TaxTMI 
TaxTMI 
2019 (9) TMI 683
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....inst the decision of ITAT in assessee's favour on the issue, in earlier year. 2. Ld. CIT(A) has erred in allowing the appeal of the assessee by ignoring the ignoring the fact that merely being notified u/s. 10(23C)(iv) does not make assessee entitled to claim exemption till it is proved that the activities carried out by it are within the scope of activities enumerated in the said section. The assessee institution is also hit by 7 proviso to Section 10(23C) as the activities of sale of food and beverages and license fee etc. are the activity of profit or gain of business which is not incidental to the attainment of its objective for which it has been maintaining accounts for the said activity. Also revenue preferred an appeal before Hon'ble High Court against the decision of ITAT in assessee's favour on this issue, in earlier year. 3. Ld. CIT(A) has erred in allowing the appeal of the assessee by ignoring the fact that allowance of depreciation on the fixed assets acquisition of which has been allowed as application of income in earlier years will tantamount to double deduction. 4. The appellant craves leave to add, to alter or amend any ground of appeal ....
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....nce are being reproduced as under:- The facts in brief are that: 1) The assessee society is registered u/s 12A vide registration No. DLI(C)(I-347) 1974-75 since 18.06.1973 an also approved u/s 80G(5)(vi) vide Approval No. DIT(E)/2012- 13/I- 205/426 dated 30.05.2012 valid from AY 2013-14 onwards till it is rescinded. The assessee is notified u/s 10(23C)(iv) of the Income Tax Act 1961 for the Assessment Year 2006-07 and onwards vide Notification No. 13/2007 dated 19.02.2007. There is no dispute on these facts. Copies of certificate u/s 12A, 80G, 10(23C)(iv) of the Act, are enclosed for your ready reference & records. 2) The assessee is an institution, which came into existence by way of creation of a trust vide trust deed dated 23.05.1961. The assessee, as per its Memorandum of Associations (MOA) Rules & Regulations (R&R), is engaged in cultural and intellectual activities. During the year under consideration, it has continued to conduct seminars, talks, discussions and cultural activities as in the past Rule 3 of the MOA of the assessee comprises of its objects. The salient objects of the assessee are as under:- (i) to promote understandi....
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....our honour, but in essence the main ground that arises for consideration before your honour is - as to whether the AO was correct in denying exemption u/s.10(23C)(iv) of the I.T. Act or as was claimed by the assessee on the principle of mutuality on the ground that the activities of the assessee Centre are hit by the first proviso to section 2(15) read with third proviso to section 143(3) of the I.T. Act. 5) The main contention of the AO was that in Form 10BB filed by the assessee, it had disclosed only part of the amount as covered u/s. 10(23C)(iv) of the I.T. Act and that for the balance income or expenses disclosed in the income and expenditure account or the return filed by the assessee, there is no mention and the assessee is silent about the same. Such observations, it is respectfully submitted are factually incorrect. We are filing herewith a detailed paper book, which include a copy of income and expenditure a/c, copy of ITR filed as also the other relevant documents, from where it would be clear that assessee is not silent about the balance income or expenses as per income and expenditure a/c, but the same has been claimed as not forming part of total income on th....
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....at an institution which is carrying out charitable objects will provide the essential facilities free of charge. It is not the allegation of Id. DIT(E) that the main object of assessee, in any manner, did not fulfill the criteria of charitable activity. On the contrary she herself has observed that the first category does fulfill the charitable purpose/criteria and it is only the second category i.e. giving of hostel, catering etc. that the assessee's activities are caught within the mischief of second proviso to section 2(15). It is also not the case of Id. DIT(E) that there was no free access to the general public for programmes such as dance, music, seminars etc. In its reply the assessee had also pointed out that there were number of occasions when the centre did not charge institutions for holding their programmes such as lectures, discussions or seminars etc. Admittedly there is no funding from government or any other outside bodies to sustain activities of promotion of cultural and intellectual activities and, therefore, the assessee had to be totally self supporting and self financing and for this purpose, in order to achieve its main objective, it had to charge and earn re....
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...., the same are exempt from tax under principles of mutuality-and therefore income and expenses in respect thereof have not been included in the above." 7) Therefore, the allegation made in the assessment order that such information came to be known during the course of assessment proceedings only has to be rejected as incorrect looking to the past assessment orders for earlier years as well as Form 10 being a declaration u/s. 11(2) of the I.T. Act filed with the AO before filing of the return. Thus, the whole basis of making assessment is on mis-appreciation of correct facts; and therefore, the final conclusion drawn based on such incorrect observation is claimed as equally incorrect. 8) The other main contention of the AO is regarding applicability of the first and second provisos to section 2(15) of the I.T. Act, which have been inserted on the statute book w.e.f. 1.4.2008. It is respectfully submitted that various authorities have time and again reiterated that so long as the dominant objects of a society remains of charitable nature and any incidental activities for a fee to further the main objects do not fall in the category of carrying out any trade, commer....
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....aritable purpose, but are conducting some activities for a consideration or fee, but to exclude organizations, which are carrying out regular business from the scope of charitable purposes. The jurisdictional Court went on to hold that registration u/s,10(23C) could not be denied as the functions performed by the Institution were the ginnery of public work and not for private gain or profit. Also see - * GSI India vs. Director General of India (Exemption) [2013] 262 CTR 585 (Del.); * Bureau of Indian Standards vs. DGIT (E) [2013] 358 ITR 78 (Del.); Director of Income-tax (E) v. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj.) 11) The main contention of the AO is that activities of providing accommodation and catering facilities to members constitutes trade, commerce or business. However, the activities of providing accommodation and catering facilities to the members are on noprofit no-loss basis, which is one of the objectives of the Institution. As per auditors' report in the prescribed form, these activities are based on principle of mutuality which is based on the principle no person can make profit out of himself. There is no disput....
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....aling with the factum of exemption has held thus: - "The language of section 10(22) of the Act is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes, since the object is not one to make profit. The decisive or acid test is whether, on an overall view of the matter, the object is to make profit. In American Hotel and Lodging Association Educational Institute v. CBDT [2008] 301 ITR 86 (SC), their Lordships have laid down the principle on following terms: - "In Addl. CIT v. Surat Art Silk Cloth Manufacturers Association reported in [1980] 121 ITR 1 (SC), it has been held by this court that the test of predominant object of the activity is to be seen whether it exists solely for education and not to earn profit. However, the purpose would not lose its character merely because some prof....
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....king must be the end to which the activity must be directed or in other words, the predominant object of the activity must be making a profit. Where an activity is not pervaded by profit motive but is carried on primarily for serving the charitable purpose, it would not be correct to describe it as an activity for profit. But where, on the 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 sec ....
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....to subserve 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. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg, J., when he said in Sole Trustee, Loka Shikshana Trust case [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : (1975) 101 ITR 234] that "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 ch....
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.... to resist the inference that the activity of publication of the journal is carried on for profit and the purpose is non-charitable. We may take by way of illustration another example given by Kr i s h n a Iyer, J., in t h e Indian Chamber o f Commerce cast [(1976) 1 sec 324 : 1976 sec (Tax) 41 : (1975) 101 ITR 796] where a blood bank collects blood on payment and supplies blood for a higher price on commercial basis. Undoubtedly, in such a case, the blood bank would be serving an object of general public utility but since it advances the charitable object by sale of blood as an activity carried on with the object of making profit, it would be difficult to call its purpose charitable. Ordinarily there should be no difficulty in determining whether the p r e d omi n a n t object of an activity is advancement of a charitable purpose or profit making. But cases are bound to arise in practice which may be on the borderline and in such cases the solution of the problem whether the purpose is charitable or not may involve much refinement and present read difficulty." (c) Again, the Hon'ble Supreme Court issued a world of caution as to what would constitute charitable objects and....
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.... 347 ITR 99 (Del); (ii) DIT(Exemptions) vs. C.A. Study Circle, 347 ITR 321 (Mad.); (iii) Tolani Education Society vs. DIT(Exemptions), (2013) 259 CTR (Bom.) 26 (iv) Bureau of Indian Standards v. DGIT (Exemption), 358 ITR 78 (Del.); (v) ICAI v. DGIT (Exemptions), 358 ITR 91 (Del.) (vi) DIT (Exemption) v. Sabarmati Ashram, 362 ITR 539 (Guj.) (vii) Council for the Indian School Certificate Examinations v. DGIT, 2014- TIOL- 855-HC-DEL-IT 18) From the Balance Sheet being filed before your honour, it would be seen that the gross receipts of the assessee society for the year ended 31st March, 2012 is Rs. 3,603.68 lakhs which includes interest and dividend income of Rs. 604.01 lakhs. As against this, the total expenditure is Rs. 3,300.09 lakhs. The overall surplus, as also stated by the AO is Rs. 303.59 lakhs. Therefore, no activity whatsoever of the Society can be said or alleged to be generating any surplus. The surplus, if any, has resulted only because of interest income being earned by the Society on the accumulated funds of earlier years. Therefore, the allegation of the DIT (E) in the order u/s. 143(3) that assessee Soci....
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....the same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said 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, 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 t....
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....973. b) Continuous grant of approval u/s 80G(5)(vi) of the Income Tax for the last many years. Still valid. c) Continuous registration of assessee as a notified institution u/s 10(23C)(iv) of the Income Tax Act for the last many years. Still valid. d) Examination of the nature of activities^ of the assessee- with reference to recent amendments u/s. 2(15) of the I.T. Act. e) Examination of books of accounts of the assessee. f) All past assessments are completed allowing exemption u/s. 11, 12 and 10(23C)(iv) of the I.T. Act. Although assessments for two assessment years i.e. A.Y. 2009-10 and AY 2010-11 have now been set-aside u/s.263 of the I.T. Act. As already clarified, the action of the DCIT u/s 263 for the Assessment Year 2009-10 has already been set aside by the Hon'ble ITAT and it has been categorically held that the Centre remains a charitable institution and is eligible for the benefits u/s 11, 12 and 10(23C)(iv) of the Income Tax Act. Therefore, the issue and all the facts involved in this appeal are identical with identical observations/allegations of the Assessing Officer are fully covered in favour of the assessee from all corn....
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....tute eligible for benefit u/s. 10(23C)(iv) of the I.T. Act. On this count also, the AO's observations in the present assessment order are not proper; and in any case, cannot lead to an inference that assessee's main object is to carry on any trade, commerce or business, it is respectfully submitted. Therefore, when the facts of the assessee are compared with various judicial pronouncements as have been referred to in these submissions, it would lead to an inevitable conclusion that the action of the AO in holding that assessee is carrying out trade, commerce or business are erroneous and the same are prayed to be quashed and it may please be held that assessee remains a charitable institution. The first and second provisos to section 2(15) do not effect the status of the assessee of a charitable institution, it is respectfully submitted. 5. I have carefully considered the submissions made by the appellant along with the oral arguments raised during the hearing of this appeal. I agree with the contentions of the authorized representative/appellant that the reasoning given by the Assessing Officer in the Assessment Order is identical as was in the Order made by the ....
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....lowing particulars was filed from assessee's side: 1. Copy of order passed by ITAT for A.Y. 2010-11 in ITA No. 3110/Del/2015 dated 14.01.2019 2. Copy of order passed by Hon'ble High Court for AY 2011-12 in ITA No. 300/2018 dated 14.03.2018 3. Copy of order passed by Hon'ble High Court for AY 2011-12 in ITA No. 5228/Del/2015 dated 09.10.2017 4. Copy of order of ITAT in ITA No. 3124/Del/2014 for AY 2009-10 dated 14.05.2015 (C) At the time of hearing before us, the learned Counsel for Assessee submitted that all the issues in the present appeal are squarely covered in favour of the assessee by the orders of ITAT / Hon'ble High Court in assessee's own case, in identical facts and circumstances; copies whereof were filed from assessee's side in the aforesaid Paper Book. [we have already referred to these orders in the foregoing paragraph (B.1) of this order] From Revenue's side, the learned Departmental Representative ("Ld. DR", for short) agreed with the Ld. Counsel for the assessee that all the issues in the present appeal are squarely covered in favour of the assessee by the aforesaid order of ITAT/ Hon'ble High Court in assessee's own case, in ....