TaxTMI 
TaxTMI 
2024 (11) TMI 1585
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....r the relevant AY 2018-19, the assessee had filed return of income declaring NIL total income after claiming exemption u/s 11 of the Act. The case of the assessee was selected for scrutiny u/s 143(2) of the Act dated 22.09.2019, on the CASS reason - 'Receipts of the Trust'. After examining the details furnished by the assessee, including its Trust deed, financials, details of receipts, note on activities, separate accounts of petrol pumps including its financials, details of employees etc., the Assessing Officer, National Faceless Assessment Centre [in short `AO'] is noted to have issued show cause notice u/s 142(1) of the Act dated 14.01.2021 proposing to deny the exemption claimed u/s 11 of the Act in relation to the surplus of Rs.73,27,209/- derived from the petrol outlet on the ground that, although separate books of accounts were being maintained for this business, this business activity was not incidental to the attainment of the objects of the Trust as required u/s 11(4A) of the Act. It is noted that, the assessee had furnished its explanation on 22.01.2021 in which, the assessee had explained that, running the petrol outlet was not its object but an incidental a....
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....ic Utility; (c) that the provisions of the proviso to Section 2(15) stood violated and (d) that the observations of the Hon'ble Apex Court in the case of ACIT(E) V. Ahmedabad Urban Development Authority (143 taxmann.com 278) [ in short 'AUDA'] and New Noble Education Society V. CCIT (143 taxmann.com 276) [in short `New Noble'], are against the assessee's case. 4. The assessee is noted to have responded to the above show cause notice on the same lines as in the assessment proceedings. The assessee is noted to have further explained that, the Trust was pursuing the charitable object of education and it didn't have any object of General Public Utility ('GPU') and therefore the decision of the Hon'ble Supreme Court in AUDA being relied upon by the Ld. CIT(E) in the show cause notice for denying the exemption claimed u/s 11 of the Act, was distinguishable, as the said decision was rendered only in the context of 'GPU' trusts and not to 'per se charitable' trusts. It was also submitted that, the decision of Hon'ble Apex Court in the case of New Noble was rendered in the context of exemption u/s 10(23C)(vi) of th....
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....he course of carrying out the GPU object and the receipts from such activity does not exceed 20% of total receipts of the Trust. The Ld. CIT(E) quoting from the decision of New Noble, held that, there is no nexus between the running of a petrol bunk and the objectives/activities of running a library and conducting the music classes and observed that, it is neither inextricably connected/linked to the main activity nor strengthens the same. The Ld. CIT(E) thus concluded that, although the assessee maintains separate books of accounts and fulfilled the second condition of Section 11(4A) of the Act, it failed the test of the first condition namely "the business is incidental to the attainment of the objectives of the trust". The Ld. CIT(E) further observed that, alternatively, if it is considered that, the assessee's activities of running a library and music school are not education and that it falls under the last limb of Section 2(15) of the Act, namely advancement of General Public Utility, then also the assessee's claim for exemption fails, since the activity of running a petrol bunk is not a part of its actual function of running a library nor conducting music classes. Th....
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....cational trusts, such as that of the assessee; (e) that the Ld. CIT(E) wrongly held that the petrol outlet was not a 'business held under trust' whereas the contemporaneous facts on record showed otherwise; (f) that, in the alternate and without prejudice to above, the decisions of AUDA and New Noble are prospective in application and therefore could not be applied to the impugned AY in appeal; (g) that, in the alternate and without prejudice to above, the AO had followed the position of law which held field for the relevant assessment year at the material time when the assessment was completed u/s 143(3) of the Act and therefore the view adopted by the AO could not be regarded as an unsustainable view in law, in light of the subsequent decision rendered by the judicial forums post completion of the assessment. 9. After outlining the above arguments, the Shri S Muralidhar first took us through the background facts and history of the assessee Trust. He submitted that, the assessee has been running a music school for over twenty-five years, and it teaches Carnatic Music - Vocal and Instrumental to the students, and that the entire music course is....
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....uch other equipments and vocational implements with a view to alleviate the sufferings of the poor and needy f) To provide medical assistance either by way of assisting the sick and needy financially or by providing them with equipment's, transport, medicines, nursing clinical care, hospitalisation etc. which may be required by them. g) To establish, acquire, take over, administer, manage, run and assist hospitals, nursing homes, health care centres, clinics, laboratories, operation theatres, X rays units, Therapy centres, Blood banks and other similar banks with a view to provide medical relief. h) To associate with research institutions, hospitals, etc to promote research and development. i) To print, publish or assist in printing and publication of books, periodicals and journals including audio, video, and film, etc. for the attainment of the objects of the Trust j) To conduct seminars, conferences and meetings on medical, technical, scientific, philosophy and vedantha. k) To construct or acquire or take on lease or rent buildings, lands with a view to provide shelter to the poor and needy. l) To provide financi....
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....graph 18 of the Thanthi Trust wherein it was held that a business whose income is utilized by the trust for the purpose of achieving its objective, is a business that is incidental to the attainment of objectives of the trust. According to him therefore, following the ratio laid down in the decision of Thanthi Trust and also the revisionary order passed u/s 264 of the Act in its own case for AY 2012-13, since the assessee had applied the surplus from petrol outlet for attainment of its charitable objects, it had rightly claimed exemption u/s 11 of the Act. 13. The Ld AR explained to us that, the Ld. CIT(E) had erred in rejecting the assessee's reliance on Thanthi Trust. He submitted that, the Ld. CIT(E) had incorrectly applied the two decisions of the Supreme Court in AUDA and New Noble, which according to him, did not apply to the assessee's case, both on law and facts. The Ld AR first took us through the decision of AUDA and the subsequent clarificatory judgment rendered by the Hon'ble Apex Court and showed us that the decision was rendered in specific relation to 'GPU' trusts and therefore did not apply to the assessee which was a 'per se educational&#....
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.... laid down therein did not apply to AY 2018-19 which is impugned before us. 15. The Ld AR thus summing up his arguments stated that, the assessee was an 'educational' trust and therefore fell under the category of 'per se' charities to whom the proviso to Section 2(15) and the amendment of 2008 did not apply and likewise the decision of AUDA had no application. He stressed his reliance on the decision of Thanthi Trust, which according to him, still held good and was applicable to its case. He accordingly submitted that the AO's action of allowing the benefit of exemption u/s 11 of the Act was in accordance with law and that the Ld. CIT(E) had erred in holding the assessment order to be erroneous and prejudicial to the interests of the Revenue. 16. The Ld AR, in the alternate argued that, if interpretation of the Ld. CIT(E) with reference to the decisions of AUDA and New Noble is found to be tenable, then also, the said decisions were having prospective application could not be applied to the assessee's case as the year impugned was AY 2018-19 i.e. prior to these judgements. He further submitted that, in any event, on the day the assessment was made, it....
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....trol bunk is not related to that object. He submitted that, as per Sec 11(4) running of petrol bunk is not a business incidental to the object of the assessee being education, medical relief, and relief to the poor. He also contended that, the assessee was falling foul of the proviso to sec 2(15) as more than 80% of its receipts were from business activity and hence, the Ld. CIT(E) had rightly directed denial of exemption u/s 11 of the Act 19. The Ld. CIT, DR further argued that, the case facts of Thanthi Trust were different from that of the assessee. In that case, the 'business was held under trust' in terms of Section 11(4) of the Act, while in the assessee's case, the 'business is not held under trust' and thus assessee's case was to be examined under the provisions of sec 11(4A) of the Act alone. According to him, the assessee failed the test of the first condition that, the business should be incidental to the attainment of the objectives of the trust and therefore the ratio laid down in Thanthi Trust cannot be extended to the assessee, as the business being carried on was not held under trust and whose income is utilized to feed the charitable obje....
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....ecords placed before us. In the several grounds raised in the appeal, the assessee has in sum & substance challenged the jurisdiction of the Ld. PCIT to pass the impugned order u/s 263 of the Act. Before adverting to the facts of the case, it is first necessary to examine the scope of revisional jurisdiction u/s. 263 of the Act. For that, let us take the guidance of decision rendered by the Hon'ble Apex Court in Malabar Industrial Co. Ltd. v. CIT (243 ITR 83) wherein their Lordship have held that twin conditions should be satisfied before jurisdiction u/s 263 of the Act is exercised by the ld. CIT. The twin conditions which need to be satisfied are that (i) the order of the Assessing Officer must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. It is in the following circumstances, that the order of the AO can be held to be erroneous i.e., (i) if the AO's order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) if the AO's order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of....
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....m the petrol outlet being operated by it. Having taken into consideration the facts as narrated in the preceding paragraphs, it is not in dispute that, the case of the assessee was selected for CASS scrutiny on the reason "Receipts from Trust" and that the AO during assessment proceedings has asked specific queries on the details of receipts from petrol outlet and its application as well through notice u/s 142(1) of the Act to which the assessee is noted to have furnished its reply along with details. It is noted that, upon perusal of the same, the AO had issued show cause notice dated 14.01.2021 proposing to deny the exemption claimed u/s 11 of the Act in relation to the surplus of the petrol outlet amounting to Rs. 73,27,209/- on the ground that, although separate books of accounts were being maintained for this business, but this business activity was not incidental to the attainment of the objects of the Trust as mandated u/s 11(4A) of the Act. To this, the assessee is noted to have furnished his explanation vide letter dated 22.01.2021 in which, it explained the facts of the case in as much as that the surplus of the said business activity was utilized for attaining the main c....
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....'s action of allowing exemption u/s 11 of the Act was unsustainable in law and therefore directed him to deny the same. 26. In light of the above findings of Ld. CIT(E), the issue which now requires our adjudication is, whether the view adopted the AO allowing the exemption u/s 11 of the Act, after making enquiry into the same, can be termed as erroneous or a view which is unsustainable in law and therefore whether the Ld. CIT(E) had validly assumed jurisdiction u/s 263 of the Act. Before proceeding to adjudicate this legal issue, the first factual issue which is required to be settled is the nature of assessee trust viz., whether it is an 'educational' trust or a 'GPU' trust. From the facts placed before us and having regard to the objects of the Trust deed (supra), it is noted that, the main activity carried on by the Trust is the running of a music school and an adjacent library. From the Paper book filed before us, it is observed that, the school has a total of 496 students. The music course covers Carnatic music- both vocal and instrumental. The course has been divided into eight Grades- from Grade 1 at the lowest level to Grade 8 at the highest level. T....
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....way is education in the great school of life. But that is not the sense in which the word "education" is used in clause (15) of section 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by formal schooling." Thus, education i.e., imparting formal scholastic learning, is what the IT Act provides for under the head of "charitable" purposes, under section 2 (15). (emphasis supplied) 27. We find the reliance placed by the Ld AR of the assessee on the decision of Hon'ble Delhi High Court in the case of CIT Vs NIIT Foundation (supra) to be relevant and applicable to facts of the present case. In the instant case, the assessee was a charitable trust conducted various training programs for underprivileged youth spread across various streams such as Information Technology, English, Soft skills, BPO, Retail, Banking and Service sectors. The AO had allowed the exemption claimed u/s 11 of the Act. The Ld. CIT in the revision proceedings u/s 263 of the Act however held that the assessee was not engaged in any formal educational activity as it was not affiliated with any regulatory body. Ins....
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....phies of traditional classrooms. Students love Polls, Live Q & A sessions and pre-recorded videos. Books and Notebooks have been replaced by smart phones, tabs etc. Most importantly, attendances are also virtual instead of physical. Chat boxes are medium of group discussion. Strikingly, Timings are 24*7. Still it has all the essential of a "classroom". It definitely covers 'process of training, developing the knowledge, skill, mind and character of students' like normal schooling. Thus, in true sense the activities performed by the assessee are no different from 'classrooms.' 31. In view of above facts, we hold that assessee is carrying on educational activities which are covered by the provisions of section 2 (15) of the Income-tax Act and it is neither business nor profession of the assessee. It definitely constitute a charitable activity as it does not charge the fees at the level of market rate and even otherwise the surplus generated is also used for charitable activities of education. This is the finding of the learned assessing officer for assessment year 14-15 and for earlier assessment years. In view of this, the order passed by the assessing offic....
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....ol was no different from a coaching centre, which the Court distinguished on the basis of profit motive. It held that, "The coaching centres, as we understand them, are where candidates are specially prepared to appear in competitive examinations such as civil services, entrance examination for IIMS, IITs and other professional colleges. Profit motive pervades and is the essence of the business activity undertaken by the coaching institutes. The primary object of the coaching institutes is personal or self-gain and activity undertaken is with the said objective. Knowledge of education may be imparted but "charity" or philanthropy is missing. No such finding or observation is recorded and stated in the impugned order. The difference between coaching centres and an "educational institution" from section 2(15) or 10(vi) is apparent". In the present case also, the absence of profit motive is evident from the nominal fees charged which has resulted in a deficit in the music school activity, as already noted above. 29. Therefore, in light of the above findings, we are of the considered view that, the assessee trust is to be regarded as an 'education' trust. 30. Having held ....
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....above, the assessee is an educational trust. On reading of the decision of AUDA, we find that, the Hon'ble Supreme Court has classified the charitable trusts into two categories viz., `per se categories' of charities (which includes education) and 'GPU' trusts and thereafter interpreted the term 'incidental' in the context of GPU trusts. In this regard, we gainfully refer to Paras 126 to 128 of the said judgment, which reads as under :- "126. As observed at the beginning of this judgment, GPU charities have been recognized as distinct from the 'per se categories' of charity (education, medical relief, relief to the poor; and later - preservation of water sheds, monuments, environment, and yoga). The judgment of this court in Dharmadeepti (supra) has clarified that the per se categories - are not subjected to the restrictive condition of eschewing activities of profit. This enunciation of the principle has been endorsed in all later decisions - starting with Surat Art Silk (supra). Therefore, the restriction imposed by Parliament against charities - prohibiting them from carrying on activities of profit do not apply to the first six categorie....
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.... nexus between the business and the charitable activity in as much as this additional condition imposed was only for GPU trusts on their business activities in terms of proviso to Sec 2(15) of the Act. Also, the limit of 20% of the total receipts set out in the proviso to Section 2(15) was held to be applicable to trusts pursuing GPU objects. The relevant findings of the Hon'ble Apex Court, in this regard, as taken note of by us, is as follows :- "166. What then is the interpretation of the expression "incidental" profits, from "business" being "incidental to the attainment of the objectives" of the GPU charity (which occurs in section 11(4A))? As stated earlier, the interpretation of that expression in Thanthi Trust (supra) was in the context of a per se charity, i.e., where the trust's object was education .... 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 ....
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....l in a 'GPU' Trust is that, the business should be carried on or conducted actually in the course of achieving the GPU objects, that is to say that there should be a first- degree nexus between the business carried on and the charitable activity. However, the important point to be noted is that, the aforesaid interpretation of the term incidental is specifically only in the context of `GPU' trusts who are hedged by the additional condition in the proviso to sec 2(15), namely that the business activity is undertaken in the course of actual carrying out the GPU object. The Ld AR for the assessee has rightly pointed out that, this position was also specifically clarified by the Hon'ble Supreme Court vide their later order in AUDA's case which is reported in 144 taxmann.com 78. The relevant portion, taken note of by us, is as follows :- "2. This court, by the judgment in question, had considered and pronounced upon the interpretation of section 2(15) of the Income-tax Act, 1961, in relation to charitable trusts which engage in activities that further objects of general public utility. The activities and cases of various kinds of charities, trusts and organi....
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....ndition set out in the section was that these institutions must exist solely for educational purposes and therefore the Hon'ble Court held that any 'incidental' activity resulting in a surplus and covered by the seventh proviso must also be an education activity only and nothing else. In fact, the Court also cited examples to explain the contextual meaning of 'incidental' used in seventh proviso in conjunction to the condition 'solely for education purpose' as set out in the main provision. The Court explained that, where the assessee institution sourced and sold books to its students or provided transport through buses for its students, these activities would incidental to education of students. However, where institutions provide their premises or infrastructure to other entities for the purposes of conducting workshops, seminars or even educational courses in which outsiders are permitted, then the income derived from such activity cannot be characterised as part of education or 'incidental' to the imparting education. It is therefore noted that the contextual meaning of 'incidental' as interpreted by the Hon'ble Apex Court in rela....
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....". For coming to this conclusion, the Hon'ble Supreme court at Para 18 held as under :- "Clearly, the scope of sub-section (4A) is more beneficial to a trust or institution than was the scope of sub-section (4A) as originally enacted. In fact, it seems to us that the substituted sub-section (4A) gives a trust or institution a greater benefit than was given by section 13(1)(bb). If the object of Parliament was to give trusts and institutions no more benefit than that given by section 13(1)(bb). the language of section 13(1)(bb) would have been employed in the substituted sub-section (4A). As it stands, all that is required for the business income of a trust or institution to be exempt is that the business should be incidental to the attainment of the objectives of the trust or institution. A business whose income is utilised by the trust or the institution for the purpose of achieving the objectives of the trust or the institution is, surely, a business which is incidental to the attainment of the objectives of the trust" (emphasis supplied) 38. Therefore, in terms of the above decision in Thanthi Trust, in the case of 'per se categories' of charities, as ....
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....s whose income feeds the charity. The Hon'ble Supreme Court, for holding so, had taken into context of the historical developments in the requirements to be fulfilled by businesses carried on by these per se charitable trusts. It was noted that, for AYs 1979-80 to 1983-84, when Section 13(1)(bb) was in the statute book, the Hon'ble Supreme Court denied the benefit of exemption to the business income earned by the Thanthi Trust on the ground that Section 13(1)(bb) which applied only to per se charitable trusts, required a first-degree nexus of business with the charitable activity. Thereafter for the period AY 1984-85 to AY 1991-92, when sec 13(1)(bb) was deleted and a new Section 11(4A) was introduced, the Hon'ble Supreme Court again denied the exemption on the ground that the requirement in Section 11(4) at that time, namely that the business should be carried on by the beneficiaries of the institution, was not fulfilled. Thereafter, for the period from AY 1992-93 onwards, the Hon'ble Supreme Court upheld the exemption for the business income on noting that the amended Section 11(4A) only required that the business should be incidental to the achievement of objecti....
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....ng ideas. It inter alia carried out various construction activities such as Panchayath Community Hall, Kudumbasree womens hostel, Krishibhavan office, Vayanasala Office etc. by using MPs, MLAs and local authority funds. The Tribunal found this to be a GPU activity and the receipts therefrom violated the proviso to sec 2(15) and hence confirmed the denial of exemption claimed u/s 11 of the Act. In the case of Young Women's Christian Association of Madras (supra), the dominant part of the income of the assessee was from running a Working Women's hostel and International Guest House. This Tribunal held this activity to be a GPU object and as the assessee had not complied with the proviso to sec 2(15), the exemption was denied. In Murasoli Trust (supra) also, the trust was found carrying on the business of publishing a newspaper on commercial lines and thus falling foul of the proviso to sec 2(15). On these grounds the exemption was denied. As held above, the assessee is an educational trust and not a GPU trust and therefore these decisions do not apply to it. 44. We now come to the next contention raised by the Revenue that, the decision of Thanthi Trust cannot be extended ....