TaxTMI 
TaxTMI 
2024 (2) TMI 328
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....ing registered u/s. 12A. 3. We will first take 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 ....
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....ity, shall not be a charitable purpose. Here, the gross receipts of the assessee is more than Rs. 10 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 activi....
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....age 2009-10 7,31,14,419 93.50% 50,59,865 6.47% 2010-11 9,03,65,806 94.17% 55,92,014 5.83% 2011-12 10,17,67,919 91.91% 89,59,754 8.09% 2012-13 9,88,60,859 95.98% 41,39,777 4.02% 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 accord....
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....e advertising and media industry and, therefore, it must be regarded as a charitable as well as a mutual organization. Moreover, there is no allegation that its activities are not genuine or not carried out in accordance with the main objects. Regarding applicability 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....
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....fore, the question of whether such activities fell within the limit prescribed under the second proviso to section 2(15) of the Act was gone into. Similarly in the case of the Tribune trust, the Hon'ble Court at paragraph 241 found that the receipt from advertisements 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 ....
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....ged in to conduct surveys / research into readership, viewership and listenership of various media and dissemination of research to various members and non-members who are basically industrial business entities. There are more than 165 members to whom assessee has sold 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 Tru....
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....e 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 proviso to section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable 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, th....
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....to business is not attracted - if the quantum of such profits do not exceed 20% of its overall receipts. 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through 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 nat....
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....n behalf of the Members." This court, nevertheless, held that since the predominant object of the assessee was trade promotion, while furthering it, the fact that some trading occurred, leading to income, did not preclude the assessee from claiming tax exemption. 202. In the opinion of this court, the change in definition in section 2(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 ac....
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....ce or business, or service in relation thereto. Though in some instances, the recipient may be an individual business house or exporter, there is no doubt that these activities, performed by a trade body continue to be trade promotion. Therefore, they are in the "actual course of carrying on the GPU activity. In such a Case, for each year, the question would be whether the 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 ob....
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....tivities of trade, commerce and business is permissible. 21. Further, while analyzing the case of trade promotion bodies, councils, association, organization, Hon'ble Apex Court citing the example of Apparel Export Promotion Council (AEPC), held that the change of definition of Section 2(15) starts with negative phraseology, i.e., they exclude any activity which is in the nature of trade, commerce or business for fee or other 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....
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....vity for the same object for which it has been recognised for grant of exemption u/s. 11, then how the 20% of the total receipts is to be calculated, i.e. in relation to which receipt 20% is to be calculated. For instance, if only from one activity (for which it has been granted registration u/s. 12A) receipt is of Rs. 1 Crore and it has no other receipts then how 20% is to be calculated. Whether in such case it falls into the main 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 ....
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....ncome Tax department still considers the main activity of the assessee is charitable within the object of GPU. If from the same activity the receipts of the assessee exceeds the threshold, how can benefit be denied and the proviso will be invoked year after year, or if only when the assessee carries out any other activity to fulfil its GPU object which involves any element of trade, commerce or business, then only receipts from such activity 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, the....
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.... year. While the assessee's contention that publication of advertisement is intrinsically linked with newspaper activity (thereby fulfilling sub-clause (1) of the proviso to section 2(15), e an activity in the course of actual carrying on of the activity towards advancement of the object) is acceptable, nevertheless, the condition imposed by sub-clause (if) of the proviso to section 2(15) has to also be fulfilled. In the present case, that percentage 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....
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....from IRS subscription is not coming out. For example out of the gross receipts of Rs. 7,81,94,084/- in A.Y.2009-10, the income from subscription IRS itself approximately 1.77 Crores; In A.Y.2010-11, the gross receipts is Rs. 9,59,57,820/- and income is Rs. 1,40,05,627; in A.Y. 2011-12 gross is Rs. 11,07,27,673 and income is Rs. 1,79,31,763/-,. Similarly, in A.Y.2012-13 out of the gross receipts of Rs. 19.39 Crores, the income from subscription for IRS report is 10.30 Crores. In A.Y.2013-14 again it is Rs. 20,88,44,490/- and income is Rs. 11,28,60,307. Thus, it cannot be said that there is a nominal income from the main activity of the assessee. Hence, the calculation given before us at the threshold does not appear to be correct which needs to be verified by the AO. Thus, the working which has been given, we find that it does not give the correct picture of margins from the sale of reports and therefore, this plea also needs to be examined by the AO in line with the judgment of the Supreme Court. 32. Accordingly, the entire issue is remanded back to the AO to examine, • Firstly, to be decided in accordance with the judgment of the Hon'ble Supreme Court in the case o....