AI Drafter 
TaxTMI 
TaxTMI 
2019 (10) TMI 508
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....09.2010 declaring nil income by claiming exemption u/s 11 of the Income Tax Act, 1961 (the 'Act' for short). The assessee society is registered u/s 12A of the Act vide registration no. DIT(E)/S- 23/8E/201/91-92 dated 06.08.1996 w.e.f. 01.04.1993. Approval u/s 80G(5)(vi) was also granted. The Assessing Officer ('AO' for short) in his order passed u/s 143(3) of the Act on 23.03.2013 denied exemption to the assessee u/s 11 of the Act for the reason that (a) the definition of charitable purpose has been amended and that advancement of any object of general public utility shall not be a charitable purpose if it involves the carrying on any activity in the nature of trade, commerce or business or any activity of rendering of any service in relation to any trade, commerce or business and that the assessee had carried on business by running press, cake shop, pharmacy, STD booth etc. He referred to Clause 17B of the constitution of the society and held that, these clauses were independent clauses and that the assessee is running commercial concerns and hence the activity would not fall within the ken of the definition of the charitable purpose. Thus he denied the benefit of exemption u/s 11....
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.... of the Act i.e. advancement of any other object of general public utility and not to the limbs of (a) relief to the poor, (b) education, (c) medical relief, (d) preservation of environment, (e) preservation of monuments or places or objects of artistic or historic interest. Thus in view of the matter, the order of the AO in denying the exemption to the assessee by relying on the proviso of the Section 2(15) of the Act is erroneous and have struck down as illegal. 10. Further, we find that the ld.CIT(A) at para-3.2 of his order page-7 & 8 held as follows: "3.2. In the final analysis, however, whether the 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 relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose in such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade commerce and or business or the rendering of any service in relation to trade commerce or business. Each case ....
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....the Constitution of the Society. I agree with the view of the AO." 11. We find that ld.CIT(A) has only extracted a part of Clause 17B of the constitution of the assessee. The entire Clause reads as follows: "17 B) At the initiative and management of the organization small projects may be created like running of PCO booths with local STD and ISD facilities, running of chemist shop, production centres etc. Thus persons with disabilities' employment opportunities can be tried." 12. The wording "Thus persons with disabilities' employment opportunities can be tried" which was part of Clause 17B was in our view wrongly ignored to deny the assessee benefit u/s 11 of the Act. 13. Even otherwise it is not in dispute that separate books of account are being maintained for each of the activities of the assessee society. The Delhi Bench of the Tribunal in the case of Divya Yog Mandir Trust vs. JCIT, Hardwar [2013] 37 taxmann.com 227 (Delhi - Trib.) held as follows: "Section 2(15) of the Income-tax Act, 1961 - Charitable purpose [Education] - Assessment year 2009-10 - Whether imparting of yoga training through well structured yoga camps falls under category o....
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.... are satisfied - Held, yes - Whether a charitable trust can carry on business and utilize its profits therefrom for charitable purposes but it cannot have its purpose, an activity that involves buying and selling of goods and making profits." The Hon'ble Delhi High Court in the case of India Trade Promotion Organization vs. Director General of Income Tax (Exemption) & Others W.P. (C) 1872/2013 judgment dated 22.01.2015 has held as follows: "47. We have already noted that prior to the amendment being introduced with effect from 01.04.2009, the petitioner had been recognized as an institution established for charitable purpose and this had been done having regard to the objects of the institution and its importance throughout India. It is only because of this that the petitioner had been granted the exemption by the respondent for the period prior to assessment year 2009-10. Therefore, insofar as the receiving of income is concerned, that cannot be taken as an instance to deny the petitioner its status as an institution established for charitable purposes. Because, if that were to be so, then there would be no necessity to take recourse to Section 10(23C)(iv) for the bene....
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.... "business" was not intended for the purpose of interpreting and applying the first proviso to Section 2(15) of the Act so as to include any transaction for a cess, fee or consideration. The Court specifically held that:- An activity would be considered 'business' if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case activity may be regarded as a business even when profit motive cannot be established / proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 49. In Bureau of Indian Standards (supra), this court, while considering whether the activities of the Bureau of Indian Standards (supra) in granting licences and trading certificates and charging of fee amounted to carrying on business, trade or commerce, held as under:- 73. ... In these circumstances, ―rendering any ....
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....nner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of charitable purpose. The purpose of introducing the proviso to Section 2(15) of the Act can be understood from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008. The relevant extract to the Speech is as under:- ....... Charitable purpose includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under charitable purpose. Obviously, this was not the inten....
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....urplus as generated from holding coaching classes. In addition, the petitioner institute provides study material and other academic support such as facilities of a library without any material additional costs. The Supreme Court in the case of State of Andhra Pradesh v. H. Abdul Bakhi and Bros. (supra) held as under: The expression "business" though extensively used a word of indefinite import, in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. (Underlining added) 72. There is nothing on record to indicate the assertion of the petitioner that its activities are not fuelled by profit motive is incorrect. Absence of profit motive, though not conclusive, does indicate that the petitioner is not carrying on any business. 53. From the said decision, it is apparent that merely because a fee or some other consideration is collected or received by an institution....
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....ed in commercial activities, i.e., carrying on business, trade or commerce, in the garb of 'public utilities' to avoid tax liability as it was noticed that the object 'general public utility' was sometimes used as a mask or device to hide the true purpose, which was 'trade, commerce or business'." From this, it is evident that the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008. 56. In G.S. 1 (supra) it was contended by the revenue that GS1 (I....
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....e coding system and to avail the advantages and benefits therein is neither reflective of the business aptitude nor indicative of the profit oriented intent". The court further observed:- Thus the contention of the revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of profit motive and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible. The court also held:- 27. As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially selfsustaining in long-term and should not depend upon government, in other....