Give Foundation, Ahmedabad vs Assessee

1

ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD " B " BENCH, AHMEDABAD

(BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT JUDICIAL MEMBER.)

ITA No.1465/Ahd/2013 Assessment Year: 2009 -2010

GIVE Foundation, 113/16, J.B. Towers, Opp. Doordarshan T.V.Tower, Thaltej, Ahmedabad-380054. ..................Appellant

[PAN:AABCG 2322D ]

Vs.

Joint Director of Income Tax, (Exempton),2 nd Floor, Nature View Building, Ashram Road, Ahmedabad. .................Respondent

Appellant by : Shri S.N. Soparkar,A.R.

Respondent by: Shri Roopchand, Sr. D.R.

Date of hearing : 27-04-2015 Date of pronouncement : 13-05-2015

O R D E R

Per Shri N.S. Saini, Accountant Member.

This is an appeal filed by the assessee against the order of CIT (Appeals) XXI, Ahmedabad dated 20-03-2013.

2 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

2. The assessee has raised ground Nos.1 to 6 of the appeal which are as under:-

"1. Ld. CIT(A) erred in law and on the facts in confirming action of A.O. in holding that the appellant trust carried on activity in the nature of business and profession under the guise of section 25 Company. Ld. CIT (A) ought to have held that the appellant trust registered u/s. 12AA of the Act working in the area of education, medical relief and relief to poor carried on activities of charitable purpose and not any business or profession.

2. Ld. CIT(A) erred in law and on the facts in confirming action of A.O.in assessing income of the appellant Trust at Rs.48,61,533/- by invoking proviso to section 2(15) of the Act denying of exemption u/s.11 of the Act. Both the lower authorities erred in not appreciating submissions that the appellant trust being registered u/s. 12AA of the Act as a public charitable trust, the exemption u/s.11 cannot be denied. The order of Ld. CIT (A) being unjust and against principles of Natural Justice deserves to be quashed.

3. Ld. CIT (A) erred in law and on facts in confirming action of A.O. in taxing surplus of income over expenditure amounting to Rs.31,93,755/- holding the activities of the appellant trust as 'advancement of any other object of general public utility' not granting benefit of section 11 & 12 of the Act. Ld. CIT (A) ought to have held appellant eligible for exemption u/s.11 of the Act.It be so held now.

4 Ld. CIT (A) further erred in law and on facts in ignoring submissions of the appellant that the proposal by AO to DIT (Exemption) to cancel registration of the appellant trust under provisions of section 12AA(3) of the Act on the basis of the assessment order for year under consideration was 3 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

quashed holding appellant trust a charitable entity. Ld. CIT (A) ought to have held the appellant trust to be a charitable entity engaged in charitable activities.

5. Ld. CIT (A) erred in law and on facts in confirming action of AO refusing to grant exemption u/s.11 and assessing income of the appellant u/s. 28 to 44 of the Act. Both the lower authorities failed to appreciate that proviso to section 2(15) was not applicable to the appellant and further provisions of Section 13 (8) were also not applicable. It be so held now by granting exemption u/s. 11 of the Act as claimed.

6. Ld. CIT (A) erred in law and on facts in not appreciating the fact that the appellant was not engaged in any commercial /business activity but was carrying out charitable activity in accordance with its objects for which Registration u/s.12AA of the Act was granted to the appellant trust."

3. As the facts and issues involved are same they are being disposed of together as under. Brief facts of the case are that he assessee is a charitable organisation under section 25 of the companies Act, 1956. The assessee was registered under section12A of the Income Tax Act, 1961 on 4- 8-2000.The assessee filed return of income for Assessment Year 2009-10 on 29-09-2009 showing loss of Rs.1,82,38,329/-.

4. Assessing Officer in an assessment made under Section143(3) of the Act determined the income of the assessee at Rs.48,61,533/- by passing order on 30-12-2011 and raising a tax demand of Rs.19,48,370/-. Assessing Officer computed the income after disallowing deduction claimed under the provisions of Sec.11 and also disallowing capital expenditure to the extent of Rs.13,47,700/- and also making addition on account of gratuity under Sec.

4 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

40(a)(ia) of the Act. While doing so the Assessing Officer has observed as under:-

"1 The assessee works as a consultant or facilitator to Donors who are corporate or High Net worth Individuals (HNI). The assessee provides the data of Trusts to whom such donors should give donations. Hence, services have been rendered by the assessee to big Corporate Houses and HNIs and not to trusts or to public at large. The assessee is charging consultancy fees from said big Corporate Houses and HNIs for providing such services.

2. The assessee is collecting donations to be made by big Corporate Houses and HNIs in the bank accounts of the assessee. The said funds are not disbursed to the trusts and shown as current liabilities. The said funds are invested in Bank as deposits and substantial interest is earned by the assessee. The assessee is claiming such income also as income from 'Charitable Purpose'.

3. The assessee is constantly making profits and under the guise of section 25 company to evades the tax which the assessee is supposed to pay. The assessee has changed its object clause in New Year. In old object clause the profit motive was there which is against the principle of forming section 25 companies.

4. The Corporate House who have paid consultancy charges have deducted tax at source u/s.194J as per details given elsewhere in this assessment order which also suggests that the type of services provided by the assessee are professional in nature and it is the beneficiary services rendered and hence, it has nothing to do with charity.

5 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

5. The stand taken by the assessee that the ultimate benefits of said consultancy results into benefits to company is not acceptable otherwise all who provides any service to trust for fees or profit will claim that as the services have been provided to trusts their income should be exempt u/s.11.

6. The quantum of personnel expenditure incurred the professional qualification of employees, the high amount of salaries /professional fees paid, the type of experience which the employees/professionals possess, suggests that it is the requirement of business or profession and not of a charitable institution.

7. The amount of interest income earned by the assessee on funds not disbursed to trust cannot be treated as the income of the trust because by overriding title, it becomes the income of the concerned trust for which the funds are earmarked and not disbursed. As the donor has given donation with specific instruction to be paid to specific trust and which are shown under current liabilities are the funds owned by the trusts for whom they are meant and hence, income earned thereon should also be provided to trusts for whom donations were paid by donors. The figures of income of the trust by way of consultancy fees, personnel expenditure incurred and interest income as discussed above have been provided in this assessment order.

8. The decision relied upon by the assessee and reproduced in this assessment orders have been carefully considered and on careful perusal it has been noticed that facts of the case of the assessee and facts of the case of the cases relied upon are different. In the decisions relied upon the facts are that one trust has collected donations and has given part of the donations to 6 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

other trusts carrying on similar objects but the trusts which have given donations are not consultants for other donors. They are actually into charitable activities and surplus funds which they have, has been given to other trust. Hence, said decisions shelter cannot be allowed to the assessee.

9. On detailed verification of accounts, Balance sheet and income and expenditure account and nature of activities carried on it can beyond doubt be concluded that the professional activity in the nature of business and profession is carried on under the organisation structure of Section 25 Company and Income tax on income earned is evaded. If this type of tax planning is meant to evade tax are allowed, all corporate hospitals will start their business of hospitals under the organisation structure of section 25 company. It is also concluded that novel tax planning is done by the assessee whereby the donor giving donation gives donation, may be getting deduction u/s. 80G, 35 etc., shows the same in their balance sheet by way of corporate social responsibility statement, the receipts of donations would have been issued on behalf of trusts, but income by way of receipts are not shown by the trusts in their income and expenditure account and hence, question of application of said income is not requires to be shown, the income on said non used funds is also not included in the trusts where it should have accrued had the said donations credited in trusts to whom donations were to be given. Even application period of the trust to whom donations were given and not disbursed by the assessee gets extended as the trusts will show income only when amount would be disbursed. All the sequence of events discussed herein this para, leads to conclusion that such novel ideas of tax planning should not be allowed to continue and hence, the conclusion is arrived 7 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

at the assessee is not carrying on activity which can be considered as Charitable purpose within the meaning of Section 2(15) of I.T. Act,1961 but a well planned business and profession under shelter of section 25 company."

5. On appeal the CIT (Appeals) held as under:-

"4.10 I have carefully considered the order of the A.O. and the submissions made in this regard. It is an admitted fact, amply evident from the website of the appellant, that the appellant is not doing any charitable activity directly. The appellant has devised an innovative idea of collecting money or donation from individuals or corporate interested in donating for a charitable cause. Such money is collected and kept by the appellant and disbursed thereafter to various NGOs enlisted with it for which the appellant has carried out due diligence and the list of all such NGOs is available on its website. At this point, it is important to look at Section 2(15) which reads as under:-

15) "charitable purpose" includes relief of the poor, education, medical relief, [preservation of environment {including watersheds, forests and wildlife} and preservation of monuments or places or objects of artistic or historic 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 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 8 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

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:

[Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty-five lakh rupees] or less in the previous year;] {Emphasis added}".

4.11 Perusal of this definition indicates that the appellant is not directly doing relief of the poor, education, medical relief, preservation of environment including water sheds, forests and wild life and preservation of monuments or places or objects or artistic or historic interest. In fact, the appellant is a facilitator for various causes which may even include donation for disabled, human rights, youth or health.

Accordingly, the donation mobilized by the appellant from various donors is for wide ranging causes, the details of which are evident and have been pointed out in para 4.7 of this order. A holistic perusal of purposes for which the donation is mobilized has led me to conclude that the appellant's activity falls under the 6 th limb of Section 2(15) which is advancement of any other object of general public utility'. Further, it is observed that the appellant is receiving fee from the donor as well as donee and such receipts are classified as its income under the head "income from charity advice". The heading "income from charity advice" may drop a hint of a charitable character of the receipts but the same is nothing but a fee received from rendering the services by identifying a donor and donee organizations which are looking for funds to carry 9 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

out charitable activity. The argument that such fee is only to cover cost of verification, processing due diligence points out to the fact that such amount is collected for the services rendered both to the donor as well as the recipient NGOs which are listed as approved by the appellant. Similarly, in the case of corporate donors who have deducted TDS since they consider such services as professional services for the advices given to them by the appellant, the income shown under the head "income from charity advice" is of the nature and character of fee charged for rendering services of facilitating funds for other charitable organizations. Accordingly, I am of the view that first and second proviso to section 2(15) are applicable in the appellant's case. It may be pointed out that irrespective of nature of use or application or retention of income from such activity, the said activity of the appellant may not be termed as charitable. I may draw attention to Section 13(8) of the Income Tax Act which comes into force with effect from Assessment year 2009-

10. The same reads as under:

"[ 13(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.]

To sum up, thus, the variety of causes for donation mobilization by the appellant also the registration u/s.12AA of Income tax Act indicate that the appellant is doing 10 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

charitable work u/s. 2(15) but under the heading 'advancement of general public utility'. To elaborate, some of the donations are earmarked for poor, others for medical needs of the people etc, but it is the actual donor who could only be doing the charitable activity directly, but with the help of appellant. Thus I am of the opinion that the activities of the appellant falls under the advancement of general public utility. Since appellant is charging fee both from the donor and donee, for such activity and the gross receipts exceeds 10 lakhs provisos to section 2(15) are applicable in this case for this assessment year. Thus in view of Section 13(8) of the Income Tax Act the appellant shall not be given any benefit of section 11 & 12 of the Income tax Act for this Assessment Year.

In view of the discussion above I may also add that plethora of judgements relied upon by the appellant are on different set of facts as the issue under consideration is whether the charitable activities carried out by the appellant falls under category 'education', 'medical', 'relief to the poor', or under 'advancement of general public utility'.

Considering the above, I am of the view that the action of the A.O. not granting any benefit u/s.11 and 12 and taxing surplus of income over expenditure amounting to Rs.31,93,755/- is correct and same is therefore confirmed. Ground No.1 & 2 are therefore dismissed."

6. Before us, the Authorised Representative of the assessee submitted that inasmuch as the DIT (Exemption) has specifically held at page 82A to 82D that "no ground for invoking Section 12AA (3) for the purpose of 11 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

withdrawal of registration" it is not open to the A.O. or the CIT (A) to take a contrary view. It may be noted that the action for cancellation of Registration was started by the DIT (Exemption) only at the request of the A.O. and was because of the facts compiled for the purpose of assessment in the assessment order for A.Y. 2009-10 (the present year)" as noted by the DIT (Exemption) (page 82A).

7. Further it is submitted that the assessee is engaged in the activities like "relief to the poor, education, medical relief and preservation of environment". It is submitted that page Nos.5, 19-22, 33-34, 72-81 and 83-89 may be referred for the details. Further table on page-9 of the paper book shows where the monies have been contributed; solely for the said objectives. It is further submitted that if that be so, the proviso to Section 2(15) has no application. For this contention he relied on the decision of Hon'ble Gujarat High Court in the case of DIT (E) vs. Ahmedabad Management Association (2014) 366 ITR (85) (Guj.) where it was held that all throughout for the preceeding year from the assessment year 1995-96 till 2008-09 the Revenue had considered the activities of the assessee educational and had granted the benefit u/s.11. The view taken by the Tribunal that the activities of the assessee such as continuing education diploma and certificate programme; management development programme, public talks and seminars and workshops and conferences, were educational activities or is in the field of education was proper. The activities of the assessee would fall within the definition of "charitable purpose" in terms of Section 2(15) and, therefore, would be entitled to exemption under Secton11.

8. He further argued that the only ground on which the CIT (A) held against the assessee after holding that the assessee is a charitable institution, is that the assessee falls in the residuary clause and is hit by the proviso, is contrary to the facts and therefore, the assessee be held as a charity. For this, he placed reliance on the decision of Hon'ble Delhi High 12 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

Court in the case of the DIT (E) vs. PRADAN Property Holding Trust in ITA No.361/2007 order dated 16-08-2010 wherein the Hon'ble High Court held as under:-

"It has been discussed by the Tribunal and has also come on record that PRADAN is essentially a Society engaged in charitable activities. A copy of the Trust Deed is filed by the respondent on the record of this case and a perusal thereof clearly demonstrates that the trust is created by PRADAN for the purposes of holding properties and certain assets of PRADAN so as to "more meaningfully deploy and use the same for various development activities being carried by PRADAN all over India". Thus, the basic aim and object of the respondent-Trust is to ensure that the charitable activities being organized by PRADAN reach the wider spectrum all over India to those who deserve them, i.e., poor persons as well as women. It may also be highlighted that as per clause 15 of the Trust Deed, it is made irrevocable and even in case of merger or dissolution, no part of the funds or properties are to be distributed among the trustees or even to the Settlor. We are, therefore, of the opinion that the Tribunal has rightly given direction to the appellant to grant the registration to the respondent under Section 12AA of the Act. Finding no infirmity with that order, we dismiss this appeal."

9. Alternatively, it was submitted that even if it is held that the assessee falls in the residuary clause on a true interpretation of the proviso to section 2(15) the same has no application, for this, he relied on the recent decision of Hon'ble Delhi High Court in the case of India Trade Promotion Organization v/s. Director General of Income Tax (E) & Others, 371 ITR 333 (Del.) wherein it was held as under:-

" From the said decision, it is apparent that merely because a fee or some other consideration is collected or received by an institution, it 13 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

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. 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 Section 2 (15) of the said Act would not apply. We say so, because, if a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 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, as pointed out above, in Arun Kumar case (supra).

It would be pertinent to reiterate that Section 2(15) is only a definition clause. Section 2 begins with the words, "in this Act, unless the context otherwise requires". The expression "charitable purpose"

appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression "charitable purpose", as defined in Sec. 2(15) of the said Act, is read in the context of Sec 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression "charitable purpose" by the revenue.

With respect, we do not agree with the views of the Kerala and Andhra Pradesh High Courts.

14 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

It would be appropriate to also examine the observations of another Division Bench of this court in G.S.I's case (supra). While considering CircularNo.11 of 2008 issued by the CBDT, to which a reference has been made earlier in this judgment, the Division Bench held that it was evident from the said circular that the new proviso to Sec.2(15) of the said Act was "applicable to assessees, who are engaged in commercial activities, i.e. carrying on business, trade or commerce, in the garb of 'public utilities' to avoid tax liability as it was noticed that the object 'general public utility' was sometimes used as a mask or device to hide the true purpose, which was 'trade, commerce or business'." From this, it is evident that the introduction of the proviso to sec. 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 G.S.1's case (supra) it was contended by the revenue that GS1 (India) had acquired intellectual property rights from GS1 (Belgium) and thereafter received registration fees from their parties in India. This was sought to be equated to royalty payments. It was also contended that GS1 (India) had huge surpluses of receipts over expenditure and that payments were made to GS1 (Belgium). According to the revenue, all this entailed that GS1 (India) was engaged in 'business, trade or commerce'. The petitioner herein 15 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

refuted this. In this backdrop, this court asked the question- can it be said that the petitioner is engaged in activities which constitute business, commerce or trade? While answering the said question, the court held as under:-

'.........As observed above, legal terms, "trade", "commerce" or "business" in Section 2(15),mean activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce'.

The Court further held:-

" Business activity has an important pervading element of

self-interest, though fair dealing should and can be present,

whilst charity or charitable activity is anti-thesis of activity

undertaken with profit motive or activity undertaken on sound or

recognized business principles. 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

demonstrable but it is not equivalent to self-sacrifice and

abnegation. The antiquated definition of charity, which entails

giving and receiving nothing in return is outdated. A mandatory

feature would be; charitable activity should be devoid of

selfishness or illiberal spirit. Enrichment of oneself or self-gain

should be missing and the predominant purpose of the activity

should be to serve and benefit others. A small contribution by 16 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

way of fee that the beneficiary pays would not convert charitable

activity into business, commerce or trade in the absence of

contrary evidence. Quantum of fee charged, economic status of

the beneficiaries who pay, commercial value of benefits in

comparison to the fee, purpose and object behind the fee etc.

Are several factors which will decide the seminal question, as it

business?"

Ultimately, in the context of the factual matrix of that case, this court

held that "charging a nominal fee to use the coding system and to avail

the advantages and benefits therein is neither reflective of the business

aptitude nor indicative of the profit oriented intent". The court further

observed:-

"Thus the contention of the revenue that the petitioner charges

fee and, therefore, is carrying on business, has to be rejected. The

intention behind the entire activity is philanthropic and not to recoup or

reimburse in monetary terms what is given to the beneficiaries.

Element of give and take is missing, but decisive element of

bequeathing is present. In the absence of "profit motive" and charity

being the primary and sole purpose behind the activities of the

petitioner is perspicuously discernible and perceptible".

The court also held:-

17 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

"As observed above, fee charged and quantum of income earned

can be indicative of the fact that the person is carrying on

business or commerce and not charity, but we must keep in mind

that charitable activities require operational/running expenses as

well as capital expenses to be able to sustain and continue in

long run. The petitioner has to be substantially self-sustaining in

long-term and should not depend upon government, in other

words taxpayers should not subsidize the said activities, which

nevertheless are charitable an d fall under the residuary clause -

general public utility. The impugned order does not refer to any

statutory mandate that a charitable institution falling under the

last clause should be wholly, substantially or in part must be

funded by voluntary contributions. No such requirement has been

pointed out or argued. A practical and pragmatic view is required

when we examine the data, which should be analyzed objectively

and a narrow and coloured view will be counter-productive and

contrary to the language of Section 2(15) of the Act."

In conclusion, we may say that the expression "charitable purpose", as

defined in Section 2(15) cannot be construed literally and in absolute

terms. It has to take colour and be considered in the context of Sec.

10(23C)(iv) of the said Act. It is also that if the literal interpretation is

given to the proviso to Sec. 2(15) of the said Act, then the proviso 18 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

would be at risk of running fowl of the principle of equality enshrined in

Article 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 Sec. 10(23)(iv) because, in our

view, the context requires such an interpretation. The correct

interpretation of the proviso to Sec. 2(15) of the said Act 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 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 to 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.

19 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

Thus, while we uphold the Constitutional validity of the proviso to Sec.

2(15) of the said Act, it has to be read down in the manner indicated by

us. As a consequence, the impugned order dated 23-01-2013 is set

aside and a mandamus is issued to the respondent to grant approval to

the petitioner under Sec. 10(23)(iv) of the said Act within six weeks

from the date of this judgment. The writ petition stands allowed as

above. The parties are left to bear their own costs."

10. It was submitted that in the case of the assessee also prior to the

Assessment Year 2009-10 the assessee was granted the benefit of charity for

which paper book pages No.113 to 118 may be referred. Under the

circumstances the said benefit cannot be denied to the assessee. He also

placed reliance on the decision of Hon'ble Gujarat High Court in the case of

DIT (E) vs. Sabarmati Ashram Gaushala Trust (2014) 362 ITR 539 (Guj.)

where it was held that the main objectives of the Trust were to breed cattle

and endeavour to improve the quality of the cows and oxen in view of the

need of all India is prominently and agricultural country. All these were

objects of general public utility and would squarely fall under Sec. 2(15) of

the Act Profit making was neither the aim nor object of the trust. It was not

the principal activity. Merely because while carrying out the activities for the

purpose of achieving the object of the Trust, certain incidental surpluses were

generated, would not render the activity in the nature of trade, commerce or

business, the assessee was entitled to exemption u/s.11.

20 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

11. He further relied on the decision of Hon'ble Delhi High Court in the

case of Instituted of Chartered Accountants of India & Another v/s. D.I.T.(E)

(2013) 358 ITR 91 (Delhi) where it was held that the activities of providing

coaching classes or undertaking campus placement interviews for a fee were

in relation to the main object of the Institute which cannot be held to be trade

business or commerce. Accordingly, even though fees were charged by the

Institute for providing coaching classes and for holding interviews with

respect to the campus placement, the activities cannot be stated to be

rendering service in relation to any trade, commerce or business as such

activities are undertaken by the Institute in furtherance of its main object it

has held earlier are not trade, commerce or business.

12. He further relied on the decision of Hon'ble Delhi High Court in the

case of Institute of Chartered Accountants of India & Another vs. DIT (E)

(2012) 347 ITR (99) (Del.) wherein it was held that the fundamental or

dominant function of the Institute was to exercise overall control and regulate

the activities of the members/enrolled Chartered Accountants. A very narrow

view had been taken that the Institute was holding coaching classes and that

this amounted to business. The Institute had framed the Chartered

Accountants Regulations, 1988 and the regulations provided for training

students, their examination, and award of degrees and membership of the

Institute. There was a clear distinction between coaching classes conducted

by private coaching institutions and the courses and examinations held by the 21 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

Institute. The question whether the institute carried on business had not been

examined with proper perspective. The Institute maintained that it never

granted any loan or advance to the Institute of Chartered Accountants of

India Accounting Research Foundation. The facts regarding this question had

not been considered. The order denying the exemption was not a valid.

13. The Departmental Representative supported the orders of the lower authorities.

14. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The assessee is a company registered under Section 25 of the Companies Act,1956. The assessee company is also registered under section 12AA of the Income Tax Act,1961.The assessee company claimed its entire income of the year under consideration as exempt under section 11 of the Act. On assessment the Assessing Officer denied the deduction claimed under section 11 of the Act on the ground that the assessee is not carrying on activities which can be considered as charitable purpose within the meaning of section 2(15) of the Income Tax Act, 1961 but a well planned business and profession under shelter of section 25 of companies Act.

15. On appeal, Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer.

16. We find that the main object of the assessee company as per its Memorandum of Association is as under :-

"To carry out education, medical relief, relief of poor and preservation of environment (including watersheds, forests and wildlife), either directly, or by supporting financially and otherwise, organizations to 22 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

carry out the aforesaid activities for charitable purposes and not for profit."

17. From the order of assessment it is observed that during the year under consideration the assessee's income is as under:-

Particulars. Year ending 31.03.2009 Revenue Grants Drawn 23,04,760 Income from Charity Advise(S.11) 1,08,57,115 Income from current Inv.(S.12) 57.92,631 Other Income (S.13) 7,22,035 Total 1,96,76,541

18. The expenses or payment debited by the assessee in its income and expenditure account are as under:-

Particulars Year ending 31.3.09

Personnel 91,59,959 expenditure(S.14)

Technical exp. (S.15) 19,36,006

Promotional 11,994 Exp.(S.16)

Adm. & Other Exp. 53,00446

Dep. (117868 - 43487)

Less Tr. From Cap. 74,381 Grant Res.

1,64,82,786 Total

Excess of Income over 31,93,755 Exp. 23

ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

19. Thus the assessee disclosed net income at Rs.31,93,755/-.

20. The assessee in its return claimed the above income of Rs.31,93,755/- as fully exempt under section 11 of the Act.

21. We find that the entire expenses incurred by the assessee are for providing advisory services to the affluent corporate and high net worth individuals who desire to make donations to public welfare trust or institution. Thus it is observed that the actual activity of the assessee during the year under consideration was confined to provide professional services to corporate and other persons who desire to do charity by advising them or by way of identifying genuine charitable institutions for them. The assessee for this service also charged fee from the donor corporate or other persons and such fee amounted to Rs.1,08,57,115/- during the year. Thus we find that no income of the assessee was utilised for providing educational activity medical relief, relief of poor and preservation of Environment (including watersheds, forests and wildlife). The entire expenses of the assessee were directed towards providing services to donors who are affluent section of the society and wish to make donation for charitable purposes. The above activity of the assessee of providing services to affluent section of the society cannot be, in our considered view held as activity of general public utility also. Thus we find that no part of the income of the assessee company was actually utilised for any charitable activity during the year. Further no material was brought before us to show that any asset of the assessee-company was utilised to carry out education, medical relief, relief of poor and preservation of environment (including watersheds, forests and wildlife) or extending financial help for such activities. Rather we find that the assessee received the amount from the donor and before disbursing the same utilised the same for earning interest income. The interest income so earned by the assessee was also not utilised for payment to any charitable trust or for any other charitable activities.

24 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

22. Simply because the assessee was registered under section 12 AA of the Act does not entitle it to claim its entire income as exempt under section 11 of the act but for getting that exemption the assessee is required to further satisfy condition of applying 85% of its income for charitable activities. In absence of the same only the amount which is utilised by the assessee for doing charitable activities can only be allowed as deduction to the assessee. In the present case as it is observed that no part of the assessee's income was actually applied for any charitable activities as defined in section 2(15) of the Act, the assessee was not entitled for deduction under section 11 of the Act for application of income towards charitable activities.

23. The Authorised Representative relied on the decision of Hon'ble Gujarat High Court in the case of [2014] 366 ITR-85 (Guj.) Director of Income Tax (Exemption) vs. Ahmedabad Management Association wherein it was held as under:-

" The assessee, a public charitable trust, was dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas for the past 50 years. The Assessing Officer, for the assessment year 2009-10, held that considering the nature of the courses their duration and the resultant surplus from each activity, the activity of the assessee was not educational. The activities of the assessee fell within the scope of "advancement of any other object of general public utility and any other activity" of section 2(15) of the Income Tax Act,1961 as amended, and since the aggregate value of the receipts were more than Rs.10 lakhs the proviso to section 2(15) was applicable and the assessee was not entitled to exemption. He denied the exemption under section 11 and assessed the income of the assessee at Rs.1,42,11,129 making a further addition of Rs.26,38,500/- on account of voluntary donations to the corpus received by the assessee during the year. The order of 25 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

assessment was confirmed by the Commissioner of Income tax (Appeals). The Tribunal held that the activities of the assessee were in the field of education and the assessee was eligible for exemption under section 11.

Held dismissing the appeal, that all throughout for the preceeding year from the assessment year 1995-96 till 2008-09 the Revenue had considered the activities of the assessee educational and had granted the benefit u/s.11. The view taken by the Tribunal that the activities of the assessee such as continuing education diploma and certificate programme; management development programme, public talks and seminars and workshops and conferences, were educational activities or is in the field of education was proper. The activities of the assessee would fall within the definition of "charitable purpose" in terms of Section 2(15) and, therefore, would be entitled to exemption under Secton11."

24. We find that in the instant case the AR of the assessee could not bring any material before us to show that the activities carried out by the assessee during the year was treated by the Revenue in earlier years as activities towards education, medical relief, relief of poor and preservation of environment (including watersheds, forests and wildlife).

25. Thus, at best it can be said that in earlier year the activities of the assessee was treated as activity towards advancement of general public utility. However, we find that there was an amendment in proviso to section 2(15) of the Act w.e.f. 1-4-2009 whereby two provisos were inserted in section 2(15) which define charitable purpose as under:-

"Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves carrying on of any activity in the nature of trade, commerce or business, or any activity of 26 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

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:

[ Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [twenty five lakh rupees] or less in the previous year;]

26. Therefore, in view of the above amendment in law the activities which were regarded as advancement of general public utility in earlier years cannot be regarded as activities for charitable purposes if the activities are hit by first proviso and is not covered by exemption provided in second proviso. In the instant case we find that the receipt of the assessee from advisory fee charged for rendering services exceeds the limit provided in section 2(15) of the Act. Therefore, the activity of the assessee cannot be regarded as of charitable purpose of advancement of general public utility during the Assessment Year 2009-10. Therefore the above decision is not applicable on facts of the case.

27. The second decision relied upon by the assessee is of Hon'ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra). In this case, Hon'ble High Court has held as under:-

"that the main objectives of the Trust were to breed cattle and endeavour to improve the quality of the cows and oxen in view of the need of all India is prominently and agricultural country. All these were objects of general public utility and would squarely fall under Sec. 2(15) of the Act Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the object of the Trust, certain incidental surpluses were generated, would not render the activity in 27 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

the nature of trade, commerce or business, the assessee was entitled to exemption u/s.11."

28. We find that the facts of the instant case are distinguishable from the facts of the case before the Hon'ble High Court. In that case the assessee was engaged in the activities of breeding cattle in an endeavour to improve the quality of cows and oxen and as an incidental activity to that it sold milk and received surplus. The Hon'ble High Court held that breeding cattle was activity of public utility and merely because some incidental surplus arose to the charitable trust it cannot be held that the assessee trust was carrying out any activity in the nature of trade. In contradiction to the facts of that case in the instant case we find that the entire expenses incurred by the assessee company was for rendering advisory services for which it also received charges from the persons to whom advisory were given. The main activity of the assessee was of rendering services and for that activity it received charges which exceeded the limit specified in second proviso to section 2(15) of the Act. Therefore, it cannot be held that the receipt generated was incidental to the attainment of the main object of the trust. Rather the receipt was generated in respect of main and only activity carried out by the assessee. Therefore, this decision does not help the case of the assessee.

29. The assessee has also relied on the decision of the Hon'ble Delhi High Court in the case of DIT (E) vs. Pradan Property holding Trust in ITA No.361 of 2007 order dated 16-08-2010. In view of our observation given above while discussing the case of Hon'ble Gujarat High Court in the case of Sabarmati Ashram Gaushala Trust (supra) this decision is not applicable to the facts of the assessee's case.

30. The assessee has also relied on the decision of the Hon'ble Delhi High Court in the case of India Trade Promotion Organisation vs. DIT (E) and others 371 ITR 333 (Delhi). In view of other observation given above while discussing the case of Hon'ble Gujarat High Court in the case of Sabarmati 28 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

Ashram Gaushala Trust (supra) this decision is not applicable to the facts of the assessee's case.

31. For the above stated reasons we hold that the assessee is not entitled for deduction under section11 of the Act during the year under consideration. In view of our observations made above we confirm the order of the CIT (A) and dismiss the grounds of appeal of the assessee.

32. Ground No.7 of the appeal reads as under:-

"Ld. CIT (A) erred in law and on facts in confirming action of AO holding software expenditure of Rs.19,25,285/- as capital in nature and allowing depreciation of 30% thereon failing to treat the expenses as application of funds for charitable activities of the appellant trust."

The AO has held as under :-

"Addition for capital expenditure debited to revenue expenses:- The assessee has debited following expenses to software development expenses account which are of capital in nature.

Date Particulars as per submission made by assessee. Amount

30-12-2008 Paid to Planman Technology P. Ltd. 1,20,746

31-03-2009 -do- 1,00,000

31-03-2009 Technology consultancy fee earlier capitalized 3,00,000 now transferred to revenue expenses.

31-03-2009 Paid software charges USD 27567 @ 50.95 (Give 14,04,539 USA)

TOTAL 19,25,285 29

ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

Less: Depreciation allowed @ 30% 5,77,585

Addition to be made 13,47,700"

33. After allowing depreciation on software charges @ 30% on

Rs.19,25,285/- addition for Rs.13,47,700/- being made for capital expenditure debited to Revenue expenses. Penalty proceedings u/s.271(1)(c) of the I.T. Act is initiated separately for furnishing inaccurate particulars of income.

34. Thus, it is observed that no relevant facts were brought on record by the A.O. and no reason was given by the AO for not accepting the claim of the assessee of software expenses being of revenue in nature. In our considered view such an unreasoned order is not sustainable. We therefore, delete the disallowance made by the A.O. of Rs.13,47,700/- and allow the ground of appeal of the assessee.

35. Ground No.8 of the appeal reads as under:-

"Levy of interest u/s. 234A, 234B and 234C of the Act is unjustified."

36. At the time of hearing no arguments were made on this ground of appeal by the A.R of the assessee. We therefore hold that the charging of interest is consequential and accordingly dismiss this ground of appeal of the assessee.

37. Ground NO.9 of the appeal reads as under:-

"Initiation of penalty proceedings u/s. 271(1)(c) of the Act is unjustified."

38. This ground is prematured and hence accordingly dismissed.

39. In the result, appeal of the assessee is partly allowed.

30 ITA.No. 1465 /Ahd/2013 Assessment year 2009-2010

Order pronounced in the Court on Wednesday the 13 th day of May,2015.

Sd/- Sd/-

(KUL BHARAT) ( N. S. SAINI) Judicial Member Accountant Member

Ahmedabad, the 13th day of May, 2015

Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order etc

Assistant/Deputy Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad

Patki

1. Date of dictation . 5.5.15 & 12.5.15 & 13.5.15 (dictation-pad pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member 12.5.15.

3. Other Member

4. Date on which the approved draft comes to the Sr.P.S./P.S

5. Date on which the fair order is placed before the Dictating Member for Pronouncement

6. Date on which the fair order comes back to the Sr.P.S./P.S

7. Date on which the file goes to the Bench Clerk .....................

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10 Date of Despatch of the Order..................