AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (6) TMI 828
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.... shop in the Mehrangarh Fort. The books of account of the assessee-trust are audited. The assessee filed Audit Reports dated 22/09/2009 and 26/10/2006, in Form No. 10-B & 10CB/CD, as required u/s 12A (b) & 44AB of the Act respectively. The assessee produced the books of account during the assessment proceedings. 2.1 The objects of the assessee-trust as per the Trust-Deed are described as under:- "Whereas the settler is in possession of large number of pictures, paintings, portraits, works of art, coins of antiquity, artistic (silver, china, glass, ivory) ware, cut glass, books of art, priceless rugs, anitiques, curios, weapons of all types, absolute and otherwise, old armor, shields, swords, daggers etc. and other various miscellaneous items representing the collection of many generation of Rulers of Jodhpur and is desirous of setting port of the collection for charitable purposes and in order to secure this object, is desirous of establishing a museum for the benefit of the public at large. The Trustees shall protect, preserve, enlarge and improve the articles and things to be received by them from time to time." 2.2 After perusing the above objects of this....
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....in summers and rains, which is off season (due to climatic conditions in this part of Rajasthan) the number of visitors drastically fall and the number of visitors are also affected by other external causes such as terrorist activity in any part of the world, communicable disease such as plague, bird flu, swine flu and the number of visitors also falls drastically on happening of such events whereas the fixed cost of maintaining and preserving the objects and monuments throughout the year remains almost the same. To meet the gap of this shortfall the Assessee Trust is carrying on certain other activities to enhance its income so that it could maintain the Museum throughout the year and meet its fixed costs. In this connection it is permitting Films Shooting and charging the fees from the monument in which it is operating the Museum and some of its objects set popularity all over the world. The film Shooting Company also gives credit to the Assessee Trust and, this also became a source of its publicity for attracting more visitors from all over the world. Similarly some Indian and Foreign tourist like to visit the fort during evening hours because they remain much occupied ....
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....ve reply the A.O has still treated the above mentioned receipts as commercial in nature and being hit by the proviso to Section 2(15) of the Act which says that the advancement of any object other than the object of general public utility shall not be a charitable purpose if it involves commercial activities in it. He has found that the Trust falls under the category of other object of general public utility which is the fourth limb of the Charitable purpose. Hence, qua these receipts exemption u/s 11 of the Act has been denied to the assessee. 2.4 Further the assessee-trust has been found to have incurred expenses of Rs. 39,61, 880/- towards the renovation of Ranvas Hotel; of Rs. 31,92,556/- towards Ahichhtragarh Fort Project; and of Rs. 18,90,914/- towards Nagaur Fort maintenance. The assessee was asked to explain the nature of these expenses and also to explain as to how these expenses should be treated as an application of income of the trust for the purpose of section 11 of the Act. The assessee-trust replied vide letter dated 27/12/2011, which is reproduced as under : "The objects of the Assessee Trust are to establish and operate the Museum, In the course of its ....
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.... into a hotel for stay. Prime motive to renovate the Ahichhtragarh fort was commercial. The funds of the trust were used to renovate this fort. After renovation the Hotel Ranvas has been constructed inside the fort premises. This is a luxurious hotel with all the facilities of a five star hotel such as Swimming Pool, Deluxe rooms and Royal suites, Wi-fi services. Air Conditioned Restaurants and Bar, Spa, Doctor on call etc. 2.6 The Ranvas hotel is charging heavy tariffs from the tourists. It is also offering tour programs to visitors. The two nights/three days at Ranvas is costing from Rs. 15,000/- to 30,000/- as per the quality of rooms. On special occasions the tariffs are even higher. In the relevant year the assessee trust has incurred expenditure of Rs. 39,61,880/- for renovation of Ranvas in which Rs. 17,54,235/-have been expended for purchase of Air-conditioners from Toshiba Carrier Co. Ltd and Rs. 22,07,645/- were incurred to purchase artistic furniture from Jain Exports. The air conditioners and furniture were installed in the hotel premise. The sole purpose of these expenses was to construct the hotel by using the trust fund. The profit of the hotel is going to Jodhana....
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....during the previous year used or applied directly or indirectly for the benefit of any person referred to in sub-section, (3). Section 13(3) The persons referred to in clause (c) of sub-section (1) and sub-section (2) are the following namely:- (a) The author of the trust (b)** ** ** (cc) any trustee of the trust or manager....... (d)** ** **" With above discussion the A.O. has found that the funds of the trust are being utilized for the benefit of the settler and the managing trustee Shri Gag Singh Ji. Therefore, he has held that the trust is not qualified for exemption u/s 11. Accordingly, he has disallowed exemption u/s 11 to the assessee trust. 2.9 The assessee has received foreign contribution of Rs. 66,20,524/-during the year and claimed expenses of Rs. 65,55,9907-. The A/R was asked to explain the nature of this grant and how the expenses claimed are allowable. The A/R of the assessee replied vide letter dated 27.12.2011. The content of the reply are being reproduced as under: ....
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....amlyn, UK (as annexure "B-2" and "B-3") for your perusal and record and other donations which have been received without being specific condition have been utilized during the year which have been included in the amount utilized during the year. For the reasons mentioned above the assessee has correctly displayed the amount of foreign contribution and its utilizations in its balance sheet following the provisions of the Foreign Contribution Regulation Act and the provisions of the Income Tax Act. Even otherwise the amount of receipt and spent during the year is almost the same hence whole of the amount received this year has been utilized during the year itself. Accordingly it cannot be treated as the income of the trust as it has been received for utilizing for specific purposes and is refundable in case of non-utilization. For the reasons mentioned above, such amount cannot included in the Income and Expenditure of the assessee trust". 2.10 After considering the above reply the A.O. has found that the assessee trust had received amounts as donations but has not disclosed them in the income and expenditure account. Because the expenses have been found to have been incurred beyo....
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....referred in Section 13(3), the Trust would cease to have exemption u/s. 11 of the IT Act. In this case the Assessee Trust has taken the property on lease which has been converted into perpetual lease and as per the Lease Deed the Assessee Trust is responsible for preserving and maintaining the property taken on Lease, it cannot be said that the Lessor of the property who happens to be Settler or Managing Trustee of the Assessee Trust has derived any direct or indirect benefit there from Sir, the lease rent of the property is fixed at Rs. 100/- which itself if being disputed by your goodself in the case of the H H Maharaja Gaj Singh. The Lessor (Owner of Jodhpur Fort) and your goodself has proposed to enhance the ALV of this Fort at more than Rs. 1.20 Crores whereas the Lessor is getting Rs. 100/- only. As held by the Hon'ble Rajasthan High Court in the case of HH Sh. Gaj Singh. That the Assessee was not in a position to maintain this historical monument hence it has been let out to the Assessee any part of the property for indefinite term, hence the amount spent by it for repairs maintenance and preservation of the Fort cannot be said to be any benefit provided to the owner of ....
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....e permitted for dinning there. The said company being closely held company of Shri Gaj Singh Ji the trustee of the trust is getting benefitted from the funds of the trust. 2.13.1 With above discussion the A.O has concluded that the trust is diverting its funds for the benefit of its settler and Managing trustee. The funds of the trust have been utilized to renovate the Ranvas Hotel in the Nagaur Fort which is now being run by a company in which the settler and managing trustee is having substantial interest. The funds of the trust are being utilized for renovation Nagaur Fort and for renovation of Mehrangarh Fort which is the property of the settler and managing Trustee. After renovation both the places the Ranvas hotel and the Chokhelao Garden in the fort premise are being run by a company in which the settler and the Managing-Trustee is having substantial interest. Provisions of section 13 (1)(c) (ii) are clearly applicable in this case. Therefore, the trust cannot be given the benefit of section 11. The exemption to the trust is disallowed accordingly. The A.O. has substantiated his above conclusion with the help of the following decisions: (i) Little Tradition v. Dy....
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....see has been computed as under: Receipts as per Income and Expenditure A/c Rs. 7,34,51,993 Receipts from entry fees Rs. 4,58,02,905 Photography Receipts Rs. 23,76,000 Other Income Rs. 2,23,50,088 Income of Jaswant Thada Rs. 29,23,000 Add:- Foreign contribution Rs. 66,20,524 Total Receipts Rs. 8,00,72,517 Less: Expenses allowed Admin, and other exp. Rs. 3,72,73,562 Less: Expenses disallowed Rs. 1,90,627 Rs. 3,70,82,935 Repair and maintenance Rs. 1,42,31,760 Maharaja mansingh pustak Rs. 10,05,499 Depreciation Rs. 17,43,600 Rs. 5,40,63,794 Total income Rs. 2,60,08,723 Add: 1. Income from business of souvenir shop Rs. 57,01,873 2. Prevision for staff welfare Rs. 3,56,239 Total I....
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....as constructed more than 500 years ago. In view of the considerable expenditure expected to be incurred to restore and maintain the Fort, nominal annual rent of Rs. 100 p.a was fixed for initial 10 years [refer Clause 1 @ Pg 73 of the PB]. Vide letter dated 20.05.1992, annual rent of the Fort continued to remain @ Rs. 100 p.a. [refer Pg 75 of the PB], Thereafter, all expenses on maintenance were agreed to be borne by the appellant. Since 01.04.1972, the appellant set up a museum in the precincts of the Fort for displaying the articles / antiquities settled in the appellant trust. 3.4 Per contra, the ld. D.R. has reiterated all the reasons given in the A.O.'s and ld. CIT(A)'s orders. 3.5 The main object of the Trust was to establish a Museum. The relevant clauses of the Trust Deed are extracted below: "WHEREAS the SETTLOR is in possession of large number of pictures, paintings, portraits, works of art, coins of antiquity, artistic (Sliver, Ivory, China glass) ware, cut glass, books of art, priceless rugs, antiques, curios, weapons of all types, obsolete and otherwise, old armour, shields, swords , daggers etc. and other various miscellaneous items representing....
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....p; ** ** 16. The Trusts shall have power to pull down renovate, rebuild, alter, improve, develop, and repair any property comprised in the Trust or construct any structure on any land forming the part of TRUST"(Emphasis supplied) It is on the basis of the aforesaid objectives, that the appellant was granted registration under section 12A of the Act which is in force till date. 3.6 We have found that the appellant has, in accordance with the approved objectives, been consistently pursuing its charitable activities for the past several decades and the appellant had always been allowed exemption under sections 11/12, including in various assessments completed under section 143(3) of the Act. It may also be pertinent to mention here that there has been no change in facts during the year under consideration. The appellant, during the year consideration, applied Rs. 647,42,176 (comprising....
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....he mischief of proviso to section 2(15) was clearly applicable, resulting in exemption under section 11 of the Act not being available to the appellant. (f) Further, the CIT(A) distinguished the decision in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1979] 2 Taxman 501 (SC) stating that in the appellant's case, major part of receipts were from commercial activities, while in that case, business carried by the assessee was ancillary/ incidental to the main object. 3.9 In light of the objects of and nature of activities carried on by the appellant, it will kindly be appreciated that proviso to section 2(15) of the Act is not applicable to the case of the appellant, as elaborately discussed hereunder: Section 2(15) of the Act defines "charitable purpose" as under:- "** &....
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....ic 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; ..............................."(Emphasis supplied) 3.10 The intention of the legislature behind introduction of the aforesaid proviso in the definition of "charitable purpose" in section 2(15) of the Act can be gathered from CBDT Circular No. 11 dated 19th December, 2008 reported in 221 CTR (St) 1, wherein scope of the said amendment has been elaborated in the following words: "3. The newly amended section 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of definition of 'charitable purpose' contained in Section 2(15). Hence, such entities will not be eligible for exemption under Section 11 or under Section 10(23C) of the Act' if they carry on commercial activities. Whether such an entity i....
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....ny other object of general public utility. Further, when clause 15 of section 2 was amended to separately include 'preservation of monuments or places or objects of artistic or historic nature' in the definition of charitable purpose, the intent of the Legislature was that the proviso thereto would not apply to an institution covered under the said limb. Thus, the aforesaid proviso does not apply to a trust/ institution engaged in the charitable object of preservation of monuments or places or objects of artistic or historic nature. Again this intention can be gathered from CBDT Circular No. 5 of 2010 dated 3rd June, 2010 reported in 308 ITR (St) 5, explaining the scope of the aforesaid amendment in the following words: '4.2 Clause 15 of section 2 has been amended so as to provide that the preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest would be excluded from the applicability of the aforesaid proviso which is applicable to the "advancement of any other object of general public utility". 4.3 Applicability - These amendments have been made applic....
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....Distributors (Baroda) (P.) Ltd. [1972] 83 ITR 377 has held that 'business' refers to real, substantial, organized course of activity for earning profits as 'profit motive' is essential requisite for conducting business. Following the above decision, the Special Bench of the Tribunal, in the case of Bharatiya Janta Party v. Dy. CIT [2002] 80 ITD 89 (Delhi), has held that an activity to be treated as 'business' should have a semblance of trade, an attribute of commercial activity and an expectation to earn income over a reasonable period. The Tribunal further held that the expressions 'trade' and 'commerce' are narrower in scope than the expression 'business'. The expressions 'trade' or 'commerce' signify economic/commercial activity with motive of earning profit. The term "trade" has not been defined in the Act. Some of the dictionary meanings of 'trade' are as under: - As per Webster's New Twentieth Century Dictionary, (Second edition), is, amongst others, "A means of earning one's living, occupation or work". - In Black's Law Dictionary "trade" has been defined to mean a business ....
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....d case, the assessee undertook three research projects and charged fees for the same. The assessing officer denied the exemption claimed by the assessee on the ground that activities of the assessee were commercial since it was charging fees. The Court, while upholding the claim of the assessee, held that the activities of the assessee amounted to advancement of an object of general public utility. On the issue of charging of fees for undertaking research projects, the Court held that mere charging of fees would not render the activity as commercial. The Court also dealt with the aforesaid amended definition of 'charitable purpose' and held that having regard to the essential character of the assessee-foundation, the activity carried on by the assessee-foundation could not be regarded as trade, commerce or business; or activity of rendering any service in relation to trade, commerce or business. While arriving at the aforesaid conclusion, the Court also took note of the judgments in the cases of Addl. CIT v. Hamdard Dawakhana (Wakf)[1986] 157 ITR 639/25 Taxman 185 (Delhi), and CIT v. K.S. Venkatasubbiah Reddiar [1996] 221 ITR 18/89 Taxman 262 (Mad.). explaining the scope of....
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.... We find that on a proper construction of the Act, this is not the meaning to be given to the definition. In order to have a charity, you must have a source of income. The income may come from gifts, or it may come from running a business. In this case, the trust is of a portion of the income of the Hamdard Dawakhana. Although the source of the income is a business, the object of the trust is not to run that business, but to utilise the income of that business for a charitable purpose. The income has been divided into two portions, i.e., khandani income and the qaumi income. That portion of the income which is not earmarked for charity is subject to tax, but the remaining portion has to be used for charitable purposes. In our view, the entire point is now covered by the Supreme Court's judgment in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR 1. The Court pointed out in that case that when the object of a trust was the carrying on of an object of general public utility, it is that object of general public utility which must not involve the carrying on of an activity for profit. It was pointed out that it was immaterial how the money fo....
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....tion. Primary activity remains the same, namely, research in accounting related fields. Even these projects which were taken up on behalf of those local bodies fit in the description of 'research projects', which can be termed as ancillary activity only. The circumstances under which the projects were undertaken make it clear that it was at the instance of the Government of India or the State Government for improving the accounting and budgetary systems in these local bodies. The expertise of the Petitioner Foundation in carrying out research in this field was sought to be utilized. Therefore, it cannot constitute 'business/commercial activity'. Merely because some remuneration was taken by the Petitioner Foundation for undertaking these projects would not alter the character of these projects, which remained research and consultancy work. It is so categorically held in Hamdard Dawakhana (WAKF's) case (supra). The important test is the application of the amounts received from those projects. It is nowhere disputed that the receipts are utilized by the Petitioner Foundation for advancement of its objectives. The Memorandum of Association specifically stipulates t....
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....; ** ** 29. It may he, however, pointed out that the term "profit motive" is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however it does appear has shifted and the concept and principle of "economic activity" has gained acceptability. The definition of the term "business" may also vary when we are examining taxability under Sales Tax, Excise Duty, Value Added Tax, etc, because these are not taxes on income but the taxable event occurs because of the "economic activity" involved. Even if a person/on 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". This....
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.... also relevant. Each case, therefore, has to be examined on its own facts.' 3.14 In the case of Pave v. DIT (Exemptions) [IT Appeal No. 6057 (Delhi) of 2010], the DIT (Exemptions) had rejected the registration under section 12A and grant of exemption under section 80G of the Act on the ground that the Trust was charging service fee for providing services. The Delhi Bench of the Tribunal, on considering the issue and taking into account the aims and objects of the Trust, held that the Trust was a charitable institution and was entitled to registration under section 12A as well as recognition under section 80G, notwithstanding that it was charging some fee for providing the services. The relevant observations of the Tribunal are as under: "The aims and objects of the trust are charitable. From details, we find that the assessee is constructing toilets for public which is also a charitable work. These public toilets are made out of the grants from Government of Uttar Pradesh and also some petty contribution from the beneficiaries. The contribution from beneficiaries cannot be said a commercial activity. After close perusal of these facts and taking the pleadings into c....
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....game. All the receipts as have been pointed out in the show-cause notice revolved around the said promotion of golf only. The DIT(E), however, rejected the contention of the assessee and after referring to the amended provision of section 2(15) read with proviso and held that the receipts were in the nature of business income. On appeal before the Tribunal, on examining the newly inserted proviso to section 2(15) of the Act and placing heavy reliance on the Delhi High Court judgment in the case of Institute of Chartered Accountants of India (supra) held that the test of business, trade or commerce has to be viewed from the angle that the activity of the trust has continued on business principle and pursued with reasonable continuity. The Tribunal observed that all the activities of the assessee were towards promotion of game of golf and other ancillary activities carried are only incidental to the said game only. Thus, any transaction which is incidental or ancillary towards fulfilment of object of other general public utility will not normally amount to business, trade or commerce, unless there is some intention to carry on business, trade or commerce on a permanent basis or with ....
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....d for cancellation of registration in the case of the assessee. Even otherwise this aspect has to be examined in the course of assessment proceedings and not for the purpose of cancellation of registration u/s.12AA(3) which is confined to twin conditions laid down therein." (Emphasis supplied) 3.16 In the case of Hamsadhwani v. DIT(Exemptions) [2012] 50 SOT 89/19 taxmann.com 10 (Chennai), the assessee-society was formed with the objective of advancement of music, other fine arts and traditional arts to State of Tamil Nadu. It was registered under section 12AA and applied for renewal of its approval under section 80G of the Act. The DIT (Exemption) found that receipts of assessee from sponsorship fees, sale of tickets and music coaching was in excess of Rs. 10 lakhs and, thus, held that assessee was hit by second proviso to section 2(15) of the Act. The DIT (Exemption) also held that such receipts were in nature of commercial /trade receipts and, therefore, activities of assessee-society were hit by first proviso to section 2(15) of the Act. Accordingly, the DIT (Exemption) rejected the application for renewal filed by assessee. The assessee in this regard filed an appeal before ....
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.... any other consideration. The third proviso excludes from the restraints imposed by first proviso, where such receipts were less than Rs. 10 lakhs. The question here is whether sponsorship fee, which forms substantial part of the amounts listed above, can be considered as receipt from activity in, the nature of trade commerce and business. In our opinion, advancement of traditional musical culture of Tamil Nadu and conducting music programmes for that purpose, where such music, and dance programmes were sponsored by various persons and sponsorship fee so received, distributed among the artists, can never be considered as an activity in the nature of trade, commerce or business. When a person sponsors a music programme and sponsorship fee is paid to artist concerned, we cannot say that sponsorship fee is a receipt in the hands of the assessee which is in the nature of trade, commerce or business. Similarly, conducting music coaching for the purpose of advancement of various traditional music forms of State of Tamil Nadu, which is an integral part of cultural life of people of Tamil Nadu, cannot also be considered to be an activity in the nature of trade, commerce and business. This ....
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....nt of any other object of general public utility is essentially a question of law to be decided on the facts of the assessee's own case and where object of general public activity is only a mask or device to hide the true purpose of trade, business or commerce, or rendering of any service in relation thereto, the assessee cannot be said to be engaged in charitable activity within meanings of section 2(15) of the Act. As a corollary to this approach adopted by tax administration, in our considered view, it cannot be open to learned Commissioner to contend that where an object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such ' services are being rendered as purely incidental to or as subservient to the main objective of 'general public utility', the carrying on of bona fide activities in furtherance of such objectives of 'general public utility' will also be hit by the proviso to Section 2(15). 15. As CBDT rightly puts it, sweeping 'generalizations are not possible' and 'each case will have to be decided on its facts'. The question then arises whether on....
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....otive.' (Emphasis supplied) 3.18. Further, the Nagpur Bench of the Tribunal, in the case of Seva Gram Ashram Pratisthan v. CIT [2010] 129 TTJ 506, has categorically observed that the amended proviso to Sec. 2(15) of the Act is constraint for those assessees who attempt to defraud the Revenue in the garb of charitable purpose, but is not meant for those assessees who are really engaged in activities of charitable purpose. In this context it may also be pertinent to mention the decision of the Delhi High Court in the case of DIT (Exemption) v. Commerce Teachers Association [2011] 203 Taxman 171/15 taxmann.com 236. In this case the DIT (Exemptions) while granting registration under section 12AA of the Act to the assessee vide its order dated 28-9-2010 had, inter alia, imposed the following condition: "The society should not charge any fee/amount from the beneficiaries. Also shall not collect any fees on account of talent exam." 3.19. The assessee challenged the above condition imposed by the DIT (Exemptions) before the Tribunal. The Tribunal vide its order dated 11-2-2011 held that above condition was unwarranted and was imposed by the DIT without backing from the l....
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....ection 2(15) of the Act. 3.20. Accordingly, reliance is also placed on the view expressed by the Hon'ble Supreme Court in the landmark case of Surat Art Silk Cloth Manufacturers Association (supra) wherein it was held that it is not that in every case where the activity is being carried on which gives rise to profit, that would amount to non-charitable activity, resulting in forfeiting exemption available to the Trust. The Hon'ble Supreme Court in this case observed that where an activity was not pervaded by profit motive but was carried on primarily for serving the dominant charitable purposes, it would not be correct to describe the same as an activity for profit; but where an activity was carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in the advancement of the charitable purpose of the Trust or the institution. The Ld. A.R. also relied on the following decisions, wherein it is held that if the primary or dominant purpose is charitable, it is immaterial that the ancillary purpose is non-charitable: ♦ Victoria Technical Institute v. Addl. CIT [1991] 188 ITR 57 (SC) ♦....
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....eless, in actual conduct, the appellant is engaged in preserving monuments. This activity of the appellant gets covered in preservation of monuments of artistic or historic in nature. It would not be out of place to mention that Mehrangarh Fort and Ahichhatragarh Fort, Nagaur are historic monuments, notified under section 3(4) of the Rajasthan Monuments Archaeological Sites & Antiquities Act, 1961, as stated by the ld. A.R. This Act has been enacted by the Rajasthan State Government to provide for the preservation, protection, upkeep, maintenance, acquisition and regulation of, and control over, ancient and historical monuments, archaeological sites and antiquities in the State of Rajasthan with a view to prescribe standards for preservation of historical monuments. Section 2(i) of the said Act defines "historical monument" to include archaeological building which is of historical, archaeological or artistic importance, interest or value. The relevant extract of the said section is reproduced hereunder: '"ancient or historical monument" means any archaeological building, structure, erection or monument or any tumulus, tomb or place of interment or any cave, rock-sculpt....
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....ty to be a protected antiquity." Section 5 of the said Act, further provides as under: "A notification published under sub-section (4) shall, unless end until it is withdrawn, be conclusive evidence of the fact that the ancient or historical monument, archaeological site or antiquity to which it relates is a protected monument, a protected area or a protected antiquity for the purposes of this Act." In terms of the above provisions, the Director, Archaeology & Museums Department, Government of Rajasthan, Jaipur, has by specific order, in connection with Mehrangarh Fort and Ahichhatragarh Fort, Nagaur declared as under: "PROTECTED MONUMENT Under section 3(4) of the Rajasthan Monuments Archaeological Sites & Antiquities Act, 1961, this is a protected monument. Whoever destroys, injures, mutilates, alters, removes disperses misuses, imperils or allows to fall it into decay or removes any sculptures, carved image bas relief inscription or other like objects shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to five thousand rupees or both." On perusal of the aforesaid, it will be app....
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.... season, tourists visit the museum in good numbers, in summer and rainy season, the number of visitors drastically falls. Apart from weather conditions, there are several other factors that impact the footfall of tourists. In order to meet such shortfall, the appellant undertakes ancillary activities to enhance its receipts, which is then utilized to maintain the museum and meet other fixed costs. Some of them, which in view of the assessing officer are allegedly commercial in nature, are briefly explained hereunder: (a) Licence fee - the appellant permits few craftsmen to give live demonstration of their activities, such as cobbler making Jodhpuri juttis, local painter making paintings, weaver weaving durries, etc. The appellant collects fees from such craftsmen for services provided to them while they occupy space in the monument. (b) Location fee (film shooting) : the appellant permits production houses to conduct film shooting in the monument in which it operates museum, in lieu of recovery of fees from such users. This not only enables the appellant to earn incidental income but has also become a source of publicity for the appellant, which has resulted in at....
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....diture incurred towards renovation of Ahichhatragarh Fort Rs. 31,92,556/- (Revenue Expenses) and maintenance of Naguaur Fort Rs. 18,91,914/- (Revenue Expenses) and Rs. 39,61,880/- on renovation of Ranvas Havels (Capital Expenditure) and Rs. 1,90.627/- out of the Administrative Expenses as application of income for the purpose of section 11 of the Income Tax Act, 1961 and in not following the provisions of the law on the subject." 4.1 These grounds relate to the availability of exemption under section 11/12 of the Act on expenses incurred at Nagaur Fort and are dealt together. Facts apropos them are that HH Maharaja Hanwant Singh Charitable Trust ("Hanwant Trust"), a charitable trust registered under section 12A of the Act, owner of Ahichhattragarh Fort of Nagaur (hereinafter referred to as "Nagaur Fort"), in terms of the agreement dated 14.11.1992, gave Nagaur Fort on lease to the appellant, effective since 16.10.1985, on annual lease of Rs. 5,000. The Nagaur Fort was leased with the object that the appellant would renovate the said Fort declared a "protected monument" in terms of provisions of section 3(4) of the Rajasthan Monuments Archaeological Sites & Antiquities Act, 1961,....
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....and other forts; (b) Trust fund was utilized to construct a hotel; and (c) Such expenditure did not fall under the object as contained in the Trust Deed. 4.3 The Courts have in the following cases allowed the claim of exemption under section 11/12 of the Act and treated expenses incurred by one charitable trust for another charitable trust/donation by one charitable trust to another charitable trust, having similar objects, as application of income for charitable purposes. The Delhi High Court in the case of DIT(Exemption) v. Pariwar Sewa Sansthan [2002] 254 ITR 268/[2001] 118 Taxman 587 had occasion to deal with aforesaid issue. In that case, the assessee was a charitable trust claiming exemption under section 11/12 of the Act. The assessee had: (a) advanced loan to another society controlled by Chief Executive Officer (CEO) of the assessee; (b) paid salary to the CEO and Project Coordinator and also paid rent for her residence; and (c) incurred expenses on conference and clinic. The assessing officer, however, denied exemption on the ground that the assessee had violated the provisions of section 13(1)(c) and 13(1)(d) of the Act. In further appeal, the Tribun....
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....n by one charitable trust to another charitable trust tantamounts to application of income for charitable purposes: ♦ CIT v. Thanthi Trust [1999] 239 ITR 502 (SC), ♦ CIT v. Hindustan Charity Trust [1983] 139 ITR 913 (Cal.), ♦ CIT v. Shri Ram Memorial Foundation [2004] 269 ITR 35/140 Taxman 263 (Delhi), ♦ DIT (Exemption) v. Bagri Foundation [2012] 344 ITR 193/[2010] 192 Taxman 309 (Delhi), ♦ CIT v. Nirmala Bakubhai Foundation [1997] 226 ITR 394/91 Taxman 236 (Guj.), ♦ CIT v. HPS Social Welfare Foundation [2010] 329 ITR 310/[2011] 198 Taxman 63 (Delhi) (Mag.), ♦ ITO v. RKKR Foundation [ITA No. 253/Luck./09 (Luck.) Applying the aforesaid legal position to facts of the appellant's case, it is found that the expenses borne by the appellant in establishment of Museum in Nagaur Fort, is an application of income. As per clause 9 of the Trust deed, extracted below, the appellant is entitled to help "by donation or otherwise", other trusts with similar objects: "9. The Trustees may help by donation or otherwise other trusts or institution as having similar object or object....
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.... museum, similar to the one set up and being maintained for the benefit of the public at large by the appellant. The appellant is duly empowered under the Trust Deed to aid and assist any other charitable trust [refer clause 9 supra]. The Trust Deed was duly examined by the DIT (Exemption) before granting registration under section 12A of the Act, which clearly proves beyond any doubt that giving of aid to another charitable trust pursuing similar object cannot at all be the basis to deny exemption under section 11/12 of the Act. The appellant's predominant objective as discussed above is preservation of monuments that are of historical importance. Thus, expenditure incurred on preservation of Nagaur Fort has to be regarded as having incurred in furtherance of charitable objects / purposes for which the appellant was set up and their application of income for the said purposes. 4.5 Even otherwise, the appellant cannot be regarded as passing benefit to the settlor of the Trust in terms of section 13(1)(c) of the Act on the following grounds: (a) The appellant contracted with JHRPL on 05.10.2010 and the arrangement was effective from 25.10.2010 only. Scholar's ret....
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....e have already held that the appellant is a charitable institution, eligible for exemption under section 11/12 of the Act, this ground would not require specific adjudication. Both capital and revenue expenditure incurred for the objects / charitable purposes of the appellant trust would be regarded as application of income. 6. Ground No. 8 of this appeal reads as under: "8. On the facts and in the circumstances of the case Ld. CIT(A) has erred in including in the income of the assessee Trust the amount of foreign exchange contributions amounting to Rs. 66,20,524- which is a donation towards corpus and in not allowing the deduction of Rs. 65,55,990- being the amount of expenditure incurred out of such foreign exchange contributions and in holding that the activities of the Trust are not of charitable nature but are of commercial nature." 6.1 Facts apropos this ground are that during the year under consideration, the appellant received contributions aggregating to Rs. 67,31,311 from foreign organizations and individuals. Out of this, the appellant refunded amount of Rs. 1,10,787 and retained the net amount of Rs. 66,20,524. The party wise breakup of grants received by....
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....ble in the total income of the charitable trust/ institution claiming exemption under those sections. Corpus donation was initially excluded from the definition of "income". However, as per the amendment by the Direct Tax Laws Amendment Act, 1987 with effect from April 1, 1989, the words 'not being contributions made with a specific direction that they shall form corpus of the trust' were deleted from section 2(24)(ii)(a). Simultaneously, section 11(1)(d) was inserted by the Direct Tax Laws Amendment Act, 1989. As a result of the aforesaid amendments, 'contributions received with a specific direction that the same shall form part of the corpus of the trust or institution' excludible from the income of the trust/ institution eligible for exemption under section 12 of the Act. In view of the aforesaid, in terms of section 11(1)(d) and section 12 of the Act, "Corpus donation" is specifically not treated as income of a charitable trust/institution eligible for exemption under those sections. 6.4 The words 'corpus donation' has, however, not been defined in the Act. "Corpus'' is a Latin word which means "body". The dictionary Meaning of "corpus" is as ....
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.... Tribunal in the case of Little Tradition (supra), which explains the meaning of the term 'corpus', at page 154-155, which is reproduced below: '9. Voluntary contributions are different in nature than the corpus donations. - The Income-tax Act, 1961 has not given the definition of the word "corpus". According to the Oxford Dictionary "corpus" means "capital sum originally lent or invested. According to webster's Dictionary its means 'The principal of a fund or an estate as distinct from income of interest". According to Osborn's Concise Law Dictionary it means. "The capital of a fund as contrasted with income." The corpus donations are given with the specific direction of the donor. Corpus donations are made for specific purpose specified by the donor. Section 12 of income-tax Act refers to a specific direction by a donor. As such, the option, whether a donation would be for the corpus or not, lies with the donor, and not the donee trust, if there is no specific direction, charactering a donation for the corpus, it may be deemed to be a voluntary one, even though the receiving trust treats it as a corpus one' (Emphasis supplied) At t....
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....ing emphasis on the wish, will and desire of the donor. The donor must grant it with a direction that it shall form part of the corpus. The section did not either by implication, or overtly or otherwise, enjoin upon the trust that the trustee shall retain it for even as corpus, even if when an occasion arises that in order to keep the trust alive and to prevent if from failure, it should not spend any amount out of it. If a donor donates money with a specific direction that it shall form part of the corpus, the trustee is expected to honour the wish of the donor. Both if the trustee utilizes it for a different purpose, then it is simple case of breach of trust for which delinquency, the trustee can be proceeded against the Indian Trusts Act, 1882, or other appropriate legislation but that is not to say that for the misbehaviour of the trustee, the trust loses exemption under the Act." 16. In view of the above, we hold that the donation received towards corpus of Rs. 3,91,678 is not income chargeable to tax.' (Emphasis supplied) 6. In view of the above, any contribution received with a specific direction that the same shall form part of the corpus of the tru....
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....he same cannot be utilized for any other purpose such as distribution for the poverty in furtherance to the object of the Schemes, it cannot be treated as income of the assessee." (Emphasis supplied) It has been held likewise in following cases; ♦ U.P. Export Corpn. Ltd. v. IAC [1987] 23 ITD 389 (All.). ♦ ITO v. Gujarat Handicraft & Handloom Development Corpn. Ltd. [1984] 9 ITD 488 (Ahd.). ♦ Dharma Pratishthanam v. ITO [1985] 11 ITD 40 (Delhi). ♦ CIT v. Appeals Export Promotion Council [1991] 190 ITR 163 (Delhi). ♦ Siddhartha Publication (P.) v. CIT [1981] 129 ITR 603/[1980] 4 Taxman 177 (Delhi). 6.8 In the present case, donations were received for capital outlays, with a specific stipulation to spend the sum towards restoration of Mehrangarh Fort, hosting Sufi Fest at Nagaur Fort, etc. The agreements also provided that the unutilized amounts would be refunded to the donor and that such sum would not be used for another purpose. Considered in the light of the aforesaid legal principles/position, the said receipts qualified as 'corpus donations', exempt under section 11(1)(d) of the Act. 6.9 ....