TaxTMI 
TaxTMI 
2018 (8) TMI 263
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.... was not the object of the assessee. 3 That the Ld. CIT(A) has shown gross indiscipline by not following the various judgements of High courts and also of Jurisdictional ITAT while upholding the disallowance of exemption u/s 11 claimed by the assessee. 3. Brief facts relating to the issue as culled out from the order of CIT(A) are that the assessee, M/s Chandigarh Lawn Tennis Association (hereinafter referred to as 'CLTA') is a society registered under the Societies Registration Act. The assessee is also registered as a charitable entity vide order dated 27.09.2006 of the CIT(E) u/s 12AA of the Income Tax Act (in short 'the Act'). The main object of the assessee is for the promotion of game of lawn tennis by controlling the conduct of championships and other open and restricted competitions within its jurisdiction and holding coaching classes/schemes for players. During relevant year under consideration, the assessee hosted an international event 'Cloud India v/s New Zealand Davis Cup Tie' for which separate income and expenditure account had been maintained. This event was hosted by providing various services and facilities like infrastructure, boarding and lodging, lo....
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....ickets and sale of publications are incidental to the main objective of the assessee. In the instant case, the appellant has organised Davis Cup Tie between India and New Zealand is an international event and totally apart from the objective of the assessee the Assessing Officer has given reasoned findings that the main objectives of the assesses society is to promote, develop and popularize the game of tennis, to promote and maintain the bonds of friendships between all the affiliated clubs and institutions within its jurisdiction and encourage new clubs and institutions, to control the conduct of such championships and other open an restricted competitions within its jurisdiction as may be sanctioned by the association and/or approved by the AITA. As per the income and expenditure account furnished by the assessee the normal surplus of Rs. 15,96,663/- was generated as per the activities taken by the assessee which has been listed on page 5 of the assessment order which are incidental to the dominant object of the assessee. However, by holding India V/s New Zealand Davis Cup Tie, appellant has thrown open the sale of tickets, advertisements and sponsorships to private sponsors and....
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....the clause 3c of the object clauses, 'to conduct the championship and other open restricted competitions with the sanction of the Association and approved by AITA' is the clear objective of the assessee trust. That even the Chandigarh Administration and Govt. of India also monitor and supervise the Davis Cup Tie. That it cannot be said that holding of International Davis Cup is not the objective of the trust. That the Chandigarh Lawn Tennis Association has been established with the object of promotion of the Lawn Tennis game by teaching the children and making them players and also for holding of the various tournaments and competition approved by the IATA and all these objects have been considered as charitable by CIT while granting the registration to the trust. The Ld. Counsel for the assessee has further submitted that the AO in his order has although agreed with the assessee that it is engaged in the promotion of the game lawn tennis and also agreed that all the objects are charitable in nature but yet he gave a finding that these objects were/are pursued for commercial gains. That this finding of the AO is contrary to the finding of the CIT in as much the CIT has allowed the ....
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....ennis Association is involved in imparting training to boys and girls in Tennis and is running a tennis academy having coaches and instructor therefore the assessee trust can be said to be engaged in imparting education since teaching tennis to the students amounts to imparting of education and is covered in the first limb of section 2(15) and not as a residual clause. He in this respect has relied upon the decision of the Delhi Bench of the Tribunal in the case of 'Pitanjali Yog Peeth Nyas Vs ADIT'(Exemptions) stating that the Hon'ble Delhi Bench has held that imparting training in Yoga amounts to educational activity as per the law laid down by the Hon'ble Supreme Court in the case of Lok Shiksha Trust. He, therefore, has submitted that imparting training in lawn Tennis also amounts to education and therefore the assessee falls in the first limb of the definition of charitable purposes as defined u/s 2(15) and that the proviso is not applicable to the assessee. 8. Apart from oral submissions made by Smt. Chandarakanta, the Ld. DR, written submissions have also been filed by Smt. Sangeeta Sharma, the Ld. Income Tax Officer (Exemptions) on behalf of the Department wherein it has....
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....respect, which we will discuss in the later part of this judgement. It has been further contended that after insertion of the above provisos to Section 2 (15) of the Act, the Amritsar Bench of the tribunal while interpreting the entire scope and objects of Section/circular and legal position, decided a case of another statutory Govt body i.e. 'Jammu Development Authority vs. CIT' vide order dated 14.06.2012 reported as (2012) 52 SOT ASR 153 following the judgments in the cases of PUDA and 'Jalandhar Development Authority' (supra) and has upheld the order of CIT which canceled the registration while passing an order u/s 12AA (3) of the Act, wherein, it has been held that if activities of any Institution/Trust/Society under the fourth limb i.e. 'the advancement of any other object of general public utility' are in the nature of trade, commerce or business for cess or fee and the receipts therefrom crosses the prescribed limit (which for the year under consideration was 25 Lakhs or more) then they are not eligible to continue with registration u/s 12A and the same is required to be withdrawn. That the limit of receipt in second proviso to section 2(15) was Rs. 25 lakhs for the year un....
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....- New Zealand Davis Cup Tie" in September, 2012 by providing various services/facilities like infrastructure, boarding and lodging, logistics, advertisement etc. These facilities were provided by receiving various types of fees and financial considerations. That the activity of hosting this event had been carried out in addition to the normal activities being carried out for advancement of objects of the appellant. Thus, this activity was of commercial nature with dominant object to earn profit. Out of total income of Rs. 1,92,54,745/-, the assessee had received income to the tune of Rs. 1,60,14,000/- from sponsorship, which was 83.16% of the total income. The appellant earned huge profit of Rs. 1,08,36,902/- from the event after meeting out expenses. It has been further contended that the object clause of the appellant does not contain any clause that for furtherance of its objects, it shall charge any sum like sponsorship, advertisement or make collection through sale of corporate tickets. That the event was exploited commercially as the major focus of the appellant was to utilize this event for commercial gains. Reference has also been made to the Income and Expenditure account ....
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.... income earned by the assessee is not only in the direct contrast to post amendment of Section 2(15) and its proviso and that the surplus accumulated over the years has not been ploughed back for the charitable purposes. It has therefore been submitted that the lower authorities rightly denied the claim of exemption to the assessee u/s 11 of the Act for the year under consideration. 11. The assessee, however, in its rejoinder has submitted that the judgments relied upon by the AO are totally distinguishable which do not support the facts of the assessee. The judgments are against the granting of registration u/s 12A under the Income Tax Act whereas in the case of the assessee the registration u/s 12A is granted and most importantly is the fact that registration is intact till date and not withdrawn by the CIT. That the AO could have proposed to the CIT for withdrawal of the registration which the AO has not done. That there is no law laid down by the J&K High Court which has approved the order of Amritsar Bench on facts and since there was no question of law involved, the Hon'ble Supreme Court dismissed the SLP. This issue has already been considered by the jurisdictional P&H Hi....
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....erpretation of the section as it stands during the relevant period and as on today. We will also consider the judicial decisions passed from time to time interpreting the time to time amended provisions of section 2(15) of the Act. We have the benefit of decision of the co-ordinate Amritsar Bench of the Tribunal in the case of 'Hoshiarpur Improvement Trust' case (supra) and also of the Hon'ble Punjab & Haryana High Court in the case of 'The Tribune Trust' (supra). 13. In the Income-tax Act, 1922, the relevant/corresponding provision was section 4(3) of the Act, which read as under: Section 4(3) of the 1922 Act: "4. Application of Act.-. ....... ....... ....... ...... ....... ....... ....... (3) This Act shall not apply to the following classes of income:- (i) Any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto. (ii) to (vii.............
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....essee-trust was education, while the stand of the revenue was that the activity of the assessee would fall in the last mentioned category in section 2(15), viz., the advancement of any other object of general public utility. The reason for the above divergence in the stands of assessee and the revenue was because the concluding words of the definition in section 2(15) of the Act "not involving the carrying on of any activity for profit" did not qualify the first three categories of relief of the poor, education, or medical relief but qualify only the fourth category of "advancement of any other object of general public utility" which was qualified with the words "not involving the carrying on of any activity for profit". 17. His Lordship Justice H.R. Khanna, writing the majority view (for himself & Justice A.C. Gupta) observed that the word 'education' has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. That though a number of objects, including the setting up of educational institutions, were mentioned in the trust deed as the objects of the trust, however, the trust at that time was carrying out on....
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....'All India Spinners' Association v. CIT' [1944] 12 ITR 482 (PC). If despite that fact, the legislature added new words in definition as if the newly added words were either not there or were intended to be otiose and redundant. 18. However his Lordship Beg, J. writing a separate order while stressing on the meaning of word 'involve' observed that the dictionary meaning of the word 'involve' was of wide import and would cover all profit making, even as a mere by-product, if this word had stood alone and by itself without further qualifications by the context. However, the use of the words 'for profit', showed that the involvement of profit making should be of such a degree or to such an extent as to infer it to be the real object. If the profits must necessarily feed a charitable purpose, under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The genuineness of the purpose was to be tested by the obligation created to spend the money exclusively or essentially on 'charity'. That if profit making results from the activity and these profits could be utilised for non- charitable purposes, the tr....
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....; ** (4) For the purposes of this section 'property held under trust ' includes a business undertaking so held. . ." 21. Another section 13(1)(bb) was introduced by the Taxation Laws Amendment Act, 1975 and remained on the statute book until omitted with effect from 1-4-1984 providing that in the case of a charitable trust or institution for the relief of the poor, education or medical relief, any income from business carried on by the trust will not be exempt, unless the business is carried on in the course of actual carrying out of a primary purpose of the trust or institution. 13. Section 11 not to apply in certain cases.-(1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof- ** ** &nbs....
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....he other hand, an activity is carried on with the predominant object of earning profit, it would be an activity for profit, though it may be carried on in advancement of the charitable purpose of the trust or institution. Where an activity is carried on as a matter of advancement of the charitable purpose or for the purpose of carrying out the charitable purpose, it would not be incorrect to say as a matter of plain English grammar that the charitable purpose involves the carrying on of such activity, but the predominant object of such activity must be to subserve the charitable purpose and not to earn profit. The charitable purpose should not be submerged by the profit making motive; the latter should not masquerade under the guise of the former. The purpose of the trust, as pointed out by one of us (Pathak, J.) in Dharmadeepti v. CIT [(1978) 3 SCC 499 : 1978 SCC (Tax) 193] must be '"essentially charitable in nature" and it must not be a cover for carrying on an activity which has profit making as its predominant object." This interpretation of the exclusionary clause in Section 2 clause (15) derives considerable support from the speech made by the Finance Minister while introduci....
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....the speech of the Finance Minister that it was with a view to setting at naught this decision that the exclusionary clause was added in the definition of "charitable purpose". The test which has, therefore, now (as per section 2(15) of 1961 Act) to be applied was whether the predominant object of the activity involved in carrying out the object of general public utility was to sub serve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. However, the profits, if any, should be ploughed back and applied to charitable activity to subserve the main purpose. The Hon'ble Supreme Court held, "It would indeed be difficult for persons in charge of a trust or institution to so carry on the activ....
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....or himself and Gupta, J. in Loka Shikshana Trust, "to ignore the impact of the newly added words 'not involving the carrying on of any activity for profit' and to construe the definition as if the newly added words were either not there or were intended to be otiose and redundant, i.e., as qualifying and affirming the position under the Act of 1922." According to Sen, J. "if an object of general public utility is engaged in an activity for profit, it ceases to be a charitable purpose and, therefore, the income is not exempt under section 11(1)(a). He also observed that the concept of 'profits to feed the charity', therefore, is applicable only to the first three heads of charity and not the fourth. It would be illogical and, indeed, difficult to apply the same consideration to institutions which are established for charitable purposes of any other object of general public utility. Any profit-making activity linked with an object of general public utility would be taxable. The theory of the dominant or primary object of the trust cannot, therefore, be projected into the fourth head of charity, viz., 'advancement of any other object of general public utility' so as to make the carryi....
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.... institution. The Legislature, however, omitted the words 'not involving the carrying on of any activity for profit' from the definition of 'charitable purpose' in section 2(15), and also omitted section 13(1)(bb ). 28. It is pertinent to mention here that the above amendments made by the Finance Act 1983, dropping of the words "not involving the carrying on any activity for profit" did not bring any major change as corresponding amendments were also made in section 11 of the Act wherein more stringent restrictions (as discussed above) were brought in. 29. The rigour of newly inserted section 11(4A), however, was diluted by the Finance (No. 2) Act, 1991 Sub-section (4A) of section 11 was amended with effect from 1-4-1992 to provide that sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. The amended section 11(4A) read as und....
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..... in respect of the institutions carrying out the activity for advancement of general public utility. However dropping the crucial words "not involving the carrying on of any activity for profit" from section 2(15) and bringing the crucial words "unless the business is incidental to the attainment of the objectives of the trust" by way of amendment in section 11(4A) allowed the institutions carrying out the activity for the advancement of object of General Public Utility to carry out business activity also, if the business activities are incidental to the attainment of their objective. Earlier , the provisions of section 13(1)(bb) provided that the institutions carrying out the activity under the first three limbs i.e. relief to the poor, education and medical relief are permitted to business activity in the course of the actual carrying out of their primary purpose. However, the omission of section 13(1) (bb) and corresponding amendments brought in section 11(4A) brought the institutions carrying out the activity of General Public Utility at par with the Institutions carrying on the activity as per first three limbs of section 2(15) of the Act allowing the carrying of business act....
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....pt the argument on behalf of the trust that it was entitled to the exemption under section 11. (ii) However, in respect of the assessment years 1984-85 to 1991-92 when the provisions of section 13(1)(bb)) stood omitted the court observed that Sub-section (4) of section 11 remains on the statute book and it defines the words 'property held under trust' for the purposes of section 11 to include a business held under trust. Sub-section (4A) restricts the benefit under section 11 so that it is not available for income derived from business unless (a) the business is carried on by a trust only for public religious purposes and it is of printing and publishing books or any other notified kind. That the newspaper business that was carried on by the trust did not fall within sub-section (4A). The trust was not only for public religious purposes, so it did not fall within clause (a). It was a trust not an institution, so it did not fall within clause (b). It must, therefore, be held that for the assessment years in question, the trust was not entitled to the exemption contained in section 11 in respect of the income of its newspaper. (iii) However, in respect of the assess....
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.... attainment of the objects of the trust . 33. The Supreme Court again considered the applicability of the last limb of the definition of 'charitable purpose' in the case of 'CIT v. Gujarat Maritime Board' [2007] 295 ITR 561 [2008] 166 Taxman 58 (SC), the Court observed that he expression 'any other object of general public utility' is of the widest connotation. The expression would prima facie include all objects which promote the welfare of the general public. 34. The amendment brought by Finance Act 1983 to Section 2(15) remained in force from 1984 to 2009. The legal position remained that to claim exemption from taxation under section 11 of the Act, making profits from a business activity must be incidental to the attainment of objectives of the trust i.e. it must subserve the end result for the end motive of charity. Further that separate books of accounts should be maintained in respect of such business activity by the assessee. 35. However vide Finance Act, 2008 w.e.f. 1.4.2009, a new proviso (i.e. fist proviso) was added to this provision, carving out an exception in the cases of 'advancement of any other object of general utility: "2 (15) "charitable purpo....
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....blic utility. Hence, the restriction put by section 11(4A) was still applicable to the other limbs in the definition of charitable purposes u/s 2(15) of the Act. 38. The Note on Clauses-Memorandum explaining the clause read as under:- 'RATIONALISATION AND SIMPLIFICATION MEASURES Streamlining the definition of "charitable purpose" Section 2(15) of the Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or Section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of general public utility" as is included in the fourth limb of the current definition of "charitable purpose". Such a claim, when made in respect of an activity carried out on commercial lines, is contrary to the intention of the provision. With a view to limiting the scope of the phrase "advancement of any other object of general public ut....
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.... assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes. In such a case, the object of 'general public utility' will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business. Each case would, therefore, have to be decided on its own facts, and generalizations are not possible. An assessee who claims that their object is 'charitable purpose' within the meaning of s. 2(15) would be well advised to eschew any activity which is in the nature of trade, commerce or business or rendering of any service in relation to any trade, commerce or business." (emphasis supplied by us) 40. The above explanation given by the CBDT that the newly amended s. 2(15) will apply only to the entities whose purpose is 'advancement of any other object of general public utility' and that such entities will ....
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....to these words especially in a taxing statute. The Hon'ble High Court observed that if a trade or business for a commercial activity did not result in profit, it would not be necessary to deal with the same in the Income Tax Act. The hon'ble High Court observed that there was nothing in the Act and particular in section 2 (15) thereof that indicated that the Legislature contemplated a trade or a business or a commercial activity other than for profit. The Hon'ble High Court in this respect referred to the several judgments of the Delhi High Court including in the case of Bureau of Indian Standards v. DGIT(Exemptions) [2013] 358 ITR 78/212 Taxman 210/[2012] 27 taxmann.com 127, The Institute of Chartered Accountants of India v. DGIT (Exemptions), [2013] 358 ITR 91/217 Taxman 152/35 taxmann.com 140 wherein it has been held that while construing the term business for the purpose of Section 2(15) of the Act the object and purpose of the Section must be kept in mind and a broad and extended definition of business would not be applicable for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act. The object of introducing the first proviso is to exclude org....
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.... 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 business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes." (emphasis supplied by us) 41. The crucial point for the entire discus....
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.... would not lose its character of a charitable purpose merely because some profit arises from the activity. 43. From the above discussion and in the light of decisions rendered by the Delhi High Court in the cases as discussed above and of the Jurisdictional Pb. & Hry. High court in the case of 'The Tribune Trust' (supra) the position that has emerged is that as if the new proviso to section 2(15) has never been brought in and has been rendered redundant or otiose. The theory of predominant object or activity and incidental income therefrom can well be applied as per the provisions of section 11(4A) of the Act and as interpreted by the Supreme Court in the case of 'Thanthi Trust' (supra) and several High Court decisions thereafter. Even with all due respect, in our humble opinion, the restriction put by newly inserted proviso was applicable only to the activity of 'any other object of general public utility' but not to the other limbs of the definition as provided u/s 2(15) of the Act. Hence, to say that the newly inserted proviso would make for all purposes the section 2(23)(iv) or section 11 (4) of the Act redundant or otiose, in our humble view, may not be correct. Even the cr....
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.... or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity; Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is 10 lakh rupees or less in the previous year.' (emphasis supplied by us) 45. The CBDT issued explanatory notes to the provisions of the Finance Act, 2010 vide circular no. 01/2011 dated, the 6th april, 2011, the relevant part in respect of the aforesaid amendment read as under: "4. Change in the Definition of "charitable purpose" 4.1 For the purposes of the Income-tax Act, "charitable purpose" has been defined in section 2(15) which, among others, includes "the advancement of any other object of general public utility". 4.2 However, "the advancement of any other object of general public utility" is not 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 n....
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....finition of charitable purpose in the Income-tax Act The primary condition for grant of exemption to a trust or institution under section 11 of the Act is that the income derived from property held under trust should be applied for charitable purposes in India. 'Charitable purpose' is defined in section 2(15) of the Act. The section, inter alia, provides that 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. However, this restriction shall not apply if the aggregate value of the receipts from the activities referred above is twenty five lakh rupees or less in the previous year. The institutions which, as part of genuine charitable activities, undertake activities like publishing books or holding program on yoga or other programs as part of actual carrying out of the objects which are of charitable natu....
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....ctivities. The amendments brought out to second proviso w.e.f. 1.4.2016 seeks remove hardship of restriction of receipts of Rs. 25 lakh to the institutes who carry on the genuine charitable activities for the advancement of their object of general public utility on a large scale and receives incidental or sundry receipts as per their large volume of activity which may cross the prescribed limit of Rs. 25 Lakhs. Hence to rationalize the definition of 'Charitable purposes' the limit of receipt of Rs. 25 Lakhs has been substituted with 20% of the total receipts. 50. At this stage, it is important to note that vide finance Act 2012, with retrospective effect from 1.4.2009 has inserted sub-section (8) to section 13 of the Act, which read as under: " [(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year." 51. The parliamentary notes on clauses explaining the above amendment to section 13 read as under: Clause 6 of t....
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....f. 1-4-2009 which deals with the assessment, adding third proviso thereto: "Assessment : 143. (1................. (3) On the day specified in the notice,- ..................... Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded." 54. Therefore, with the introduction of second proviso to section 2(15) there is a paradigm shift from the earlier position. Though, some of the decisions of the Delhi High Court as referred to above and that of the Pb. & Hry. High Court in the case of The Tribune Trust (supra) have been delivered subsequent to the introduction of the second proviso to section 2(15) of the Act, however in none of the above referred to decision....
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....first proviso to the institutions genuinely carrying on the activity of general public utility. Since the interpretation adopted by the courts was not the literal interpretation of the proviso, but there was departure from the literal meaning because of the hardships which may be faced by the trusts carrying genuine charitable activities in giving literal and plain meaning to first proviso, hence under the circumstances, when the Parliament itself has introduced the second proviso to remove the rigour of the first proviso and to mitigate the hardships created by the first proviso, hence the interpretation of the section 2(15) in the changed scenario is to be given by taking into consideration the section in its entirety and also in the light of consequential amendments carried out in sections 10(23C), 13, and 143 of the Act and thereby making the newly inserted second proviso and amendments thereto and other amended section meaningful and workable so as to achieve and serve the intended purposes for which they have been introduced by the legislature in the statute. 55. It is to be noted that the section 2(15) as it stood post insertion of the first proviso w.e.f.1.4.2009, the ch....
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....enefit under section 11 so that it is not available for income derived from business unless the business is carried on by a trust only for public religious purposes and it is of printing and publishing books or any other notified kind. The court held that the newspaper business that was carried on by the trust did not fall within sub-section (4A). This finding of the Hon'ble Supreme Court is in departure from the earlier interpretation made by it in the case of "Surat Art silk Cloth Manufactures Association"(supra) wherein it was held that the literal and plain meaning of the provisions of section 2(15) in context of the words "not for making profit" would render the provisions of section 11 (4) wholly superfluous and meaningless, despite the fact that these words barring the activity of the making of profit were applicable only in respect of institutions carrying on the activity in respect of advancement of other objects of public utility, whereas, the provisions of section 11(4) still holding good for the institutions carrying in the activity in respect of first three limbs i.e. relief to poor, education and medical relief. However in the subsequent decision in the case of Thanth....
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....mmerce or the services in relation to business trade or commerce for a cess or fee and even it was also clarified that application or the retention of such income from such activity will be immaterial. The High Courts of Delhi and Pb. & Hry. in the cases as referred to above , however, held that the above provision was a harsh provision and the consequences of the same could be like as it were that the introduction of words "not for making profits" in section which operated from 1961 to 1983. Even the Courts of law also following the proposition laid down by the Hon'ble Supreme Court in the case of 'Surat Art Silk' (supra) held that the literal and plain meaning cannot be given to the said first proviso to section 2(15) of the Act and therefore, propounded the 'pre-dominant object theory' or 'the ultimate fulfilment of object theory' on the same lines as was given in the case of 'Surat Art Silk' (supra) by the Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of 'Surat Art Silk' (supra) in para 11 of the decision has held that in the ordinary course, the different interpretation should not be done if the words of the statute taken could not alter the meaning of a stat....
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....e situation will be as if the second proviso was never inserted or existed in the Act, what to say its subsequent amendment by way of increasing the limit of Rs. 25 lacs and then to the 20% of the total receipts and other corresponding amendments to section 10, section 13, and section 143. In our view, sticking to the interpretation which was given by the Courts before introduction or bereft of second proviso to section 2(15) of the Act, would lead to unintended construction, which will be against the spirit of statutory provisions. The subsequent amendments, as discussed above, in our view, definitely have a bearing on the interpretation which was done by the Courts of law taking into consideration the harshness of the first proviso to section 2(15) alone. However, the leverage provided to the institution by way of insertion of second proviso would prompt us re-think and re appraise about the literal interpretation of the section. The subsequent amendments brought in section 10(23C), section 13 and section 143 of the act with retrospective effect from 1.4.2009, the date on which the first proviso comes in effect, also cannot be ignored or rendered redundant. As it stands, post ins....
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.... of the widest connotation. The expression would prima facie include all objects which promote the welfare of the general public. 61. A company or trust involved in the insurance business for profit will claim that the object, purpose and activity of the insurance activity is towards the advancement of object of general public utility as it provides security against unforeseen events to the insured . An industrialist will also claim exemption on the ground that by way of establishing industry, it has contributed towards the advancement of object of general public utility as with the establishment of industry, it generated employment and that it has also contributed towards infrastructure development and boosting the economy of the country. A manufacturer of medicine will also so claim that medicines are made by him with the object of providing people of country the essential and useful drugs for fighting dreaded disease and sickness and even lifesaving drugs and also contributing towards improvement of health of the people for advancement of object of general public utility. A road contractor will also claim that the road maintained or constructed by it, though with profit motiv....
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....as also considered by the Coordinate Mumbai Benches of the Tribunal in the cases of "Ghatkopar Jolly Gymkhana v. Director of Income-tax (E)" reported in [2013] 40 taxmann.com 207 (Mumbai - Trib.) and "Cotton Textiles Exports Promotion Council v. Director of Income-tax (Exemption), Mumbai reported in [2014] 44 taxmann.com 168 [Judicial Member of this Bench being party to the said decisions also) wherein it has been held that the first proviso to section 2(15) is a very rigorous provision which excludes the institution or trust from the definition of charitable trust, if such trust carries activities in the nature of trade, commerce or business....irrespective of the nature of use or application or retention of the income from such activity. That, however, by the insertion of the second proviso w.e.f. 01.04.2009 the rigour of the first proviso has been diluted and that the first proviso will not apply even if the trust carrying on business activities in the course of its dominant activities for the purpose of advancement of any other objects of general public utility and the gross receipts from such activities is Rs. 10.00 lacs or less in the previous year. However where the gross re....
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.... we want to convey is that existence and effect of the amended provisions of sections 2(15), section 13, section 23 and section 143 of the Act cannot be just ignored or negated rather the same are to be read along with other relating provisions of the Act such as sections 11(4) and 11 (4A) of the Act and a harmonious construction is to be arrived at. 64. We may point out here that in the decision of the Coordinate Amritsar Bench of the Tribunal in the case of 'Hoshiarpur Improvement Trust (supra)', the issue relating to the effect and consequences of insertion of the second proviso w.e.f. 1.4.2009 did not come for discussion , however, the Tribunal did take the note amendment to section 2(15) by Finance Act 2015 w.e.f. 2016 and held that the new proviso, with effect from 1st April 2016, seeks to exclude, from the scope of section 2(15), the situations in which even in the course of pursuing advancement of any objects of general public utility when any activities in the nature of trade, commerce or business etc is undertaken in the course of actual carrying out of such advancement of any other object of general public utility, unless, the activity level remains within the thresho....
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....er such a statutory provision stands the legal scrutiny or not is another aspect of the matter, and that is none of our concern at present anyway, it is beyond doubt that the new proviso, with effect from 1st April 2016, seeks to exclude, from the scope of section 2(15), the situations in which even in the course of pursuing advancement of any objects of general public utility when any activities in the nature of trade, commerce or business etc "is undertaken in the course of actual carrying out of such advancement of any other object of general public utility", unless, of course, the activity level remains within the threshold limit i.e. receipts from such activities are less than twenty percent of total receipts of that year." 65. We may point out here that the Amritsar Bench of the Tribunal has held that substitution of proviso to Section 2(15), by Finance Act 2015 has brought a paradigm shift in the scope of the exclusion clause i.e first proviso to section 2(15) of the Act. However the paradigm shift brought by the insertion of second proviso to section 2(15) did not come for discussion before the Coordinate Bench of the Tribunal. In the first proviso, the words 'if it invo....
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....he literal interpretation is given to the proviso to Section 2(15) of the Act, then there would be no institution whatsoever which would qualify for the exemption under Section 10(23C)(iv) of the said Act and the said provision would be rendered redundant. That 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). (ii) That section 11(4) recognizes that "property held under trust" includes a business undertaking and, therefore, the business activity is not excluded from the charitable activity or charitable purpose and that the literal and plain meaning to first proviso to section 2(15) of the Act will make this section redundant. Reference has been made to the decision of the Hon'ble Supreme Court in Surat Art Silk case wherein the Hon'ble Supreme court has observed that Section 11(4) , would be rendered wholly superfluous and meaningless, after the insertion of clause (bb) in section 13(1) with effect from 1-4-1977. (iii) Then there is section 13(8) of the Income Tax Act, which states that nothing contained in section 11 or section 12 shall operate so as to exclude ....
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....itution referred to in sub-clause (iiiad) or sub-clause (vi) or by any hospital or other institution referred to in sub-clause (iiiae) or sub-clause (via) of clause (23C) of section 10 or by an electoral trust. xxxxx xxxxx Incomes not included in total income. Section 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- xxxxx (23C) any income received by any person on behalf of- xxxxxxxxx (iv) any other fund or institution established for charitable purposes which may be approved by the prescribed authority , having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States; or (v) any trust (including any other legal obligation) or institution wholly for public religious purposes or wholly for public religious and charitable purposes, which may be approved by the prescribed authority , having regard to the manner in which the affairs of the trust or institution are administered and supervised for ensuring that the income accruing thereto is prop....
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....xxxxxxx Provided also that notwithstanding anything contained in the first and the second proviso, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded." 68. The provisions of different sections as enumerated above, in our view, are to be read to be in harmony with each other so that each and every section should aid and supplement to the meaning and construction of other, so as to arrive at the correct interpretation rather than to read any or each of them in contradiction of each other making the other provision/s redundant and inoperative leading to confusion, anomaly and absurdity. Therefore, these provisions are to be read as each provision of the section supplement to other and not supplant the other and so that a reasonable construction may be arrived at and applied as ma....
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....ere that the income of a charitable institution cannot be only from commercial activity, but there are other modes of income also as per the provisions of section 2(24)(iia) of the Act. Voluntary contributions received by the trust created wholly or partly for charitable or religious purposes and included in the definition of income apart from voluntary contribution, such charitable trust or institution may receive grants from other modes or activity which may not in strict term to be said to be the activities in the nature of trade, commerce or business. Suppose, a trust or institutions engaged in the activity of imparting training in sports receives a nominal registration fee from the trainees. Can it be said to be an activity in the nature of trade, commerce or business? The answer will be in negative. Whether a particular activity is in the nature of trade, commerce or business is to be examined taking into consideration the nature of activity, the object and purpose of such activity, the volume of such activity and the nature and volume of the receipts and further the application thereof also. Every receipt of income, in our view, cannot be termed as activity in the nature of ....
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....evious years if the provisions of first proviso to clause (15) of section 2 becomes applicable. So the construction that any type of receipt which is incidental or ancillary to the carrying out of the advancement of objects of general public utility will be considered as income from charitable purposes if applied, such construction would not only render the first and second proviso to section 2(15) as amended from time to time and but also section 13(8) of the statute redundant and inoperative defeating the purpose for which they were brought into statute by Parliament will be defeated. At the same time, when we read the provisions of section 13(8) in isolation, it will make the provisions of sections 11 (4) and 11 (4A) of the Act inoperative for the institution carrying of object of advancement of general public utility, which also involves the activity of carrying of business, trade or commerce generating ancillary or incidental income. However, by the insertion of second proviso to section 2(15) as amended from time to time, the anomaly, if any, has been removed. 70. A harmonious construction of these amended provisions will lead to the conclusion that each of the provisions ....
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....the provisions of sections 11(4) & (4A) and section 10(23C)(iv) can be applied accordingly and such a construction will not make any provision contrary or in contradiction to the other, rather will supplement each other. Even the section 13(8) of the Act can also be meaningfully applied which will be required to read in the light of the second proviso to section 2(15) of the Act and thus harmonious construction of the related provisions will give a meaningful and workable interpretation as intended by the Parliament. Hence, in the light of discussion made above of the relevant provisions of the Act, the interpretation that may be arrived is that for the trusts or the institutions carrying on the activity included in the first part of definition of 'charitable purposes' as defined u/s 2(15) of the Act viz. for the objects of relief to the poor, education yoga, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest and are also carrying on the business activity which is incidental to the attainment of objective of such trust or institution [as provided u/s 11(4A)], they are entitled to claim exemption of thei....
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....ss activity are ploughed back to sub serve the main or the predominant object of the trust. In this respect the words "irrespective of the nature of use or application, or retention, of the income from such activity" finding place in the first proviso to section 2(15) of the Act would come into play. However, the other restrictions as provided under section 11(4A), 13(8) and 143(3) as discussed above, would accordingly apply for claiming exemption u/s 11 of the Act; However, the restriction inter alia put under the provisos to section 10(23C)(iv) and section 143(3) along with restrictions put by the provisos to section 2(15), as discussed above, will apply for claiming exemption u/s10(23) (iv). These restriction put under the provisos to section 2(15) are applicable only to the activity of advancement of any other object of general public utility. 72. However, even after holding that the harmonious reading of the related provisions of the Act, as discussed above, will lead to the conclusion that it cannot be said that any of the related section is in contradiction to the other or in any manner making inoperative or redundant the other, we still are of the view, that there remain....
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....acs or Rs. 25 lacs or 20% of the total receipt as applicable for the different assessment years, however, the income of an institution carrying on the activity of general public utility on large scale will become taxable if the receipts from the incidental commercial activity crosses the limits as prescribed for different assessment years as noted above. Though by way of amendment to second proviso vide Finance Act 2015 w.e.f. 1.4.2016, the government has tried to remove the anomaly by substituting fixed limit of receipts of Rs. 25 lacs with the 20% of the total receipts, however, the question is that the receipts from the incidental or ancillary commercial activity cannot, in our view, be controlled or restricted by way of measuring or controlling the activities with golden scale or to say to check the same on day to day basis and the stop carrying out the incidental activity, which otherwise may be necessary to achieve the main object of general public utility, the moment the receipts touch the threshold. The Hon'ble Supreme Court in the case of " Surat Art Silk Cloth Manf. Assn." (supra) has held, "It would indeed be difficult for persons in charge of a trust or institution to s....
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.... Tax Act. Any other interpretation or conclusion, in our view, would not be towards the achievement of the object or purpose for their insertion or introduction in the statute and even will lead to hardship to the institutions genuinely carrying on the activities of advancement of general public utility. 74. After holding as above, now, let us revert to the facts of the present case. The assessee herein, inter alia, has taken a plea that that the assessee- association is involved in imparting training to boys and girls in Tennis and is running a tennis academy having coaches and instructor therefore the assessee trust can be said to be engaged in imparting education and thus, is covered in the first limb of section 2(15) and not under the last or residual limb. The Ld. Counsel, in this respect, has relied upon the decision of the Delhi Bench of the Tribunal in the case of 'PitanjaliYog Peeth Nyas v. ADIT' (Exemptions) (supra) wherein it has been held that imparting training in Yoga amounts to educational activity. 75. We are not convinced by the above argument of the ld. Counsel for the assessee. 'Education' as defined under section 2(15) of the Act, in our view, can not be a....
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....night club, you get acquainted with and add to your knowledge about some of the not much revealed realities and mysteries of life. All this in a way is education in the great school of life. But that is not the sense in which the word "education" is used in clause (15) of section 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling. The question as to whether a trust the object of which is to supply the people with an organ of educated public opinion should be considered to be one for education or for any other object of public utility was considered by the Judicial Committee in the case of In re Trustees of the Tribune [1939] 7 ITR 415 (PC). In that case a person who owned a press and a newspaper created a trust by his will by which his property in the stock and goodwill of the press and newspaper was made to vest permanently in a committee of certain members. It was the duty of the said committee of trustees under the will "to maintain the said press and newspaper in an efficient condition, and to keep up the liberal policy of the said newspaper, devoting the surplus i....
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....i High Court. The Hon'ble Delhi High Court while admitting the appeal of the revenue has however held that the dissemination of yoga or vedic philosophy or the practice of yoga or education with respect to yoga was well within the larger term "medical relief" and that no substantial question of law was involved on this aspect. It is further pertinent to mention here that yoga has been specifically included as a limb of charity in section (15) of the Act w.e.f. 01.04.2016 on the same lines as education, medical relief, relief to the poor, etc. In view of the above discussion, the case law cited by the assessee is not applicable to the facts and circumstances of the case. The contention of the assessee that the activity of the assessee of providing training in tennis is education, therefor, can not be accepted, however, the same can very well be said to be towards the advancement of any other object of general public utility. 77. Now coming to the point as to whether the activity of the assessee is hit by the provisos to section 2(15) and other related provisions of the Act, it is neither the case of the Assessing officer nor of the CIT(A) that the assessee is regularly followi....
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....p and it got a positive net income of Rs. 1,06,14,830/- in respect of which exemption has been claimed for the year under consideration, however the same has been denied by the Revenue authorities holding that the assessee was indulged in commercial activity. However, for the next year 2013-14, the assessee got net income of Rs. 25,15,760/-. For the year 2014-15, the assessee suffered loss in domestic matches whereas it got positive income in one of the international tournament, whereas, he suffered loss in two international tournaments and the net income of the assessee in holding all matches came to Rs. 2,07,766/-. For the year 2015-16, the assessee suffered loss of Rs. 22,22,965/- and similarly for the year 2016-17, though the assessee got net positive income from domestic matches, however, it suffered losses from holding of international matches and the net result was of loss of Rs. 13,42,858/-. 78. The Ld. Counsel for the assessee, therefore, has submitted that for the promotion of game of tennis, catching young talent, not only out of urban population, but also from rural population, imparting training in tennis to them and even financial help including the schooling of th....