TaxTMI 
TaxTMI 
2019 (5) TMI 1797
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.... of surplus u/s 11 of the Act. 2. The ld. CIT(A) has erred on facts and in law in not appreciating the fact that the surplus arising to the assessee out of institutional & consultancy charges are incidental and integral to the main object of the assessee without any profit motive and therefore, proviso to section 2(15) is not applicable to such surplus. He has further erred in upholding the order of AO by simply reproducing his order without considering the provision of section 11(4A), contentions of the assessee and various incorrect observations made by the AO. 3. The ld. CIT(A) has erred on facts and in law in confirming the action of AO in taxing the surplus at MMR instead of the tax rate applicable to AOP (General) as per section 164(2) of the Act by ignoring that the case of assessee do not fall in proviso to section 164(2)." 3. Briefly stated, the facts of the case are that the assessee society is registered u/s 12A(a) of the Act and has filed its return of income disclosing total income at Rs. Nil claiming exemption u/s 11 and 12 of the Act. During the course of assessment proceedings, the Assessing Officer observed that the auditors in their audit report have stated i....
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....aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the said action of the Assessing Officer. As per the ld. CIT(A), the case laws cited by the assessee is not applicable as the objects of the assessee are the ancillary activities and the auditor also mentioned in the Audit Report the nature of the business as consultancy, mess and accommodation, therefore, he was of the view that Assessing Officer has rightly invoked the proviso to section 2(15) of the Act and the exemption claimed u/s 11 was rejected. Against the said finding of the ld. CIT(A), the assessee society is now in appeal before us. 7. During the course of hearing, the ld. AR submitted that the assessee society was constituted on 06.10.1987 with the main object of working for the education of socially and economically under- privileged children of the society. It was registered with Registrar of Societies Rajasthan, Jaipur on 22.12.1987 and also u/s 12AA of the IT Act from 01.04.1992. It was submitted that in pursuance to the above object, over the last 25 years, it has established number of Bodhshalas (schools) and reached out to more than 9 million children through its network....
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....irst part is in respect of the fund received for a particular project and the direct expenditure incurred in relation thereto and the second part is in respect of indirect expenditure debited to that project by crediting to the Income & Expenditure A/c against which the various expenditure incurred on providing accommodation facility, mess facility, transportation facility and other administrative cost is debited. After considering the same, the society has declared a surplus of Rs. 11,50,736/- in the year under consideration. This surplus is considered as exempt u/s 11 of the Act and accordingly the return was filed declaring Nil income. 10. It was further submitted that the nature of activity and manner of maintenance of accounts remains the same as in earlier years. In all these years, the income is assessed u/s 143(3) of the Act at Nil income holding that assessee exist solely for education. In support, copy of the assessment orders for AY 09-10 to 11-12 were placed on record. 11. It was further submitted that the AO, in the year under consideration, observed that in the audit report, the assessee has stated the nature of business or profession in Clause 8(a) of Form 3CD as '....
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....n to those children who have left the school. Similarly the receipt on account of consultancy, mess, accommodation and the institutional charges are mainly from the various funding agencies who provide fund to the assessee to carry out the educational activities of which a part of the amount as provided by them in the budget is transferred to these heads against which the actual expenditure incurred is debited and the balance remains as surplus of the society. This can be perceived from the sample agreements with various funding agencies placed on record where they provide certain funds towards head office support/ institutional charges, academic support and for residential training to the teachers. Such amount is reflected in the accounts towards institutional charges/ consultancy charges/ accommodation, mess and transportation charges. Thus, these receipts are in connection with the education only and not a business activity of the society. From the details of the receipts by way of institutional charges, mess charges, transport charges and consultancy charges vis-à-vis the sample agreement at the funded agencies and the Income & Expenditure A/c, it can be noted that all t....
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....2 requires for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilized by the trust or the institution for the purposes of achieving the objectives of the trust or the institution is surely a business which is incidental to the attainment of the objectives of the trust. Income of newspaper business of assessee-trust is employed to achieve its objectives of education and relief to the poor. Therefore, it is entitled to exemption under sec. 11 for asst. yr. 1992-93 and thereafter. * Baun Foundation Trust Vs. CCIT & Anr. (2012) 73 DTR 45 (Bom.) (HC) The dominant nature of the purpose for which the trust exists has to be considered. The Chief CIT has not doubted the genuineness of the trust or the fact that it is conducting a hospital. Even if the figures which are taken into account by the Chief CIT are to be had regard to, it is evident that the activity of a chemist shop is an activity which is incidental or ancillary to the dominant object and purpose which is to run a hospital. The Chief CIT has accepted that the surplus which is ear....
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....ation to trade, commerce or business. Thus, the proviso is applicable only when such activities are carried out with profit objective and the activities of the trust or institution is for general public utility. If no profit objective is involved, the same cannot be considered as non charitable purpose. Though this proviso is applicable only to those trust/ institutions who are involved in advancement of any other object of general public utility and thus not applicable to assessee, but still if it is held otherwise, then also the proviso cannot be applied to the assessee in view of the CBDT Circular No.11/2008. dt. 19.12.2008 and in view of the following decisions:- * Institute for Development and Research in Banking Technology (IDRBT) Vs. ADIT (Exemptions) (2015) 128 DTR 145 (Hyd.) Projects undertaken and the research activities carried out by the assessee society aimed at improvement of technology in banking and financial sectors. Development in these areas would benefit the society at large and promote the welfare of general public. Therefore, the object can be said to be directed towards advancement of any other objects of general public utility. Question of private gain o....
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....s 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 the charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. In the present case the driving force is not the desire to earn profits but the object of promoting trade and commerce not for itself, but for the nation, both within India and outside India. Merely because the assessee derives rental income, income out of sale of tickets and sale of publications or income out of leasing out food and beverages outlets in the exhibition grounds does not in any way effect the nature of the assessee as a charitable institution if it otherwise qualifies for such a character. Thus, while upholding the Constitutional validity of the proviso to sec. 2(15), it has to be read down in the manner indicated above. * ICAI vs. DGIT (Exemptions) (2013) 90 DTR 161/ 358 ITR 91(Del.) If the object or purpose of an institution is charitable, the fact that it collects certain charges does not alter the character of the institution. The expression "trade", "comme....
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....charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". The statutory provisions, as explained in the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for a cess, fee or any other consideration. It is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as "charitable purpose". Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may ....
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....s directly hit by proviso below sec. 2(15). It was held that the designated function of assessee fall under the category of "advancement of object of general public utility". BIS performs sovereign and regulatory function, in its capacity of an instrumentality of the State. Therefore, it is not involved in carrying any activity in the nature of trade, commerce or business. BIS renders services in relation to trade, commerce or business by granting certification/quality marks in return of license fees. However, 'rendering any service in relation to trade, commerce or business' cannot receive such a wide construction as to enfold regulatory and sovereign authorities, set up under statutory enactments, and tasked to act as agencies of the State in public duties which can't be discharged by the private bodies. If any profit/revenue is earned it is purely incidental. It was submitted that from these decisions, it can be noted that otherwise also proviso to sec. 2(15) is not applicable to the assessee as there is no profit motive involved in the activities of the assessee and the surplus is utilized for its objects. 17. It was further submitted that before the Ld. CIT(A) all these fac....
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....rograms/projects for marginalized, deprived and underserved sections of the society such as urban slums in Jaipur city and rural areas of Alwar district. It also provides training to teachers for quality enhancement in schools run by the Government of Rajasthan through Sarva Shiksha Abhiyan. In my opinion, the assessee's activities fall under the ambit of education under section 2(15) and the assessee is already registered under section 12AA and as a result, the assessee is entitled to exemption u/s 11 and 12 of the Act." Therefore, in view of the well settled legal proposition, as has been laid down by the Courts from time to time and which has been reiterated in the decision of Hon'ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd. (394 ITR 449) that: "While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. CIT....
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....impugned assessment order. The Assessing officer referring to an agreement entered into by the assessee society with UNICEF has stated that the assessee society is engaged in ancillary activities which are supporting out of the school children and it is a step towards formal education and basis the said solitary agreement, has come to a conclusion that the main objects of the assessee society is not education but advancement of object of general public utility. We therefore find that the Assessing officer has not disputed that the assessee society is engaged in the field of education, rather the dispute is whether the assessee society is directly involved in imparting education to students or merely supporting such educational activities and where it is merely supporting the educational needs of the children, it will cater to the field of general public utility and not education. 22. To our mind, one needs to read and appreciate the meaning of the term "education" not in a static manner rather the same has to be read in the context of how the field of education has evolved over the period of time given the socio-economic dynamics of our society where a large section of our society....
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....ry out analysis of existing special training material for out of school children, its impact on the learning and understanding the gaps and requirement to make the training material more appropriate, etc. In our considered view, these activities are clearly in the field of education with focus on out of school children and make efforts to bring them onboard in formal school setup. Even though the assessee society is not directly imparting education in this case and such activities are held to be ancillary to education, to our mind, there is clearly a direct and close nexus and are clearly directed at education of the out of school children. By entering in such an agreement with UNICEF, the dominant objective and purpose for which the assessee society has been setup cannot be said to be diluted in any case, rather it is part of the said objects and also strengthen and recognizes the fact that the organizations such as UNICEF are appreciating the efforts done by the assessee society and wishes to collaborate and partner with it in supporting the education needs of socially and economically under-privileged children of our society and not with a view to earn profit which is a prime mo....
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....credited separately in the Income & Expenditure A/c by debiting to that project. Accordingly, the Income & Expenditure A/c is prepared in two parts. The first part is in respect of the fund received for a particular project and the direct expenditure incurred in relation thereto and the second part is in respect of indirect expenditure debited to that project by crediting to the Income & Expenditure A/c against which the various expenditure incurred on providing accommodation facility, mess facility, transportation facility and other administrative cost is debited. It was accordingly submitted that there is no separate source of institutional, consultancy, mess and accommodation charges and the same were part of funding provided by the various agencies for activities in the field of education and are not separate business activity carried by the assessee society. 26. We have given a careful consideration to the above factual matrix and contentions advanced by both the parties. We find that during the year under consideration, the assessee society has received institutional charges of Rs. 25,73,793 and other receipts towards accommodation, mess, transportation and consultancy total....
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....t Schools, developing teachers training modules and providing academic support. IRB Primary School Modem Road makers Pvt. Ltd., Mumbai - Rs. 2,20,000/- For providing free Primary education to children in the rural area near the project of IRB Infrastructure Developers Ltd. In this project, a primary school is opened at Tonk where the teachers and books are provided by the society. Dy DirectorGirls Education Government of Rajasthan - Rs. 1,38,000/- Identification of out of School children, setting up of Bodh school and undertake capacity building programmes in collaboration with Sarva Shiksha Abhiyan for Government ofRajasthan. However, the way the aforesaid charges has been reflected in the Income and expenditure, though it prima facie gives an impression of separate source of income, however, in substance, these institutional, consultancy, mess and accommodation charges are nothing but specified amount received as part of overall funding provided by various agencies towards carrying out various educational projects/activities by the assessee society. At the end of the year, there is surplus of Rs. 11,50,736 from such educational activities which is carried foreward to t....