TaxTMI 
TaxTMI 
2017 (11) TMI 1370
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....ervices by letting out A/C rooms and by providing other facilities and luxuries to the visitors. Thus, the benefit of section 11 & 12 are not allowable to the assessee; 2. On the facts and in the circumstances of the cases and in law, the Ld. CIT(A) has erred in ignoring the fact that though the objects of the assessee may seem to be charitable but activities carried out by the society which yielded income to the society are commercial in nature; 3. The Appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of bearing." 3. The assessee has raised the following sole ground of appeal in its cross objection : "That the action of the Assessing Officer in holding that the activities of the assessee are commercial and not charitable is arbitrary, erroneous and improper and must be expunged." 4. The brief facts of the case are are that the Association registered under the Societies Registration Act, 1860 and also u/s 12AA(1) of the Income Tax Act 1961('the Act') in July 1974 with number DLI(C)(i-219)/74-75 has basic objectives as promotion of spiritual, intellectual, physical and social interest of people especially youth within the terr....
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.... indirectly which was in clear violation of Section 13(1)(d) of the Act. 8. Adverting to the income and expenditure account, the Assessing Officer found that the fees from Educational courses, Schools and training was in a sum of Rs. 8,88,21,922/-. The sub-heads under medical relief, education and relief to the poor were as under:- Sub-heads Income Health Clinic for rural and urban poor 30,190 Education for rural and urban poor 5,22,62,004 Rural Uplift & agriculture promotion 1,59,234 Camping for students and youth 35,59,378 Miscellaneous income 2,21,400 9. The Assessing Officer further observed the following sub-heads in respect of hostel services income:- Sub-heads Income Accommodation (TDS - Rs. 3,30,805/-) 3,85,02,760 Food and Beverages (TDS - Rs. 2660/-) 2,46,06,480 Other Income 8,08,243 Membership fees 4,96,975 10. On the basis of this material, the Assessing Officer inferred that the activities of the Association were mixed and TDS had been deducted in respect of the same. The Assessing Officer noticed that the expenditure had been claimed under the following sub-heads:- Sub-heads Income Operation/Programme & Educational expenses 3,74,21,986 Med....
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....ut of the activity of providing space for conference facility. 13. Thereafter, the Assessing Officer found that under the head 'Education' there were only four recognized courses as under:- (i) Post Graduate Diploma courses in Marketing; (ii) Post Graduate Diploma course in sales management; (iii) Diploma in Hospital Administration; (iv) Learning centre for BBA of Punjab Technical University! 14. The other courses as run by the Association were not recognized. The Assessing Officer further found that on some educational courses, TDS had been deducted which showed that they were in the nature of commercial training/coaching. The Assessing Officer further observed that the Association had itself claimed fees for sports and music coaching/training. Obviously such fees were for coaching and training which should not have been permitted as fees for education. Adverting to the decisions of the apex court in Lok Shikshan Trust vs. CIT, (1975)101 ITR 234 the Assessing Officer observed that the word 'education' meant only formal education. In this context the Assessing Officer further relied upon the decision in CIT vs. National Institute of Aeronautical Engineering Educational As....
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.... At no point of time the Association had proved that the infrastructure including the land and building were bought from the funds of the members. There was no common identity between the participators and the contributors. There was thus no principle of mutuality in running the hostel services. 19. On the basis of all such material detailed here-before, the Assessing Officer adverted to the first proviso to Section 2(15) of the Act and reasoned that the proviso applied if the entity was engaged in advancement of 'any other object of general public utility'. It postulated that such entity was not 'charitable' if it was involved in 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. The second part viz, any activity of rendering any service in relation to any trade, commerce or business obviously is intended to expand the scope of the proviso by including services which were rendered in relation to any trade, commerce or business. The proviso further stipulated that the activity must be for a cess or fees or any other consideration. The last part, according to the Asses....
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....ust or institution did not remain charitable due to the application of the first proviso on account of commercial receipts which would not be entitled to the benefit of exemption in respect of income for that previous year for which proviso to section 2(15) of the Act was applied. In this regard the Assessing Officer cited section 13(8) of the Act. Relying upon the decisions in A. Pillai & Sons vs. CIT (1961) 41 ITR 636, State of Gujarat vs. Raipur Manufacturing Co. (2008) 19 STC 1 (SC) and CIT vs. Bhikamchand Jankila (1981) 232 ITR 554 (MP) the Assessing Officer concluded that the activities of the Association including hostel services, the unrecognized educational courses, Allied Educational and Awareness programmes and the miscellaneous income etc. had characteristics as mentioned in the cited cases and, therefore, the activities of the assessee were commercial in nature. The Association was thus not working wholly and solely for the purposes of education to keep the Society out of the mischief of the proviso of Section 2(15) of the Act. The medical relief to the poor claimed by the assessee was substantially funded by UNHCR. The assessee had not given complete bifurcation of ex....
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....bmissions of the assessee and I find considerable merit in the submissions of the assessee that the assessee is a charitable non-profit organization and mere receipt of fees and rents, etc. cannot be said that the assessee is involved in any trade, commerce or business." Recently the Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(E) 53 Taxman.com 404 (Delhi) 2015 (order dated 22/01/2015) has upheld the constitution validity of the proviso of section 2(15) which was under challenge being discriminatory in view of the Article 14 (Equality before law) of the Constitution of India but the Hon'ble High Court has read down the strict and literal interpretation of the proviso of Section 2(15) and has held that mere receipt of fee or charge cannot be said that the assessee is involved in any trade, commerce or business and has accordingly allowed the relief to the ITPO case vide Para 58 and 59 of the order. After considering all the facts and circumstances of the case, I am of the view that the assessee is a charitable and non-profit organization and I do not find any of the activities of the assessee that the assessee is involved in any trade, co....
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....ial were filed in the additional Paper Book. The Ld. Counsel also filed assessment order for AY 1997-98 where the Assessing Officer himself had held the Association to be charitable in nature. Income for that year had been computed by the Assessing Officer in terms of provisions of Section 11 of the Act. That assessment had attained finality. The Ld. Counsel emphasized that there was no change in the objectives of the Association at any time. He pointed out that the hostel facility was intimately connected with the educational activity of the Association. Ld. Counsel further stated that the Act did not prescribe the criteria of the educational course to be an approved course for fetching the benefit of charity u/s 11 of the Act. The proviso to section 2(15) of the Act as introduced was applicable only to the fourth limb of charity i.e any other object of general public utility. That the Ld. Counsel submitted stood clarified through a Board Circular. The provision of hostel facilities was intimately and inextricably connected with the educational activity. Hostel facilities as provided were neither lavish nor prodigal as made out by the Department. Ld. Counsel emphasized that the no....
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....s and Regulations of the Association or that the activities as undertaken during the year are not in conformity with the registration conditionalities. The Association has been held as a charitable entity in the past. The Assessing Officer has not brought any specific material on record to indicate any violation of either Section 13(1)(b) or section 13(1)(d) of the Act. It is true that the Association is running several educational courses some of which are recognized while some are not recognized. As to the unrecognized courses, we notice that there is nothing in the Act which prohibits the carrying on of any such course so long as it is educational. Charitable entities can rent out their idle premises to raise funds for charity. No objection can be taken to that action. As to the hostel facilities, the same as urged on behalf of the assessee is aligned to the objective of the Association to provide education. Nothing has been brought on record by the Assessing Officer to show that the hostel facilities are de hors the educational activities of the Association and are for commercial purpose. That being the case the provision of hostel facilities cannot in the facts of this case, b....