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Delhi high court recent orders on charitable trust taxation

THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment delivered on: 27.07.2015

+ ITA 141/2013

MOOL CHAND KHAIRATI RAM TRUST

The only controversy that remains to be addressed is whether the AO

and the Tribunal were justified in holding that the Assessee had applied its

income for purposes other than its objects. A plain reading of the objects indicates

that it includes “devising

means for imparting education and improving Ayurvedic system of

medicine and preaching the same”. It is also expressly clarified that the

Assessee is not prohibited to take help from the English, Unani or any other system

of medicine for its object. Further, it is also expressly provided that

according to the need, one or more Ayurvedic hospitals may be opened. It

is at once clear that the object does not prohibit running of an Allopathic

hospital or drawing from any the other system of medicine for improving

the Ayurvedic system of medicine. The Assessee’s endeavour of running a

hospital providing modern techniques and treatment which would also be a

source for improving Ayurvedic system of medicine would, plainly, be an

activity towards the objects as specified. Merely because, running of an

Allopathic hospital is not specifically mentioned, it does not necessarily

mean that the same would be ultra vires the objects, as establishment of an

Allopathic hospital does assist the Assessee in its object of improving the

Ayurvedic system and taking assistance from the Allopathic system of

Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

medicine. Any activity reasonably incidental to the object would not be

ultra vires the objects. As explained by the Assessee, the modern

investigation techniques are equally utilized for treatment under Ayurvedic

system.

In Lakshmanaswami Mudaliar v. Life Insurance Corporation : AIR

1963 SC 1185, the Supreme Court had observed as under “(13) Power to

carry out an object, undoubtedly includes

power to carry out what is incidental or conducive to the

attainment of that object, for such extension merely permits

something to be done which is connected with the objects to

be attained, as being naturally conducive thereto.”

37. Although the above observations were made in the context of

interpretation of the Object Clause of a Memorandum of Association of a

Company, the principle would also be applicable to determine whether any

activity is ultra vires the purpose of a Trust. Thus, in our view, the AO and the

Tribunal erred in concluding that

the Assessee’s activities were in excess of its objects. Running an

integrated hospital would clearly be conducive to the objects of the

Assessee. The trustees have carried out the activities of the trust bonafide

and in a manner, which according to them best subserved the charitable

objects and the intent of the Settlor. Thus the activities of the Assessee

cannot be held to be ultra vires its objects.

The next issue to be addressed is whether it was open for the AO to

take a view different from the one that has been accepted by the Revenue


for the past several decades. It is well established that each year is a

separate assessment unit and the principles of res judicata are not

applicable. However, in this case, it would be appropriate to note that the

activities carried out by the Assessee have been accepted as being amenable

to exemption under Section 11 of the Act for the past several decades. In

the past period, the Assessee has been granted exemption under Section 11

of the Act and also under Section 10(22)/10(22A) or Section 10(23C) of the

Act. Concededly, the exemptions granted to the Assessee for past several

decades would not be available if the activities of the Assessee were

considered by the concerned AOs/Authorities to be ultra vires its objects.

40. In the circumstances, it would not be apposite to permit the Revenue

to challenge a position that has been sustained over several decades without

there being any material change. Thus, in the circumstances, where the views are

mistaken and

apparently erroneous, it would not be apposite to compel the Revenue to

follow the same on the principle of estoppel or of consistency. However, in

cases, where two views are plausible, it would be, plainly, whimsical to frame

an assessment contrary to the position accepted in earlier years. This

would render the exercise of assessment highly subjective; clearly, an

Assessee cannot be subjected to such vagaries . Indisputably, the powers of

AO are wide but its exercise cannot be undisciplined. In cases where there

is a palpable mistake or the position accepted by the Revenue in earlier

years is apparently erroneous, the AO would not be bound to accept the

view of his predecessors. However, in cases - such as the present case -

where the Assessee’s claim for exemption has been accepted for several

decades, it would not be open for AO to think of new grounds, which at

best raise contentious issues, to cast a wider net of tax. It is trite law, that if


two views are possible, the one favoring the Assessee must be adopted.

This rule would apply a fortiori in cases where the Assessee’s claim has

been consistently accepted by the Revenue in the past. Thus, in cases where

the claim of an Assessee has been accepted in earlier years, unless the claim

of an Assessee is found to be devoid of any basis or plainly contrary to law,

it would not be open for the AO to take a view contrary to the position

which has been accepted by the Revenue in earlier years and has been

permitted to sustain for a significant period of time. In the facts of the present

case, it is not possible to accept that grant

of exemption to the Assessee for the past several decades was palpably

erroneous and successive AOs were wrong in accepting that the activities

of the Assessee were in furtherance of its charitable objects, entitling the

Assessee to escape the levy of income tax. However, the first question is answered

in the

negative and in favour of the Assessee and in our view, the Tribunal was

not justified in allowing the Revenue’s appeal and denying the Assessee’s

claim under Section 11 of the Act.

Refer:Radhasoami Satsang; Parashuram Pottery Works Co. Ltd. v. ITO: (1977)

106 ITR 1; Excel Industries etc.

IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 18.03.2015

Pronounced on: 18.09.2015


HAMDARD LABORATORIES INDIA AND ANR

Analysis and Conclusions

52. As noted at the outset of this Court‟s judgment, the focal point of the six writ

petitions involved here is the nature of the objects and activities carried out by

Hamdard. Indeed, this Court‟s determination as regards Hamdard‟s entitlement to

exemption under Section 10(23C)(iv) of the Act has a direct bearing on the

outcome in W.P.(C) 3599 of 2013 (reopening of assessment for AY 2005-06) and

WP (C) Nos. 5715, 5716, 5718 and 5729 of 2013 (validity of CIT(A)‟s orders

dated 10.07.2013). Therefore, this Court proceeds to examine this issue first.

This brings the court to the crucial issue to be considered i.e. whether

Hamdard ‟ s objects fall within either or all of first three heads of „charitable

purpose ‟ stated in Section 2(15) or within the residual category. While

examining Hamdard‟s objects, the DGIT(E) noted that its primary mode of

expenditure on charitable activities is through HNF, and that its direct expenditure

on charitable objects is negligible. Further, it was stated that HNF carries out its

charity through four Section 12A registered entities, viz. Jamia Hamdard

University (education), Hamdard Education Society (HES) (education and residual

category), Business and Employment Bureau (BEB) (residual category), All India

Unani Tibbi Conference (AIUTC) (residual category) and through Saeda Hospital.

It was held that since Hamdard does not have control over the charitable activity of

HNF, as it may choose to spend on activities falling within the residual category as

opposed to the first three categories of charitable purpose in Section 2(15),

Hamdard ought to be classified under the residual category. Hamdard‟s direct

charitable activities were held to be insignificant to have a bearing on the

determination of its objects. As regards HNF‟s direct charitable activities (which

constituted3.6% of HNF‟s total charity), it was held that 64% of direct charity


outlay was for scholarship schemes and the remaining 36% was held to be on „core

charity‟, i.e., falling within the first three heads of „charitable purpose‟ under

Section 2(15).

Hamdard‟s contention, both before the DGIT(E) and this Court, is that this Court

in Hamdard Dawakhana (Wakf) (supra) had held the objects of Hamdard to be

falling within the first three categories of Section 2(15). However, the DGIT(E), in

our opinion, rightly rejected this contention. Although the revenue in that case had

urged that the objects fell within the residual category, the Court did not render a

finding on this issue. The Court, while applying the test laid down in Surat Art Silk

(supra), held that Hamdard applied the surplus generated from its business for

charitable purposes, and therefore, it was not „involved in carrying an activity for

profit‟. If anything, it may be contended that the Court considered Hamdard‟s

objects to be falling within the residual category, for, if the objects fell within the

first three heads of charitable purpose, Hamdard would have been entitled to

exemption from tax “even if an activity for profit [was] carried on in the course of

the actual carrying out of the primary purpose of the trust” (Ref. Surat Art Silk)

and the Court would not have been required to delve into the issue of whether

Hamdard was involved in carrying an activity for profit. However, this Court

does deem it appropriate to go so far as to infer this from the said decision.

Now, coming to an examination of Hamdard‟s objects, Clause 44 (a) of the Deed

dated 28.08.1948 lists out objects of public charity to include „relief of the poor,

education, medical relief and the advancement of any other object of general public

utility not involving the carrying on of any activity of profit‟. At first look, it

would appear that the object is to promote charity generally, as opposed to limiting

to any specific class of charitable objects. However, clause 45 of the Deed

specifies the heads of charity, which may be classified under „education‟ (sub-


clauses 45(1) and 45(2)) and „medical relief‟ (sub-clause 45(3)). Clauses 46 and

47 permit Hamdard to engage in other activities which would qualify under the

head of „relief for the poor‟. While Hamdard may pursue charitable activities

for the advancement of objects of general public utility (owing to the

generality of clause 44), clauses 45, 46 and 47 indicates that Hamdard ‟ s

objects fall within the first three categories of „charitable purpose ‟ spelt out

in Section 2(15), and not in the residual category. Here, this Court relies on

the Supreme Court ‟ s ruling in Dharmadeepti (supra), where the Court

construed a general provision concerning charitable object in the trust deed in

light of a specific clause.

In light of the decisions in Sarladevi Sarabhai Trust (supra) and Shri Ram

Memorial Foundation (supra), it is well established that an entity carrying out

its chartiable activities through another charitable institution is entitled to

exemption under the Act. For instance, a trust may donate its surplus to another

trust, which runs and manages an educational institution, or transfers the surplus

received to another educational institution. The above decision of the Gujarat High

Court was concurred in Shriram Memorial Foundation (supra) by a Division

Bench of this Court. It is settled, therefore, that the trust which donates the surplus

at the first instance would be qualified for exemption under Act, for its activities

would be charitable in nature. While determining the head of „charitable purpose‟

under which the said trust falls, it would be inharmonious to not relate it to the

nature of activity carried out by the donee trust, or the third set of trust/institution

to which the donee trust transfers its surplus. Therefore, if the donee trust is

engaged in managing an educational institution, the first trust‟s charitable activity

would also fall under the category of „education‟.The Revenue urges that

Hamdard had been enjoying enormous profit margins year after year, generating


considerable surplus and consequently, its activities cannot be considered as those

of a charitable organisation. However, this submission runs afoul a plethora of

Supreme Court decisions, the most recent being Queen‟s Educational Society

(supra), where, following the law laid down in Surat Art Silk (supra), Aditanar

Educational Society (supra) and American Hotel and Lodging Association v.

CBDT, (2008) 301 ITR 86, the Court held that merely because an educational

institution is generating surplus does not imply that it ceases to enjoy the benefit of

exemption under Section 10(23C)(iii-ad) of the Act. The next issue to be examined

is whether Hamdard applied and accumulated its surplus towards its objects. The

DGIT(E) found that Hamdard had been applying its surplus and accumulated

income towards fixed assets and ongoing projects relating to Hamdard‟s business.

These included Hamdard‟s new factories at Okhla and Manesar, Herbs and

Medicinal Plants Cultivating Project, Muffadarat Plant Ghaziabad and Multi

Speciality Hospital and Medical College (Jamia Hamdard University‟s project).

The DGIT(E) held that only the Multi Speciality Hospital and Medical College

project was charitable in nature, while the others were in furtherance of Hamdard‟s

business and not its objects. Insofar as the former was concerned, since it was a

project of Jamia Hamdard University, the DGIT(E) held that Hamdard could not

claim application of funds towards that project as application for charitable

purposes. This Court finds that the DGIT(E) misconstrued the nature of

Hamdard‟s activities, inasmuch as it held them to be in the nature of business. This

Court has already held above that Hamdard‟s objects are charitable in nature, and

its activities relating to manufacture and sale of unani medicines and other allied

businesses are only meant to act as a source of funds for its charitable activities. It

is undisputedly a case of a business held in trust, and Hamdard has been

consistently applying the proceeds of its activities for charitable purposes. In light

of the above, this Court holds that the decision in Abul Kalam Azad Islamic


Awakening (supra), where it was held the application of income derived from

investment in commercial property to be the determining factor, is squarely

applicable. Here, too, Hamdard, in accordance with its Trust Deed, has been

applying and accumulating its income from business activities for charitable

purposes. Hamdard has rightly placed reliance on this Court ‟ s decision in DIT

v. Eternal Science of Man ‟ s Society , (2007) 290 ITR 535, where the Court

allowed acquisition of moveable and immoveable property if it achieved the

objects of a charitable trust. Therefore, this Court holds that Hamdard did

not fail to apply or accumulate its income/surplus towards its objects.

The DGIT(E) concluded that Section 11(4A) is applicable to Hamdard, even

though it is admittedly a business held in trust. In so holding, the DGIT(E) relied

on the Supreme Court‟s decision in ACIT v. Thanthi Trust (2001) 247 ITR 785,

and ruled that the Court therein had rejected the distinction between a business

held in trust and a business carried on by the trust insofar as the applicability of

Section 11(4A) was concerned. Hamdard relied upon this Court‟s decision in CIT

v. Mehta Charitable Prajnalay Trust, (2013) 357 ITR 560, where it was held that

Section 11(4A) of the Act would not apply to a business held under trust.

However, the DGIT(E) refused to follow Mehta Charitable Prajnalay Trust

(supra) since it was a case of a trust doing business, as opposed to business held in

trust; since both Thanthi Trust (supra) and the instant case involve the latter, the

decision in Thanthi Trust (supra) was held to be applicable. This Court rendered a

clear finding in the above terms regarding the exclusion of a business held under

trust from the scope of Section 11(4A), that too upon an overall consideration of

the decision in Thanthi Trust. In such circumstances, we hold that the DGIT(E)‟s

refusal to follow Mehta Charitable Prajnalay Trust (supra) is erroneous. The

distinction drawn by the DGIT(E) on facts, viz. that in Mehta Charitable Prajnalay


Trust (supra) the business was not held in trust, which is admittedly the case

herein, is immaterial, given that the Court‟s ruling therein was on the precise issue

which fell for determination before the DGIT(E) in the instant case. Therefore,

Section 11(4A), and consequently, condition (c) and the seventh proviso to

Section 10(23C) are not applicable in Hamdard ‟ s case Given the above

finding, Hamdard‟s failure to maintain separate books of accounts is not fatal to

its case, since such an obligation would have existed only in the event of

applicability of condition (c). This Court ‟ s ruling in PHD Chamber of

Commerce & Industry (supra) also supports this conclusion. In that case, the

Court held that the services performed by a trade, professional or similar

association, such as a chamber of commerce and industry, could not be held to

be in pursuit of a business or trade with a profit motive and would not qualify

as a business activity. Thus, Section 11(4A) of the Act would be inapplicable to

such associations and they are not required to maintain separate books of

accounts to avail exemption from tax. This Court, upon an examination of

Hamdard ‟ s objects, has already concluded that it is not carrying on a

business of the nature envisaged in condition (c) of the order of

exemption/seventh proviso to Section 10(23C). Consequently, it is not required

to maintain separate books of accounts

Did Hamdard cease to be a charitable institution with effect from 01.04.2009?

This Court holds that arguendo if Hamdard‟s objects were to be construed to be

falling within the residual category of „charitable purpose‟ with the result of

attracting the applicability of the first proviso, it would not cease to be a charitable

organisation with effect from 01.04.2009. The interpretation of first proviso put


forward by the DGIT(E) would exclude all entities advancing an object of general

public utility from the definition of „charitable purpose‟ if such entities carry on

any activity of trade, commerce or business, irrespective of the nature of

application of surplus generated from such activity. This unduly broad

interpretation has been rejected by this Court in Institute of Chartered Accountants

of India (supra), where the Court held that while determining whether an assessee

is carrying on business, the dominant purpose test laid down in Surat Art Silk

(supra), albeit in a different context, would continue to apply. More recently, this

Court in India Trade Promotion Organization v. Director General of Income-tax

(Exemptions) , [2015] 371 ITR 333 , while adjudicating upon the constitutional

validity of the first proviso to Section 2(15), read down the said proviso when

applied in the context of Section 10(23C)(iv) and reiterated the dominant purpose

test discussed in Institute of Chartered Accountants of India (supra). The objects of

the assessee therein fell under the residual category of Section 2(15), and the

Revenue withdrew the exemption granted to the assessee under Section 10(23C)

(iv) with effect from 01.04.2009 in light of the insertion of the first proviso. The

Court held that the assessee‟s activities could not be said to be within the nature of

a business, Affirming the dominant purpose test applied in Institute of Chartered

Accountants of India (supra) in the context of first proviso to Section 2(15), the

Court noted:

“From the said decision, it is apparent that merely because a fee or some other

consideration is collected or received by an institution, it would not lose its

character of having been established for a charitable purpose. It is also important

to note that we must examine as to what is the dominant activity of the institution

in question. If the dominant activity of the institution was not business, trade or

commerce, then any such incidental or ancillary activity would also not fall within

the categories of trade, commerce or business…” This Court has already held


above that Hamdard‟s dominant purpose is charitable in nature, and it is not

guided by the motive of profit-making. Therefore, the first proviso to Section 2(15)

does not alter the charitable status of the organisation. This outcome is also in

consonance with the rationale for the insertion of first proviso to Section 2(15),

which was noted by this Court in M/s. GS1 India v. DGIT , [2014] 360 ITR 138,

citing a CBDT Circular of 2008, as follows: 102. It has thus been established

that Hamdard is by no means a mask or a device to conceal any income

generated from any of its activities.

IN THE HIGH COURT OF DELHI AT NEW DELHI 17. + ITA 269/2015

BHAGWAN SHREE LAXMI NARAINDHAM TRUST

07.09.2015

Some of the objects of the Trust as set out in the Trust Deed are as under: (i) To

establish, promote, set-up, run, maintain assist finance, support and/or help in

setting up and/or maintaining and/or running schools, and other institutions

orphanages, widow home, poor houses or other establishments of relief and/or help

to the poor, old and infirm people. .... .... .... .... .... (vii) To arrange, establish,

manage and supervise orphanages, old age homes, night shelters, hospitals,

dharmshala, nariniketan and mahila ashram etc. (viii) To give spiritual lectures to

mental disturbed person and spiritual lecture to all kinds of human beings. .... .... ....

.... .... (xi) To do all other activities for the interest of the human beings to help in

physical, mentally and financially.


(xii) To give provide and/or render food, medicine and other help and/or

assistance in any shape or form to the poor deserving and needy person. To give

provide and/or render monetary and/or other help and assistance for the relief of

persons and animals affected by natural and other calamities such as food, fire,

famine, cyclone, earthquake, storm, accident, pestilence drought, cyclone,

epidemic and the likes to give donations, subscriptions or contributions to

institutions, establishments centres of persons doing relief work on such

occasions. .... .... .... .... .... (xiv) To open found, establish, manage, promote, set-

up, run, maintain, assist, finance, support and/or help in the setting up and/or

maintaining and/or running schools, colleges, arts and science medical, para

medical and technical, lecture halls and other establishments or institutions etc.

for advancement of education and knowledge in arts, science, literature,

humanities and all other useful subjects in all their manifestation. .... .... .... .... ....

(xvii) To promote, organize, administer, establish support maintain and/or grant

and to person institution or society or organization is ever having for the objects

of charitable purpose and to incur expenditure in connection therewith.”

The central question to be considered is whether the ITAT erred in holding that the

Revenue had wrongly applied Section 115 BBC of the Act to the case of the

Assessee and erred in accepting that the Assessee-Trust was carrying out various

religious activities? It was submitted by Mr. Kamal Sawhney that none of the

activities stated in Clause 5 of the Trust Deed can be said to be a purely religious

activity. In other words charitable activities enumerated therein could not be said to

be 'religious activities'. According to Mr. Sawhney, even giving of spiritual

lectures would not strictly qualify as a religious activity. The question posed arises

in the context of the anonymous donations received by the Assessee Trust and the


view of the AO that such donations would not be exempt within the scope of

Section 115 BBC of the Act since the activity of the Trust was 'spiritual' and not

'religious'. It is useful in this context to recapitulate the CBDT Circular No. 14 has

explained the scope of Section 115 BBC, introduced with effect from 1st April

2007, as under: "25.2. With a view to prevent channelisation of unaccounted

money to these institutions by way of anonymous donations, a new Section

115BBC has been inserted to provide that any income of a wholly charitable trust

or institution by way of anonymous donation shall be included in its total income

and taxed at the rate 0 30 per cent. Anonymous donation made to wholly charitable

and religious trusts of institutions, i.e. mixed purpose trusts of institutions shall be

taxed only if it is for any university or other educational institution or any hospital

or other medical institution run by them. Anonymous donation to wholly religious

trusts or institutions will not be taxed." 11. Therefore, it becomes necessary to

examine whether the ITAT was on the facts of the present case justified in coming

to the conclusion that the Assessee would be entitled to the benefit of Section 115

BBC as far as the anonymous donations received by it were concerned. As rightly

pointed out by the ITAT itself, the above question cannot be addressed within the

narrow scope of the specific wording of some of the clauses of the Trust Deed but

in the overall context of the actual activities in which the Trust is involved in

including imparting spiritual education to the persons of all castes and religions,

organizing Samagams, distribution of free medicines and clothes to the needy and

destitute, provision of free ambulance service for needy and destitute patients and

so on. What can constitute religious activity in the context of the Hindu religion

need not be confined the activities incidental to a place of worship like a temple.

The Supreme Court in The Commissioner, Hindu Religious Endowments,

Madras v. Sri Lakshmindra Thirtha Swamiar 1954 AIR 282 SC held that “a

religious denomination or organization enjoys complete autonomy in the matter of


deciding as to what rites and ceremonies are essential according to the tenets of the

religion they hold and no outside authority has any jurisdiction to interfere with

their decision in such matters.” It examined the scope of the protection under

Article 25 and 26 of the Constitution and observed as follows: “14. We now come

to Article 25 which, as its language indicates, secures to every person, subject to

public order, health and morality, a freedom not only to entertain such religious

belief, as may be approved of by his judgment and conscience, but also to exhibit

his belief in such outward acts as he thinks proper and to propagate or disseminate

his ideas for the edification of others.

17...What then are matters of religion? The word "religion" has not been defined in

the Constitution and it is a term which is hardlysusceptible of any rigid definition.

A religion undoubtedly has its basis in a system of beliefs or doctrines which are

regarded by those who profess that religion as conducive to their spiritual well

being, but it would not be correct to say that religion is nothing else but a doctrine

of belief. A religion may not only lay down a code of ethical rules for its followers

to accept, it might prescribe rituals and observances, ceremonies and modes of

worship which are regarded as integral parts of religion, and these forms and

observances might extend even to matters of food and dress.”

14. This position was reiterated by the Supreme Court in Ratilal Panachand

Gandhi v. The State of Bombay AIR 1954 SC 388. In the case of Sastri

Yagnapurushadji v. Muldas Bhudardas Vaishya AIR 1966 SC 1119 the Supreme

Court pointed out that what constitutes a religious activity under the Hindu faith is

very broad in nature. It held: “29. When we think of the Hindu religion, we find it

difficult, if not impossible, to define Hindu religion or even adequately describe

it.... It may broadly be described as a way of life and nothing more.”

15. It might well be that a Hindu religious institution like the Assessee is also

engaged in charitable activities which are very much part of religious activity. In


carrying on charitable activities along with organising of spiritual lectures, the

Assessee by no means ceases to be a religious institution. The activities described

by the Assessee as having been undertaken by it during the AY in question can be

included in the broad conspectus of Hindu religious activity when viewed in the

context of the objects of the Trust and its activities in general. 16. For the

aforementioned reasons, the Court finds no legal infirmity in the conclusion of the

ITAT that for the purpose of Section 115 BBC (2) (a) anonymous donations

received by the Assessee would qualify for deduction and it cannot be included in

its assessable income.

DIT(Exemption) vs Keshav Social and CharitableFoundation (2005) 278 ITR 152 (Delhi) wherein their lordships held asunder:-

“To obtain the benefit of the exemption u/s 11, the assesseeis required to show that the donations were voluntary. In thepresent case, the assessee had not only disclosed its donations,but had also submitted a list of donors. The fact that the completelist of donors was not filed or that the donors were not produced,does not necessarily lead to the inference that the assessee wastrying to introduce unaccounted money by way of donationreceipts. This is more particularly so in the facts of the casewhere admittedly more than 75 per cent of the donations wereapplied for charitable purposes.


Section 68 has no application to the facts of the casebecause the assessee had in fact disclosed the donations ofRs.18,24,200 as its income and it cannot be dispute d that allreceipts, other than corpus donations, would be income in thehands of the assessee. There was, therefore, full disclosureincome by the assessee and also application of the donations forcharitable purposes. It is not in dispute that the objects andactivities of the assessee were charitable in nature, since it wasduly registered under the provisions of s. 12A.of the Act.”

IN THE INCOME TAX APPELLATE TRIBUNAL,MUMBAI BENCH “G”, MUMBAIITA No.3466 & 3467/M/2012Assessment Year: 2007-08 & 2008-09Gurudev Siddha Peeth

Date of Pronouncement : 22.7.2015

The section 115BBC has been inserted by Finance Act, 2006 w.e.f.

01.04.07. A perusal of the above section reveals that this section is basically

meant to check the movement of black money into the system in the name of

anonymous donations. However, certain donations which cannot be said to be

made to avoid the identity of the donor for any illegal purposes e.g. black

money etc. The same have been excluded from the purview of sub section (1)

of section 115BBC. Sub section (2) in this respect provides that the provisions

of sub section (1) shall not apply to any anonymous donations received by (a)


an institution established for religious purposes (b) to any trust or institution

created or established for religions and charitable purposes other than any

anonymous donations made with a specific direction that such donation is for

any universities, educational institutions, hospital or medical institution etc. A

careful reading of the entire section of 115BBC reveals that the provisions

have been meant to check the inflow of black money/unaccounted money into

the system/institutions such as universities, educational institutions, medical

institutions etc. and it has been provided that the record of the donor along with

name and address etc. should be maintained. Sub section (2) specifically

excludes anonymous donations received by an institution which are other than

any anonymous donations made with a direction that such donation is for

university, medical institution etc. When we read clause (a) and clause (b) of

sub section (2) in harmony and in conscience with each other then it becomes

clear that the provisions of sub section (1) will not apply to the donations like

that has been received by the assessee in donation boxes from numerous

devotees who have offered the offerings on account of respect, esteem, regard,

reference and their prayer for the deity/siddha peeth. Such type of offerings

are made/put into the donation box by numerous visitors and its generally not

possible for any such type of institutions to make and keep record of each of

the donor with his name address etc. Even sometimes the donors out of their

esteem, respect and regard and selflessness they do not want that their name be

registered as a donor before the deity for whom them make the prayer in the

belief that the deity is the ultimate giver of all the worth and virtues of their

life. Now reverting to the definition of anonymous donations under sub

section (3) of section 115BBC, we find that it has been mentioned that

anonymous donations means voluntary contributions where the person

receiving such contributions does not maintain a record of the identity


indicating the name and address of the person making such contribution and

such other particulars as may be prescribed. In the case of a religious or charitable

trust as in the case of the assessee as we have observed above, it is

generally not only difficult but also not possible to maintain such type of

record. A perusal of the entire section 115BBC shows that the provisions of

said section are not applicable to the institutions like that of assessee trust as

the same are meant to check the inflow of unaccounted/black money into the

system with a modus operandi to make out as a part of the accounts of the

institutions like university, medical institutions where the problem relating to

the receipt of capitation fees, etc. is generally highlighted. Under such

circumstances, we do not find any justification on the part of the Ld. CIT(A) in

taxing the offerings received in the hundis/donation boxes as income of the

assessee under section 115BBC.

HYDERABAD BENCH ‘B', HYDERABAD I.T.A. No. 1179/Hyd/2014 – A.Y. 2007-08M/s. Vaishnavi EducationalSocietyDate of pronouncement: 07.11.201412. We have heard both parties and perused the material on record. We find that the names of the donors along with their addresses were furnished before the Investigation Wing of the department and were also recorded in the books produced by the assessee before the Assessing Officer. Hence such donations cannot be classified as "anonymous donations" as per the provisions of section115BBC(3) of the Act. 13. Hence, we are of the opinion that the only requirement u/s. 115BBC(3) is that the Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

names and addresses of the donors are to be recorded. The learned CIT(A) has wrongly applied the provisions of section 68 in the case of the assessee by stating that the recipient society should also be in a position to identity the donors and establish the capacity to give a donation of th amount mentioned against their names. In this context, reliance is placed on the decision of the Delhi Bench of this Tribunal in the case of Hansraj Samarak Society (133 ITD 530) .

Other related orders

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHIBENCH ‘ BENCH ‘ BENCH ‘B’ : NEW DELHI ’ : NEW DELH ITA No.1027/Del/2012 Assessment Year : N.A. M/s Devki Devi Foundation, Date of pronouncement : 31.03.2015 31.03.2015 31.03.2015 There could not be any exhaustive list of such tests but the following may be found relevant to decide the issue along with other tests that may be relevant :- (i) Whether the society/trust was running its activities in accordance with the objects of the society/trust as has been given at the time of registration of the society/trust; (ii) Whether the conditions provided in the lease deed of the land allotted or any other benefit derived by the society/trust from the government or semi-government or from


any section of the society have been complied with in letter and spirit; (iii) The element of profit earned by the society/trust whether reasonable with regard to the total volume of activities undertaken by it; (iv) The activities whether they are charitable in nature or not; (v) Whether any siphoning of funds is present in the payments made by the society/trust to any person whether connected with the assessee or not; (vi) Whether the activities of such society/trust were genuine; (vii) Whether the society/trust exists for the relief of the poor or the society at large or whether it exists for the benefit of its author/trustees or persons in whose favour it has created undue obligations against the interest of its own society/trust; (viii) Whether the activities of the trust are being conducted on commercial lines by charging at a maximum amount by the society/trust from its constituents; (ix) The dominant object of the society, whether charitable and not to earn profit; (x) Whether society/trust was supported wholly or in part by voluntary contributions from the society or its members; (xi) Whether charitable purpose has an element of public benefit or philanthropy; 37. We find that if the above tests for finding out whether the assessee is a genuine charitable society are applied in the present case, the assessee-society has failed in the tests laid down above.It is a matter of common knowledge that even educational institutions or hospitals are being sold like vegetables these days.


IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision: December 03, 2014 + ITA 67/2003 M/S. NBIE WELFARE SOCIETY, NEW DELHI.

“Whether the ITAT was correct in holding that by mentioned (sic. mentioning) “Further utilization” in Form No. 10 read with Rule 17 of the Income Tax Rules, 1962 the Assessee has fulfilled its obligation as required under Section 11 (2) of the Act”.

It is obvious that the purpose and objective behind Section 11 (2) of the Act is to curtail long term accumulation of income by charitable institutions without specifying the purpose for which the funds were being accumulated. The accumulation is permitted provided the assessee specifies the purpose or purposes for which accumulation is required and necessary. The question whether and in which cases declaration regarding purpose of examined by the Delhi High Court in Commissioner of Income Tax v. Hotel and Restaurant Association (2003) (261) ITR 190 (Delhi). The contention raised by the revenue in the said case was that the Tribunal had failed to appreciate that in the prescribed form, the assessed has failed to indicate the specific purpose for which the income was sought to be accumulated and therefore, the assessee had violated Section 11 (2) of the Act. The contention was rejected.

The decision in Hotel and Restaurant Association (supra) was referred to in another decision of the Delhi High Court in Bharat Kalyan Pratishthan v. Director

of Income Tax (Exemption) (2008) 299 ITR 406 Delhi and it was observed that in the Hotel and Restaurant Association case (supra) this court had observed that if accumulation was for one or more purposes and these purposes were the objects of the institution,


then it is permissible for the assessed to accumulate income for utilization of these objects. Reference was also made to the Director of Income Tax (Exemption) v. Daulat Ram Education Society (2005) 278 ITR 260 (Delhi) wherein, the assessee had specified eight purposes under Section 11 (2) of the Act. This it was held was permissible.

In the case of The Director of Income Tax v. Mamta Health Institute and Children (2007) 293 ITR 380 (Delhi), the High Court referred to the objectives for which the society was formed which had seven clauses. Revenue had alleged that in the Form No.10, the assessee had failed to indicate the specific purpose for which the income was sought to be accumulated, but this submission was rejected by

observing that the assessee had placed a copy of the annual report in which he has specified the items for which the money was accumulated.

In the present case, the assessing officer himself had noted in the assessment order that the aim and objective of the assessee was to work for the welfare of the employees of New Bank of India. This undoubtedly was the purpose and objective of the society. Therefore, during the course of assessment proceeding as is apparent from the appellate proceedings, the assessee has clarified and stated that the money in question would only be used for the purpose of making payments to the members or their legal representatives in case of their death, retirement or permanent disability In view of the factual background, the substantial question of law in terms of the decisions of this court has to be answered in favour of respondent assessee and against the appellant.

(also refer 303 ITR 111)

IN THE INCOME TAX APPELLATE TRIBUNALBackground material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

LUCKNOW BENCH “B”, LUCKNOWITA No.601/LKW/2011Assessment Year:2008-09M/s The Upper India Chamber of CommerceDate of pronouncement: 05 11 2014 This appeal is preferred by the Revenue against the order of theld. CIT(A) on a solitary ground that the ld. CIT(A) has erred in law and onfacts in deleting the addition of Rs.43,78,588/- made by the AssessingOfficer on account of capital gain arisen out of sale of property atRs.1,22,58,888/- by applying the provisions of section 50C of the IncometaxAct, 1961 (hereinafter called in short “the Act") without appreciating thefacts brought on record by the Assessing Officer during the course ofassessment proceedings.Having given a thoughtful consideration to the rival submissions andfrom a careful perusal of the orders of the authorities below, we find thatundisputedly the assessee is a charitable society and is registered under


section 12A of the Act. The question of applicability of provisions of section50C of the Act on transfer of capital asset in the case of a charitable societywas examined by the Tribunal in the case of ACIT vs. Shri. DwarikadhishTemple Trust, Kanpur in I.T.A. No. 256 & 257/LKW/2011, in which theTribunal has held that where the entire sale consideration was invested inother capital asset, provisions of section 50C of the Act should not beinvoked. We have also carefully examined the order of the ld. CIT(A) and wefind that the ld. CIT(A) has also adjudicated the issue in the light of the legal provisions and various judicial pronouncements while holding thatsection 11(1A) of the Act which lays down a complete system of taxabilityof capital gains in respect of an institution approved by the CIT undersection 12A of the Act is a complete code.(4. In the case of a Trust and for the purpose of Sec. 54F wherequestion of utilization of the funds in case of sale of an asset arises it


would be the available funds with the assessee and not the deemedincome. This is on the ground that what is, not available with theassessee can never be invested. Even otherwise the language used in section 54F and 11(1A) regarding the meaning of "net consideration" is same and it has been held that it shall prevail over provisions o£ section 50C)

IN THE INCOME TAX APPELLATE TRIBUNAL“SMC” BENCH : BANGALOREITA No.664/Bang/2015Assessment year : 2011-12Public Education Society,Date of Pronouncement : 25.08.2015

I have considered the rival submissions and perused the record. Theissue herein is with regard to the meaning of expression “such income” insection 11(1)(a) of the Act. Identical issue was considered by the ApexCourt (supra) which was also applied by the Special Bench of the ITAT


Mumbai by holding that the expression “such income” means gross incomeand not the net income after deducting the administrative expenditure.Such being the case, by respectfully following the decision of the SpecialBench, I hold that the claim of assessee is in accordance with law. Sincethe expenditure incurred by the assessee was more than 93% of the grossreceipts, no part of the gross receipts are liable to be taxed in the yearunder consideration, since the balance amount was set apart forapplication in the next year. With these observations, the appeal filed bythe assessee-trust is allowed.

IN THE INCOME TAX APPELLATE TRIBUNAL,

KOLKATA ‘A’ BENCH, KOLKATA

I.T.A. No. : 1156/ Kol . / 2011

Assessment year : 2006-07

M/s. Belvedere Estates Tenants Association Date of pronouncing the order :

October 19, 2012

On the facts of the present case, we have noted that there is no

finding by any of the authorit ies below that services are rendered to


non-members. There is a reference to the services rendered to the

outsiders in the orders of the authori ties below, but it is in the context

of analysis of judicial precedents, and, therefore, nothing turns on that.

As long as services are rendered to the members, even for a

remunerat ion, the same wil l be covered by the principles of mutual ity.

As far the allegat ion that members have deducted at source from

payments to the assessee and for this reason, the receipt is to be taken

as taxable receipt , it is only elementary that conduct on the part of the

person making payment cannot determine character of receipt in the

hand of recipient . That apart , it is also a fact of li fe that somet imes

taxpayers err on the side of excessive caution and deduct taxes as a

measure of abundant caut ion. The mere deduct ion of tax at source by

person making the payment in our humble understanding, cannot lead

to the conclusion that receipt was taxable in nature. It is too naïve to

the accepted or to be even given a serious consideration. The factors

relied upon by the authorit ies below, in rejecting assessee’s plea, are

not germane to the context and devoid of legally sustainable merits.

The plea of the assessee for tax exempt ion on the ground of mutuality,

therefore, must succeed. We uphold the same.

IN THE INCOME TAX APPELLATE TRIBUNAL

BANGALORE BENCH ‘ B ’

Canara Bank,

1476/Bang/2014

2012-13

12th August, 2015.


The learned counsel for the assessee reiterated the submissions put forth before the

learned CIT (Appeals) and assailed the impugned order of the learned CIT

(Appeals)

submitting that the learned CIT (Appeals) erred in upholding the orders of the

Assessing

Officer in charging the assessees interest under Section 201(1A) of the Act. The ld.

Counsel further submitted that the interest incomes which was received by KIADB

are not liable to be taxed in view of the Registration it enjoyed under Section 12A

of the Act vide order dt.20.4.1988 and while the registration was cancelled by the

Department under Section 12AA(3) of the Act, the co-ordinate bench of the

Tribunal set aside the orders of Revenue and restored the registration under

Section 12AA in order in ITA No.1095/Bang/2011 dt.31.1.2013. It is submitted

that on further appeal by Revenue, the Hon'ble Karnataka High Court in ITA

No.261/2013 dt.7.11.2014 dismissed Revenue’s appeal. It is contended that when

the interest income paid by the assessee to KIADB is not liable to tax, there is no

obligation on the part of the assessees to make deduction of tax at source. In

support of this proposition, the learned Authorised Representative placed reliance

on the decision of the Hon'ble High Court of Karnataka in the case of CIT V ITC

Hotels Ltd., in ITA No.477 and 478/2009 dt.15.6.2015. In view of the above, the

learned Authorised Representative prayed that the assessees appeals ought to be

allowed.

3.3 Per contra, the learned Departmental Representative strongly relied on the

impugned orders of the learned CIT (Appeals).


3.4.1 We have heard the rival submissions and perused and carefully considered

the

material available on record. In the instant case, the assessee bank had taken term

deposit from KIADB. The KIADB was entitled to interest on these term deposits.

These interest incomes which have received by KIADB are not liable to be taxed

in view of the Registration under Section 12AA enjoyed by KIADB. No doubt the

Registration was cancelled by the income tax authorities. However, the assessee

took up the matter before the Tribunal and Tribunal vide order in ITA

No.1095/Bang/2011 dt.31.1.2013 has set aside the order passed by the income tax

authorities cancelling the Registration to KIADB. On further appeal by the

Revenue under Section 260A of the Act, the Hon'ble High Court in ITA

No.261/Bang/2013 dt.7.11.2014 (copy enclosed on page 63 of the paper book filed

by the assessee) dismissed the Revenue’s appeal. Since the Hon'ble High Court has

confirmed the Tribunal’s order, the Registration which is granted to KIADB, the

recipient of the interest income was still in vogue. When the interest income is not

liable for taxation, there is no obligation on the part of the assessee bank to make

deduction of tax at source.

Since the interest income was not liable to be taxed in the hands of the recipient,

there is no obligation on the part of the assessees to deduct tax at source. However,

since the Hon'ble High Court judgment is rendered subsequent to the order of the

CIT (Appeals), the CIT (Appeals) did not have the benefit to peruse the same.

Therefore, we deem it appropriate to restore the issue for de novo consideration to

the file of the Assessing Officer. The Assessing Officer shall dispose the matter

expeditiously after affording reasonable opportunity to the assessee.


IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH:

KOLKATA I.T.A No.1127/Kol/2011 Date of pronouncement: 18.12.2014 M/s.

Gourishankar Bihani Assessment Year: 2007-

Only issue in this appeal of assessee is against the order of CIT(A), confirming

disallowance

of expenditure for non-deduction of TDS u/s. 194-I of the act, by invoking

provisions of section

40(a)(ia) of the act, on rent paid to Kolkata Port Trust (KPT). Brief facts are that

the assessee has claimed expenditure on account of rent paid to KPT at

Rs.54,21,256/-. The assessee has not deducted any tax at source on payment of this

rent to KPT.

The AO required the assessee to explain as to why expenditure claimed on account

of payment of

rent to KPT be disallowed by invoking provisions of section 40(a)(ia) of the Act for

non-deduction

of TDS u/s 194I of the Act. Accordingly, AO disallowed the expenditure debited on

account of rent

at Rs.54,21,256/- by invoking provisions of section 40(a)(ia) of the Act. Aggrieved,

assessee

preferred appeal before CIT(A), who also confirmed the action of AO. Aggrieved,

now assessee is

in second appeal before ITAT. We have heard rival submissions and gone through

facts and circumstances of the case.

Facts are admitted and no dispute on the same. Before us, Ld. Sr. Advocate Shri J.

P. Khaitan


argued that the assessee has paid rent to KPT, which is a Public Charitable Trust

registered u/s.12AA of the Act. His first argument is that income of Public

Charitable Trust registered u/s. 12AA

of the Act is exempt and once the income is exempted, assessee is not liable

to TDS. We find from

the order of Tribunal dated June, 8, 2007 passed in ITA No. 2011/Kol/2006 in the

case of Kolkata

Port Trust v. DIT(Exemption), Kolkata that Kolkata Port Trust is a charitable

institution eligible for

registration u/s 12A of the Act and such registration was directed to be granted

with effect from

April, 1, 2005. Hon'ble Tribunal in deciding Kolkata Port Trust’s case, placed

reliance, inter alia, on

the judgment of the Hon'ble Gujarat High Court in the case of CIT v. Gujarat

Maritime Board

(2007) 289 ITR 139 (Guj). The revenue’s appeal against the judgment of Hon'ble

Gujarat High

Court was dismissed by Hon'ble Supreme Court in CIT v. Gujarat Maritime Board

(2007) 295 ITR

561 (SC).

Section 11

under which Kolkata Port Trust was assessed, inter alia, for the assessment year

2007-08 falls under

Chapter III of the Act for “incomes which do not form part of total income’. We

find that when


income is not to be included in the total income, it is without a doubt, not

chargeable under the

provisions of the Act. In view of the above, we here referred to Section 2(45) of the

Act, which

defines “total income” and to mean the total amount of income referred to in

section 5, computed in

the manner laid down in the Act. Section 4 is the charging section and provides for

levy of income

tax on the total income, whereas, Section 5 lays down the scope of total income.

Both sub-sections

(1) and (2) of Section 5 of the Act start with the expression “subject to the

provisions of this Act”

and then go on to say what total income includes. Thus, where any income is not to

be included in

the total income, it is clearly not chargeable under the provisions of the Act. We

then went through

the provisions of section 194-I, which provides for deduction of tax from rent has

to be read in

conjunction with section 204(iii) of the Act. Section 194-I imposes the obligation to

deduct tax on

person “responsible for paying” income by way of rent. The expression “person

responsible for

paying” has been defined in section 204 of the Act. Clause (iii) of section 204 is

relevant in the

context of section 194-I. The obligation to deduct tax from payments to residents is

in respect of “sum chargeable under the


provisions of this Act.” Section 195 is applicable in respect of payments to non-

residents and also

stipulates deduction of income tax at source from “sum chargeable under the

provisions of this

Act.” Thus, the obligation to deduct tax would arise only when the amount is “sum

chargeable

under the provisions of this Act”, whether the payee is a resident or non-resident.

In respect of

payments to residents, each of the provisions requiring tax deduction at source

including section

194-I has to be read in conjunction with section 204 and no tax is required to be

deducted if the

amount payable is not chargeable under the provisions of the Act. The case of

payment to a nonresident

was considered by the Hon'ble Supreme Court inGE India Technology Centre P.

Ltd.v

CIT, (2010) 327 ITR 456 (SC), where it was held that provisions relating to tax

deduction at source

applied only to those sums which were chargeable to tax under the Act. The said

case dealt with

section 195 of the Act but the principle laid down therein is equally applicable

even in respect of

provisions relating to deduction of tax at source from payments to residents which

have to be read

along with section 204 of the Act. In the said case, the provisions of section 204 of

the Act did not

come up for consideration.


In term of the above, we are of the view that in the instant case no tax was

deductible at

source under section 194-I read with section 204 comprised in Chapter XVII-B

from the rent paid

by the assessee to KPT. This is because such rent was not to be included in the

taxable total income

of the KPT and was, therefore, not chargeable under the provisions of the Act. As

argued by Ld.

Senior Advocate that in the instant case no tax was at all payable by KPT for AY

2007-08. U/s 191

of the Act the person making the payment can be deemed to be an assessee in

default within the

meaning of sub-section (1) of section 201 only where the deductee/payee has also

failed to pay such

tax directly. This issue has been considered by Hon'ble Allahabad High Court in

the case of Jagran

Prakashan Ltd. V. DCIT (TDS) (2012) 345 ITR 288 (All) and by ITAT Kolkata

bench in the case of

Ramakrishna Vedanta Math v. ITO (2013) 55 SOT 417 (Kol). In the instant case,

KPT was not

required to pay any tax and in turn the assessee cannot be treated to be in default

within the

meaning of section 201(1). Accordingly, we are of the view that no disallowance

ought to have

been made under section 40(a)(ia) of the Act. In view of the above fact, we are of

the view that in the instant case no tax was deductible at


source under section 194-I read with section 204 comprised in Chapter XVII-B

from the rent paid

by the assessee to KPT. This is because such rent was not to be included in the

total income of the

KPT and was, therefore, not chargeable under the provisions of the Act. In the

case law referred by

Ld. Sr. DR the fact relating to the claim of exemption of the income of KPT was not

before

Tribunal or that issue was not raised but in the instant case, KPT was not required

to pay any tax

and in turn cannot be treated to be in default within the meaning of section 201(1).

Accordingly, we

are of the view that no disallowance ought to have been made under section 40(a)

(ia) of the Act.

Bombay high court ORDERS

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.656 OF 2012

Director of Income Tax (Exemption) ..AppellantVersus

MaharashtraHousing & Area DevelopmentAuthority (MHADA) 8thAugust, 2014

Mr. Malhotra appearing on behalf of the revenue submitted that the


order of the Commissioner of Income Tax (Appeals) and the Tribunalraises a substantial question of law. In that the exemption under section 11 of the Income Tax Act, 1961 cannot be granted in favour of the respondentassessee Maharashtra Housing and Area Development Authority because it I s a local authority in the eyes of law. It cannot be said to be a Trust within the meaning of section 11 to 13 of the Income Tax Act. The property that has to be transferred to a Trust must be irrevocable and in the present case, that is not the position as the land and other assets are held by the MHADA from the Government. For all these reasons, it is submitted that the appeal deserves to be admitted.On the other hand, Mr. Thakkar appearing on behalf of therespondent submits that this very issue was raised by the revenue in threeIncome Tax Appeals No.655 of 2012, Income Tax Appeal(Lodging)No.2044 of 2012 and Income Tax Appeal (Lodging)No.2045 of2012 which were decided on 8th March, 2013. There, the revenueapproached this Court with identical arguments against another localauthority namely Slum Rehabilitation Authority which is an authorityunder the Maharashtra Slum Areas (Improvement, Clearance andRedevelopment) Act, 1971. However, the Division Bench of this Court inits order passed on 8th March, 2013 relied upon a judgment of the Hon'bleSupreme Court of India in the case of Commissioner of Income Tax V/s.Gujarat Maritime Board reported in (2007) 295 ITR 561.

Mr. Malhotra would submit that this order is clearly distinguishableinasmuch as Slum Rehabilitation Authority is put in incharge ofRehabilitation of Slums, and therefore, is performing a charitable purpose


and accordingly that was to promote the welfare of the general public.The Maharashtra Housing Area and Development Authority may havebeen claiming to be established under a statute and enacted by the StateLegislative Assembly but it does not promote the general welfare of the public and, therefore, it cannot claim the exemption.

After hearing both sides at some length, we are of the opinion that on the strength of the above material and without anything more, we cannot conclude that the respondentassesseemust be denied the exemption and unless requisite satisfaction to the contrary is recorded. In the case of the Slum Rehabilitation Authority as well this Court followed the Hon'ble Supreme Court's judgment and allowed the exemption under section 11 to it. We do not find that a different course can be adopted or a different view can be taken.

THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

INCOME TAX APPEAL NO.443 OF 2013

Director of Income Tax ..Appellant.

V/s.

M/s. Women's India Trust ..Respondent. DATED : 23RD MARCH, 2015

Mr.Malhotra appearing on behalf of the revenue

invites our attention to section 2(15) of the Income Tax Act,

1961 which defines the term “charitable purpose” and the

proviso thereto and thus urges that this appeal raises

substantial question of law. In his submission, the proviso


emphasises that the advancement of any other object of general public utility shall

not be a charitable purpose, if it

involves the carrying on of any activity in the nature of trade,

commerce or business or any activity of rendering any service

in relation to any trade, commerce or business, for a cess or

fee or any other consideration irrespective of the nature of

use or application, or retention, of the income from such

activity. In other words, the proviso applies if the activity is in

the nature of trade or business generating income. In such

circumstances, the appeal be admitted.

We have with the assistance of Mr.Malhotra and

Mr.Dastur perused the order passed by the Director of the

Income Tax. In his order, he has held that the proviso is

applicable. That the proviso is applicable for the reasons that

he has assigned at the internal page 4 of the order passed by

him. Firstly, we must understand that the assessment

year in question is 2009-10. The definition of the word

'charitable purpose' in the proviso reads as under:-

“Section 2(15) 'Charitable Purposes' includes relief of the

poor, education, medical relief [preservation of

environment (including watersheds, forests and wildlife)

and preservation of monuments or places of objects of

artistic interest) and the advancement of any other

object of general public utility.

Provided that the advancement of any other object of

general public utility shall not be a charitable purpose, if

it involves carrying of any activity in the nature of trade,


commerce or business, or any activity of rendering any

service, in relation to any trade, commerce or business,

for a cess or any other consideration, irrespective of the

nature of use or application, or retention of the incomefrom such activity.

Provided further that the first proviso shall not apply if

the aggregate value of the receipts from the activities

referred to therein is ten lakh rupees or less in the

previous year. ”

In the present case, the undisputed facts are

that the assessee is a trust formed to carry out the object of

education and development of natural talents of the people

having special skills, more particularly the women in the

society. The assessee trains them to earn while learning. It

educates them in the field of catering, stitching, toy making,

etc. While giving them training, the assessee uses related

material which it buys from the open market. This is essential for carrying out the

assessee's object. In the process, some

finished product such as pickles, jam, etc. are produced and

which the assessee sells through the shops, exhibitions an personal contacts. The

motive of the assessee is not the

generation of profit but to provide training to the needy

women in order to equip or train them in these fields and

make them self confident and self reliant. There is nursing

training, which is also being managed and administered by

the assessee. The details of income and expenditure accounts

shows that the assessee had received donation of

`36,88,634/- and nursing school fees of `4,46,088/-. The


assessee pointed out that this nursing training provided at the

centre of the assessee at Panvel is free of costs. The charge is

levied for the mess but the accommodation and other

facilities are free of costs and apart from the community

development programmes, which are undertaken to educate

the rural women, teach them various skills and make them,

aware of how to live honourably. Thus, on these undisputed

facts, the Tribunal found that this is not an activity which

would fall within the proviso.

The Tribunal found

that the trust may be set up for advancement of any other

object of general public utility, but that will not cease to be

charitable purposes in this case, because, the activities in

which the trust is involved cannot be termed as carrying on of

trade, commerce or business. This is to impress upon the

women the need to be self reliant and self supporting and to

instill in them the confidence that they can make a livelihood

for themselves if they rely on the skills as afore-noted, that

the activity has been undertaken. It does not partake the

character of trade, commerce or business nor of rendering of

any service in relation thereto. It is only to teach or impart

skills and to instill confidence that the produced goods or

articles are sold. To that extent also deficit has occurred. In

the circumstances, the Tribunal took a view that occasional sales or the trust's own

fund generation are for furthering the

objects but not indicative of trade, commerce or business. In


the circumstances, the proviso does not apply. We are of the view that considering

the fact that

the trust has been set up and is functional for the past several

decades and it has not deviated or departed from any of its

state object and purpose, utilisation of the income, if at all

generated, does not indicate carrying on of any trade,

commerce or business. The Tribunal's view deserves to be

upheld. It is a possible view and cannot be termed as

perverse. The view is taken on an overall consideration and

bearing in mind the functions and activities of the trust. In

such circumstances, it is not vitiated by any error of law

apparent on the face of the record.

IN THE HIGH COURT OF JUDICATURE AT BOMBAY



The Director of Income Tax (Exemptions), Mumbai ..Appellant.

V/s.

M/s. Shri Vile Parle Kelavani Mandal DATED : 23RD MARCH, 2015

With regard to the first question, she invites our

attention to the various assessing officer's orders. She

submits that the exemption which has been claimed in respect


of the income under the head “Management Development Programme and

consultancy charges” was not admissible

because the requirement which is set out in sub-section (4A)

of section 11 of the Income Tax Act, 1961 has not been

satisfied. This provision is not made for the attainment of the

objects of the trust or the institution and separate books of

account are not maintained by the trust / institution in respect

of the said business.

The Tribunal has held that the “Management and

Development Program & Consultancy Charges' is part and

parcel of 'Narsee Monjee Institute of Management Studies'

which has been set up by the respondent-assessee. The

respondent-assessee is a trust and has set up 30 schools and

colleges. The Commissioner as also the Tribunal has found

that the element of business is missing in conducting

management courses. There may be some surplus generated

which itself is applied towards the attainment of the object of

the educational institute. The separate books of account cannot be insisted upon

because once this programme is part

and parcel of the activities undertaken and carried out by the

Narsee Moonjee Institute of Management Studies, then the

condition precedent set out in sub-section (4A) of section 11

of the I.T. Act is completely satisfied. Such finding of fact

cannot be termed as perverse and it is in consonance with the

factual aspect regarding activities of the trust and the object

that it is seeking to achieve. Similarly, in regard to income

from the hiring of the premises and advertisement rights, the


said question is also not substantial question of law. Letting

out of halls for marriages, sale and advertisement rights has

not been found to be a regular activity undertaken as a part of

business. The educational 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.




Director of Income Tax (Exemption) ...Appellant.

Vs.

Fellowship of Physically Handicapped.

DATE : 10th MARCH, 2015

The Respondent-Assessee is a Trust imparting education, medical help and

financial aid to the physically handicapped persons. The respondent-assessee


Trust has been granted registration under section 12A of the Act by the

Commissioner of Income Tax. Further the respondent – assessee also received

grand-in-aid from the Government of Maharashtra to fulfill its charitable purpose

of assisting physically handicapped persons. The Assessing Officer was of the

view that the respondent-assessee

was commercially exploiting its property inasmuch as it had rented out its

premises to Cell companies for the purposes of erection of cell towers as well as

renting out hall for holding of marriages, reception/ parties etc. In the above

view, the Assessing Officer concluded that the respondent-assessee was engaged

in business activities and therefore not entitled to the benefit of Section 11 in

view of Sub-section (4) thereof and assessed the petitioner to income of Rs.78.34

lakhs. In appeal, the Commissioner of Income Tax (Appeals) held that the

respondent-assessee is not conducting any commercial activities by renting out

its property and rent in any case should be appropriately taxed as 'Income from

House Property' and not as 'Income from business' and allowed the assessee's

appeal.

4. The Revenue carried the issue in appeal before the Tribunal. The

Tribunal by the impugned order held that the income earned by letting out the

property cannot be said to be business income. It also upheld the view of the

CIT (Appeals) that rent income cannot be assessed as business income but has to

be assessed as income from house property. The impugned order also records

that the amount received on account of letting out of property and service

charges aggregated to amount of Rs.21 lakhs as against receipts from the State

grant-in-aid for its charitable activities Rs.32.58 lakhs and fees of its training

centre Rs.20.35 lakhs. In the aforesaid circumstances, the impugned order

dismissed the Revenue's appeal.

5. The grievance of the Revenue is that letting out of property would


not amount to income from house property but is essentially in the nature of

business income, and therefore, the respondent – assessee is not entitled to

benefit of Section 11 of the Act. It is submitted in particular that installation of

cell towers etc. requires specific permission from various authorities besides

electrical connection etc. It is further submitted that in terms of Sub-section 4 of

Section 11, the provisions of Section 11 would not apply to income of a Trust

arising from business, unless the business is incidental to attainment of the

objectives of a Trust and separate books of account are maintained. It is

submitted by Mr.Malhotra, learned Counsel for the Revenue that in the present

facts, the business is not incidental to the objectives of the Trust and

respondentassessee

is not maintaining separate books of accounts. We

find that as two Authorities under the Act have concurrently come to a finding of

fact that the amounts received by the respondent-assessee on account of letting

out of its property is income taxable under the head “income from house

property”. Thus, no occasion to apply Section 11A (4) of the Act as canvassed by

the Revenue would not arise. In view of the concurrent findings of the fact

arrived at by the Authorities which is not shown to be perverse, no substantial

question of law arises for our consideration.




Director of Income Tax (Exemption). ...Appellant.

Vs.

Bombay Panjrapole Trust. DATE : 10th MARCH, 2015


Briefly the facts are that the respondent - assessee is a charitable

Trust engaged in maintaining gaushalas and tending to other animals and birds. It

inter alia gives them food and shelter. So far as disabled animals and birds are

concered it also runs a hospital / health centre for them. The respondent -

assessee receives donations, from identified donors as also anonymous

donations. During the subject Assessment Year the Assessing Officer in his

assessment order dated 14 December 2009 after excluding identified donations

brought to tax the anonymous donations Rs.84.36 lakhs under Section 115BBC

of the Act. In appeal, the Commissioner of Income Tax (Appeals) on detailed

examination of the objects of the respondent – assessee Trust and the work

carried out, concluded that the respondent – assessee-Trust is a Trust which has

been established to fulfill charitable and religious purpose. In reaching the

aforesaid conclusion, the respondent-assessee's activity was examined in the

context of the decision of this Court in the case “Vallabhdas Karsondas Natha

Vs. Commissioner of Income Tax, Bombay, (1947 15 ITR 32 Bom)” and the

Gujarat High Court's decision in the case “C.I.T. Gujarat Vs. Swastik Textile

Trading Co.Pvt.Ltd., ((1978) 113 ITR 0852 (Guj))”. Being aggrieved, the Revenue

filed an appeal to the Tribunal. By

the impugned order the Tribunal upheld the findings of the Commissioner of

Income Tax (Appeals) by reiterating that the decision of this Court in the case of

“Vallabhdas Karsondas Natha” (supra) and the decision of Gujarat High Court in

the case of “Swastik Textile Trading Co.Pvt.Ltd.”, concludes the issue that the

feeding and taking care of weak animals is not only charitable purpose but also a

religious purpose. Accordingly, the appeal of the Revenue was dismissed.

This shows that the Trust was created / established for charitable purposes.

Thereafter, the Commissioner of Income Tax (Appeals) as well as the Tribunal


have decided the appeal before them by placing reliance upon the binding

decision of this Court in the case “Vallabhdas Karsondas Natha” (supra) wherein

the Court inter alia considered the issue whether supply of fodder to animals and

cattle would amount to a charitable and / or religious purpose. In the above

context, the Court observed that “that to a Hindu nothing can be of greater

religious merit than to relieve suffering of dumb cattle and animals by giving

them fodder. It is hardly necessary to emphasize that, according to Hindu

religion and philosophy, animals have the same soul as human beings have and

the spark of divinity is as much present in them as in human beings.” Thereafter,

concluded by holding that “supply of fodder to cattle and animals is not only a

good religious trust but it is also a good charitable trust.” Therefore, the

submissions of the Revenue is in the face of the decision of this Court in

“Vallabhdas Karsondas Natha” (supra) wherein taking care of animals is

considered to be a charitable as well as religious activity. We may also refer to

the decision of Gujarat High Court in the case of “C.I.T. Gujarat Vs. Swastik

Textile Trading Co.Pvt.Ltd.”(supra) wherein the issue for consideration was

whether establishing, maintaining, running and helping gaushalas, panjarapoles

and other similar institutions for animals, would be considered to be a charitable

and religious purpose. The Gujarat High Court placed reliance upon the decision of

this Court in the case “Vallabhdas Karsondas Natha” (supra) and inter alia

observed as under:-

In fact at times religious and charitable purposes may overlap. Charitable

activities in all cases arise out of compassion while most religion treat compassion

as a religious attribute.


IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.465 OF 2012The Director of Income Tax(Exemption),Mumbai ...Appellantv/sSamudra Institute of Maritime StudiesTrust, Mumbai 400 088DATE : 7TH AUGUST 2014

4. We have perused the orders passed by the authoritiesincluding the Tribunal. We have also perused the two decisions,one of the Hon'ble Supreme Court and relied upon by both thecounsel and equally a short judgment of the Division Bench ofthis Court in the case of Director of Income Tax (Exemptions) v/sNational Safety Council, reported in (2008) 305 ITR 257(Bom).5. We are of the opinion that the Tribunal has appliedthe correct test in concluding that the exemption under section11 of the Act can be availed of by the Respondent – Assessee.In doing so, the Tribunal referred to the objects as set out in theTrust Deed of the Respondent – Assessee. They are to set up ,administer and maintain technical training institution at variousplaces in India for preseaand postseatraining for the ships andmaritime industry as a Public Charitable Institute for education.


That is to provide onboardand offshore training and continuingtechnical education for Officers, both on the deck and engine side. One of the object was to register with the Director Generalof Shipping and obtain other necessary approvals at the Stateand Central levels. In the present case, the Tribunalin paragraph 9.6 of the impugned order concludes that theAssessee is giving training in the above area to seamen. All thecourses may not be approved by the Director General of Shippingbut that by itself is no ground to hold that the purpose is notcharitable. The exemption under section 11 can be claimed andbearing in mind the object of the Trust. We are of the opinionthat the Tribunal and the CIT (Appeals) have approached theissue correctly and in the light of the definition so also the testslaid down came to a factual conclusion that the Respondent isentitled to exemption under section 11 of the Act. This is not acase where the purpose can be said to run a coaching class or acentre. This is an institution which imparts education in the areaof preseaand postseatraining to seamen so as to prepare themfor all duties. In such circumstances, we do not find that the concurrent findings of fact are vitiated by error of law apparenton the face of the record or perversity enabling us to entertain


this Appeal. There is no substantial question of law. The Appealis therefore dismissed with no order as to costs.

IN THE INCOME TAX APPELLATE TRIBUNALDELHI BENCH “A” NEW DELHI

ITA No. 386/Del/2012U/s 12AA of the I.T. Act, 1961Abul Kalam Azad Islamic Vs. Director of Income-

tax(E),Awakening Center,

Brief facts are: Assessee society was granted registration u/s 12A vide DIT(E)’s order dated 23-5-2001 and benefit of exemption u/s 80G till 31-3- 2011. It is not disputed that the aims and objects of the society remained the same and there is no change therein. The society was formed mainly to promote the cause of education in general and cause of the education of the Indian Muslim and other minorities and backward sections of the country. During the course of assessment for A.Y. 2005-06, AO found that assessee had purchased a commercial property at Bangalore for Rs. 7,34,62,970/-.


The purchase amount was claimed by the Society to be application of society’s income in the assessment. AO, however, did not agree with the assessee and held that this amount was applied for not charitable purpose and did not amount to application of income of Society and made the addition.

3.1. On the basis of the assessment order, DIT(E) issued a show cause notice as to why Society’s registration 12A also should not be withdrawn as the assessee had applied its income for non-charitable purposes.

3.2. In reply, assessee, inter alia, pleaded:(i) The bylaws of the Society permitted the activity of

purchasing anyimmo vable property and investment of surplus fund.(ii) The management of the Trust was eligible to invest in

anyimmovable property including a commercial property which

couldbe let out on rent; the rent would be recurring income and

theinvestment and recurring income were for promotion of the

objectsof the Trust….


3.3. DIT(E), however, did not agree with the same and observed that:

(i) The earning of rental income was not object of the Society. The

property purchased was shopping Arcade cum-office complex,

which indicated the intention of indulging in commercial activities.

(ii) The commercial property has not at all been used for any of its objectives i.e. spreading education, as claimed to be the object of the assessee Society.(iii) The purchase of commercial property was not incidental

toattainment of any objective. The property being commercial,without any use for its aims and objectives, the investment

was fornon-charitable purposes.

3.4. On these observations, DIT(E) withdrew the registration u/s 12A.

“7. In the instant case, the society is earning from twodifferent heads i.e. rental income, from property and from

saleof shop. The purchase of commercial property by the

society is


not incidental to the attainment of its aims and objects, but awell thought out action to earn rent at higher rate, propertybeing commercial and to obtain higher appreciation of value ofthe property in the near future. The contention of the societythat surplus funds of the society were invested in accordancewith Section 11(5) of the Act, is not acceptable as theimmovable property was commercial and not a propertypurchased for establishment of School/ college or any othereducational institute, which is one of the main aims of thesociety for which it was created.8. Keeping in view the above facts and nature of income, itis clear that the intention of the assessee society behindinvestment in commercial property is to earn rental incomewhich is not an activity of “charitable purpose” specificallyafter the amendment in proviso to Section 2(15) from AY 2009-10 onwards. To sum up, though the aim of the trust is to impart


education, one of the activities so far is centered aroundgenerating surplus buying properties and renting out the sameto different parties. The properties purchased, namely, UB Plaza, Bangalore and Sigma Softech Park, RamagondanahalliVillage, Bangalore are out rightly commercial propertieslocated in a shopping Arcade cum-office Complex, and are notsuch properties where education is generally imparted. Thiswould indicate that the assessee has no intention to utilize theproperties purchased for using the same for impartingeducation. Investment properties to earn rental income and inshops so that income can be earned by selling those subsequentcan by no stretch of imagination be construed as application offunds/ money for charitable purposes by the society. Moreover,the such investment cannot be treated as incidental toattainment of its aims and objects as per MOA.9. In view of amended provisions of Section 2(15) of theIncome tax Act, 1961, the activity of the society relating to


investment in purchase of commercial property does not fallwithin the meaning of Charitable activity, as the investment incommercial property and earning rental income as well asincome from sale of shop out of the property purchased are hitby the provisions of the amended provisions of section 2(15),Keeping in view, the above facts and that the assessee iscarrying out activities which are not charitable as per provisionsof Section 2(15) of the Act, the society is held to be notqualifying for registration u/s 12A. Accordingly, registrationgranted u/s 12A to the assessee society is cancelled from AY

2009-1- onwards.”

7.2. Clause (x) of Sub sec. (5) to sec. 11 prescribes one of the modes of investment as “investment in immovable property”. Thus, the surplus income can be applied to investment in immovable property. The charitable purposes will include the educational activities and acquiring the income yielding assets to promote the educational objects of the Society. Consequently, combined reading of these provisions


make it clear that the assessee can set apart or invest its income in an “immovable property”. The word “immovable property” by natural reading, will include any type of land, residential or commercial property or any other form of property, which can be termed as immovable property as defined in the Transfer ofProperty Act. Thus, the society/ management is allowed to invest its surplus in immovable property, including commercial property. Thus, there cannot be a bar on management of Society to invest its surplus funds in acquisition of a commercial property as the law does not mandate any extra bar.

7.3. Coming to the other aspect that because the assessee is not carrying out any educational activity in this commercial property, therefore, the investment becomes for non-charitable purposes and the assessee has endeavored to enter into business operations. In our view the assessee’s charitable objects include spreading education and opening of schools; investment even in commercial property assets remains charitable purposes so long as the income generated by it is applied to charitable objects. It has not been demonstrated that the assessee applied rent received from these


properties to any non-charitable purposes. Besides, it has not beendemonstrated that the assessee’s intention was to enter in business of purchase and sale of commercial property inasmuch as we are in year 2012, the property was purchased in FY 2004-05 and the Trust still retains this property. In these circumstances, we are unable to hold that the assessee’s investment can be held non-charitable in nature. 7.5. In view of the foregoings, we hold that assessee’s registration u/s 12A should not have been cancelled, the same is restored. Order of DIT(E) is reversed.

Approved by THE HIGH COURT OF DELHI AT NEWDELHI% Judgment delivered on: 26.02.2013

+ ITA 80/2013 DIRECTOR OF INCOME TAX (EXEMPTION) ...

Appellant versus

ABUL KALAM AZAD ISLAMIC AWAKENING

We are of the view that the Tribunal had correctly appreciated the

law and has come to the conclusion that the respondent assessee was

entitled under Section 11(5)(x) to invest in immovable property out of the

funds which were surplus with it. The Tribunal has also concluded that

there was no evidence on the part of the department that the assessee had

applied the rent received from the commercial property for non-charitable

purpose. That being the case, the registration under Section 12 A could

not have been cancelled. We do not find any substantial question of law


which arises for our consideration.

Further to same effect is binding decision of Delhi bench of ITAT in case of District 321A Lions Service Trust Cillage-Khizrabad ( ITA No.2016/DEL/ 2011 (Assessment Year :2005-06)) order dated 17/5/2013 where in on same and similar facts it is held and espoused that;

7. Aggrieved, the Revenue is in appeal before us. At the outset, the Ld. DR brought before us the facts of the case from the assessment order and in view of the facts he submitted that assessee was not involved into charitable activities, since only 20% of the income of hospital was received by assessee. Therefore, the assessee was not spending 85% of the total income for charitable activities. Quoting from agreement, the Ld. DR submitted that out of six management executives four were from company and two were from trust and, therefore, assessee had no control over the functions. Clause19 and clause 29 was read by Ld. DR and it was argued that assessee was paid a fixed amount per month and the agreement was for 15 years and in case of termination of agreement the name of hospital will remain with the company. In view of the above, the Ld. DR argued all the terms and conditions of agreement has been settled on commercial basis and there is no charitable activity on the part of the trust, in this respect section 2(15) was also read. It was also argued that CIT (A) did not go into the findings of AO


therefore, the order of CIT (A) order was illegal and against the facts of the case. The Ld. DR further argued that books of accounts and vouchers were not produced and in the absence of the books and vouchers how CIT )A could hold that activities were of charitable nature. It was further argued that CIT (A) had not seen whether the income was being spent or was being accumulated. 8. Continuing her arguments, the Ld. DR submitted that the transactionwas purely of commercial nature and activities of the assessee were not genuine 10. Continuing his arguments the Ld. AR submitted that infact the assessee had rented out its property consisting of hospital and Ld. CIT (A) had understood the whole system and, therefore, had rightly deleted the addition made by AO. In her rejoinder, the Ld. DR submitted that additions to assets in the balance sheet shows that addition has been made in water cooler and in typewriter etc. and in view of that she argued that how the addition of these assets can constitute carrying out of charitable activities.

We have heard the rival parties and have gone through the material placed on record. We find that the trust had its hospital and equipments butdue to financial difficulties and liabilities had entered into an agreement with the company to run the hospital successfully and on a sharing basis by which it was to receive Rs.1,00,000/- per month plus 20% of the net surplus if any after expenses. Therefore, the income of the trust consisted of only monthly rent plus share in surplus. The AO has not brought out anything to highlightthat the amount so earned by trust was not spent on charitable activities. From the income and expenditure account, we find that trust had excess income over expenditure amounting to Rs.63,107/- which it had spent for making additions to the fixed assets. There is no adverse finding by AO regarding the correctness of accounts of the assesee. As regards production of books of accounts, the


assessee had duly furnished the same relating to Eye Centre and trust which AO himself had mentioned in the assessment Order.In view of the above, we do not find any merit in the appeal filed by Revenue the same is dismissed

We place for your kind consideration following jurisprudence to support the alternate prayer:

IN THE INCOME TAX APPELLATE TRIBUNALDELHI BENCH : F : NEW DELHI ITA Nos.2328,2329,2330/Del/2009Assessment Years: 2003- 2004, 2004-05, 2005-06Petroleum Sports Promotion Board, 27th July, 2012

The revenue has questioned first appellate orders on thefollowing common issues : i) Whether on the facts and in thecircumstances of the case, Ld. CIT(A) is justified in allowing

deductionof expenses which is an application of income and not expenditure incurred for earning of income and ii) whether on the facts andcircumstances of the case, Ld. CIT(A) was justified in allowingexpenditure, when the assessee is not registered u/s 12A and

is notentitled for exemption u/s 11 and therefore only those

expenses canbe allowed which are admissible as per chapter IV of the

Income TaxAct. Considering the above submission we find that before the


authorities below the respondent had claimed exemption on application of its income on the basis that the amount has been spenton its object and activities for promoting sports. It was pointed outthat till the assessment year 2002-03 it was enjoying exemption u/s10(23C) of the Act and on omission of the provision u/s 10(23C) of theAct it had applied for registration u/s 12A of the Act, the same couldnot be allowed due to some technicalities . The appellant again filedapplication for registration which has been granted w.e.f. 1.4.2005. Itwas contended that entire sources at its command whether it hasreceived grant from the members or whether it has earned interest onsurplus funds, it was spent / laid out wholly and exclusively for thepurpose of promotion of sports. An additional ground was also raisedbefore the Ld. CIT(A) that on the principle of mutuality the income ofthe assesses is outside the purview of levy of income. Reliance wasplaced on the decision of Hon’ble Supreme Court in the case ofChelmsford Club vs. CIT reported in 243 ITR89(SC). Ld. CIT(A) did notagree with the submission of the respondent that principle of mutualityis applicable in the present case. We however find that the AO has notbrought out any adverse material in assessment order that theexpenses details of which were submitted before the AO claimed tohave been incurred on sports activities, were not supported bydocumentary evidence or were not relating to the activities of therespondent. The Ld. CIT(A) has also recorded in paragraph No. 6 of the first appellate order that during the course of assessment proceedingsthe assessee had submitted the details of all expenditure incurred forthe purpose of sports activities as well as books of accounts. He hasnoted further that the assessee had furnished complete particulars ofits income and expenditure and the nature of expenditure incurred inthe promotion of sports activities. Ld. CIT(A) has noted further that


expenditure depends upon the number of sports events organized bythe respondent every year, therefore the expenditure varies everyyear. We thus find that the Ld. CIT(A) has not given any benefit ofexemption of income under the provisions of section 11 of the Act butconsidering the genuineness of the claimed expenses incurred onsports activities. It is not the case of the revenue that the expensesclaimed was not legitimate or it was not incurred on the activities ofsports for which the respondent has been constituted. The issuesraised in the appeals preferred by the revenue are thus not tenable.The decision of Hon’ble Supreme Court in the case of UP ForestCorporation vs. DCIT holding that registration of trust/ institution u/s12A is a condition precedent for availing benefit u/s 11 & 12 of the Actis not applicable in the present case as Ld. CIT(A) , as discussed above,has not given any benefit to the respondent under sections 11 & 12 ofthe Act in the present case. We thus do not find reason to interfere with the finding of the Ld. CIT(A) in the present case. The same is uphold. Consequently the appeals are rejected.

Above decision is approved IN THE HIGH COURT OF DELHI AT NEW DELHI % Date of decision: 3rd March, 2014 + ITA 262/2013 + ITA 264/2013 + ITA 265/2013 PETROLEUM SPORTS PROMOTION BOARD (ITR Volume 362 : Part 2 page 235)

The learned standing counsel for the revenue submitted that the order of the

Tribunal is untenable since it indirectly confers the benefit of Section 11

upon the assessee. We are, however, not inclined to accept the contention.


The CIT (Appeals) has actually not held so. He never examined the question

whether the assessee was eligible for the

exemption under Section 11 since there was no ground before him, taken by

the assessee, to that effect. All that the assessee claimed before the CIT

(Appeals) was that the entire expenditure should be allowed as a deduction

since it was incurred for the very objects for which the assessee was

established in 1979 i.e. promotion of sports and, therefore, the assessing

officer was not justified in restricting the allowance of expenditure to

Rs.1,20,000/- only for all the three years. It was this claim that was accepted

by the CIT (Appeals). The objection of the learned standing counsel for the

revenue that since the grants were assessed under the residual head, there

was no scope for allowing the expenditure incurred on the promotion of the

sports activities is not acceptable since even under Section 57(iii), any

expenditure incurred for the purpose of making or earning the income is

allowable as a deduction. It is open to the income-tax authorities to deny the

exemption under Section 11 of the Act in the absence of registration under

Section 12A and if they do so, then the assessment has to be completed in

accordance with the provisions of the Income Tax Act; if the income is

assessed under the residual head full play must be allowed to Section 57(iii).

Though prima facie it would appear that the phraseology employed in

Section 57(iii) is different from Section 37(1), it has been held by the

Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519 that

Section 57(iii) must be construed broadly and the somewhat wider language

of Section 37(i) should not affect the interpretation of Section 57(iii). The

assessee in the present case was created in 1979 with the object of

promoting sports; there was no other object and all its constituents were

giving grants/ funds only for that purpose. In truth and reality the assessee


was merely acting as a custodian or conduit to the constituents for the

purpose of promoting sports activity inside and outside the country. The

expenditure incurred by the assessee is only for the purpose of promoting

the sports events and activities and in this respect there is no challenge to

the finding of fact recorded by the Tribunal. If such expenditure is not

allowed, it may amount to taxing the gross receipts of the assessee and not

the income, which is not permissible under the income tax law.

M/s. J.B. Educational Society, IN THE INCOME TAX APPELLATE

TRIBUNAL HYDERABAD BENCH ‘B', HYDERABAD Date of

pronouncement: 28.10.2013

64. In view of the above discussion, we are of the opinion that voluntary

contributions in the nature of tied up grant received by the assessee cannot

be brought to tax even the trust is not registered u/s. 12AA of the Act. The

tied up donations received by the assessee should not be taxable as income

of the assessee, if it is used for specific purpose for which it has been given

and it cannot be considered as revenue receipts so as to tax the same. On the

other hand, the donations used for the benefit of the trustees it should be

brought to tax as income of the assessee. The AO is directed to segregate

these donations which are diverted for personal benefit of the Members of

the trust and tax the same accordingly. Further, other than tied up

grant/donations, if any, should be treated as income in the hands of the

assessee in accordance with law as business income after allowing usual

deductions under the provisions of the Act while computing income

under the head 'business income', more so, deduction u/ss. 30 to 38 of

the Act is to be allowed, if it is not already granted to the assessee


It has been so held by the Hyderabad bench of the Hon'bleTribunal in the case of Nirmal Agricultural Society vs. ITO 71 ITD 152 Hyd. It is submitted that in this case it has also been held that even when the assessee had been assessed as AOP and deprived of Section 11 benefits, the AO could assess only net income of the assessee and not gross receipts.

Refer:

IN THE INCOME TAX APPELLATE TRIBUNAL,MUMBAI BENCH “I”, MUMBAI ITA NO.6069/MUM/2011(A.Y. 2008-09) M/s. Islamic Research Foundation, 9th day of Jan.2013

There is also force in the contention of Ld. AR that entire gross income could not be assessed as income of the assessee as in case it is held that trust is not eligible for exemption under section 11, then net income should be assessed and such arguments is supported by decision relied by the Ld. AR in the case of Nirmal Agricultural Society (supra) and no contrary decision has been brought to ournotice.

Bangalore ‘C’ Bench of the Tribunal in the case of

Sadvidya Educational Institution Vs. Add.CIT Head

Notes) :

“Charitable or religious trust—Exemption u/s 11—Assessee-trust was a


registered Society and ran several educational institutions in city of

Mysore starting from nursery to PUC—Assessee trust was also

registered u/s 12AA and had also obtained exemption u/s 11 and 12—

Some of the educational institutions run by assessee were aided

institutions, and as per norms fixed by State Government, assessee was

entitled to give 50% of admissions under management quota in respect

of PU Course—Assessee filed its returns of income, admitting 'Nil'

income for AYs 2006-07 & 2008-09 and declaring a loss for AY 2007-08

after claiming exemption u/s 11(1)(a) and 11(1)(d)—In meanwhile,

survey was conducted u/s 133A in assessee's premises and certain

books and documents containing details of student wise donations

collected by way of DDs and donation receipt books for admissions given

during FYs 2005-06 and 2006-07 relating to fees and alleged donations

collected from students who got admissions into the schools/college run

by the assessee were impounded and statement of secretary of assessee

was also recorded—AO observed that assessee was collecting voluntary

contributions/building fund/development funds against admissions

given under management quota in institutions run by assessee and was

not entitled to claim deduction u/s.11(1)(a) and 11(1)(d) –CIT(A)

upheld findings of AO holding that there was a direct nexus between

admissions granted under the management quota and voluntary

contributions collected by assessee- Held, if educational institution has

collected money in form of voluntary contributions from public and may

be from parents of the students who are studying in institution and

issued receipts acknowledging said amount towards building fund and

made requisite entries in the books and deposited same in the bank,

requirement of section 11(l)(d) is fulfilled— Assessee was running


several Schools starting from nursery to PUC and said fact has been

endorsed by AO—No question of assessee collecting 'capitation fees' in

guise of 'building fund or development fee—Further voluntary

contributions received were for the specific purpose of 'building fund or

development fee’ – Further voluntary contributions received were for

the specific purpose of ‘building’ and assessee had applied such

contributions towards object of trust – Assessee had obtained the

signatures of the parents of successful students in pre-printed letters

before obtaining donation and shown instatement – Assessee was

entitled to exemption u/s.11 in respect of ‘building fund’ as well as

‘college development fund’ – Assessee’s appeal allowed. Held :

In the present case, even if the fees collected were in violation of the

norms subscribed by the State Government, the application of the funds

were towards the objects of the assessee trust and as such, there was no

violation of s.13 of the Act as ascribed by the Revenue, The assessee had

obtained the signatures of the parents of the successful students in preprinted

letters without giving the details of amounts' donated, date of

contributions etc., but contained the donors' names and their addresses.

However, the assessing authority had chosen not to cross-examine such

parents who have admitted their children to the institution of the

assessee to verify the veracity of the assessee's claim.”

Chennai Bench of the Tribunal in the case of

Padanilam Welfare Trust Vs. Dy.CIT reported in 10 ITR 479 has

observed as under (Head Notes) :


“Charitable institution—Registration under s.12AA—CIT withdrawing

registration alleging that capitation fees was collected by the trustees

and there was diversion and misuse of funds—Violation of Prohibition of

Capitation Fees Act cannot be a ground to take away the registration of a

charitable organization—Capitation fee per se is not in the nature of

illegal income-There is nothing to show in the seized materials that the

assessee had made any profit out of the activities carried on by it and any

portion of that profit has been enjoyed by any of the trustees or the

relatives. Surplus funds of the assessee-trust year to year have been

used only for the purposes of furthering the objects of the assesseetrust—

There is no distribution of profit or such other benefits to the

trustees or relatives of the assessee-trust—Therefore action of the CIT in

withdrawing the registration granted to the assessee under s. 12AA is

not sustainable in law

Held :

It is found that the first ground pointed out by the CIT to cancel the

registration granted to the assessee under s. 12A on the ground of

accepting capitation fees is not sustainable in law. The CIT is not to

conduct investigation into the sources of

Hon’ble Delhi High Court in the case of Shanti Devi

Progressive Education Society (Supra) has observed as under : 340 ITR 320

"26. We have considered all these opinions as well as the submissions

made by learned counsel for the parties. We must at the inception itself

note that the three components scrutinized by the Assessing Officer are


the Admission Fee, Corpus Fund and the Loans taken from parents. Thus

it really can't be disputed that even the source of funds is relatable to the

activity of education. It may be noticed that there are factual findings on

the loans having been availed of by the assessee from a nationalized bank

for the purpose of creating additional infrastructure/schools and the

three sets of amounts have been addressed only towards the object of

creating additional infrastructure and easing the liability of the assessee

towards the interest burden of loan repayment. What is pertinent to be

taken note of is that there is no finding or allegation of any diversion of

these funds for the purpose other than carrying on educational activity.

There is no diversion of funds to the individual members or taking away

of profits for some other activity. It does appear to us that the Assessing

Authority appears to have been weighed down by the factum of some

questions being raised in the Parliament about the manner of collection

of funds by the institutions. That alone, would not suffice to deny the

exemption under Section 10(22) of the IT Act. There is in fact no material

to show or a complaint that there has even been any coercive process to

recover these amounts.

27. It cannot be lost sight of that if an institution has to expand,

additional infrastructure has to be created, quality education has to be

imparted, all these activities require funds. There may be an original

corpus of the Society but thereafter the corpus for such activity can be

created only through voluntary donations either from any philanthropist

or through collection of funds in the process of admission. We are not

concerned with the morality of the issue while deciding whether

exemption has to be granted. Personal prejudices seem to have stepped

in when allegations were made without any material against certain


members (which have rightly been struck off by the majority opinion of

Tribunal) alleging that these members were well known for making

profit through educational institutions. We also fail to appreciate the

doubts cast or the possibilities expressed about there being something

more to it in view of the funds being deposited in private banks. The

opinion is completely based on surmises and conjectures as it seems to

suggest that merely because funds were in a private bank, there may

have been divergence of funds to the members of the Society. Similarly,

the factum of construction being carried out by Ahluwalia Construction

Co. (P) Ltd., stated to be a family concern of the President, was not

material as there was no allegation of any inflated cost of construction or

unreasonable profits being derived from the same by third parties as a

mode of divergence of funds."

Karnataka high court in:

i) CIT vs MBA Nahata charitable trust (14/2/2014 : ITA 467/2007) : Section 68 cash credit : donation in cash name and address unavailable : ass fav order: Held applying orders reported at 138 ITR 564; 336 ITR 694;276 ITR 152;THAT “since the amounts received from third party has been accounted and utilized for charitable purposes even though the assessee failed to disclose the name and addresses of the donors as well as mode of payment, is entitled for deduction u/s 11 of the act”


ii) CIT vs Fr Mullers Charitable Institutions: (10/2/2014 & ITA 588/2007): Whether violation of section 11(5) read with section 13(1)(d) by the assessee trust attracts maximum marginal rate of taxation on the entire income of the trust?” Applying Bombay high court in case of 249 ITR 533 & Delhi high court in 253 ITR 593 held that entire income cannot be subjected to taxation and only relevant or part of relevant income can be taxed at maximum marginal rate for said violation

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH “

B

I.T.A. Nos.281 to 285/Bang/2014 (Assessment Years : 2005-06 to 2009-10)

Income Tax Officer, Ward-2, Hassan. Vs. M/s. Vokkaligara Sangha 14th Aug., 2015

In the case of J.B. Educational Society V ACIT reported in 159 TTJ 234 (Hyd), the

Hyderabad Bench of the Tribunal followed an earlier decision of the Hyderabad

Bench in the case of Society for Integrated Development in Urban and Rural Areas

reported in 90 ITD 493 (Hyd) wherein the Tribunal followed the order of another

coordinate bench in the case of Nirmal Agricultural Society (2000) 67 TTJ (Hyd)

and recorded the observations therein which were as under :- "24. Coming to the

second limb of the argument of the learned counsel for the assessee that the entire

receipts cannot be taxed, we find that the issue is covered by the judgment of this

Bench in Nirmal Agricultural Society v. ITO, 71 ITD 152. In that case, it has been

held (as per head note) as under:-


"The assessee had not been granted registration under Section 12A, as the

Commissioner thought it fit to refuse to condone the long delay caused by the

assessee in applying for the registration. Therefore, the Assessing Officer had no

other option but to complete the assessments in the status of AOP also closing his

eyes towards Section 11 and Section 13. To that extent, the Assessing Officer was

right as he had acted only according to will of law. But as far as the contents of the

assessments were concerned, even when the assessee had been assessed as AOP

and deprived of Section 11 benefits, the Assessing Officer could assess only net

income of the assessee and not gross receipts. As far as the assessee was

concerned, construction of houses, reclamation of land, etc., were part of its regular

activities. Houses were built on the land of poor agriculturists. The assessee-

society had no legal title or right over the land or houses of those villagers/

agriculturists who were the beneficiaries. The purpose and activity of the assessee-

society was to engage in such charitable activities. Whatever amount had been

spent on those programmes/projects, it was spent in the usual course of carrying on

its acclaimed objects. Therefore, there was no basis whatsoever, factual or legal, to

hold that the amounts spent by the assessee in constructing houses or reclaiming

land were capital expenditure. As far as the assessee was concerned, those

expenses were revenue expenses. The assessee had no right or title over those

properties. Those expenses were incurred as part of its normal activities for which

the society was formed. Therefore, the money spent by the assessee- society in

constructing houses, reclaiming the land, for non-formal education, etc., had to be

allowed as deduction in the computation of income. The grants received from

foreign donor were for specific purposes. The grants which were for specific

purposes did not belong to the assessee-society; such grants did not form corpus of

the assessee or its income. Those grants were not donations to the assessee so as to


bring them under the purview of Section 12. Voluntary contributions covered by

Section 12 are those contributions freely available to the assessee without any

stipulation, which the assessee can utilise towards its objectives according to its

own discretion and judgment. Tied-up grants for a specified purpose would only

mean that the assessee which was a voluntary organisation, had agreed to act as a

trustee of a special fund granted by donor with the result that it need not be pooled

or integrated with the assessee’s normal income or corpus. In the instant case, the

assessee was acting as an independent trustee for that grant, just as same trustee

could act as a trustee of more than one trust. Tiedup amount need not, therefore, be

treated as amounts which were required to be considered for assessment for

ascertaining the amount expended or the amount to be accumulated. The assessee

should have actually credited the grant in the personal account of the donor and

any amount spent against that grant should have been debited to that separate

account of the donor. That incoming and outgoing need not be reflected in the

income and expenditure account of the assessee. At the end of the project, the

balance, if any, available to the credit of the donor, could be treated as income of

the assessee, if the donor did not insist for the repayment of the balance amount.

Therefore, the Assessing Officer was to be directed to redo the assessment on the

following lines. (1) The tied-up grants received from the donor, Bread for the

World, will be taken out of the computation of income from the income-side. (2)

All the money spent under the tied-up programmes directed by the donor also will

be taken out of the computation of income from the expenses-side. (3) Any non-

refundable credit balance in the personal account of Bread for the World will be

treated as income in the year in which such non- refundable balance was

ascertained. (4) The expenses incurred by the assessee for house construction,

reclamation of land, non-formal education programme (other than covered by the

tied-up grants) will be deducted as revenue expenses." 25. Honourable Rajasthan


High Court in the case of Sukhdeo Charity Estate (supra) held as follows (as per

head note):- "It was for the specific purpose of implementation of the water supply

scheme that the request for contribution had been made by the assessee-trust and it

was in response to that request that the amount had been given by the Calcutta

trust. It was clear that the intention of the donor and the donee was to treat the

money as capital to be spent for the water supply scheme. The fact that the amount

had not been paid over to the State Government and was kept unutilised in the

account of the assessee-trust was not relevant. The amount could not be said to be

"income" and could not be included as part of the assessable income of the trust

under the provisions of Section 12(2)." In Yet another judgment in the case of

Sukhdeo Charity Estate (supra), the Honourable Rajasthan High Court held as

follows (as per head note):- "The intention of the donor-trust as well as the donee-

trust was to treat the money as capital to be spent for the Ladnu Water Supply

Scheme. It was of no significance whether the amount had since been paid to the

State Government or kept in the account of the said scheme by the assessee-trust.

The amount of Rs. 70,000/- did not constitute income of the petitioner. The

reassessment proceedings were not valid and were liable to be quashed." This

Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for

asst. year 1998-99, in its order dated 25-6-2002 to which one of us was a party,

was inclined to uphold the view of the Commissioner (Appeals) in that case by

holding in para 15 of that order as follows: "Though we find considerable force in

the other argument of the assessee’s counsel i.e. the income should be computed on

commercial principles, as we have held that the assessee-society is eligible for

exemption Under Section 11 of the Act and as we have also held that the objects of

the society were of charitable nature within the meaning of Section 2(15) of the

Act, and as we have further held that there is no violation, whatsoever of the

provisions of Section 13(1)(c) and (d) of the I.T. Act, 1961, the other grounds of


the assessee need not be gone into, as it would be of academic interest only." The

Revenue has not brought to our notice any judgment from any High Court which

has dealt at length on this issue and which is in its favour. It is also not clear

whether the Revenue has accepted or gone on appeal against the judgment of this

Bench in the case of Nirmal Agricultural Society (supra). 26. Honourable Andhra

Pradesh High Court in the case of Chairman, Andhra Pradesh Welfare Fund v.

CIT, as per head note, held as follows:- "(i) That the finding of the Tribunal, that

the assessee could not be regarded as a branch or as a part of the parent body, was

a finding of fact and no question of law arose for reference. (ii) That the mere fact

that the rice millers paid contributions with an oblique motive would not affect the

character of the contributions, as voluntary contributions. (iii) That the finding of

the Tribunal, that the assessee was not entitled to exemption as a trust under

Section 12 because some of the funds were being utilised for purposes other than

charitable and religious was a finding of fact and no question of law arose for

reference." This judgment was relied upon by the Reference. A careful reading of

this judgment does not indicate that the question raised by the assessee before us

was posed to the court. We do not feel that this is a precedent for laying down a

proposition of allowability of expenditure for computation of income of a

charitable institution which is denied benefit Under Section 11. Honourable

Supreme Court in the case of Goodyear India Ltd. v. State of Haryana (1991) 188

ITR 402 (SC), as per head note, held as follows: "Precedent -- Authority only for

what it decides - Not for what may remotely or even logically follows - Decision

on question not argued cannot be treated as precedent." Thus, the judgment of

Honourable Andhra Pradesh High Court (supra) does not help the case of the

Revenue. 27. On other hand, learned authors Chaturvedi and Pithisaria in their

book Income Tax Law, Fifth edition, Vol.1, at page 424, under the heading

"Income, when falls into the tax net", observed as follows:- "Although Section 14


of the 1961 Act classifies income under six heads, the main charging provision is

Section 4(1) which levies income-tax, as only one tax, on the "total income" of the

assessee as defined in Section 2(45) of that Act. AO income in order to come

within the purview of that definition must satisfy two conditions. Firstly, it must

comprise the "total amount of income referred to in Section 5”. Secondly, it must

be ”computed in the manner laid down in this Act”. If either of these conditions

fails, the income will not be a part of the total income that can be brought to charge

[CIT v. Harprasad & Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)]”. 9 28. As argued

by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are

income, to our mind this by itself does not entitle the tax gatherer to ignore all

other well settled principles of taxation and general law and levy tax on gross

receipts without considering the claim for deductions. Principles such as capital

versus revenue, doctrines of overriding title, form versus substance, interpretation

of ”deeming” provisions etc., have to be applied wherever necessary. Only the

surplus or profit can be brought to tax and the same has to be computed in the

manner laid down in the Act applying the normal principles of accountancy and

taxation laws. 29. The learned authors Kanga and Palkhivala in the book The Law

and Practice of Income Tax, Eighth edition, Vol. I, at page 387, state the legal

position as follows:- “Voluntary contributions towards corpus of recipient trust.--

The present Section 12 is expressly made applicable to voluntary contributions

which are made with a specific direction that they shall form part of the corpus of

the trust [original in italics]. Therefore, such contributions on capital account do

not have to be applied to charitable purposes but can be retained as the corpus of

the recipient trust without attracting any tax liability. Although the italicized words

have now been omitted from Section 2(24)(ii-a), the exclusion of such capital

donations from the definition of ’’income” implicit in that section. The correct

legal position is as under: (a) All contributions made with a specific direction that


they shall form part of the corpus of the trust are capital receipts in the hands of the

trust. They are not income either under the general law or under Section 2(24)(ii-a)

rightly construed. (See under Section 2(24)(ii-a), "Voluntary contributions received

by charity".) (b) Section 2(24)(ii-a) deems revenue contributions to be income of

the trust. It thereby prevents the trust from claiming exemption under general law

on the ground that such contributions stand on the same footing as gifts and are

therefore not taxable. (See under Section 10(3), "Voluntarypayments ..."p.320.) (c)

Section 12 goes one step further and deems such revenue contributions to be

income derived from property held under trust. It thereby makes applicable to such

contributions all the conditions and restrictions under Sections 11 and 13 for

claiming exemptions. (See also Expln. (1) to Section 11(1).] (d) Section 11(1)(d)

specifically grants exemption to capital contributions to make the fact of non-

taxability clear beyond doubt. But it proceeds on the erroneous assumptions that

such contributions are of income nature - "income in the form of voluntary

contributions". This assumption should be disregarded." 5.3.3 After, relying on the

observations from the decision of the co-ordinate bench (supra), the Hyderabad

Bench in the case of J.B. Educational Society (supra) observes as under :- 58.

Further, in the case of Shri Shankar Bhagwan Estate vs. ITO (61 ITD 196) wherein

even after considering section 2(24)(iia) of the Act it was held as follows: "Section

2(24)(iia) has to be read in the context of the introduction of present section 12. In

the instant case the Assessing Officer on evidence had accepted the fact that all the

donations had been received towards the corpus of the endowments. In view of this

clear finding, they could not be assessed as income of the assessees. Therefore, the

voluntary contributions received by the assessees towards the corpus could not be

brought to tax." 59. Now the issue for our consideration is whether the amounts

received by the assessee were in the nature of voluntary donations received for

specific purpose. If yes, whether the same could be considered towards corpus of


the trust. Alternatively, if the donations are not voluntarily made, then whether

such donations could be considered as income chargeable to tax. The assessee has

taken a plea before us that these donations are received from members of the trust

and their associated companies/persons for a specific purpose, it is a tied up grant.

Sections 11, 12 and 2(24)(iia) of the Act speak of voluntary contributions.

Therefore, firstly, it has to be seen whether such donations are voluntary or not.

According to the dictionary meaning, an act can be said to be voluntary if it is done

by free choice of once own accord, without compulsion or obligation, without

valuable consideration, gratuitous, etc. There is no material on record to suggest

that such donations are given against the will of the donors or by any compulsion

or under any obligation. In that sense, it can be said that the donations are

voluntary. Before us, the assessee filed a list of donors in Paper Book form at page

Nos. 637 to 656 giving details of the donors. If the donations are not voluntarily

made, the same fall outside the ambit of sections 11, 12 and 2(24)(iia) of the Act.

Consequently, general provisions of Income-tax Act would become applicable.

According to the general provisions of the Act all receipts are not income.

Donations received for specific object are to be considered as tied up fund and it is

capital receipt. If the donations are made voluntarily for specific purpose, the same

cannot be held as income of the assessee, since the donations were, in our opinion,

given for specific purpose as tied up grant and it cannot be taxed as income. 60. In

the present case, the resolution passed by the assessee shows that it has been

received from members of the trust and their associated companies/persons

towards "building construction" and the same were expended for that purpose. So

far as section 2(24)(iia) is concerned, this section has to be read in the context of

introduction of section 12. It is significant that section 2(24)(iia) was inserted with

effect from 1.4.1973 simultaneously with the present section 12, both of which

were introduced from the said date by Finance Act, 1972. Section 12 makes it clear


by the words appearing in parenthesis that contributions made with a specific

direction that they shall form part of the corpus of the trust or institution shall not

be considered as income of the trust. The Board circular No. 108 dated 20.3.1973

is extracted at page 1754 of Volume I of Sampath Iyengar Law of Income-tax

(10th Edition), in which the interrelation between sections 12 and 2(24) has been

brought out. Gifts made with clear direction that they shall form part of the corpus

of the religious endowment can never be considered as income. In the case of R.B.

Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Bom) the Hon’ble

High Court held that even ignoring the amendment to section 12, which means that

even before the words appearing in parenthesis in the present section 12, it cannot

be held that voluntary contributions specifically received towards corpus of the

trust may be brought to tax. The aforesaid decision was followed by the Bombay

High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust

(189 ITR 5) (Bom). In the present case donations being received for specific

purpose, towards corpus of the trust, cannot be assessed as income of the assessee.

61. Same view was taken in the case of Shri Dwarakadeesh Charitable Trust vs.

ITO (98 ITR 557), DCIT vs. Nasik Gymkhana (77 ITD 500), ITO vs. M/s.

Gaudiya Granth Anuved Trust in ITA No. 386/Agra/2012 order dated 2.8.2013,

Penta Software Employees Welfare Foundation vs. ACIT in ITA Nos.

751-752/Mds/2007 and DIT (Exemptions) & Anr. vs. Sri Belimath

Mahasamsthana Socio, Cultural and Educational Trust (336 ITR 694) (Kar). 62.

Further, we have also carefully gone through the order of the Tribunal in the case

of Nirmal Agricultural Society vs. ITO (71 ITD 152) relied on by the DR.

Specifically paragraphs 9 to 12 of that order support the case of the assessee rather

than the Revenue. For clarity, we reproduce the said paragraphs as under: "9. But

as far as the contents of the assessments are concerned, we find much force in he

contentions advanced by the assessee. Even when the assessee has been assessed as


AOP deprived of s. 11 benefits, the AO could assess only net income of the

assessee and not gross receipts. As far as the assessee is concerned, construction of

houses, reclamation of land, etc., are part of its regular activities. Houses are built

on the land of poor agriculturists. The assessee-society has no legal title or right

over the land or houses of those villagers/ agriculturists who are the beneficiaries.

The purpose and activity of the assessee-society is to engage in such charitable

activities. Whatever amount has been spent on those programmes/ projects, they

were spent in the usual course of carrying on its acclaimed objects. Therefore,

there is no basis whatsoever, factual or legal, to hold that the amounts spent by the

assessee in constructing houses or reclaiming land are capital expenditure. As far

as the assessee is concerned, those expenses are revenue expenses. The assessee

has no rig ht or title over those properties. Those expenses were incurred as part of

its normal activities for which the society was formed. Therefore, the money spent

by the assessee-society in constructing houses, reclaiming the land, for non-formal

education, etc., has to be allowed as deduction in the computation of income. 10.

The grants received from Bread for the World were for specific purposes. The

grants which are for specific purposes do not belong to the assessee- society. Such

grants do not form corpus of the assessee or its income. Those grants are not

donations to the assessee so as to bring them under the purview of s. 12 of the Act.

Voluntary contributions covered by s. 12 are those contributions freely available to

the assessee without any stipulation which the assessee could utilise towards its

objectives according to its own discretion and judgment. Tied-up grants for a

specified purpose would only mean that the assessee, which is a voluntary

organisation, has agreed to act as a trustee of a special fund granted by Bread for

the World with the result that it need not be pooled or integrated with the

assessee’s normal income or corpus. In this case, the assessee is acting as an

independent trustee for that grant, just as same trustee can act as a trustee of more


than one trust. Tied-up amounts need not, therefore, be treated as amounts which

are required to be considered for assessment, for ascertaining the amount expended

or the amount to be accumulated. 11. The assessee should have actually credited

that grant in the personal account of the donor, Bread for the World and any

amount spent against that grant should have been debited to that separate account

of the donor. That incoming and outgoing need not be reflected in the income and

expenditure account of the assessee. At the end of the project, the balance, if any,

available to the credit of Bread for the World, the donor, could be treated as

income of the assessee, if the donor did not insist for the repayment of the balance

amount. 12. Therefore, in the light of the examination of the facts of the case, we

direct the AO to redo the assessments in the following lines: (1) The tied-up grants.

received from the donor, Bread for the World, will be taken out of the computation

of income from the income side. (2) All the money spent under the tied-up

programmes directed by the donor also will be taken out of the computation of

income from the expense side. (3) Any non-refundable credit balance in the

personal account of Bread for the World will be treated as income in the year in

which such non- refundable balance was ascertained. (4) The expenses incurred by

the assessee for house construction, reclamation of land, non-formal education

programme (other than covered by the tied-up grants) will be deducted as revenue

expenses. ” 63. Being so, as seen from the above order of the Tribunal the amount

received by the assessee for specific purpose would only mean that the assessee

agreed to act as a trustee of a special fund granted by assessee's trustees/members

or associated persons. As a result it need not be pooled or integrated with the

assessee's normal income or corpus. The assessee is acting as an independent

trustee for that amount received from the assessee's trustees/members just as some

trustee can act as a trust for more than one trust. Tied up or specific grant need not,

therefore, be treated as amounts which are required to be considered for


assessment. In other words, tied up grant received from donors for a specific

purpose cannot form part of assessee's income. 64. In view of the above discussion,

we are of the opinion that voluntary contributions in the nature of tied up grant

received by the assessee cannot be brought to tax even the trust is not registered

u/s. 12AA of the Act. The tied up donations received by the assessee should not be

taxable as income of the assessee, if it is used for specific purpose for which it has

been given and it cannot be considered as revenue receipts so as to tax the

same…….” In coming to the aforesaid conclusion the Hyderabad Bench of the

ITAT has also relied upon the decisions of the ITAT, Delhi Bench in the case of

Smt. Basanthi Devi (supra) and Sri Chakhan Lal Garg Education Trust (supra) and

in the case of Gaudiya Granth Anved Trust (supra) wherein similar issue raised has

been considered by both the Delhi and Agra Benches of the ITAT. We also find

that the Hon'ble Delhi High Court in the case of Basanti Devi & Sri Chakhan Lal

Garg Education Trust vide its order in ITA No.927/09 dt.23.9.2009 has also

affirmed the view taken by the Hon'ble ITAT in holding that corpus donations

cannot be regarded as income under Section 2(24)(iia) of the Act. 5.3.5 Following

the above decisions of the Tribunal (supra), relied upon by the assessee, we hold

that voluntary contributions received for a specific purpose cannot be regarded as

income under Section 2(24)(iia) of the Act since they are capital receipts and tied

up grants for specific purpose.

ITO vs. Saraswati Educational Charitable Trust (ITAT Lucknow)June 17, 2015 (Date of pronouncement)


(i) The trust is registered u/s 12A of the Act. There is no dispute that the entire voluntary donations have been disclosed by the trust as income in the Income and Expenditure account. The income so disclosed has been applied for charitable purposes as provided u/s 11(1) of the Act and hence cannot be included in total income of the trust. Adding part of the voluntary donations again as unexplained cash credits u/s 68 to the total income of the trust amounted to taxing, the same income twice which is not permissible (Director of Income Tax (Exemption) v. Keshav Social and Charitable Foundation, [2005] 278 ITR 152 (Delhi), CIT, Ghaziabad v. Uttaranchal Welfare Society, [2014] 42 taxmann.com 361 (All.) referred);

(ii) To obtain the benefit of the exemption under section 11, an assessee is required to show that the donations were voluntary. In the instant case, the assessee had not only disclosed its donations, but had also submitted a list of donors. The fact that the complete list of donors was not filed or that the donors were not produced, did not necessarily lead to the inference that the assessee was trying to introduce unaccounted money by way of donation receipts. That was more particularly so in the facts of the case where admittedly, more than 75 per cent of the donations were applied for charitable purposes;

(iii) Section 68 had no application to the facts because the assessee had in fact disclosed the donations as its income and it could not be disputed that all receipts, other than corpus donations, would be income in the hands of the assessee. There was, therefore, full disclosure of income by the assessee and also application of the donations for charitable purposes. It was not in dispute that the objects and activities of the assessee were charitable in nature, since it was duly registered under the provisions of section 12A;

(iv) Section 115 BBC of the Act were not violated by the trust and the donations received from the nine donors cannot be categorized as anonymous donations. To be excluded from the definition of expression


“anonymous donation” the person receiving the voluntary contributions referred to in section 2(24) (iia) is required to maintain a record of identity indicating the name and address of the contributor and such other particulars as may be prescribed. Since no other particulars have been prescribed under the provisions the person receiving the donation is under obligation to maintain the identity of donors indicating the name and address only. On perusal of the details furnished by the trust it is seen that the trust has not only furnished the names and addresses of the donors but also furnished a number of other details in respect of such donors viz. their PANs, copy of ITRs, copy of bank statements their confirmations, financial statements, computation of income etc. In view of the above it is held that the trust has established the identity of donors as provided u/s 115BBC of the Act and the donations cannot be categorized as anonymous donations and subjected to tax as per provisions of section 115BBC of the Act.

income Tax Appellate Tribunal - Delhi

Sant Vivekanand Education & ... vs Assessee on July, 2013.

In view of the ratio laid down in the above cited decisions of Hon'ble Delhi High

Court when we examined the orders of authorities below, we do not find

justification in the action in sustaining the addition of Rs.140 lacs u/s 68 of the Act

only because some of the donors could not be verified when there is no dispute that

the assessee had made disclosure of donations along with list of donors, the

amount so received in donations were applied for charitable purposes. It is

pertinent to mention over here that during the year, the assessee had received

corpus donations of Rs.1,99,86,101/- and it had collected RS.3,51,76,220/- as per

income and expenditure account that the total amount available with the assessee

from these two accounts was Rs.5,51,62,321`/- against which it had spent

Rs.4,03,76,796/- of fixed assets and Rs.3,09,80,493/- on recurring expenses. Thus,

after depreciation of Rs.63,08,433/-, the total application of funds comes to


Rs.6,50,48,856/-. Thus, there is no dispute that the amount in question was applied

for educational purposes, the act that some donations remained unverifiable due to

non availability of donors at the addresses given in their confirmations does not

necessarily lead to the inference that the assessee was trying to introduce

unaccounted money by way of donation receipts. We, therefore, respectfully

following the decision of Hon'ble Delhi High Court in the case of Keshav Social &

Charitable Foundation (supra), hold that the assessee is not required to show that

the donations were voluntary. In the present case before us, the assessee had not

only disclosed the donations but had also submitted the list of donors. Thus, the

provision of Section 68 of the Act has no application to the facts of the present

case. There is also no dispute that the objects and activities of the assess ewer

charitable in nature and it was duly registered under the provisions of Section 12A

of the I. T. Act, 1961. We thus direct the A.O. to delete the addition of Rs.140 lacs

u/s 68 of the Act in question made upheld by the authorities below in the absence

of justification thereto. The grounds No.1-10 are thus allowed in favour of the

assessee.

Sunder Deep Education Society vs. ACIT In the Income Tax Appellate Tribunal Delhi Bench ‘ G’ New Delhi

Month-Year :

Jan - 2014

Author/s : ITA No. 2428/Del/2011(BCAJ)Title : Sunder Deep Education Society vs. ACIT In the

Income Tax Appellate Tribunal Delhi Bench ‘ G’ New Delhi

Details :


http://indiankanoon.org/doc/1577013/

Facts

The assessee is registered under the Societies Registration Act, 1860 and u/s. 12AA of the Income tax Act, 1961. It also enjoys exemption u/s. 80G. The assessee runs educational institutions conducting various professional courses. In respect of the voluntary contribution aggregating to Rs. 1.97 crore received during the year, the assessee was not able to produce the donors when summoned by the AO who, as claimed by the assessee, had made the said donations. Therefore, the AO held that the same were anonymous and unexplained cash credit and added the said amount as the assessee’s total income as per section 115BBC and section 68.

Before the CIT(A) the assessee submitted the name and address of the persons who had made donations alongwith other particulars prescribed by the Act. The CIT(A) agreed that the donations could not be treated as ‘anonymous’. However, according to him, since the assessee could not prove the donations amount of Rs. 1.97 crore the same was treated as unaccounted income by him and brought to tax u/s. 11(4) read with section 68/69/69C.

Before the tribunal, the revenue did not challenge the CIT(A)’s finding that the donations were not anonymous but contended that as held by the CIT(A), the same were taxable u/s. 68 and 69 as income from other sources and the benefit of section 11 and 12 would not be available to the assessee.


Held

The tribunal referred to the decision of the Delhi tribunal in the case of Shri Vivekanand Education & Welfare Society (ITA No. 2592 / Del / 2012) which was based on the decision of the Delhi high court in the case of DIT(Exem) vs. Keshav Social & Charitable Trust (278 ITR 152) where the Court observed that the fact that complete list of donors was not filed or that the donors were not produced, does not necessariiy lead to the inference that the assesse was trying to introduce un-accounted money by way of donation receipts. The Court further observed that as the assesse had disclosed the donation as income, the provisions of section 68 cannot be applied. Applying the ratio, the tribunal held that the said receipts of Rs. 1.97 crore would be governed by the provisions of sections 11 and 12 of the Act and if 85% thereof is applied towards the objects of the trust, then the income assessable would be nil.

Hoshiarpur Improvement Trust vs. ITO (ITAT Amritsar)

September 10, 2015 (Date of pronouncement)

The assessee trust is set up under the Punjab Towns Improvement Act 1922, (PTIA, in short) by the Government of Punjab with the principal objective to bring about improvement in the town by the means set out under section 22 to 26 of the PTIA. The land for development is provided by the State Government, by acquiring the same under the Land Acquisition Act. The land so given to the assessee trust is developed, Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

inter alia, by providing for public amenities such as gardens, schools, religious places, community halls and shopping areas. The area available, after providing for access roads and streets as also public amenities, is then allotted in accordance with the State Government policies which include policy regarding reservation for specified categories such as members of Scheduled Castes and Scheduled Tribes, army personnel, sports persons etc. The assessee claimed the entire income to be exempt under section 11 of the Act. The Assessing Officer was of the view that the aim of the assessee trust is “acquisition of land, to develop it and sell it in the shape of plots, flats and commercial booths, after calling the applications from public with some registration fees”. He noted that these plots, shops and flats are sold at market rates. The Assessing Officer was of the view that these activities cannot be treated as advancement of any other object of “general public utility”. The Assessing Officer further observed that these activities are only to earn profits and that its functioning cannot be regarded as ‘charitable’ within the meanings of Section 2(15) of the Act. He relied on Lok Shikshan Trust Vs CIT (1975) 101 ITR 234 (SC) and Indian Chamber of Commerce & Ors Vs CIT (1975) 101 ITR 797 (SC). This was upheld by the CIT(A). On appeal by the assessee to the Tribunal HELD allowing the appeal:

(i) Vide Finance Act, 2008, the words “preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest)”, were added and, on a more relevant note, a new proviso (i.e. fist proviso) was added to this provision, carving out an exception in the cases of ‘advancement of any other object o f general utility’, and, by the immediately following Finance Act 2009, there was yet another proviso (i.e. second proviso) introduced to carve out an exception from the exception itself. In essence, the effect of these provisos was that even when an assessee was pursuing ‘a charitable purpose’ in the event of advancement of any other object of public utility’ it would cease to be for charitable purposes if it involves (a) carrying on an activity in the nature of trade, commerce or business; or (b) rendering any service in relation


to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of nature of use or application or retention of the income from such activity. However, these provisions are not to apply when the activities are such a modest scale that the value of receipts in respect of the same are less than Rs 25 lakhs. Therefore, as the legal position stands as on now, even after the insertion of the above two provisos, as long as the object of general public utility is not merely a mask to hide true purpose or rendering of any service in relation thereto, and where such services are being rendered as purely incidental to or as subservient to the main objective of ‘general public ut ility’, the carrying on of bonafide activities in furtherance of such object ives of ‘general public utility’ cannot be hit by the proviso to s. 2(15).

(ii) By the Finance Act 2015, these two provisos also stand substituted, with effect from 1st April 2016, a new proviso to Section 2(15). It may be noted that while the earlier proviso simply stated that exclusion from ‘charitable purposes’ will come into play “if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business ”, the requirement of exclusion clause extends even to situations “ in which such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility”. In other words, the exclusion clause, by proviso to Section 2 (15), was earlier triggered by “involvement in any activity in the nature of trade, commerce or business etc” but, post Finance Act 2015 amendment, it will be triggered even if “such an activity in the nature of trade, commerce or business etc is undertaken in the course of carrying out such advancement of any other object of general public utility”.

(iii) This substitution of proviso to Section 2(15) may be viewed as representing a paradigm shift in the scope of the exclusion clause. The paradigm shift is this. So far as the scope of earlier provisos is concerned, the CBDT itself has, dealing with an assessee pursing “the advancement of any object of general pubic utility”, observed that “If such assessee is engaged in any activity in the nature of trade,


commerce or business or renders any service in connection to trade, commerce or business, it would not be entitled to claim that its object is for charitable purposes” because “In such a case, the object of ‘general public utility’ will only be a mask or a device to hide the true purpose which is trade, commerce, or business or rendering of any service in relation to trade, commerce or business.” The advancement of any objects of general public utility and engagement in trade, commerce and business etc. were thus seen as mutually exclusive in the sense that either the assessee was pursuing the objects of general public utility or pursuing trade, commerce or business etc. in the garb of pursing the objects of general public utility. As the CBDT circular itself demonstrates, there could not have been any situation in which the assessee was pursing the objects of general public utility as also engaged in trade, commerce of business etc. In the new proviso, however, even when the assessee is engaged in the activities in the nature of trade, commerce or business etc. and “such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility” it is excluded from the scope of charitable purposes only when “the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year”. In other words, even when the activities are in the course of advancement of any other object of general public utility, but in the nature of trade, commerce or business etc, the proviso seeks to exclude it only when the threshold level of activity is not satisfied. Whether such a statutory provision stands the legal scrutiny or not is another aspect of the matter, and that is none of our concern at present anyway, it is beyond doubt that the new proviso, with effect from 1st April 2016, seeks to exclude, from the scope of section 2(15), the situations in which even in the course of pursuing advancement of any objects of general public utility when any activities in the nature of trade, commerce or business etc “is undertaken in the course of actual carrying out of such advancement of any other object of general public utility”, unless, of course, the activity level remains within the threshold limit i.e. receipts from such activities are less than twenty percent of total receipts of that year.Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

(iv) As the above provisions seeks to restrict the scope of Section 2(15) is effective from the assessment year 2016-17, these provisions are only prospective in effect. As a corollary to this legal position, even if the activities in the nature of trade, commerce or business etc are undertaken in the course of actual carrying out of advancement of any object of general public utility, till the end of the previous year relevant to the assessment year 2016-17, the activities will continue to be covered by the scope of Section 2 (15).

(v) In view of the above discussions, the reliance placed by the authorities below on the CBDT instruction no. 1024 dated 7th November 1976 and on Hon’ble Supreme Court decisions in the cases of Lok Shikshan Trust Vs CIT (1975) 101 ITR 234 (SC) and Indian Chamber of Commerce & Ors Vs CIT (1975) 101 ITR 797 (SC) is devoid of any legally sustainable merits. These decisions are no longer good law, the relevant provision in the context of which the decisions were given does no longer exist on the statute, and the judicial precedent, which the CBDT instruction has interpreted, has already faded into oblivion.

(vi) The above discussions clearly show that so far as making profits from a business activity incidental to the attainment of objectives of the trust is concerned, the legal position always was that, as long as separate books of accounts have been maintained by the assessee, the same were exempt from tax under section 11. There is no substantive change in law vis-à-vis the law prevailing as at the point of time in the context of which Hon’ble Supreme Court’s five judge bench had delivered the judgment in the case CIT Vs Surat Art Silk Clothes Manufacturers Association [(1980) 121 ITR 1 (SC)]. In the said case, Their Lordships had, inter alia, held, by majority view, that “What is necessary to be considered is whether having regard to all the facts and circumstances of the case, the dominant object of the activity is profit making or carrying out a charitable purpose. If it is the former, the purpose would not be a charitable purpose, but, if it is the latter, the charitable character of the purpose would not be lost”. Of course, as the law was so laid down, the school of thought to the effect “However, if the


object of the trust is advancement of an object of general public utility and it carried on any activity for profit, it is excluded from the ambit of charitable purpose defined in s. 2(15)” was articulated in the said order but that was part of the minority view stated by Justice A P Sen, as he then was.

(vii) Clearly, therefore, so far as pre insertion of Explanations to Section 2(15), i.e. prior to 1st April 2009, is concerned, the stand taken by the authorities below cannot be sustained in law. Assuming that all the allegations of the Assessing Officer, with respect to presence to profit motive in activities of the assessee are correct, since these activities were carried out with the larger and predominant objective of general public utility. It is only when, to use the words of the CBDT circular cited earlier in this order and the beneficial impact of which has the binding force on the field authorities under section 119 of the Act, the Assessing Officer finds that the income is “ income of any other business which is not incidental to the attainment of the objectives of the trust or institution” that the such an income will “not be exempt from tax”. There is no finding to that effect by any of the authority below. In any case, it is not even the case of revenue authorities that the activities of the trusts do not serve the objects of the general public utility but the case is confined to the stand that these activities have been carried out in such a manner as to make profit and no activities directly of any general public utility are carried out. The registration granted to the assessee evidences that the objects of the assessee trust were advancement of objects of general public utility, and there is nothing to demonstrate any paradigm shift from this fundamental position. The allegation is only of the profit making but that does not obliterate the overall objects of general public utility. As regards the maintenance of the separate books of accounts for the business activities pursued by the assessee trust, since all the activities of the assessee trust are said to be of the business nature, the books of accounts maintained by the assessee trust meet this requirement as well. Of course, we will deal with the issue of activities being in the nature of ‘profit making activities’ a little later, but, suffice to say, that on the admitted facts of this case, so far period prior to 1st April 2009 is


concerned and for the reasons set out above, the benefit of Section 11 read with Section 2(15) could not have been declined at all.

(viii) Turning once again to the amendments brought on the statue with effect from 1st April 2009, we have to understand that there are the two mutually exclusive situations in which business activities are carried out by the assessee trust – one, in which “the object of ‘general public utility’ will only be a mask or a device to hide the true purpose which is trade, commerce, or business etc” [referred to in the CBDT circular no. 11 dated 19th December 2008 issued at the point of time when first proviso to Section 2(15) was introduced]; and – second, in which any activities in the nature of trade, commerce or business etc are “undertaken in the course of actual carrying out of such advancement of any other object of general public utility”, [insertion of new proviso to replace first and second proviso to section 2(15)- effective 1st April 2016 i.e. assessment year 2016-17]. As for the first category, post 1st April 2009 amendment, this category cannot be treated as covered by Section 2(15) but then that’s not the case before us. It is not, and it cannot be, the case that the Government formed these trusts by legislating the Punjab Towns Improvement Act 1922 because it wanted to carry on the business as colonizer or developer. Therefore, by no stretch of logic, formation of trusts can be said to a mask or device to hide the true purpose of the doing business. The case of the revenue at best is that the manner in which the activities are carried out is of a profit seeking entity that a business inherently is. In other words, thus, the case of the revenue is that the activities in the nature of trade, commerce and business are carried out for advancement of objects of general public utility. This situation at best falls in the second category. However, these cases, for the detailed reasons set out above, the exclusion of these cases from Section 2(15) is only effective 1st April 2016, i.e. assessment year 2016-17. The law is well settled by a five judge bench of Hon’ble Supreme Court, in the case of Vatika Township Pvt Ltd (supra), that, following the maxim lex prospicit non respici, the law, particularly with respect to a requirement which is more onerous on the assessee, cannot be treated as retrospective in effect unless it is specifically legislated to be so. In


our considered view, therefore, this amendment cannot be treated as clarificatory or retrospective in effect. In view of these discussions, even post insertion of proviso to Section2(15) but before 1st April 2016, when business activities are carried by the assessee trust “in the course of actual carrying out of such advancement of any other object of general public utility”, the benefit of Section 11 read with Section 2 (15) cannot be declined. Nothing, therefore, turns on the assessee carrying out, even if that be actually so, activities in the nature of trade, commerce or business etc as long as these activities are carried out in the course of actual carrying out of advancement of any other object of general public utility. The planned development of cities and towns is an object of general public utility, and that is an object consistently followed by the assessee in all its activities. For this short reason alone, the stand of the authorities below must be held to be unsustainable in law.

(ix) As regards the fundamental allegation of the revenue authorities that the assessee has sold residential and commercial units and residential and commercial lands “just to earn profit”, the Departmental Representative has pointed out that the commercial plots and units are auctioned off which shows that the idea is to make maximum profits but what he clearly overlooks is the fact that since it is not a desirable state of affairs for the State to subsidize businesses, and to ensure highest degree of transparency in maximising returns from public assets, competitive bidding for commercial units is a safe option, and that the use of bidding process is justified for the larger causes. The bidding process ensures transparency in functioning of the improvement trusts and that, by itself, does not make the functioning of the improvement trust a commercial venture. It is also important that this use of bidding process is only in the context of commercial units etc. The development of commercial areas is in the interest of planned growth of an area and when such commercial areas develop, all the stakeholders in the development of that area benefit. In order of this benefit to the common cause, it is not necessary that the businessmen, buying such units, must also benefit. The denial of any advantage, at the cost of general public, to the business entities buying the commercial areas, in our considered


view, does not amount to an defeating an object of general public utility. In this context, it is important to understand the benefit from developing commercial areas, which is for public good, and benefit to the business persons in buying these units from the assessee trust, which can only be for the good of benefit of these entrepreneurs.

ITO vs. Bhartiya Vidya Mandir Trust (ITAT Chandigarh)

April 30, 2015 (Date of pronouncement)

The decision of the Hon’ble Supreme Court in A.L.N Rao Charitable

Trustreported in 216 ITR 697(SC) clearly held that there is a blanket

exemption with regard to the 25% (now 15%) of gross receipts as per

second part of Section 11(1)(a) of the Income Tax Act. This exemption of

15% is not dependent on any other condition except that the trust or society

should be registered u/s 12AA of the Income Tax Act. The only issue to be

examined here is whether the provisions of section 11(1) (a) and 11(2)

have been since amended and if so, whether the aforesaid decision would

apply to the amended provisions also? It is apparent from the reading of

the provisions that section 11 (1)(a) was almost identical during the AY 69-

70 and during AY 2010-11. As regards the provisions of section 11(2) are

concerned, even the amended sub section (2) operates qua the balance of

85 per cent, of the total income of the previous year which has not got the

benefit of tax exemption under sub-section (l)(a) of section 11. Section

11(2), as amended, does not operate to whittle down or to cut across the

exemption provisions contained in section 11(1)(a)so far as such

accumulated income of the previous year is concerned. As held by the

Hon’ble Supreme Court in the case of A.L.N Rao Charitable


Trust reported in 216 ITR 697(SC), it has to be appreciated that sub-

section (2) of section 11 does not contain any non obstante clause like

“notwithstanding the provisions of sub-section (1)”. Consequently, it must

be held that after section 11(l)(a) has full play and if still any accumulated

income of the previous year is left to be dealt with, and to be considered for

the purpose of income tax exemption, sub-section (2) of section 11 can be

pressed into service and if it is complied with then such additional

accumulated income beyond 15 per cent, can also earn exemption from

income-tax on compliance with the conditions laid down by sub-section (2)

of section 11. As such, this judgement of the Hon’ble Supreme Court is

squarely applicable to the appellant’s case. The appellant is thus eligible for

exemption of 15% of gross receipts 11(l)(a) of the Income Tax Act.

IN THE INCOME TAX APPELLATE TRIBUNAL“ A” BENCH, CHENNAI M/s.Dolphin Club ./I.T.A.No.1929/Mds. /2014

Assessment Year :2009-10Date of Pronouncement : 13.11.2014

The Revenue aggrieved by the order of the Ld. Ld. CIT (A) hastaken up five grounds before us; however, the crux of the issue is thatthe Ld. Ld. CIT (A) had erred in holding that the Assessee is eligiblefor exemption U/s.11 of the Act without appreciating the fact that it isin violation to the newly inserted proviso to Sec.2(15) of the Act sincethe objects of the Assessee society falls under ‘General Public Utility’Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

as envisaged in the Act. Before us, Ld. A.R. reiterated his submission made before the Revenue. He further pointed out that the issue is covered in its favour by the decision of the case of M/s.All India Chess Federation in ITANo.184/Mds./2013 dated 09.05.2014. From the above facts and from findings of the Ld. CIT (A), it is apparent that the assessee society is a society, formed for promoting the sports of swimming and related activities and thereby, squarelycovered by the decision of the Tribunal in the case of M/s.All IndiaChess Federation Vs. CIT (A)-XII cited supra

Considering the ratio of the aforesaid decisions anddiscussions, and also the scope of sports development in India, weare of the view that the recognized sports association in India, whoimpart knowledge in sports, promotion of sports by conductingvarious sports activities in all branches, to fall within the scope of“educat ion as def ined under the amended provisions ofSect ion-2(15) of the Act”. Accordingly we hold that theobjects of the assessee society will fall within the scope of the firstlimb of the amended provisions of section 2(15) of the Act viz.,“education”. Further on analyzing the activities of the assessee societywith regard to FIDE trainer coach fee – `5,70,000/-, AICF chronicle –`2,53,300, Prize money share –`5,51,500/-, Rent on Monrai system –`1,43,750/, Title fees – `3,00,500/-,Telecast charges–Doordarshan–`12,00,000, and FIDE remittances – `15,35,052/- , we find that all ofthem relate to the activities which are incidental to the main objects of the


assessee’s society and therefore, proviso to section 2(15) of the Act willnot be attracted. Based on our aforesaid decision the learned AssessingOfficer is hereby directed to modify his order accordingly.” we hereby hold that the objects of the assessee trust falls within the scope of the first limb of Sec.2(15) of the Act viz. ‘Education’ and therefore, the proviso to Sec.2(15) of the Act will not be attracted and accordingly, the order of the Ld. CIT

(A)stands confirmed.(“Objectives of the Society1. To encourage and develop existing and potential swimmersassociated with the Dolphin Club in all age groups.2. Specifically to provide advanced coaching and to prepare the DolphinClub Swimmers for various competitions at the local, district, state, zonal,national and international levels.3. To arrange and provide for Gym and dry land exercise facilitiesand sessions to improve the performance of Dolphin Club Swimmers…)

IN THE INCOME TAX APPELLATE TRIBUNAL“ ” BENCH, CHENNAI

M/s.Jairam Eductional Trust

I.T.A.Nos.1720 & 1765/Mds. /2013Assessment Years :2004-05 & 2006-07) Date of Pronouncement : 21.11.2014Ground No.(i) and (ii) relates to denial of exemption U/s.10(23C)(iiiad) of the Act by the Revenue since the “Annual Receipts”exceeded the prescribed limit under the Act by aggregating the


receipt of the assessee-trust and the institution run by the assesseeTrust. On this issue, the Ld. A.R. had relied in the order of CochinBench of the Tribunal (infra) who had followed the order of the Hon’ble Karnataka High Court in the case of Children’s EducationalSociety reported in (2013) 92 DTR (Kar.) 158….

Moreover, it is apparent from Sec. 10(23C)(iiiad) of the Act thatit refers to University or other educational institution existing solely foreducational purpose and not for the purpose of profit. It does not referabout the organizations such as Trust etc., which is running suchinstitutions /universities. However Sec.139 (4C) mandates every suchinstitutions/universities etc. and such Trust which are running suchinstitutions/universities to file its return of income within the due dateprescribed under Sec.139(1) of the Act. Moreover there is no barunder the provisions of any Law for any trust to run various differentinstitution/university as independent entities. Therefore, on a directreading of the provisions of section 10(23C)(iiiad) together with139(4C) of the Act, it can be inferred that every institution/universityetc., functioning under a trust or similar other bodies should betreated as an independent unit and the “annual receipts” of everysuch institution/university should be considered for the purpose ofgranting deduction U/s. 10(23C)(iiiad) of the Act. This view is further cemented by the decision of the Hon’ble Karnataka High Court(supra). Therefore, we hereby allow the concised ground Nos.(i) & (ii)mentioned herein above in favour of the assessee.


Refer: Hon’ble Karnataka HighCourt in the case of Children’s Educational Society in (2013) 92 DTR(Kar.) 158; Cochin Benches of theTribunal in the case of Dr.C.T.Eapen Trust Vs.ITO in ITA No.135 &136/Coch/2014 vide order dated 25.07.2014; the DelhiBenches of the Tribunal in the case of Param Hans Swami UmaBharti Mission Vs ACIT in (2013) 140 ITD 429(Delhi).

Ground No.(iv) relates to corpus fund received being treated asincome of the assessee and thus aggregated as “annual receipts” forthe purpose of determining the eligibility U/s. 10(23C)(iiiad) of the Act.On this issue the Ld. A.R. had relied on the decision of the DelhiBenches of the Tribunal in the case of Param Hans Swami UmaBharti Mission Vs ACIT which is also relied by the decision ofAgra Bench of the Tribunal in the case of ITO Vs. Shri HardayalSingh Educational Society .. Moreover, it is pertinent to mention here that the assessee trust hasreceived the donation to add on to its corpus fund. This fund may beused by the assessee trust in order to meet its various objectivesincluding for the purpose of funding the educational institutions astheir corpus fund. Further, it can be inferred by the ratio laid down indecision of the Hon’ble Karnataka High Court(Supra) that corpus fundreceived by the Trust cannot be treated as the income of theinstitution for the purpose of determining “annual receipts” of theinstitutions for granting benefit U/s. 10(23C)(iiiad) of the Act.Therefore we hereby hold this issue is also in favour of the assessee.Refer:Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

ITAT Agra Bench in the case of ITO Vs.Shri Hardayal Singh Educational Society in ITA No.180/Agra/2013vide order dated 18th October, 2013.

Supreme Court Daoodi Bohra Jamat 364 ITR 31

This Court in several decisions has reiterated theaforesaid test of predominant purpose and held that the purposes which would yield to profit or not in general public interest could be separated and the trust would only be exigible to tax to the extent of the charitable purposes under its objects. .Indubitably, the word ‘charity’ connotes altruism in thought and action and involves an idea of benefiting others rather than oneself. (Andhra Chamber of Commerce (supra)). It also cannot be lost sight of that the supremegoal of all religions is philanthropy which could be manifested in various forms. It is held that gifts for religious purposes are prima facie gifts for charitable purposes. (Schoales v. Schoales [1930] 2 Ch. 75 (CA); White v. White (1893) 2 Ch. 41 (CA)) 5.Unlike the phrase “charitable purpose”, “religious purpose” is not defined under the Act. According to lexicographers, the term religious would mean “of or relating to religion.” In certain cases, the activities of the trust may contain elements of both: religious and charitable and thus, both the purposes may be over lapping. More so when the religious activity carried on by a particular section of


people would be a charitable activity for or towards other members of the community and also public at large. For example, the practice of optional charity in the form of Khairat or Sadaquah under Mohammadan Law would be covered under both charitable as well as religious purpose. Further, while providing food and fodder to animalsespecially cow is religious activity for Hindus, it would be charitable in respect to non-Hindus as well. Similarly, service of water to the thirsty would find mention as religious activity in sacred texts and at the same time would qualify as a charitable activity The Privy Council in Re The Tribune, 7 ITR 415 has held that in judgingwhether a certain purpose is of public benefit or not, the Courts must in general apply the standards of customary law and common opinion amongst the community to which the parties interested belong to. Therefore, it is pertinent to analyse whether the customary law would restrict the charitable disposition of the intended activities in the objects.

The provision of food to the public on religious days of the community as per object (a) and (b), the establishment of Madarsa and organizations for dissemination of religious education under object (d) and rendering assistance to the needy and poor for religious activities under object (e) would reflect the essence of charity. Further, establishment of Madarsa or institutions to impart religious education to the masses would qualify as a charitable purpose qualifying under the head of


education under the provisions of Section 2(15) of the Act. Therefore, the objects of the trust exhibit the dual tenor of religious and charitable purposes and activities. Section 11 of the Act shelters such trust with composite objects to claim exemption from tax as a religious and charitable trust subject to provisions of Section 13. The activities of the trust under such objects would therefore be entitled to exemption accordingly.

The issue which arises for our consideration and decision is, whether the respondent-trust is acharitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of provisions of Section 13(1)(b) of the Act. issue which arises for our considerationand decision is, whether the respondent-trust is acharitable and religious trust only for the purposes of a particular community and therefore, not eligible for exemption under Section 11 of the Act in view of provisions of Section 13(1)(b) of the Act. The Section requires it to be established that such charitable purpose is not for the benefit of a particular religious community or caste. That is to say, it needs to be examined whethersuch religious-charitable activity carried on by the trust only benefits a certain particular religious community or class or serves across the communities and for society at large. (Sole Trustee, Loka Shikshana Trust v. CIT, (1975)101 ITR 234 (SC)). The section of community sought to be benefited must be either sufficiently defined or identifiable by a common quality of a


public or impersonal nature. (CIT v. Andhra Chamber of Commerce, 55 ITR 722). We have already noticed that the perusal of the objects and purposes of the respondent-trust would clearly demonstrate that the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community. The objects, as explained in the preceding paragraphs, do not channel the benefits to any community if not the Dawoodi Bohra Community and thus, would not fall under the provisions of Section 13(1)(b) of the Act.

Hon'ble Delhi High Court in the case of India TradePromotion Organisatiosn V/s. Director of Income-tax(Exemption)(114 DTR (Del) 329)/ (2015) 53 taxmann.com 404 (Del.)

The relevant portion of the observations of Hon'ble Delhi High Court in this context is extracted hereunder from the head-note of the Report (114 DTR)-

“The proviso to s. 2(15) does not make any distinction between entities carrying

on regular trade, commerce or business or providing services in relation to any

trade, commerce or business on the one hand and genuine charitable

organizations on the other. It must be remembered that the Court is construing

the expression "charitable purpose" not in a vacuum, but in the specific context of

s. 10(23C)(iv). Sec. 10 deals with the incomes not included in total income. And,

510(23C)(iv) specifically deals with the income received by any person on behalf


of, inter alia, an institution established for charitable purposes. Therefore, the

meaning of the expression "charitable purposes" has to be examined in the

context of s. 10(23C)(iv). Looking at the said expression from this stand point, it

becomes clear that it has a reference to income. Because, it is only when such an

institution has an income that the question of not including that income in its total

income would arise. Therefore, merely because an institution, which otherwise is

established for a charitable purpose, receives income would not make it any less

a charitable institution. Whether that institution, which is established for

charitable purposes, will get the exemption under s. 10(23C)(iv) -would have to be

determined by the prescribed authority having regard to the objects of the

institution and its importance throughout India or throughout any State or States.

There is no denying that having regard to the objects of the assessee and its

importance throughout India in the field of advancement of promotion of trade

and commerce, the assessee would be entitled to be regarded as an institution

which would qualify for that exemption. The only thing that is to be examined

iswhether the assessee had been established for charitable purposes'? The fact

that it derives income does not, in any way, detract from the position that it is an

institution established for charitable purposes. Therefore, merely because the

assessee derives rental income, income out of sale of tickets and sale of

publications or income out of leasing out food and beverages outlets in the

exhibition grounds, does not, in any way, affect the nature of the assessee as a

charitable institution if it otherwise qualifies for such a character. To put it plainly,

if an institution established for charitable purposes did not receive an income at

all, then what would be the need for taking any benefit under s. 10(23C)(iv).

Therefore, if a meaning is given to the expression 'charitable purpose' so as to

suggest that in case an institution, having an objective of advancement of general


public utility, derives an income, it would be falling within the exception carved

out

in the first proviso to s. 2(15), then there would be no institution whatsoever which

would qualify for the exemption under s. 10(23C)(iv). And, the said provision

would be rendered redundant. This is so, because, if the institution had no

income, recourse to s. 10(23C)(iv) would not be necessary. And, if such an

institution had an income, it would not, on the interpretation sought to be given by

the Revenue, be qualified for being considered as an institution established for

charitable purposes. So, either w?:y, the provisions of s. 10(23C)(iv) would not be

available either because it IS not necessary or because it is blocked. Theintention

behind introducing the proviso tos.2(q5) could certainly not have ben ro render teh

provisions of s.10(23C)(iv) redundant.

Merely because a fee or some other consideration is collected or received by an

institution, it would not lose its character of having been estebtishea for a

charitable purpose. It is also important to note that one must examine as to what

is the dominant activity of the institution in question. If the dominant activity of

the

institution was not business, trade or commerce, then any such incidental or

ancillary activity would also not fall within the categories of trade, commerce or

business. It is clear from the facts of the present case that the driving force is not

the desire to earn profits but, the object of promoting trade and commerce not for

itself, but for the nation-both within India and outside India. Clearly, this is a

charitable purpose, which has as its motive the advancement of an object of

general public utility to which the exception carved out in the first proviso to s.

2(15) would not apply. If a literal interpretation were to be given to the said

proviso, then it would' risk being hit by Art. 14 (the equality clause enshrined in

Art. 14 of the Constitution). It is well-settled that the Courts should always


endeavour to uphold the Constitutional validity of a provision and, in doing so,

the

provision in question may have to be read down. It would be pertinent to reiterate

that s. 2(15) is only a definition clause. Sec. 2 begins with the words, "in this Act,

. unless the context otherwise requires". The expression "charitable purpose" ,

appearing in s. 2(15) has to be seen in the context of s. 10(23C)(iv). When the.

expression "charitable purpose", as defined in s. 2(15), is read in the context of s ..

1O(23C)(iv) the Court would have to give up the strict and literal interpretation'

sought to be given to the expression "charitable purpose" by the Revenue. The'

introduction of the proviso to s. 2(15) by virtue of the Finance Act, 2008 was'

directed to prevent the unholy practice of pure trade, commerce and business

entities from masking their activities and portraying them in the garb 'of an

activity with the object of a general public utility. It was not designed to hit at

those institutions, which had the advancement of the objects of general public

utility at their hearts and were charity institutions. 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......

In conclusion, the expression "charitable purpose", as defined in s. 2(15) cannot

be construed literally and in absolute terms. It has to take colour and be

considered in the context of s. 10(23C)(iv). It is also clear that if the literal

interpretation is given to the proviso to s. 2(15), then the proviso would be at risk

of running fowl of the principle of equality enshrined in Art. 14 of the Constitution

of India. In order to save the Constitutional validity of the proviso, the same would

have to be read down and interpreted in the context of s. 10(23C)(iv) because,

the context requires such an interpretation. The correct interpretation of the


proviso to s. 2(15) would be that it carves out an exception from the charitable

purpose of advancement of any other object of general public utility and that

exception is limited to activities in the nature of trade, commerce or business or

any activity of rendering any service in relation to any trade, commerce or

business for a cess or fee or any other consideration. In both the activities, in the

nature of trade, commerce or business or the activity of rendering any service in

relation to any trade, commerce or business, the dominant and the prime

objective has to be seen. If the dominant and prime objective of the institution,

which claims to have been established for charitable purposes, is profit making,

whether its activities are directly in the nature of trade, commerce or business or

indirectly in the rendering of any service in relation to any trade, commerce or

business, then it would not be entitled to claim its object to be a 'charitable

purpose'. On the flip side, where an institution is not driven primarily by a desire

or motive tq earn profits, but to do charity through the advancement of an object

of general public utility, it cannot but be regarded as an institution established

for charitable purposes. Thus, while upholding the Constitutional validity of the

proviso to s. 2(15), it has to be read down in the manner indicated above. As a

consequence, the impugned order dt. 23rd Jar:. , 2013 is set aside and a

mandamus is issued to the respondent to grant approval to the assessee under s.

10(23C)(iv) within six weeks from the date of this judgment. “

Case referred in above order:

(1) Institute of Chartered Accountants of India v. Director General of Income

Tax (Exemptions) : 347 ITR 99 (Del) ;


(2) Bureau of Indian Standards v. Director General of Income-tax

(Exemptions) : (2013) 212 Taxman 210 (Delhi) ;

(3) Institute of Chartered Accountants of India v. DGIT(E) : WP(C) 3147/2012,

decided on 04.07.2013 ;

(4) M/s G.S. 1 India v. Director General of Income-tax (Exemption) and

Another: WP(C) 7797/2009 , decided on 26.09.2013 (2013) 219 Taxman 205

From a reading of the above case laws, the following propositionsemerge.

(a) For the cancellation of registration u/s 12AA(3), the Commissionershould record a satisfaction that the activities of the Trust or Institution are not genuine or that the activities are not being carried on in accordance with the objects of the Trust. In the absence of such a finding registration granted u/s 12A or u/s 12AA cannot be cancelled. Cancellation of registration of a charitable Trust, in a given case, is permissible, only under the circumstances stated u/s 12AA(3) of the Act.(b) For an assessee to be classified as charitable under the residuarycategory i.e. “advancement of any other object of general public utility” u/s 2(15) of the Act, the following four Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

factors have to be satisfied. i. Activity should be for advancement of ‘general public utility’. ii. Activity should not involve any activity in the nature of trade, commerce and business. iii. Activity should not involve rendering of services in relation to any trade, commerce or business.iv. Activities in Clauses b and c above, should not be for a fees, cess or other consideration, the aggregate value of which should not exceed the amount specified in the Second Proviso to S.2(15).(c )The earlier test that if the income so collected, is applied towards the charitable activity, then the trust cannot be held as non-charitable, is no longer relevant after the statutory amendment.(d) The scope of the term “activity in the nature of trade, commerce orbusiness” would mean that: i. It is undertaken with the profit motive;ii. The activity is continued on sound and recognized business principles and is pursued with reasonable continuity;iii. There should be facts and other circumstances which justify and show that the activity undertaken is in fact, in the nature of business;iv. The five tests propounded in the case of Customs and Excise


Commissioner vs. Lord Fisher (1981) STC 238 and the propositions in the case of CST vs. Sai Publication Fund 258 ITR 70 (SC) apply.v. Business activity is an important prevailing element of self interest.(e) From a perusal of Circular no.11 of 2008 issued by the CBDT, it is clear that the new Proviso of S.2(15) of the Act, is applicable to the assesses who are engaged in commercial activities i.e. carrying of trade, commerce or business in the garb of “public utility” to avoid tax liability, and where the object of “general public utility” was sometimes, only to mask or device to hide the true purpose, which was “trade, commerce or business.” (f) Charitable activity is anti-thesis of activity having an element of self interest. Charity is driven by altruism and desire to serve others, though element of self preservation may be present. For charity, benevolence should be omnipresent and demonstratable but it is not equivalent to selfsacrifice and abnegation. (g) The antiquated definition of charity, which entails giving and receiving nothing in return is outdated.(h) Enrichment of oneself or self-gain should be missing and the


predominant purpose of the activity should be to serve and benefit others, the mandatory features being, selflessness or illiberal spirit.(i) The quantum of fee charged, the economic status of the beneficiaries who pay, commercial values in comparison to the fee, purpose and object behind the fee etc. are several factors which decide seminal question, is it business?(j) The Revenue cannot take a contradictory stand that, the assesseecarries on charitable activity under the residuary head “general publicutility”, but, simultaneously record the said activity as business.(k) There is no statutory mandate that a charitable Institution falling under the residuary Clauses, should be wholly, substantially or in part be funded by voluntary contributions.(l) A pragmatic view is required when we examine the data, which should be analysed objectively. A narrow and coloured view will be counter productive and contrary to S.2(15) of the Act.(m) Accumulation of money/funds over a period of two to three years may not be relevant in determining the nature and character of activity and whether the same should be


treated indicative of profit motive i.e. desire or intention to carry on business or commerce.(n) The so called business activities, when intrinsically woven into and is part of the charitable activity undertaken, the business activity is not feeding charitable activities, as they are integral to the charity/charitable activity.(o) What has to be seen is, as to what is the core/main activity of theassessee. The predominant activity shall be the basis of decision making.

IN THE INCOME TAX APPELLATE TRIBUNALKOLKATA BENCH “C” KOLKATA

Indian Chamber ofCommerce Date of Pronouncement 02.12.2014

The mainobjects for which the association came into existence are set out in clause 3 of theMemorandum of Association which reads as under;“3(a) To promote and protect the trade, commerce and industries and inparticular the trade, commerce and industries in or with which Indians areengaged or concerned.”

Thus from the above, the logical corollary which inexorably flows from a careful perusal of the above laid decision is that in the cases of many institutions / associations whose main activity is not ‘business’ the connected incidental or ancillary activities of


sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. Therefore, the issue whether a professional institution is or is not hitby the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. Thus in the cases of many professional institution whose main activity is not “business”, the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. The test, therefore, to be applied is whether the activity which is pursued is ancillary to a dominant objector is independent to the main object and forms a separate object in itself. The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. Thus from all the above it is seen that though the definition of “charitable” purpose under section 2(15) has undergone changes, the principle underlying the same has remained the same. In context of the above, with regard to the “principle of consistency” it would be of relevance here to quote the decision of the Apex Court in the case of Radhasoami Satsang v. Commissioner of Income-tax (193 ITR 321 SC) wherein it was held that:

“…. (ii) That, in the absence of any material change justifying the Department


to take a different view from that taken in earlier proceedings, the question ofthe exemption of the assessee appellant should not have been reopened.Strictly speaking, res judicata does not apply to income-tax proceedings.Though, each assessment year being a unit, what was decided in one yearmight not apply in the following year; where a fundamental aspect permeatingthrough the different assessment years has been found as a fact one way or theother and parties have allowed that position to be sustained by notchallenging the ordered, it would not be at all appropriate to allow theposition to be changed in a subsequent year.” Hon’ble Delhi High Court in the case ofPHD Chambers of Commerce and Industry v DIT(E) (2013)212 TAXMAN 194(Del), wherein the following substantial question of law was framed as under:“Whether on the facts and in the circumstances of the case, the Tribunal was rightin law in holding that the provisions of Section 11(4A) of the Act were attracted tothe assessee’s case and consequently in remanding the case to the Assessing Officerwith directions.” Thus we note from the judgment of Delhi High Court, which very categoricallyand vehemently observed and held, that activities and services performed for a feeor against a payment, by a trade, professional or similar association, such as achamber of commerce and industry could not be held to be “business” in naturecarried out with a profit motive.

Now coming to application of section 28(iii) of the Act. We find that section28(iii) of the Act provides that the income derived by a trade, professional or similarassociation from specific services performed for its members will be brought tocharge under the head “profits and gains of business or profession”. The underlyingidea behind s. 28(iii) is that there must be a business from which income is derivedand that in the course of such business specific services must be rendered for its members. The concept behind s.28(iii) is to cut at the mutuality principle being reliedon in support of a claim for exemption, when the assessee was actually derivingincome or making profits as a result of rendering specific services for its members ina commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore


the principle of mutuality and reach the surplus arising to the mutual association andthis is clear from the fact that these provisions are confirmed to services performedby the association “for its members”. Such income would either be charged asbusiness income or under the residual head, depending upon the question whether theactivities of the association with the non-members amount to a business or otherwise.Section 28(iii) constitutes certain income of the association to be business incomewithout affecting the scope of the exemption under Section 11. Section 2(15) whichincorporates the definition of “charitable purposes” simply shows that several mutualassociations may also fall within the definition. The receipts derived by a chamber ofcommerce and industry for performing specific services to its members, thoughtreated as business income under Section 28(iii) would still be entitled to theexemption under Section 11 r.w.s. 2(15) of the Act, provided there is no profitmotive. Thus, assessee being a charitable Institution carrying on the object ofpromotion and development of trade and commerce and which is not involved in thecarrying on of any activity in the nature of “business”, the said section 28(iii) of theAct does not apply.

In our view the basic principle underlying the definition of “charitable purpose” remainedunaltered even on amendment in the section 2(15) of the Act w.e.f. 01/04/2009,though the restrictive first proviso was inserted therein. Accordingly, in the givenfacts of the case as discussed above in detail, the assessee association’s primarypurpose was advancement of objects of general public utility and it would remaincharitable even if an incidental or ancillary activity or purpose, for achieving themain purpose was profitable in nature. Hence, assessee is not hit by newly insertedproviso to section 2(15) of the Act. This issue of assessee’s appeal is allowed.

refer: Delhi high court in GSI India vs DGIT 360 ITR 138 Allahabad high court in Lucknow development Authority

219 Taxman 162 Gujarat high court in Director of Income-tax (Exemption)

v. Sabarmati Ashram Gaushala Trust (Guj) . 362 ITR . . 539

Supreme Court Daodi Bohra Jamat 364 ITR 31

In re: Vivekanand Rural Development Institute in context of imparting of occupational training of stitching and embroidery for women by charging fees held same can be considered as charitable activities as defined u/s.2(15) applying Institute of Chartered Accounts of India and Another v. Background material on NPO – Charitable trust taxation Kapil Goel Advocate 9910272806 ([email protected])

DirectorGeneral of IncomeTax (Exemption) and Others, [2013] 358 ITR 91 (Delhi),

Net Surplus taxable : non registered entity o AP high court Y.S.R. Foundation,20/11/2014o Society for Integrated Development in Urban & Rural

Areas vs. DCIT [90 itd 493] o Delhi high court In Petroleum Sports Promotion Board

362 ITR 235

Karnataka high court in Karnataka ligeyat Education university case (18/10/2014) educational institution can earn from allied activity like running of hospital and hostel without attracting section 2(15) proviso

Section 12AA(3) : Madras High court Tamil Nadu Cricket Association case 360 ITR 633 On basis of proviso to section 2(15) withdrawal of registration not possible

IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD I.T.T.A. No.583 of 2013 18-12-2013 Ramoji Foundation

Mr.J.V.Prasad says that the learned Tribunal was not correct in holding that without approaching the Civil Court, the rectified trust deed can be accepted.

Mr.S.Ravi has produced the trust deed before us and he pointed out the relevant clause thereof. The trustees have been given power by the settler itself to rectify the trust deed, if necessary.

Mr.J.V.Prasad submits that without approaching the Civil Court, as it could be found from the aforesaid judgment of the Hon’ble Supreme Court relied on by the learned Tribunal in the case of CIT Vs. Kamala Town Trust (1996) 217 ITR 699, the trust deed could not be rectified


and consequently the rectified portion of the trust deed cannot be said to be binding.

We are of the view that when the power had been given to the trustees by the settler, it can be amended without approaching the Civil Court provided all the conditions laid down by the settler are fulfilled. The approach of the Civil Court is required where there is no such power. No law has been produced before us that the trustees without approaching the Civil Court in spite of the specific power being given by the settler cannot change the trust deed. According to us, when the power has been given to the trustees by the settler, no further power basically from the Civil Court is required. This is the exact mindset of the Hon’ble Supreme Court in the aforesaid judgment. We have got the corresponding judgment of the Hon’ble Supreme Court in Commissioner of Income-tax, Kanpur V. Kamla Town Turst (AIR 1996 Supreme Court 620). At page 629 in paragraph-16 of the judgment, the Hon’ble Supreme Court observed as follows:“The aforesaid decision of the Rajasthan High Court also takes a view which is almost parallel to the view taken by the Delhi High Court though the binding nature of the rectification order of the Civil Court on the Income-tax Officer is not highlighted as no such occasion arose for Rajasthan High Court to pronounce on the same on the facts of that case. However, the fact remains that after due rectification of the original Trust Deed either by the settlor himself by executing a supplementary deed or by getting it rectified through competent Civil Court under the relevant provisions of the Specific Relief Act, the trustees would be bound to carry out the amended and rectified objects of the trust and if they fail to do so they would be guilty of breach of trust for which even proper proceedings can be initiated against them under Section 92 of the Code of Civil Procedure”.

Thus, in the aforesaid decision of the Hon’ble Supreme Court, nowhere it is stated that, in spite of having power to amend the trust deed, the trustees have to approach the Civil Court and get it rectified and such rectified trust deed is a binding instrument. Therefore, we hold that the learned Tribunal has correctly dealt with the matter in this case and the rectified trust deed can be relied on by the Revenue Authorities for the purpose of registration.

Also to discuss CBDT Circular no. 14/2015 on taxation of educational

institutions dated 17/08/2015


charity material semi… · web viewincome for purposes other than its objects. a plain reading...

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