TaxTMI 
TaxTMI 
2019 (1) TMI 880
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.... following are its main objectives:- "(a) To promote understanding and amity between the different communities of the world by undertaking or promoting the study of their past and present cultures, by disseminating or exchanging knowledge thereof, and by providing such facilities as would lead to their universal application; (b) To organize and maintain, as far as possible, on a no-profit/no loss basis, limited residential accommodation, with cultural and educational amenities for the members of the society as well as non-members specially invited to participate in the activities of the Centre." 3. On perusal of accumulation chart and Income & Expenditure Account, he observed that the major activities of the assessee revolve around accommodation and catering facilities and these activities are not on no profit/no loss basis since there is continuous surplus being reflected in the account for many previous years. Profiteering negates the character of the Trust of being charitable. He further noted that the second objective mentioned is not charitable in itself and it becomes charitable only when it is read with first objective. But, beneficiary in the first c....
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.... not a case where the AO has not made enquiries regarding the activities being undertaken by the assessee. That activities pertaining to accommodation, food and beverages is also one of the activities of the assessee, is neither hidden or is not something new that has been undertaken by the assessee for the first time and in any case, was glaringly visible and known to AO while passing the assessment order. It was perhaps in the background of these activities that AO has raised a specific query as to whether assessee is carrying out any business. On being satisfied based on the information filed that AO after due application of his mind, had passed the order. The latest amendment u/s.2(15) were also in the mind of the AO and thereon also he made a specific query which was also replied to. These activities are very much part and parcel of overall objectives contained in the Memorandum of Association of the assessee. It is the same Memorandum of Association and Rules & Regulations which are continuing ever since the assessee has been formed and there is no change in the rules and regulations or in the Memorandum of Association of the assessee. It is the same Memorandum of Association....
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..... Delhi Gymkhana Club Ltd. [2011] 339 ITR 525, 527 (Del) * CIT vs. Executors of Estate of Late H.H. Raj kuverba Dowager 115 ITR 301, 305 (Karn.) * Jagadhary Electricity Supply Co., 166 ITR 143 (Punjab) * 163 ITR 129,137 (Mad.) - Venkata Krishna Rice Co. Vs. CIT. * 160 ITR 123 (Karnataka) - Shivaputrappa Chanappa Mangoli * 189 ITR, 772 (Allahabad)-K.N.Agarwal Vs. CIT * 243 ITR 83, 87 (S.C.) - Malabar Industrial Co. Ltd. Vs. CIT * 243 ITR 490, 500 (Madras) - CIT Vs. Seshasiyas Paper 5. However, the ld.CIT (E) was not satisfied with the arguments advanced by the assessee and held that the order passed u/s 143(3) dated 7th March, 2013 is erroneous and prejudicial to the interests of the Revenue. He, therefore, set aside the order passed by the Assessing Officer with a direction to examine the issues discussed and frame the assessment afresh. The relevant observations of the CIT(E) from para 3 onwards read as under:- "3. I have carefully considered the submissions made by the assessee and gone through the facts of the case. It is seen that the assessee is a Society registered under Society Registration Act, 1860 ....
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....eported in Form no. 10 BB is concerned, both the return of income as well as the form No. 10 BB are silent on it. 3.2 The AO, however, accepted the Nil income filed by the assessee in assessment order dated 07.03.2013 passed u/s 143 (3) observing as under :- "The assessee is registered u/s 12A(a) of the I.T. Act, since 18.06.1973 and also approved u/s 80G(5)(vi) of the I.T. Act, valid from 2010-11 to 2012-13. The assessee is notified exempt u/s 10(23) (c)(iv), of the I. T. Act, 1961 for the assessment year 2006-07 and onwards vide notice No. 13 /2007 dated 19.1.2007 from the detail submitted the assessee, it is seen that the assessee the society is engaged in cultural, educational and intellectual activities. During the year under consideration, it conducted many seminars, talks, discussions and cultural activities. After examining the details and explanations and the books of accounts, which were examined on test check basis, the assessee is appears be carrying out its activities as per provisions of section 11 to 12 of the Income Tax Act, 1961. Hence the total income of the assessee returned at Rs. Nil is accepted." 3.3 As regards the claim of ....
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.... or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded." 3.5 The assessee has submitted that its activities are not driven by profit making which is an essential ingredient to hold the activity as being in pursuance of a business or trade with a profit motive. It is contended the activities of the assessee for the AY 2009-10 & 2010-11 after insertion of proviso to section 2(15) have not been hit by these provisions. As the Activities of the assessee are on no profit no loss basis, it is not having any commercial activity. However, as per the Income and Expenditure account of the assessee, the surplus generated in assessee's case os...... Rs. 292.17 lacs as against Rs. 230.08 lacs in the preceding assessment year. Therefore, the claim of the assessee that its activities are not on commercial lines is not tenable and provisions of proviso 1 & 2 to section 2(15) r/w 3rd proviso to section 143(3) of the Income Tax Act are applicable to the assessee as such exemption u/s 10(23C)(iv) is not allowable to assessee. Its income was to be computed under chapter IV of the Income Tax Act. The( AO has, however, failed to look into ....
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....ind is not correct. Seeking information, getting the same and placing it on record does not by itself prove the application of mind by the assessing officer. It is not a case where the argument of two opinions or the argument of due application of mind by the assessing officer holds good. Therefore, both these lines of argument by the assessee is rejected. 4.1 Reliance is also placed on the decision of Hon'ble High Court of Rajasthan in the case of Smt. Renu Gupta 301 ITR 45 wherein it was held as under:- "Where Commissioner set aside assessment order on ground that though Assessing Officer seemed to hold deep investigation by selecting case for scrutiny, but, on otherhand, submissions of assessee were accepted without obtaining details and without considering further inquiry/investigation, as assessment had been completed in routine manner without applying his mind. Commissioner was justified in holding that assessment order was erroneous and prejudicial to interest of revenue." 4.2 This is a clear case of non application of mind and non application of law. The asstt. order by mere reading of it is erroneous as it has treated the whole of income of t....
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....is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.... The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue if due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue." 5 In view of the detailed discussion as above it is held that the order u/s 143 (3) dated 07.03.2013, is erroneous and prejudicial to the interest of revenue. The assessment order is, therefore, set aside with the directions to the AO to examine the issues discussed above and frame the asstt. afresh. The AO shall frame the assessment after properly examining for necessary supporting details / evidences and after giving the assessee due opportunity of being heard." 5.1 Aggrieved with such order of the CIT(E), the assessee is in appeal before the Tribunal by....
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....dependent of and without prejudice to the other grounds raised herein. P R A Y E R The appellant-assessee prays that the relief as per grounds of appeal above may kindly be allowed to it and the appellant may also be allowed to add, delete, amend or substitute any ground(s) of appeal either at or before the date of hearing." 6. The ld. counsel for the assessee referred to the order of the Tribunal in assessee's own case for the immediately preceding assessment year i.e., assessment year 2009-10 and submitted that under identical circumstances the order passed u/s 263 by the DIT(E), New Delhi was quashed. The ground raised by the Revenue challenging the order of the CIT(A) allowing the benefit of section 11 and 12 of the IT Act ignoring that the activities of the trust were not within the purview of section 2(15) of the Act during the year was upheld by the Tribunal, vide ITA No.5228/Del/2015, order dated 9th October, 2017 for assessment year 2011-12, and the ground raised by the Revenue was dismissed and on a further appeal by the Revenue the Hon'ble High Court has dismissed the appeal filed by the Revenue. He accordingly submitted that this being a covered....
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....hich was accepted by the Assessing Officer in the order passed u/s 143(3) dated 7th March, 2013. As per Form No.10BB out of total income of Rs. 8,07,18,905/-, the assessee has applied income for charitable purposes of Rs. 4,07,53,620/-, income allowed to be accumulated to the extent of 15% of Rs. 1,21,07,836/- and the assessee has accumulated an amount of Rs. 2,78,57,449/-. According to the ld.CIT(E), the total income/expenditure/surplus, etc., as per the Income & Expenditure Account for the current assessment year are Rs. 3,123.95 lakhs/Rs.2,644.20 lakhs/Rs.479.75 lakhs, respectively. According to him, the assessee has claimed only part of its income as exempt and compliance of condition laid down u/s 10(23)(c)(iv) is limited to the extent of income of Rs. 8,07,18,905/-. It is also his observation that the Assessing Officer has failed to examine as to whether the activities of the assessee are exempt in nature. In view of the same, he has invoked the provisions of Section 263 of the IT Act and restored the matter to the file of the Assessing Officer for fresh examination. 8.1 We find identical issue had come up before the Tribunal in assessee's own case for the immediately p....
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....tainment of its main object. However, after application of proviso to section 2(15), by insertion of 17 th proviso to section 10(23C) by Finance Act, 2012 with retrospective effect from 1-4-2009, the ambit has considerably been widened and if an assessee is carrying on any activity which is in the nature of trade, commerce or business then the assessee cannot be said to be carrying on charitable activities. In view of changed legal position, ld. DIT(E) concluded that since AO had not considered the applicability of proviso to section 2(15), the assessment order was erroneous as well as prejudicial to the interest of Revenue. 6.3. Admittedly, the third proviso to section 143(3), requiring the AO to examine the applicability of proviso to section 2(15) in case of institutions notified u/s 10(23C)(iv) in view of insertion of 17th proviso to section 10(23C), was not on statute book at the time when assessment order was passed and since the notification remained in force, in any view of the matter, the invocation of section 263 by ld. DIT(E) was not justified in view of the decision of Hon'ble Supreme Court in the case of Max India Ltd. (supra), wherein it has been hel....
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....section 2(15), we proceed to examine the same. First objection of revenue is with regard to the amounts realized out of catering facilities provided at the centre. Catering facilities were provided in the centre for members who came to the centre or stayed in the centre and attended discourses, conferences, seminars, lectures etc. We reproduce the following note filed by assessee on catering facilities at the centre: "INDIA INTERNATIONAL CENTRE Note on Catering Facilities at the Centre Catering facilities are provided in the Centre for members who come to the Centre or stay in the Centre and attend the discourses, conferences, seminars, lectures. The Centre has two dining halls and two Lounges. The dining hall operates for breakfast, lunch and dinner. The lounge provides variety of snacks, tea coffee and soft drinks. In the Dining Hall of the Main Centre, a Member can book a table for maximum of 8 persons including guests. It may be stated that it is only the Members who can hold conferences, seminars and the centre is also providing catering services to them. The Rules relating to the booking and cancellation of IIC conferencing and catering facilities: ....
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....ritable in nature and it has been so held right from its inception year after year. There is absolutely no change in the objects or the activities of the Centre right from its inception. Hostel services are predominant to sub-serve the main objective of the Centre i.e. organizing a very large number of programmes throughout the year which are open to the general public, free of cost, the price of which is inestimable. The activity of hostel provides basic amenities to all the invitees in the seminars, cultural and other functions and to research scholars free of cost and only guests of members are allowed to avail of facilities in case surplus accommodation is available at times. Your kind attention is invited to Art.VII of Memorandum of the Centre which states "to organize and maintain, as far as possible, on no-profit no-loss basis, limited residential accommodation, with cultural and educational amenities, for the members of the Society coming to participate in the activities of the Society and of other bodies with cognate objectives, as well as, nonmembers, specially invited to participate in the activities of the Society", We give herein below a resume of the....
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....stitution of not only for promoting culture and academic thought. but also in inducting members ensures that the Members fulfill the objects of the Centre. Annual Subscription is charged from the members. 6.10. In the backdrop of aforementioned factual background, we proceed to examine whether these activities take colour of trade or business activity or merely facilitating in achievement of dominant object of assessee, which is the test. 6.11. The assessee society was formed to promote, understanding and amity between different communities of the world by undertaking or promoting study of their past and present culture, by disseminating or exchanging knowledge thereof, and to provide facilities for undertaking, organizing and facilitating study courses, conferences, seminars, lectures and research on various matters in order to achieve these objects and to provide facilities and also for establishing and maintaining libraries and undertaking such publications the assessee had to earn income to incur expenditure on the activities. At this juncture we may observe that unless there is profit motive in carrying out an activity, it cannot take colour of trade or commerce....
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....efore AO that even while charging the members, there was no commercial motive in fixing the rates. The rates were nowhere near the commercial rates and were generally fixed to recover the cost and cost of activities to run the centre. These activities could not be treated in the nature of trade or commerce. 6.13. As regards hostel accommodation, there were number of rooms and guidelines for hiring of the accommodation and also there were restrictions. It was also pointed out that, as could be seen from the list of programmes, the assessee conducted very large number of programmes during the year which covered discussions, music, dances, exhibitions and also certain special programmes such as festivals during the course of the year. These programmes were published through the newspapers and website. Further e-mails were sent to members as well as non-members. Periodical articles also appeared in the various newspapers highlighting some of the special programmes conducted by the centre. 6.14. As regards ld. DIT(E)'s objection with regard to the membership of the centre, the assessee had pointed out before the AO itself that individual membership was open to all persons of India....
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....them certifying that the applicant is personally known to him or her and is, in his opinion, a person fit to be admitted as a member of the Centre. 6.15. From the rule, it is evident that members are persons in the field of academic, art, culture, science, technology, sports or those engaged in public or professional functions and activities and are admitted as such in accordance with the decisions taken by the Board in this behalf, in order to achieve the main object of assessee of disseminating knowledge in various fields to public at large. 6.16. The assessee also pointed out that the members are presently from all over the world and about 30% of members are outside the Delhi NCR region. 6.17. From the detailed submissions of assessee, reproduced earlier, which have not been controverted by department, we fail to understand as to how these activities can be said to have an iota of commercial/ trade colour. The dominant object of the assessee is definitely for the well being of public at large by organizing various seminars for the welfare of people by disseminating knowledge in various fields in order to uplift the social consciousness of the society a....
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....)(iv) of the Act. And, the said provision would be rendered redundant. This is so, because, if the institution had no income, recourse to Section 10(23C)(iv) would not be necessary. And, if such an institution had an income, it would not, on the interpretation sought to be given by the revenue, be qualified for being considered as an institution established for charitable purposes. So, either way, the provisions of Section 10 (23C)(iv) would not be available, either because it is not necessary or because it is blocked. The intention behind If introducing the proviso to Section 2(15) of the Act could certainly not have been to render the provisions of Section 10 (23 C)(iv) redundant; ++ it is apparent that merely because a fee or some other consideration is collected 01 received by an institution, it would not lose its character of having been established for c charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was 'not business, trade or commerce, then any such incidental or ancillary activity would also not fall within th....
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....he Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or' any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or 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, i: 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 institu....