TaxTMI 
TaxTMI 
2025 (2) TMI 152
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....e assessee has also been granted certificate under section 80G of the act with effect from 01/04/1992. It is submitted that as on date, both these certificates are valid and in force. It is submitted that, the assessee is running 12 institutions established in different parts of the country covering hospitals, educational institution, imparting education to pre-primary, primary and high school etc. It is submitted that, all these institutions are focused on imparting education to the poor people, especially to tribal population. It is also submitted that, the assessee runs hospital by the name St. Elizabeth Hospital, at Mumbai having about hundred beds which is one of the major institution of the assessee. It is submitted that, the assessee is running following institutions under its banner: Reproduce table at page 2-3 of CIT appeal order 2011-12 S. No. Name of Unit Place Activity 1. St. Joseph's Convent Bandra Preprimary, high school, boarding school 2. St. Joseph's Convent Primary Section Bandra Primary School 3. Priti Sagar Collem/ Tilamol GOA Primary, Formal Education 4. Sacred Heart Convent Hubli Pre Primary, Pr....
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.... free of cost or for consideration to teachers, doctors, nurses, pupils, staff, servants, separated employees, orphans and others connected with the work of the society and to educate, train and assist in equipment of personal for the purpose of the society. 5. .............. 10. And generally to carry out such measures as are incidental or conducive to the attainment of all or any other objects. The above objects have been placed at page 6-7 of the paper book. 2.3. The assessee for the year under consideration furnished along with the return of income computation of income, income and expenditure account, balance sheet and audit report in Form 10B, declaring total income to be 'Nil'. It is submitted that, the assessee was issued certificate for 'Nil' TDS, which is placed in the paper book. 2.4. The Ld.AO noted that, for all the years under consideration the assessee received income by way of; i) royalties, ii) agency commission, iii) ground amenities, iv) canteens, v) farmhouse income, vi) lunch income, vii) sale of scrap, viii) miscellaneous income, ix) nursing course fees, x) incentives, xi) rent income. 2.4.1. During the assessment proceed....
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....nstrued under the provisions of educational purpose. This activity of the appellant society is a Regular, Organized and a systematic one. Further it is found that the appellant has to maintained separate books of accounts in respect of the above activities. Considering the above irregularities I think the AO has rightly treated the above mention income as business income and disallowed the exemption u/s 11 of the Act. As such the appeal of the appellant is dismissed." For assessment years 2010-11 to 2018-19. 2.5.1. The observations of the Ld. CIT(A) are similar for all the remaining years. For sake of convenience the observations of the Ld. CIT(A) has been reproduced for assessment year 2010-11 as under: "Being aggrieved with the order u/s 143(3) of the act dated 20/03/2014 this appeal was filed by the appellant. During the course of appeal proceedings the appellant filed explanation which is considered. From the said explanation, it is found that activity of Hiring of marriage Hall and ground, Royalties from caterers, Agency commission and Rental income are derived from appellant society. In this regard reliance is placed on the decision of Hon'ble Supr....
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....he Ld.AO was also of the opinion that, since assessee did not maintain separate books of account in respect of such activities, the second condition under section 11(4A) stand violated. The Ld.AO thus treated the surplus out of these activities as Business Income under section 11(4A) and taxed it accordingly. Sr. No. Activities carried by assessee A. Receipt under the head royalties B. Receipt from use of ground amenities and agency commission. C. Receipt from running canteen, lunch home and farm. D. Receipt from sale of scrap. E. Receipt from Nursing course fee. F. Receipt from Miscellaneous sale. G. Receipt from sale and machinery H. Receipt of interest on FD. I. Receipt from PCO. 3.2. The Ld.AR submitted that from the above activates income received by the assessee are incidental to the main object of the trustee and is not out of any organised, systematic activity, as held by the Ld. AO/NFAC. It is submitted that, the assessee runs its medical and educational institutions at various places Bandra, Panchgini, Igatpuri, Hubli etc. it is submitted that the assessee has its main object to establish, conduct, maintain, a....
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....at, merely because, an outside parties appointed to run the pharmacy division will not change the nature of the activity as assessee trust is still pursuing its dominant object of providing the medical relief. A.2. The Ld.AR emphasised that, the amount received under the head royalty constitutes only 1% of the total income which indicates that the above income is ancillary to the main objects of providing medical relief. B. Receipt from use of ground amenities and agency commission: B.1. The Ld.AR submitted that, the assessee runs a school at Bandra under the name St Joseph's Convent High School and St Joseph's Convent Primary School at Hubli, Igatpuri and other places. It is submitted that, these education institutions have open ground attached to it. The Ld.AR submitted that, after the school hours and for on holidays these grounds remain unutilised. In order to generate some resources for educational activities, the school thought fit to allow its use by outside people for functions. B.2. The Ld.AR submitted that, instead of dealing with various outside people directly, the assessee thought fit to avail services of one Mr.Soharab Zorabian and Mr.Augustino Ferraz to d....
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....Ld.AR submitted that, Hon'ble High Court was seized with an identical situation, wherein, the school was providing education and letting out of grounds though it was not one of the objects of the assessee but was carried out to fulfil the main objects of the trust. Hon'ble Court then held that, letting out of ground for a few hours was with an intention to earn income to fulfil and apply the same for the main objects of the assessee. He submitted that, similar was the view taken by Hon'ble Madras High Court in case of CIT vs Sri Rao Baghadur Dharamraj educational charity trust reported in 300 ITR 365 and CIT vs Grdhandas Bhagavandas charitable trust reported in 136 Taxman 161. The Ld.AR also relied on the decision of Hon'ble Calcutta High Court in case of CIT vs Sahujain trust reported in 56 DTR 402, wherein it was held that invoking section 11(4A) was also held to be bad in law. C. Receipts from canteen, lunch home and farm: C.1. The Ld.AR submitted that, canteen is run at various schools for exclusive benefit of the students At St Elizabeth Hospital Canteen is run for the benefit of the patients and their families, who come for treatment. It is submitted that, this negl....
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....fore needs to be scrapped out. It is submitted by the Ld.AR that considering the total income of the assessee from the main activity, the receipt from sale of scraps are negligible. E. Receipt from Nursing course fee: E.1. The Ld.AR submitted that, the assessee received for conducting auxiliary nursing course for nursing aides. It is submitted that, this forms part of its medical activities and is important to provide training to the nurses in order to render proper treatment and care for the patients in the hospital. The Ld.AR submitted that these training also provides assistance to the women to become self-sufficient and are conducted for those who are poor and not qualified as nurses but to educate and train them as nursing aides. The Ld.AR drew our attention to page number 316-317 of the paper book wherein the details of the receipts have been given. F. Receipt from Miscellaneous sales: The Ld.AR submitted that, these receipts are out of sales from school uniforms, notebooks, stationeries at the school premises of the assessee for the students who are being enrolled to the educational institutions run by the assessee. It is submitted that, these are integral part o....
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....g to section 13(1)(d), the Ld.AR submitted that, exemption is denied under section11 or 12 of the act in case any trust makes investments in any mode other than the specified under section 11(5) of the act. It is submitted that the assessee is not carrying on any business of banking or money lending, whereby the deposits are received from the customers and advanced to the public at high rate of interest. H.3. The Ld.AR referring to the provisions of section 11(1)(a) of the act submitted that, the requirement for claiming exemption on such income is that it should be derived from the property held in trust for charitable purposes. It is submitted that the assessee invested the amounts in fixed deposit over period of Time, which is permitted mode under section 11(5) of the act. It is submitted that, the amount is out of accumulation of income under section 11, and also account of receipt from corporate donations. The Ld.AR thus emphasised that the interest so earned qualify for being exempted under section 11. H.4. The Ld.AR referred to page number 215-241 of the paper book wherein details of the deposits maintained with various banks and the interest earned are provided, which....
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.... relief. 4.1. Referring to the memorandum of the trust placed at page 10-22 of the paper book, it is submitted that, the main activity of the assessee is running and maintaining schools and medical establishments and hence the proviso to section 2(15) is not applicable to the assessee and assessee is entitled to the benefit of exemption under section 11 of the act. He vehemently reliance on the decision of Hon'ble Gujarat High Court in case of DIT vs Ahmedabad Management Association reported in 366 ITR 85, wherein it was held that on fair reading of section 2(15) of the act, the newly inserted proviso to section 2(15) of the act will not apply in respect of relief to the poor, education or medical relief. Thus where the purpose of trust institution is relief to the poor, education or medical relief, it will constitute "charitable purpose", even if it is incidentally involved in carrying on of commercial activity. 4.2. The Ld.AR submitted that, from the memorandum and articles of association and from the activities carried on by the assessee, it is clear that the dominant object is establishing, maintaining and running medical and educational institutions. He further submitted....
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....ssessee was established to pursue educational and medical objects for charitable purposes, within the meaning of section 2(15) of the act, and in the process of achieving such objects assessee received certain income which are incidental to the main object and which are conducted only for the purposes of securing the main object. It is also submitted that, the income arising by such activities are only incidental and ancillary to the dominant object for conducting the educational medical activities and the said income were always utilised only for the purposes of feeding its dominant purpose. He the submitted that assessee cannot be denied benefit under section 11 of the act in respect of revenues generated from such ancillary activities are to be granted exemption. In support of the contentions the Ld.AR placed reliance on following decisions: 1. Decision of Hon'ble Supreme Court in case of Queens Educational Society vs CIT reported in (2015) 55 taxman.com 255 2. Decision of Hon'ble Supreme Court in case of Commissioner of sales tax vs. Sai Publication Fund reported in (2002) 258 ITR 70 3. Decision of Hon'ble Madras High Court in case of CIT vs Janakiamm....
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....tution in respect of such business." 5.1. CBDT Circular No. 11/2008 dated 19-12-2008 (Point No. 2.1) also clarified that, proviso to section 2(15) of the Act will not apply to medical relief etc. and where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities. For clarity relevant clarification reads as under: "The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of commercial activities." Therefore, as per the provisions of section 11(4A), we have to consider, as to whether the receipts from various activities as analyzed hereinabove are incidental to the objects of the Assessee/trust. 5.2. Hon'ble Bombay High Court in the case of Baun Foundation Trust reported in (2012) 73 DTR 45 took....
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....ancillary to the dominant object and purpose to provide medical facility, and thus the assessee complies with first condition of section 11(4A) of the Act. 5.4. In respect of the Interest earned by the assessee on FD, PCO receipts, Miscellaneous income, receipt from sale of scrap, canteen, lunch & farm receipts, received from sale of machines, received from nursing course fee we note that even if test of income directly arising from property of Trust is applied, interest directly accrues on funds of the Trust. Hon'ble Bombay High Court in case of CIT v. Pruthivi Trust reported in (1980) 124 ITR 488 observed that:- "In order to ascertain the scope and ambit of the expression 'income derived from property held under trust' reference can be held to the decision of this Court in J.K. Trust v. CIT(1953) 23 ITR 143 . In this case, the High Court has held that in order to claim exemption it is not sufficient that the property is indirectly responsible for the income. The income must directly and substantially arise from the property held under trust. For arriving at this conclusion this Court referred to the decision of their Lordships of the Privy Council in CIT v. Ka....
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....t object of the trust which was 'advancement of education'. In support of the submissions. Reliance was placed on the decision of Hon'ble Bombay High Court in DIT(E) vs. M/s Shri Vile Parle Kelavani Mandalreportedin (2015) 232 ITR 459 as also Circular no.11 of 2008 dated 19th December 2008 All the above referred activities thus, in our view are incidental and not the principal activity of the assessee. The allegations on behalf of the revenue that these are business income is not accepted as assessee could have exploited the sources of these income in order to earn huge profit, however the same has not been the intention of assessee. 5.6.2. In the decision therefore relied by the Ld.AR of Hon'ble Supreme Court in case of Sole trustee, Loka Shikshana Trust vs CIT(supra) honourable court observed that the assessee therein had wide powers of utilisation of trust fund for the purpose of the trust but it could also divert it assets as well as any funds of the trust to other institutions whose objects are similar to the object of the trust. The Hon'ble court thus observed that the activities of the assessee was falling within the category of "advancement of any other object....
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....ucational institutions require funds. The income is generated from giving various halls and properties of the institution on rentals only on Saturdays and Sundays and on public holidays when they are not required for educational activities, then, this cannot be said to be a business which is not incidental to attain the objects of the trust. This being merely an incidental activity and the income derived from it is used for the educational institute and not for any particular person, separate books of account are also maintained, then, this income cannot be brought to tax. This conclusion is also not perverse and given the facts and circumstances which are undisputed." (Emphasis supplied) 5.8. The circular relied by the Ld.AR further clarifies the position. CBDT in para 2 clarified the implications arising from the amendment: "2. The following implications arise from this amendment:- 2.1 "The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2 (15) i.e. relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, ....