in India or any part thereof. By the achievement of these objects, it is not intended to serve merely the interests of the members of the assessee. Advancement or promotion of trade, commerce and industry leading to economic prosperity ensures for the benefit of the entire community. That prosperity would be shared also by those who engage in trade, commerce and industry but on that account the purpose is not rendered any the less an object of general public utility. It may be remembered that promotion and protection of trade, commerce and industry cannot be equated with promotion and protection of activities and interests merely of persons engaged in trade, commerce and industry. ..... 11. In the promotion of trade, commerce and industries of India the public is vitally interested and if by the activities of the assessee that object is achieved, it would be within the meaning of Section 4(3)(i) of the Act an advancement of an object of general public utility. In enacting the last....