Wednesday, January 21, 2015

Trust entitled to exemption even if it charged fee for commercial activity, being incidental to its charitable nature

Fee charged by trust for processing subsidy applications could not be deemed as commercial receipts if it was incidental to its charitable objectives. Thus, assessee-trust was entitled to exemption under Section 10(23C)(iv).


a)The assessee, National Horticulture Board (NHB) was an autonomous society set up by the Government to promote, develop horticultural activities and to enhance the social and economic well-being of the farmers, etc.

b)As a part of pursuing these objectives, one of the activities in which assessee was involved in was disbursement of subsidy received from the ministry of agriculture in respect of qualified horticulture projects and, in this regard, assessee had received certain sum on account of cost of application form and the brochure from subsidy seekers.

c)Assessee had filed its return (including the amount received from subsidy seekers) and it claimed exemption under section 10(23C)(iv).

d)The Assessing Officer (‘AO’) disallowed the exemption by contending that the amount so received were for services rendered to the customers, which were in the nature of business, commerce and trade and, therefore, the activities of assessee could not be treated as charitable activities.

e)On appeal, CIT(A) affirmed the order of AO. Aggrieved by the order of CIT(A), assessee filed the instant appeal before the Tribunal.

The Tribunal held in favour of assessee as under:

1)First proviso to Section 2(15) provides 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.

2)Thus, the above proviso has two limbs, one is related to carrying on of any activity in the nature of trade, commerce or business and other one is related to carrying on any activity of rendering any service in relation to any trade, commerce or business.

3)There was no dispute that first limb of first proviso was not attracted on facts of the instant case, in as much as it was not even revenue’s case that the assessee was engaged in activity in the nature of trade commerce or business. The addition was made by revenue by invoking the second limb, i.e., rendering of services in relation to any trade, commerce or business.

4)The Delhi High Court in case of GS1 vs DGIT (Exemption) [2013] 38 364 (Delhi) held that even for invoking second limb of first proviso to Section 2(15), it was sine qua non that the assessee had extended services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee.

5) It was, thus, clear that even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as
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