TaxTMI 
TaxTMI 
2023 (9) TMI 216
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....e is eligible for exemption u/s. 11 of the IT Act and the provisions of section 13(8) are not applicable. 2. That on the facts and in the circumstances of the case and in law, the learned lower authorities wrongly invoked the provisions of section 13(8) of the Act. The findings of the CIT(A) /A.O. be quashed and it be held that the said provisions are not applicable. 3. That on the facts and in the circumstances of the case and in law, the learned A.O. erred and not justified in his findings that the operating receipts and the other receipts aggregating to Rs. 185207831 are in the nature of business receipts and treating the excess of income over expenditure shown at Rs. 13249653 as the business income. Such injudicious and unlawful findings, therefore, be quashed and it be held that the assessee is not doing any business and has no income from business or profession. 4. That on the facts and in the circumstances of the case and in law, the learned A.O. erred and not justified in not allowing the deduction of Rs. 5220388 as an application of income. The said deduction as claimed in the return, therefore, be kindly allowed. 5. That on the facts an....
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....for the assessment year 2009-10 & 2010-11 vide order dated 03.01.2019 in ITANo.280/Ind/2014 & ITANo.692/Ind/2013 as well as for A.Y.2012-13 vide order dated 21st September 2022 in ITANo.257/Ind/2019. The Ld. Sr. counsel has fairly submitted that the earlier orders were passed by the Tribunal in assessee's own case by following the judgment of Hon'ble Delhi High Court in case of India Trade Promotion Organisation vs. DGIT(E) 53 taxmann.com 404 as well as judgment of Hon'ble Gujarat High Court in case of Director of Income- tax (Exemption) vs. Ahmedabad Management Association [2014] 366 ITR 85 (Guj.) However, thereafter this issue has been considered and decided by the Hon'ble Supreme Court in case of ACIT(Exemption) vs. Ahmedabad Urban Development Authority 449 ITR 1. 3.1. Ld. Sr. counsel has submitted that the Hon'ble Supreme Court has discussed this issue thoroughly and observed that certain kind of receipt which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive. The definition of charitable activity provided u/s 2(15) ipso facto does not spell out whether certain kinds of income can ....
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.... Ld. DR has submitted that the activity of the assessee of publishing weekly employment newspaper, sale of newspaper, sale of books against the charges is clearly in the nature of trade, commerce and business as per provisions of section 2(15) of the Act. She has further submitted that the total receipts of the assessee are from these activities which are in the nature of trade, commerce, business and exceeding threshold limit provided in the proviso to section 2(15) and therefore, the assessee is not entitled for benefit of section 11 & 12 of the Act. Ld. DR has submitted that the AO as well as CIT(A) has considered this issue and found that the activities of the assessee of publication of newspaper, production of documentary films, T.V. reports etc. for the State Government against the charges are clearly falling in the proviso to section 2(15) being in the nature of trade, commerce and business and therefore, the assessee is not entitled for benefit of section 11& 12 of the Act. She has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as relevant material on record. At the outset, we note that an identical issue has been con....
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....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's case (supra) it was contended by the revenue that GS1 (India) had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from third parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to the revenue, all this entailed that GS1 (India) was engaged in 'business, trade or commerce'. The petitioner herein refuted this. In this backdrop, this court asked the question - can it be said that the petitioner is engaged in activities which constitute business, commerce or trade ? While answering the said question, the court held as under:-- '21. ... As observed above, legal terms, "trade", "commerce" or "business" in Section 2(15), mean....
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...., 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 self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause - general public utility. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act." 58. In conclusion, we may say that the expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and ....
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....9;ble Delhi High Court in the case of GS1 India vs. DGIT (E) [2013] 38 taxmann.com 365 (Del) has held has under: "20. In the present case, 'the business' is not held in trust and neither is 'the business' feeding the charity. The very 'act or activity of charity' as claimed by the petitioner is regarded by the revenue as nothing but business, trade or commerce. Money received, of course is used and utilized for the charitable activities. Four reasons are elucidated and propound in the impugned order to state that the petitioner is engaged in business, trade or commerce and aforesaid encapsulated in the impugned order. Petitioner has acquired intellectual property rights, receives fee from third parties, which is nothing but payment of royalty, there is huge surplus of receipts over expenditure (refer table reproduced in paragraph 7 above) and payment is made by the petitioner to GS1 Global Services, Belgium. 21. Can it be said that the petitioner is engaged in activities which constitute business, commerce or trade? As observed above, legal terms 'trade, commerce, or business' in Section 2(15), means activity undertaken with a view to make or earn profit. Profit m....
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....g their activity to market mechanism/ dynamics (i.e. demand and supply), rather it is motivated and prompted to serve the beneficiaries. This is not a case of commercial exploitation of intellectual property rights to earn profits but rather a case where a token fee has been fixed and payable by the user of the global identification system. 24. The petitioner does not cater to the lowest or marginalized section of the society, but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockiest, whole sellers, government department etc. while a nominal fee is only paid by the manufacturer or marketing agencies i.e. the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related i.e. dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GS1 identification on all their products. Non levy of fee in such ....
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....petitioner has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause 'general public utility'. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act. 28. Petitioner has indicated that they have recently purchased office space in HUDCO Complex, Bhikaji Cama Place and they have acquired plot at Noida. They require accumulated funds for running branch offices at Chennai and Mumbai. Office at Chennai is already operational and operations at Mumbai are contemplated shortly for which proposals are under consideration. Accumulation of money/funds over a period of 2-3 years may not be relevant in ....
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....lobal and worldwide system. Petitioner has pointed out that during past years they have been receiving amounts from Government of India for furtherance of their objectives. A fact which is not denied and disputed. The petitioner is not only concerned with enrollment of members who are entitled to GS1 identification system but involved in promoting and spreading awareness about GS1 identification system and making it available to Indians for a small fee. Petitioner has to organize training camps, workshops and seminars all over India and as well as for Government departments/bodies and help them adopt the system. They have to publish material highlighting advantages of GS1 identification and how this can benefit the manufacturers and traders. Maintenance of Books of Accounts 30. The statement and submission of the respondents that the petitioner was not maintaining separate books of account for commercial activity and, therefore, denied registration/ notification, has to be rejected as fallacious and devoid of any merit. Similar allegation is often made in cases of charitable organization/ association without taking into account the activity undertaken by the asses....
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....ood reasons to hold that the bar or probation is not with reference to activity of the beneficiary but the activity of the assessee under the residuary clause. The intent is to exclude an assessee who carries on business, trade or commerce to feed the charitable activities under the last limb. Application of income earned from business is no longer relevant and cannot help an assessee. Circular No.11 of 2008 is to the said effect and does not promote contrary interpretation. The said circular clearly stipulates that the object of 'general public utility' should not be a mask or a device to hide the true purpose, which is trade, commerce or business or rendering any service in relation to trade, commerce or business. Director General (Exemption) has not interpreted the first proviso in this manner in this case. Even in the case of Bureau of Indian Standards (supra) no such contention was raised. 7th proviso to Section 10(23C) of the Act supports our interpretation and the legislature has not omitted or suitably amended the said proviso to support the contrary interpretation. Even otherwise, the beneficiaries of GS1 system are not confined or restricted to persons from trade, commerc....
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....agement Association [2014] 366 ITR 85 (Guj H.C.); National Horticulture Board vs. ACIT [2015] 53 taxmann.com 343 (Delhi Trib.) and Institute for Development & Research in banking Technology vs. ADIT(E-1) [2015] 63 taxmann.com 297 (Hyderabad Tribunal.). 9. We have given our thoughtful consideration to the facts of the present case and the case-laws relied upon by the parties. We find that assessee's activities have not been changed at all since the date of its inception and the assessee was fully eligible for exemption u/s 11 & 12 of the I.T. Act. The assessee society was constituted by the State Govt. for the benefit of General Public to provide them information regarding employments, education institutions and other information of the govt. schemes. The objectives of the assessee society are publication of weekly newspaper namely "Rozgar Aur Nirman" to supply the material related to advertisement of public welfare schemes of Government of Madhya Pradesh and its undertaking and do such all other acts that are necessary for achievement of the objectives of the society. Therefore, the Revenue Authorities are not justified in holding that the assessee was involved in carr....
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....tion 11(4A) and section 13(8) of the Act and held that there is no conflict between these provisions of the Act so far as carrying out activity in the nature of trade, commerce or business, or service in relation to such activities. The relevant observation of the Hon'ble Supreme Court on this point is in paras 168 to 173 as under: "168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to "income being profits and gains of business" with a further reference to its being incidental to the objects of the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or income derived from incidental activities. The proper way of reading reference to the term "incidental" in section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (i) to p....
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....f the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to section 2(15)." 5.2 Thus, it is held that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the general public utility object, and the income, profit or surplus or gains can then, be logically incidental. The Hon'ble Supreme Court further observed that so long the activities are carried out for achieving general public charity if the same also generate profits it can be granted exemption provided the quantitative limit is not exceeding as provided in proviso to section 2(15) of the Act. Further it was observed that for achieving general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and al....
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.... According to the submissions made on NIXI's behalf, it charges annual membership fee of Rs. 1000/- and registration of second and third level domain names at Rs. 500/- and Rs. 250/-. The finding of the ITAT and the High Court are that NIXI's objects and functioning are by way of general public utility and thus it is a GPU category charity." 5.3 Therefore, the activities of some essential services provided by non-statutory bodies are held to be not in the nature of trade, commerce or business, or service, towards trade, commerce or business. In the case where the services rendered by the institutions/organizations to the state or its agencies at the cost or marginal mark up over cost and above cost then such activities may fall within the description of one advancing the general public utility as held in para 251 as under: "251. The first consideration would be whether the activity concerned was or is in any manner covered by the objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the accounts disclose ....
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....r goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. A.4. Section 11(4A) must be interpreted harmoniously with section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to section 2(15), has not been breached. Similarly, the insertion of section 13(8), seventeenth proviso to section 10(23C) and third proviso to section 143(3) (all w.r.e.f. 1-4-2009), reaffirm this interpretation and bring uniformity across the statutory provisions. E. Non-statutory bodies E.1. In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and NIXI are engaged in important public purposes. The materials on record show that fees or cons....