TaxTMI 
TaxTMI 
2020 (3) TMI 673
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....st of the institution is, surely, a business which is incidental to the attainment of the objective of the Trust". This observation was also made in the case of Commissioner of Income-tax v/s Janaki Ammal Ayyandar Trust 277 ITR 274 (Mad.)- 3) Because, the learned Commissioner of Income-tax (Appeals) did not consider the fact that the activity done by the assesse was accepted by the learned Assessing Officer in the earlier year and granted exemptions, since conducting chitty is one of the objective incidental to the main object as per Memorandum of Association. 4) Because, the learned Commissioner of Income-tax (Appeals) was wrong in concluding that in chit business, only the subscribers are benefited and not the assessee. The assesse being the foreman derives income as foreman commission and GST is attracted. In any business, the customers will be benefited by way of supply of goods or by way of receipt of services. 5) Because, the learned Commissioner of Income-tax (Appeals) ignored the fact that section 13(1)(bb) was omitted by the statute with effect from 01- 04-1984. 6) Because, the learned ITO was wrong in concluding that explanation to sect....
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.... is created by this amendment. 4.1 According to the CIT(A), the reliance placed by the assessee on the decision of the Cochin Bench of the ITAT in the case of Dharmodayam Co. (2003) 84 ITD 259 is misplaced because the decision pertains to cases prior to 1-4-1992 when section 11 (4A) was not on statute. In fact, the Tribunal observed as follows: "The above findings have to be understood in the light of the law as it stood before the amendment brought in by the Finance (No.2) Act, 1991 with effect from 1-4-1992. The amendment has brought in a blanket prohibition. It prohibits the carrying on of business, unless the business is incidental to the attainment of the objects of the trust, for which separate books are to be maintained. The case laws considered in this order and a/so the Rule in Dharmodayam Co.'s case (supra) (assessee's own case) have to be read in the context of the law as it stood then. There was no total prohibition against the business in the old law. It was possible to carry on business, subject to specified exceptions and restrictions. The dividing line was that there should be no activity for profit. But the position has been changed with effect ....
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....mary purpose of the trust; the business must, therefore, be carried on in the course of the actual accomplishment of relief of the poor, education or medical relief. As an example, a public charitable trust for the relief of the poor, education and medical relief that carries on the business of weaving cloth and stitching clothing by employing indigent women carries on the business in the course of actually accomplishing its primary object of affording relief to the poor and it would qualify for the exemption under section 11." "Another fitting example would be the business in selling milk and cow-dung manure by the Goshala. Many such instances which are incidental to the primary object of the charities can be illustrated to drivei home the point but certainly the assessee's activity would never fit in any one of them." 4.4 Thus, the CIT(A) brought out the following points: 1. Business should be carried out in the course of actual carrying out of primary purpose, or accomplishment of primary objective. 2. Every case has to be analysed based on its own peculiar facts. Kuri business cannot be said to be carried out in course of accomplishing primary ....
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....ts will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that : (i) the business should be incidental to the attainment of the objectives of the entity, and (ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is education or medical relief would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above. 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility i.e., the fourth limb of the definition of charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact whic....
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....f the assessee-Trust so as to grant exemption under section 11 of the Act. 7. We have heard the rival submissions and perused the record. Similar issue was considered by the Supreme Court in CIT vs. Dharmodayam Company (1977) 109 ITR 527. In this case, the question which arose was whether the income from business of conducting kuries carried on by the assessee was exempt from tax. The Revenue's contention was that since the institution, though established for promoting an object of general public utility, sought to achieve its purpose out of the income of the business of conducting kuries and hence, in view of the concluding words in section 2(15) the assessee's income was not exempt. The Supreme Court, departing from the view taken in Indian Chamber of Commerce (1975) 101 ITR 796 and notwithstanding the specific observation of Krishna lyer, J. in that case to the effect that the Dharmodayam's case was incorrectly decided by the High Court, affirmed the Kerala High Court's decision in CIT vs. Dharmodayam Company (1974) 94 ITR 113. The Supreme Court clearly held that if a business is held under a trust or legal obligation to apply its income for promotion of an ob....
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....ities involved profit-making the objects of promotion of industries and "public good" were not charitable purposes and the assessee was not entitled to exemption as a charitable trust. 7.1 Prior to substitution, clause (15) as amended by the Finance Act, 1983 w.e.f. 1-4-1984 reads as follows: "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility." 7.2 Section 2(15) was amended by Finance Act, 2008 w.e.f. 1-4-2009 which reads as follows: "charitable purpose includes relief of the poor, education, medical relief, (preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest And the advancement of any other object of general public utility. Provided that the 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....
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....he objects of the Trust. By applying income from kuri business for charitable purposes, the assessee cannot say that its prime object is to give relief to the poor. In such circumstances, in our opinion, the CIT(E) is justified in setting aside the assessment order as erroneous and prejudicial to the interests of the Revenue with a direction to the Assessing Officer to redo the same after giving sufficient opportunity of being heard to the assessee. 7.6 Strong reliance has been placed on behalf of the assessee on CIT vs. Dharmodayam Co. (1977) 109 ITR 527 (SC) and it has been seriously urged that this decision concludes the point raised by the assessee herein. We find that it is not possible to accept this. In that case, the income derived by the assessee from kuries was held by the Supreme Court to be exempt u/s. 11(1)(a) of the Act, but the decision proceeded almost entirely on the assumption that the Kerala High Court had found in Dharmodayam Co. vs. Commissioner of Income-tax (1962) 45 ITR 478 (Ker.), in a case between the same parties, that the kuries business was itself held under trust for charitable purpose and from that the court inferred that the business acti....