TaxTMI 
TaxTMI 
TaxTMI 
2020 (1) TMI 1356
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....espondent under Section 143 r/w. Section 147 of the Act, 1961, during the pendency of the petition before this Court. 4. The Coordinate Bench of this Court passed the common order dated 17.02.2014 in both the petitions, which read thus: 1. Heard, Mr. Mihir Joshi, learned Sr. Advocate with Mr. Tushar P. Hemani, learned Advocate for the appellant. 2. Learned Sr. Advocate moves a Draft Amendment, same is allowed. The amendment shall be carried out during the course of the day. 3. The learned Sr. Advocate invited the attention of this Court to the averments made in Paragraph2.10, which reads as under; 2.10 However, the Respondent, vide order dated 16.04.2013 disposed off the objections raised by the Petitioner and inter alia held that when the original assessment order is framed due to oversight and inadvertence or a mistake, the reopening is valid. A copy of the order dated 16.04.2013 passed by the Respondent is annexed herewith and marked hereto as Annexure K to this petition. 4. The learned Sr. Advocate, then, invited the attention of this Court to Paragraph3.10, which reads as under; 3.10 The Petitioner further submits that whenever an assessment order is framed u/s 14....
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....ng Assessing Officer cannot doubt the legality of a conclusion recorded by the earlier Assessing Officer in his assessment order, which was framed after scrutiny. In same what similar circumstance, we had in our judgment dated 16.4.2013 passed in S.C.A. No. 357 of 2013 in case of Transwind Infrastructure Pvt. Lid. Vs. Income Tax Officer, made following observations : 10. From the above, it can be seen that the Assessing Officer was acutely conscious about the petitioner not having deducted tax on labour payment charges of Rs. 3.05 crores and the petitioners contention that it was so done because provision for TDS was not applicable. He was not convinced by such explanation. He, however, for some strange reasons did not apply the provision of Section 40(a)(ia) of the Act instead made adhoc disallowance of Rs. 25,60,000/@ 8% of the total labour payment charges. 11.Whatever be the legality of such assessment, fact remains that, in the scrutiny assessment, the Assessing Officer had thoroughly and fully scrutinized the assessees claim of deduction of labour expenditure. To the extent he was inclined to disallow the same, he did so. By no stretch of imagination it can be stated that ....
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....ct. However, on receipt of representations from the Companies against omission of the words reason to believe, Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. 12. If the Revenue was of the opinion that the Assessing Officer erroneously and to the prejudice of the interest of the Revenue allowed certain claim, in a given situation, it would have been open for the appropriate authority to exercise revisional powers. However, once the claim was fully examined, power of reopening was simply not available. 12. Such observations would apply in the present case also. We make it clear that it is not a case where the Assessing Officer, while framing original scrutiny assessment, did not examine the petitioners claim of deduction. He was acutely conscious of such a claim and was also of the opinion that the entire claim was not required to be granted. He called for explanation of the assessee and after taking into consideration the explanation, made disallowance to the extent he was convinced to do. If, in the process, he made a legal error, the succeeding Assessing Officer cannot cor....
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...."charitable purpose" in view of amended provision of Section 2(15). 5. I have, therefore, reason to believe that in this case income claimed as exempt is requires to be taxed. Thus, there is under assessment of income for A.Y. 2010-11. Accordingly, this is a fit case for reopening of the assessment u/s. 147 of the I.T. Act." 6. It appears that the Assessing Officer has issued notice under Section 148 in view of the amended provision of Section 2(15) of the Act, 1961 and the sole objection for reopening is such amendment. 7. In view of the above, it is not necessary to advert to the facts of the case, as similar issue is considered by the Coordinate Bench including in case of the petitioner in Tax Appeal No. 268 of 2012 and other allied matters and has held in favour of the assessee, as under: "163. We sum up our final conclusions as under; (i) In carrying on the charitable activities, certain surplus may ensue. However, earning of surplus, itself, should not be construed as if the assessee existed for profit. The word "profit" means that the owners of the entity have a right to withdraw the surplus for any purpose including the personal purpose. (ii) It is not in disput....
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....unjab & Haryana. The High Court thought fit to allow the appeal, observing as under; "9. On examination of the objects and the purpose of the Association in the present case, it emerges that the respondent-Association is union of Truck Operators constituted for facilitating its members to carry on the trade of transportation and not to allow the outsider or non-member to undertake any business activity within the precincts of Hansi Town/village. The Association charges fees from its members before the transportation on the basis of the distance involved. The membership and payment of fees are mandatory and the element of voluntary contribution is missing. The association is vigorously pursuing transportation business by receiving freight charges on behalf of its members. The welfare activities adopted for the truck drivers, cleaners and mechanics of the truck owners are in the nature of staff welfare activities, as are common in other business organizations which cannot be termed for general public utility. 17. The assessee was a union of transport operators registered as a Trade Union under the Indian Trade Unions Act, 1926. On analysis of the objects of the union for which it....
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....allow registration with blind eyes. In the present case, CIT has considered the relevant papers before him, which included the income and expenditure accounts of the previous years after the society got registered with the Assistant Registrar Firms, Societies and Chits. The CIT, after considering the record before him, has observed that the society (present respondent) is charging substantial fees from the students and making huge profits. 11. After considering the submissions of the learned Counsel for the parties, we are of the view that mere imparting education for primary purpose of earning profits cannot be said to be a charitable activity. We are of the firm view that, in the expression 'charitable purpose', 'charity' is the soul of the expression. Mere trade or commerce in the name of education cannot be said to be a charitable purpose. And Commissioner Income Tax has to satisfy itself as provided under Section 12AA of the Act before allowing the registration. Question of law stands answered." 168. Thus, in the aforesaid case, the High Court took the view that as the Society was charging substantial fees from the students and making huge profits, it could....
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....from April, 1971, was to encourage and promote the scientific breeding and training of horses and to impart instructions in and to diffuse useful and scientific knowledge of horse breeding and to encourage horse breeding in all its aspects which, according to the learned counsel, are objects of general public utility. The other objects specified, whether in the memorandum of association relating to the assessee as a society or in the memorandum of association relating to the assessee as a company, are all subservient to the main object of "scientific horse breeding". Consequently, the doctrine of dominant or primary object should be invoked in the present case in order to examine whether the dominant or primary object for which the assessee is established, is charitable in character. 10. We are unable to agree with the learned counsel that the dominant or primary object for which the assessee is established either as a society or as a company, is the scientific breeding of horses, and not for the purpose of carrying on business in conducting races. Referring to the memorandum of association of the assessee as a society under the Societies Registration Act, we see no ground to....
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....established whether as a society or as a company, was to carry on the business of a race club and all other objects are either incidental or ancillary to the above main object. Thus, even invoking the doctrine of dominant or primary object, we must hold that the assessee was established with the dominant or primary object of carrying on the business of a race club by conducting a races which, on the own admission of the learned counsel, is not charitable in character. This itself is sufficient to demolish the assessee's claim that it must be regarded as having been established for charitable purposes by invoking the doctrine of dominant or primary object." 170. Thus, on the facts of that case, the Full Bench, ultimately, held that the assessee was established with the dominant or primary object of carrying on the business of a race club by conducting races which cannot be termed as charitable in character. This decision also is of no avail to the Revenue in the case at hand. 171. In Dharmaposhanam Co. (supra), the objects of the assessee Company were to raise funds by conducting kuries with Company as foreman, receiving donations and subscriptions by lending money on intere....
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....ustries" and "public good". As regards the latter, the decision on what should be the "purposes of common good" was left to the general meeting by Article 58 of the Articles of Association. Having regard to the context in which these words appear in the Memorandum and the Articles, they must evidently be referred to the residue general head in the definition in section 2(15) of the Act, that is to say, "the advancement of any other object of general public utility............ But this head is qualified by the restrictive words "not involving the carrying on of any activity for profit." The operation of an industry ordinarily envisages a profit making activity, and so far as the advancement of public good is concerned, it is open to the appellant to pursue a profit making activity in the course of carrying out that purpose, which of course depends on the nature and purpose of the "public good. Nowhere do we find in the material before us any limiting provision that if the appellant carries on any activity in the course of actually carrying out those purposes of the trust it should refrain from adopting and pursuing a profit making activity. In Sole Trustee, Loka Shikshana Trust v. C....
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.... in the original unamended subclause (b) of clause (3) of the Memorandum are objects which, while referable to the residual general head in the definition of "charitable purpose" in section 2(15) of the Act, nonetheless do not satisfy the condition that they should not involve "the carrying on of any activity for profit." The result is that the objects "industries" and "common good" cannot be described as "charitable purposes". What follows then is this, that the said subclause (b) can be said to contain some objects which are charitable and others which are non-charitable. They are all objects which appear to enjoy an equal status. It is open to the appellant, in its discretion, to apply the income derived from conducting kuries and from money lending, to any of the objects. No definite part of the business or of its income is related to charitable purposes only. Consequently, in view of Mohammed Ibrahim Raza v. Commissioner of Income' Tax, (1930) LR 57 IA 260; AIR 1930 PC 226 and East India Industries (Madras) Private Limited v. Commissioner of IncomeTax, (1967) 65 ITR 611 (SC), , the entire claim to exemption must fail and it cannot be said that any part of the income ....
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....ses of this Trust either fully or partially" (Paragraph 17 of the Trust deed). Although, the "original trustee" was not "to take any remuneration" for discharging his duties as a trustee, yet, he was not precluded "from being paid out of the Trust fund such remuneration as may be deemed propellor carrying out any work and duty in connection with the conduct or management of institutions of the Trust, or with the business of printing, publishing or other activities carried on by the Trust". He was to be paid expenses incurred in travelling or otherwise in connection with his duties as a trustee (paragraph 16 of the Trust deed). The "original trustee" could invest trust monies and profits "in any investment authorised by law for the investment of Trust funds or in shares, or securities or debentures of Limited Companies in India or outside" (para 4 of the Trust deed). He had the "power to mortgage, sell, transfer and give on lease or to otherwise deal with the Trust property or any portion thereof for the purpose of the Trust and to borrow monies or raise loans for the purpose of the Trust whenever he may deem it necessary to do so" (para 8 of the Trust deed). Furthermore, the Trus....
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....as) Pvt. Ltd. v. Commissioner of Income-tax, Madras, (1967) 65 ITR 611 (SC), Commissioner of Income-tax, Madras v. Andhra Chamber of Commerce, (1965) 55 ITR 722 (SC) and Md. Ibrahim Riza v. Commissioner of Income-tax, Nagpur, AIR 1930 PC 226. Such a "trust" would be of doubtful validity, but I refrain from further comment or any pronouncement upon the validity of such a trust as that was neither a question referred to the High Court in this case nor argued anywhere. " 174. Thus, it appears that the Supreme Court looked into the trust deed of the trust in details and noticed that the sole trustee had not only wide powers of utilization of the trust funds for the purposes of the trust but he could divert its assets as well as any of the funds of the trust, to the other institutions whose objects were "similar to the objects" of the trust and of "carrying out the objects and purposes of such trust either fully or partially." The Supreme Court observed that the whole deed appeared to be very cleverly drafted so as to make the purpose of clause (2) (c) resemble the one which was held to be protected from income tax in the Tribune case (1939) 7 ITR 415. (PC). The Supreme Court observed....
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....to themselves and that their bodily welfare might be promoted. Another instance is the case of Dupree's Deed Trusts, In re, Daley v. Lloyds Bank, Ltd., (1945) 114 LJ Ch L where a deed of gift, expressed to be for the encouragement of chess playing by holding an annual chess tournament limited to boys and, young-men under the age of 21 years resident in a particular area, was held to be a good gift for a charitable purpose. It appears that Vaisey, J. who decided the case had to struggle a good deal against his own inclinations in order to arrive at the conclusion which he ultimately reached, but he said that in view of the evidence before him that chess was included in the school curriculum and that according to the experience of the members of the teaching profession the game promoted concentration, selfreliance and reasoning, he would not condemn the gift as bad. The learned Judge, however, expressed the difficulty he felt in the following words : "One feels perhaps that one is on rather a slippery slope. It chess, why not draughts? if draughts, why not bezique? and so on, through to bridge, whist, and by another route, stamp collecting and the acquisition of birds' eggs....
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....he encouragement of mere sport". It is noticeable that the learned Lord Justice did not dissent from the decision cited before him. A more elaborate reference to the case was made in the House of Lords and among the other Lords, Lord Reid made comments on it. Referring to the view taken in the Court of Appeal of the Nottage case, 1895-2 Ch 649, Lord Reid observed as follows : "In re Nottage, 1895-2 Ch 649 is clearly distinguishable : money was bequeathed to provide annually a cup for yacht racing, so the only possible beneficiaries were yacht owners who would be somewhat strange objects of charity. But what the appellants found on is the reasoning in the Court of Appeal to the effect that encouragement of a mere sport or game is not charitable though the sport or game may be beneficial to the public. No doubt that is true in the main, but it cannot apply to the provision or support of playing fields: yacht racing is far removed from the kind of recreation which Parliament has declared to be charitable. And a charitable purpose such as education may well be achieved in part at least by promoting. sport or games. The emphasis is on mere sport or games, and I cannot suppose that a....
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....olice club. It is true that some of the decisions ultimately turned on the point that the beneficiary was not the public or a section of it, as understood in law, but incidentally observations were made in all of them as regards when promotion of a game can be a charitable purpose and when it cannot be. 14. The facts of the present case are that the assessee Association merely held certain demonstration or exhibition matches. It does not provide any training in the game of cricket to novices or any advanced training for persons who are already practiced players. Its activities outside the holding of the exhibition matches is limited entirely to its own members. The only contact it has with the public is by way of having them as spectators, on payment of a fee, of matches arranged by it. I find it impossible to hold that any benefit or entertainment which is thus paid for and which is availed of by only such members of the public as can or wish to pay for it can in any sense be a purpose of a charity. It is true that charity in the income-tax sense need not have any eleemosynary element in it and that an object of general public utility is under the income-tax law a charitable o....
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....do not serve any beneficial purpose, but, on the other hand cause a deterioration of the mind by fostering fanatical partisanships or generating mass hatreds. This, however, is a matter of opinion. Whether this extreme view is right or wrong, I find it impossible to hold that any benefit of a public character is conferred on the society or a section of it merely by the arrangement of exhibition games of cricket or tournaments and the admission of the public thereto for a fee, on the basis of which the purpose of arranging for such matches can be said to be a charitable purpose. 16. There is another ground too upon which the Association's claim must fail. I have already hinted at it, but will now point it out specifically. Among the objects set out in the Rules is one which authorises the Association to carry out any other business or activity which may seem to the Association capable of being carried on in connection with the above. Section 4 (3) (I) (a) and (b) of the Act which I have already read contemplate either a business carried on in the course of the carrying out of a primary purpose of the Association or a business, the work in connection with which is mainly carr....