TaxTMI 
TaxTMI 
TaxTMI 
2024 (2) TMI 328
X X X X Extracts X X X X
X X X X Extracts X X X X
....ke up the appeal for A.Y.2009-10. Our finding therein will apply mutatis mutandis in all the years. The brief facts are that assessee is a company registered u/s. 25 of the Companies Act, 1956. The main objects of the assessee as per its Memorandum of Association were as under:- a. To determine the needs and frequencies of research and/or surveys required for the assessment of various media for advertising. b. To conduct surveys and/or research into the readership, viewership and/or listenership of various media for advertising such as newspapers and periodicals, television, radio, outdoor hoardings and all other media which carry advertisements. c. To maintain and propagate the highest possible standards of integrity, fairness and reliability in media research and to ensure that its output are not misused to convey a misleading impression by or to any party. d. To disseminate the findings of such survey and/or research through any medium with or without charge. 4. Memorandum of Association clearly provide that income and property of the assessee shall be applied only for promotion of the objects of the assessee and no portion of income or property shall be paid or transfe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 lakhs and therefore, assessee has to be considered as non- charitable organization and accordingly, he denied the benefit of exemption u/s. 11. Thereafter, he computed the income under the normal provisions of the Act after adding amount of Rs. 45,936/- towards provision for gratuity and Rs. 1,32,587/- towards leave encashment. The income assessed for Rs. 1,22,24,260/- was computed in the following manner:- Excess Income over expenditure as per Income & Expenditure A/c. 79,13,414 Add: Depreciation as per books 3,43,652 Loss on sale of Assets 205 Provision for tax 41,50,000 44,93,857 Add: Provision for gratuity 45,936 Leave encashment 1,32,587 1,78,523 1,25,85,794 Depreciation as per I.T. Act 3,61,536 Total Income 1,22,24,258 Rounded off 1,22,24,260 7. The ld. CIT(A) has confirmed the said finding of the AO holding that its income from its activities are above Rs. 10 lakhs which have been received by charging of fees, sale of dissemination of research and findings of survey / search reports relevant to advertisement busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
....02% 2013-14 11,00,91,082 97.55% 27,69,225 2.45% 9. Thus, it was submitted that revenues derived from members are more than 90% of the total revenue and from small percentage is from non-members. 10. Regarding the observation and the finding by the authorities below that activities carried out by the assessee is in the nature of trade, commerce or business and thus, proviso of Section 2(15) of the Act applies, Mr. Pardiwala submitted that for an activity to be regarded as trade, commerce or business or an activity in the nature of trade, commerce or business, it has to be carried on in a regular systemized manner with a profit motive. The memorandum of association of the assessee prohibits distribution of profits or surplus on winding up or otherwise. Therefore, there can be no profit motive for the assessee to carry out its activities and pursue its objects. It is undisputed that the activity carried out by the assessee is in accordance with its main objects. 11. Further, he submitted that the proviso to section 2(15) of the Act was not intended to affect genuine charitable organisations. This is borne out from the speech of the Hon'ble Finance Minister at the time of i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licability of the proviso, ld. Sr. Counsel submitted that the activity carried out by the assessee in the absence of any profit motive cannot be held to be in the nature of trade, commerce or business nor can it be said it is an activity of rendering any service in relation to any trade, commerce or business as a sine qua non for an activity to be considered as a business is the motive to earn profit. During the course of hearing, the judgment of Hon'ble Supreme Court in the case of ACIT (Exmptions) vs. Ahmedabad Urban Development Authority (2022) 449 ITR 1(SC) was also discussed in detail. After referring to para 141-143, he submitted that profit motive is necessary for an activity to be hit by the proviso to Section 2(15) of the Act. Then after referring to paras 170 to 173, he submitted that the Hon'ble Supreme Court has categorically held that merely because there is a surplus/ profit from the activities carried out would not mean that the trust is not carrying out any charity (paragraph 170) and that pure charity in the sense of performance of an activity without consideration is not envisioned under the Act. The Court has held in paragraph 172 that if the charity involves....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dvertisements exceeded the threshold limit provided under the proviso to section 2(15) of the Act and, therefore, in paragraph 245, it has been held that the proviso was applicable. Therefore, only in cases where the assessee carries on an activity other than the activity as per its main objects can the question of applying the limits laid down in the proviso to section 2(15) arise, In cases such as the assessee, since the only activity in question is the activity carried on as per the main objects, the question of applying the limits would not arise. 14. He further submitted that the Hon'ble Supreme Court in the case of Ahmadabad Urban Development Authority particularly made observations in para 170-176 and para 200- 211 has been considered in detail that ITAT Mumbai Bench in the case of, The Gem & Jewellery Export Promotion Council vs. ACIT (Exemptions) Range 2(1) in ITA No.752/Mum/2017 and ITA No.989/Mum/2019) and it was held that costs are recouped with a nominal markup, the activity will not be regarded as business. 15. Without prejudice, he submitted that here in this case more than 90% of the Revenue of the assessee is from its members, which cannot be regarded as in the n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld subscription for IRS reports. These IRS reports are prepared from outside agencies which are research agencies to whom research are outsourced and then sold to members and in some cases to non-members at slightly higher prices. The case of the Revenue is that since assessee's receipts from its activity even though it is for general public utility has exceeded the threshold of Rs. 10 lakhs and Rs. 20 lakhs, therefore, it is not entitled for exemption u/s. 11 for these years. 18. This issue of proviso to Section 2(15) in the case of institutions carrying out object of general public utility has been discussed in detail by the Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra). Certain relevant paragraphs of the Hon'ble Supreme Court for the sake of ready reference are reproduced hereunder:- "167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ritable purpose and the machinery part of section 11(4A). Further, the obligation under section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner. 169. The conclusion recorded above is also supported by the language of seventh proviso to section 10(23C). Whereas section 2(15) is the definition clause, section 10 lists out what is not income. Section 10(23C) - by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso - much like section 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes section 11(4A) in that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ough museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of 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). 200. Surat Art Silk (supra) and other decisions, had ruled that as long as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....15) and the negative phraseology- excluding from consideration, trusts or institutions which provide services in relation to trade, commerce or business, for fee or other consideration has made a difference Organizing meetings, disseminating information through publications, holding awareness camps and events, would be broadly covered by trade promotion However, when a trade promotion body provides individualized or specialized services - such as conducting paid workshops, training courses, skill development courses certified by it, and hires venues which are then let out to industrial, trading or business organizations, to promote and advertise their respective businesses, the claim for GPU status geeds to be serutinised more closely. Such activities are in the nature of services "in relation to trade, commerce or business. These activities, and the facility of consultation, or skill development courses, are meant to improve business activities, and make them more efficient. The receipts from such activities clearly are fee or other consideration for providing service "in relation to trade, commerce or business. 203. The revenue has appealed to this court, in respect of two ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he quantum from these receipts, and other such receipts are within the limit prescribed by the sub-clause (ii) to proviso to section 2(15) If they are within the limits, AEPC would be for that year, entitled to claim benefit as a GPU charity. 19. The Hon'ble Supreme Court after analyzing the law which was prevalent and applicable prior to insertion of proviso w.e.f. 01/04/2009 and amendments made thereafter, have clarified the amended position of law in the following manner:- * if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, then activity should be intrinsically linked to, or is part of the GPU category charity's object. * the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. * What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure from the previous law, that if a GPU charity is to engage in any activity in the nature of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... consideration has made a difference. Their Lordships observed that, organizing meetings, disseminating information through publications holding awareness camps and events are broadly covered under trade promotion. However, when trade promotion provides individuals or specialized services like conducting trade workshops, training course, skill development courses certified by it and hires venue which are then let out to industrial, trading of business organisation to promote and advertise their respective business, then the claim for GPU status needs to be scrutinized more closely. Such activities are in the nature of services "in relation to" trade, commerce or business. Thus, receipt from such activity clearly are "fee or other consideration" for providing services "in relation to" trade, commerce or business. In para 202 (supra), after citing examples of activities of AEPC the Hon'ble Court held that these activities carried out cannot be held that it does not have any element of trade, commerce or business or service and the activities carried out by it, has to be examined, whether they are in the "actual course of carrying on" the GPU activity or not. In such a case, for each ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provision of Section 2(15) or the first and second proviso gets triggered; or one has to see, whether in course of main GPU activity, it carries on other ancillary activity which is to feed the object of GPU, then receipts from those activities have to be examined under both the provisos and apply the threshold limits. In cases where an institution or a body or trade promotion carries out any other activity in the nature of trade, commerce or business for a consideration to fulfill its GPU objects, then the receipts from such activity should not cross the threshold limit of Rs. 10 lakhs, Rs. 20 lakhs or 20% of the total receipts. Now, if there is only one activity and there are no other receipts from any other activity, then the issue would arise is how to calculate the threshold limit of 20%. If activity carried out in pursuance of that object which is the only activity, then whether registration u/s. 12A should at all be granted, because, ostensibly the receipts will always will fall in the scope of the proviso if the limit provided therein is crossed; or the mandate of law is that such institution or body should not cross the threshold at all. If that is the purport, then activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctivity has to be examined from the prospective of threshold provided in the proviso. 25. The Hon'ble Apex Court while explaining the true purport of proviso, as explained in para 167 to 172, clarified that; firstly, if GPU charity is engaged in any activity, the nature of trade, commerce or business for consideration it should only be part of its actual function to attain GPU objective, i.e., if at all there is any activity for GPU charity which involves any such activity which is in the nature of trade, commerce or business, then threshold imposed for the quantitative limit has to be adhered to. Secondly, if charity involves itself any activities that entail charging amounts only at cost or marginal markup over cost and it also derives profit, then such profit should not exceed 20% of its overall receipts. That means the Court envisioned that if carrying out GPU objective or any other activity which has been carried out, then the receipts from such activity should not exceed 20%. This has been further clarified while explaining the case of trade promotion bodies in para 202 wherein they have held that if the trade promotion's main activity is organizing meetings, disseminating i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ercentage had been exceeded, as evident from the record." 27. Thus, the activity of the trust for publishing advertising in the newspaper is intrinsically linked for newspaper activity falls within the ambit of sub-clause (i) of Subsection 2(15) and conditions imposed in sub-clause (ii) of the proviso has to be fulfilled. The moot question is, whether the receipts from such activity itself is in the nature of trade, commerce or business or any activity of ranging in services in relation to any trade, commerce or business has to be examined. If the assessee is generating revenue from the activities for which it has been granted status of charitable nature, then whether it falls within the main section 2(15) itself or its activities are hit by proviso has not been discussed by the authorities below, both by the AO and ld. CIT(A) who have simply stated that since receipts of the assessee had crossed the limit of Rs. 10 lakhs, therefore, benefit of Section 11 cannot be granted. Before deciding this issue, it is incumbent whether its activity for which it has been granted registration u/s. 12A itself per se falls in the category of carrying of any activity in the nature of trade, comm....