2018 (6) TMI 1228

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....se and in law, the Ld.CIT(A) was right in deleting the order of A.O. without appreciating the fact that once the assessee t rust got hi t by proviso to section 2(15) it loses the character of chari ty therefore no exemption can be allowed to the trust u/s 11 of the Act. 3. Whether, on the facts and in the circumstances of the case and in law, the the Ld. CIT(A) was right in deleting the order of A.O. without acknowledging the fact that once the trust loses its character being hit by the proviso to section 2(15) of the Act, the only blanket available to it, was principle of mutuality. Further the Ld. CIT(A) also failed to appreciate the fact that interest income earned from non-members could neither be exempted from tax u/s 11 of the Act, as it had lost its charitable character being hit by proviso to section 2(75) nor could be exempted under the principle of mutuality as the interest income was earned from nonmembers. 4. Whether, on the facts and in the circumstances of the case and in law, the the Ld.CIT(A) was right in deleting the order of A.O. without considering the fact that the A.O. has brought on record that the assessee trust has been carrying out substantial percent....

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.... exempt under the principle of mutuality. First we take the first objection of AO to the effect that proviso to Section 2(15) applies to the case of assessee. As per our considered view, the proviso denies an entity carrying on 'advancement of any other objects of general public utility' the benefit of the regime prescribed under Sections 11 to 13 of the Act if the entity concerned is involved in carrying 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 for a cess or fee or any consideration irrespective of the nature of use or application or retention of the income from such activity. The activity which according to the Assessing Officer has resulted in the application of the proviso and which is the subject matter of the assessment is the interest earned from banks. As per our considered view the investments made with banks is not an activity in the nature of trade, commerce or business but is income earned on application of moneys mandated under Section 11(5)(iii) of the Act which reads as follows :- "The forms and modes of investing or depositing the money referred ....

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....nefit on the grounds that the entity has not complied with section 11 (5) of the Act. 14. Several decisions have considered and interpreted the scope, purpose and limits of the proviso to Section 2(15). In GS 1 India Vs. DGIT 360 ITR 138 (Del), the term trade, commerce or business was interpreted, and in that case even though the assessee was charging a fee having regard to the economic status of the beneficiaries, it was held that it was necessary for the operation and running expenses and the sustenance of charitable activities, that a fee could be charged. In the case of the assessee on the other hand, there is no fee whatsoever and in fact, it is passive income not involving any activity whatsoever. Therefore, the AO was not correct in holding that act of deposit of money in scheduled bank account and receipt of interest thereon an activity in the nature of trade, commerce or business. The same view was taken by the Delhi High Court in Institute of Chartered Accountants of India Vs. DCIT 358 ITR 91 (Del), where the Institute was taxed by the Assessing Officer on the grounds that fees were charged by the Institute for providing coaching classes and for holding interviews with....

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....ality. From the record we found that the assessee has in fact complied and applied the decision of the Bombay High Court in Common Effluent in so far as in its return, the interest earned on fixed deposit with banks has not been claimed as exempt on the grounds of mutuality. That is the reason why the assessee offered income of Rs. 2,17,92,167 as income in the computation of total income for Assessment Year 2009-10 and thereafter claimed various deductions under section 11 of the Act. Thus, the AO has wrongly applied the proposition of law laid down by Hon'ble Bombay High Court to the facts of the assessee which are quite distinguishable. 17. In view of the above, we can safely conclude that the activity of the assessee depositing money in the bank does not constitute trade, commerce or business. The Assessing Officer has in fact gone much beyond and held that the interest itself constitutes taxable income falling foul of the proviso to section 2(15). If the Assessing Officer's view is correct, it will militate against the mandate requirement and object of Section 11 (5) of the Act read with Section 13 of the Act. These Sections require an entity seeking the shelter of Secti....