TaxTMI 
TaxTMI 
2019 (9) TMI 683
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....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 raised above at the time of hearing." (B) Assessment Order dated 31.03....
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....ssee 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u/s 80G(5)(vi) vide Approval No. DIT(E)/2012- 13/I- 205/426 dated 30.05.2012 valid from AY 2013-14 onwards till it is rescinded.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 understanding and amity between the different communities of the world by undertaking or promoting the study-of their past and....
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.... 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 the principle of mutuality. 6) In fact, it will not be out of place to mention that the basis of making claim was identical as had been done in earlier years; and there was neither any change ....
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.... 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 receipts from members so that the activities could be carried out. Admittedly, the assessee is disseminating knowledge to general public on subjects ranging from art, dance, urban development means etc. through conferences....
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....ng 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, commerce or business. Some of the judgments are given in the next few paragraphs & are relied upon. 9) The assessee Institution admittedly is engaged in cultural activities and during the year under consideration, it has continued to conduct seminars, talks, discussions an....
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.... 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 dispute that these activities did not amount to carrying any trade with a profit motive. There is no taint of commerciality in these activities. There is also no dispute that all participants are contributories to the common funds and it is not necessary that all the contributories must be participants in its manage....
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....y 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 profit arises from the activity. That, it is not possible to carry on educational activity in such a wav that the expenditure exactly balances the income and there is no resultant profit, for, to achieve this, would not only be difficult to practical realization but would reflect unsound principles of management. In order to ascertain whether the institute is carried on with object ....
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....it, 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 499 : 1978 sec (Tax) 193] must be '"essentially charitable in nature" andit 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 introducing that provision. The Finance Minister explained the reason for introducing this e....
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....sionary 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 character of the trust. The test now is, more clearly than in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity". The learned Judge also added that the restrictive condition "that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object" (emphasis supplied). We wholly endorse these observ....
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....od 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 what is the difference between carrying on a trade, commerce or business. It has been clarified that if there are no restrictions on making of profit, the court would be well justified in assuming that the Trust involved in carrying on of activity of profit. However, if there are express restrictions on the making of profit, then the court would not be justified in drawing any such inference merely because the activity results in profits. (d) Further, the Ho....
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....ur, 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 Society is generating surplus by carrying out commercial activities has to be dismissed, as factually incorrect and based on conjectures and surmises. 19) It is further submitted that it is predominant purposes which really matter in the case of the Society. So long as the predominant purpose or objective of the Society is not to earn profit, the same is liable to be treated as charitable as has been held in the case of PHD Chamber of Commerce & Industry v. DIT (Delhi)357 ITR 296 (Del.). 20) Recent judgment of Hon'ble Delhi High Court in the case of ....
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....h 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." (b) Therefore, when the latest thinking of the courts on the first proviso u/s.2(15) of the I.T. Act is seen, it would be noted that the courts are holding that the first proviso cannot take away the charitable character of an Institution so long as the dominant object and the prime motive is to carry on charitable activity a....
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.... 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 corners of the case. There is no scope of making different interpretation of the provisions of section 11, 12 and 20(23C)(iv), 2(15) of the Income Tax Act, it is respectfully submitted. * The assessee institution has been in existence for more than 5 decades now and it is continuously been assessed for many years and in all the years the facts have been examined in detail and assessee has been allowed exemption u/s 11 and 12 of the Income Tax Act. There is neither any change in law or in the facts or in the objectives of the assessee or in the activities of the trust to take a different view of the matter as has been done by the Director of Income Tax....
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....irst 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 Assessing Officer for the Assessment Year 2009H0. The Assessment Order for the Assessment Year 2009-10 was passed based on the directions issued by the DIT (Exemption) u/s 263 of the Income Tax Act. That Order of Ld. DIT (Exemption) has been quashed by the Hon'ble ITAT in ITA No. 3124/Del/2014. The facts and the circumstances and the reasons of the AO to deny the exemption to the appellant during the year are identical and there is no difference in the facts or in the law on the issue involved in this appeal. Therefore, there is no reason for me to take a different view of the matter, as the issue has already been decided in favour of the assessee by the Hon'ble ITAT in assessee's own case for the Assessment Year....