Society providing training in travel and tourism is entitled to sec. 11 exemption

Facts:

a) The assessee was a society registered under section 12A. It provided various courses, including certificate course in Travel & Tourism' which was being conducted in collaboration with Miranda House, University of Delhi.

b) The AO held that courses conducted by assessee did not have any recognition from Govt. and activities carried on by assessee would fall outside purview of 'charitable purpose' as given under section 2(15). Consequently, assessee was not entitled to exemption under sections 11 and 12.

c) The CIT(A) reversed order of the AO. Aggrieved-revenue filed the instant appeal. The Tribunal held in favour of assessee as under:

1) For certificate course of Travel & Tourism the course content was set by Miranda House, education and training was provided by the appellant, examination paper was set out by appellant, examination was conducted by appellant and the Diploma Certificate was awarded by both Miranda House and the appellant to the successful candidates/students.

No disallowance u/s 40(a)(ia) when taxpayer is claiming exemption under sec. 11

The issue before the ITAT was

Whether the provisions of section 40(a)(ia) are applicable when income is computed under sections 11, 12 and 13?

The ITAT held as under:

1) Sections 11, 12 and 13 deal with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax if such conditions are fulfilled. Section 40(a)(ia) falls under chapter IV-D which deals with computation of profits and gains from business or profession.

2) Therefore, the provisions of section 40(a)(ia) are relevant if income is computed under the head 'profits and gains of business or profession". The concept of computation of income under section 11 is real income concept which is computed on the principles of real income generated from property held under trust and not notional income under other provisions of the Act.

No denial of exemption u/s 11 to an educational trust if it lets out its auditorium for educational activities

Facts

a)    Assessee-trust, established for educational purposes, had let out its auditorium to a management institute on a nominal rent.

b)    Assessing Officer (AO) found that the first proviso to section 2(15) was attracted in view of the income earned by the assessee from letting out of the said premises. Accordingly, exemption under section 11 was denied to assessee.

c)    The Tribunal, after examining the facts, had come to a conclusion that the main object of the assessee-trust was to promote educational activities. It was in the course of this activity that the premise was let out. Hence, proviso to section 2(15) wouldn’t be attracted in case of assessee.

d)    Aggrieved by the order of the Tribunal. The revenue filed the instant appeal before the High Court.

The High Court held in favour of assessee as under-

No disallowance under sections 40(a)(ia) and 43B if assessee-trust was enjoying exemption under section 11

Issue

Whether disallowance under sections 40(a)(ia) and 43B could be made in a case of trust enjoying exemption under section 11 of the Income-tax Act (‘Act’)?

The tribunal held as under-

1)    Sections 11, 12 and13 deal with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax, if such conditions are fulfilled.

2)    Sections 40(a)(ia) and 43B fall under Chapter IV-D of the Act. The said Chapter deals with computation of profits and gains from business or profession. The profits and gains from business or profession are computed under section 28. Section 29 provides the manner of computation of income under the head "profits and gains of business or profession", which states that the income referred to in section 28 shall be computed in accordance with the provisions of sections28 to 43D.

CIT can’t consider violation of provisions of sec. 13 while granting registration to a trust

Provisions of section 13 couldn't be applied to deny registration to a trust or an Institution under section 12A - It shall be applied to decide deduction to be allowable to a trust or an Institution while completing assessment proceedings.

Facts:

a) In the instant case, one of the objects of the trust was limited to the benefit of Jain community;

b) The CIT contended that trust had violated provisions of section 13(1)(b) since benefits of sections 11 and 12 could not be extended to the charitable trust or institution which was established for the benefit of any specific religious community. Hence, he denied registration to trust under section 12A.

Issue:

• The issue that arose for consideration before the Tribunal was:

• "Whether the CIT has erred in denying the trust registration under Section 12A holding that the object clause of the Trust Deed is specifically for the benefit of the Jain Community which is a specific religious community and hence attracts the provisions of sec.13(1)(b)?"

The Tribunal Held in favour of assessee as under:

1)In order to avail of the deduction under sections 11 and 12 of the Act, the trust or institution has to make an application for registration under section 12AA of the Act;

2)The CIT after satisfying himself about the objects of the trust or Institution and about the genuineness of its activities, had to pass an order in writing granting or refusing the registration;

3)The Assessing Officer had to consider non-fulfillment of the conditions laid down in section 13(1)(b) during assessment procedure while allowing deduction under sections 11 and 12 to the trust or Institution;

4)Therefore, the CIT was not authorized to consider violation by the trust or Institution on account of provisions of section 13(1)(b) while granting it registration under section 12A-Kul Foundation v. CIT[2015] 54 taxmann.com 143 (Pune - Trib.)

Though income of Chamber of Commerce held as business receipt, yet Sec. 11 relief available as profit motive absent

The Tribunal held in favour of assessee as under:

1) The concept behind Section 28(iii) is to overcome the mutuality principle being relied upon in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services to its members in a commercial way.

2) The reason for the introduction of Section 28(iii) of Act was to ignore the principle of mutuality and reach the surplus arising to the mutual association. It was clear from the fact that these provisions were confirmed to services performed by the association "for its members". Such income would either be charged as business income or under the residual head, depending upon whether the activities of the association with the non-members amounted to a business or otherwise.

3) Section 28(iii) constitutes certain income of the association to be business income without affecting the scope of the exemption under Section 11.

4) Section 2(15) incorporates the definition of "charitable purposes" and shows that several mutual associations may also fall within the definition.

5) The receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii), would still be entitled to the exemption under Section 11 read with Section 2(15) of the Act, provided there is no profit motive.

6) Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and not involved in the carrying on of any activity in the nature of "business", the said section 28(iii) of the Act would not apply.

7) Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable in nature even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. The basic principle underlying the definition of "charitable purpose" remained unaltered 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- Indian Chamber of Commerce v. ITO (Exemption) (2014) 52 taxmann.com 52 (Kolkata - Trib.)

No disallowance of exp. incurred by trust on international conference/training for advancing objects of trust

Expenditure incurred by a charitable trust on international conference or training could not be disallowed on ground that it was not notified in a circular issued by CBDT.

Facts:

The issues that arose for consideration before the Tribunal was as under:

Whether expenditure incurred by a charitable trust on international conference or training could be disallowed on ground that it was not a charitable activity because it was not supported by special or general order of CBDT?

The Tribunal held in favour of assessee as under:

1)The expenditure was incurred by the trust for attending international conferences/seminars by its secretary, which had the purpose of advancing the objects of trust. It was not for the personal benefit of the Secretary, therefore, it could not be said that such expenditure was not incurred for charitable purposes.

2)It was neither necessary nor required as per the statute that for availing of exemption under section 11, a particular charitable activity had to be notified in a circular issued by the CBDT.

3)Hence, disallowance made by AO by simply observing that attendance made in international conference or training could not be said to be a charitable activity as it was not supported by special or general order of CBDT, was totally contrary to the statutory provisions. - DEPUTY DIT (EXEMPTION) V. SOCIETY FOR INTEGRATED DEVELOPMENT IN URBAN & RURAL AREAS (SIDDUR) [2014] 48 taxmann.com 330 (Hyderabad - Trib.)

Revenue could recover excise dues of lessor by detaining excisable goods belonging to lessee

Section 11 of Central Excise Act read with section 142 of Customs Act empower authorities to attach/detain excisable goods belonging to defaulting-assessee including transferee/lessee/buyer of its business.

Facts:

a)The assessee (lessor), engaged in manufacture of tea, had failed to pay certain excise dues. The assessee leased out tea garden/factory to two petitioners (lessees). Department attached and detained goods (tea) to recover excise dues from lessor.

b)The lessees argued that duty was already on tea owned by them and, therefore, such tea could not be detained for recovery of dues of lessor.

c)The assessee further argued that only Commissioner could issue order of attachment/detention and not Deputy Commissioner.

The High Court held in favour of revenue as under:

1)Officers who signed attachment/detention orders were 'Central Excise Officer' under section 2(b) ibid and were empowered to issue impugned orders.

2)Moreover, once provisions relating to detention/attachment contained in Customs Act were made applicable for recovery of dues under Central Excise Act, all provisions of Central Excise Act including section 2(b) would apply for recovery.

3)Furthermore, section 11 read with section 142 empower authorities to raise demand and also to issue attachment/detention orders to detain goods belonging to defaulting assessee including his transferee who stepped into his shoes to carry on business either by purchasing said business or otherwise. Hence, impugned demands/orders were valid. – BOGIDHOLA TEA & TRADING CO. (P.) LTD. V. UOI [2014] 47 taxmann.com 221 (Gauhati)

Conducting educational diploma courses and management programmes was an educational activity under sec. 2(15)

Facts:

a)The assessee, a public charitable trust, was having objects of continuing education, training and research on various facets of management and related areas.

b)It claimed exemption under section 11. The Assessing Officer (‘AO’) held that activities of assessee would fall within scope of 'advancement of any other object of general public utility’ and the assessee would not be entitled to exemption under Section 11 as its aggregate receipts exceeded the limit specified under second proviso to Section 2(15).

c)The CIT(A) confirmed the said order. Further, the Tribunal reversed the order of CIT(A). The aggrieved revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)The revenue had denied the exemption under section 11 mainly on the ground that the case of the assessee would fall under the fourth limb of the definition of 'charitable purpose' i.e. 'advancement of any other object of general public utility'.

2)The activities of the assessee such as continuing education diploma, certificate programmes; management development programmes, public seminars, workshops and conferences, etc., were educational activities. 3)Second proviso to section 2(15) would not apply in respect of relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution was relief of the poor; education or medical relief, it would constitute 'charitable purpose' even if it incidentally involved the carrying on of the commercial activities.

4)In the instant case, as the activities of assessee would fall within realm of education which was a 'charitable' purpose as per section 2(15). The assessee was entitled to exemption under section 11. – DIT(Exemption) v. Ahmedabad Management Association [2014] 47 taxmann.com 162 (Gujarat)

Gymkhana Club providing sports and other facilities only to its members could not be treated as a charitable trust

Where assessee-club was involved in providing sports activities accompanied by facilities like liquor bar, playing cards, restaurant, marriage hall, catering services, etc. to a certain group of persons, i.e., members of club, activities of assessee-club would not fall in definition of charitable purpose.

Facts:

a)The assessee-trust, claiming to be a charitable trust, filed its return of income declaring total income at nil. The Assessing Officer (‘AO’) noticed that, though the assessee-trust had been granted registration under section 12A, yet, the activities of the assessee-trust were not charitable activities.

b)He, therefore, held that the assessee was not entitled to exemption under section 11. He, accordingly, taxed the assessee's receipts. On appeal, the CIT(A) observed that the assessee-trust had been conferred the benefit of exemption under section 11 up to assessment year 2008-09.

c)The sports and other activities carried out by the assessee-trust would partake the character of general public utility which term was included in the definition of charitable purpose as defined under section 2(15). He, therefore, held that the assessee-trust was eligible for exemption under section 11. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of revenue as under:

1)The assessee had been involved in providing sports and recreational facilities to its members only. The AO had given a categorical finding that, though the membership of the club was open to public yet it had been restricted in many ways. Even the membership was offered on payment of very high premium.

2)High class premium services, such as facility of liquor bar, playing cards, restaurant, marriage hall, catering services, etc., were provided to the members, which could not be said to constitute any charitable activity.

3)Members who constituted high class, influential and rich persons could obtain services, that too on payment of high premium. However, the assessee-trust was also offering the facility of sports to its members that by itself could not partake the character of charitable activity.

4)It was not the case of the assessee-trust that such sports activities had resulted into any benefit to the public at large or any section of the society. The sports activities accompanied by facilities like liquor bar, playing cards, restaurant, marriage hall, catering services, etc., were limited to a certain group of persons.

5)There was no element of charity involved in such activities rather the activities of the club were meant for leisure and pleasure of the members of the club and the membership had been restricted to certain individuals. Thus, there was no infirmity in the order of the AO in holding that the activities of the assessee-trust would not fall in the definition of charitable purpose as defined under section 2(15). – ADIT(E) V. NAVI MUMBAI MERCHANTS GYMKHANA [2014] 47 taxmann.com 53 (Mumbai - Trib.)

No registration to a trust if its financing activities weren’t carried out for furtherance of its objects

Principal activities of metropolitan development authority were to be ascertained before denying it registration under section 12A on account of financing and rental activities.

Facts:

a)The assessee, a city metropolitan development authority under section 12, was established under a State Act, viz., MMRD Act. The assessee was claiming exemption under section 11.

b)It earned interest on sums lent to various organizations and lease rental of its property. The DIT(E) cancelled/withdraws its registration under Sec. 12A on the ground that activities carried out by it were commercial in nature.

c)The aggrieved-assessee filed the instant appeal.

The Tribunal held as under:

1)There was no finding that interest and rent receipts were integral to the assessee's functioning or its principal objects, so as to be considered as arising on account of activities necessary for the furtherance of the objects of assessee.

2)There ought to have been some principal activities for financing and rental activities to be considered as necessary and incidental thereto. The physical and/or functional correlation between the two would decide this aspect of the matter.

3)Such a finding was necessary to satisfy conditions stipulated under section 12AA(3). Thus, as the issue of applicability of section 12AA(3) in the instant case being factually indeterminate, the case was to be restored to the DIT(E) for passing a speaking order in accordance with law. - MUMBAI METROPOLITAN REGION DEVELOPMENT AUTHORITY V. DIT(E) [2014] 45 taxmann.com 354 (Mumbai - Trib.)

No IT relief to trust if its business receipts exceeded threshold; yet its registration couldn't be revoked

Where gross receipts of a charitable institution from its business exceeds prescribed limit, it will not be entitled for exemption or other admissible tax benefits for relevant year only; however its registration as charitable institution will continue.

Facts:

a)  The assessee, a textile promotion council, was registered as a charitable trust. Its activities were falling under the category of 'advancement of any other objects of general public utility' as per definition of 'charitable purpose' given under section 2(15);

b)  The Director (Exemption) had cancelled the registration of assessee as he noticed that the assessee was carrying out activities in the nature of trade, commerce or business, etc., and its gross receipts therefrom were in excess of prescribed limit.

c)  The aggrieved-assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)  Merely because income of a registered charitable trust from ancillary activities of business crosses prescribed limit, that by itself cannot be a ground for cancellation of its registration invoking section 12AA(3);

2)  If income arising out of the activities is not in accordance with the objects of the trust, the assessee may not get the exemption under section 11.

3)  Thus, for the previous year, during which the gross receipt of income of trust crossed the prescribed limit, it would not get exemption or benefit of its being charitable in nature despite its charitable activities;

4)  Therefore, the impugned order of the Director (Exemptions) was to be set aside and the registration granted to assessee under section 12A was to be restored.- Cotton Textiles Exports Promotion Council v. DIT (Exemption) [2014] 44 taxmann.com 168 (Mumbai - Trib.)

Trust activities couldn't be tainted as commercial even if it had earned profits from its charitable activities

Assessee-trust was not hit by proviso to section 2(15) if its aims and objects were charitable and profit earned from said activities was incidental in nature.

Facts:

a)  The assessee-trust was created with object to breed the cattle and to improve the quality of the cows and oxen.

b)  During the course of assessment, the Assessing Officer (‘AO’) denied benefit of section 11 to assessee-trust on ground that considerable income was generated from the activity of milk production and sale and therefore, trust was directly hit by the proviso to section 2(15).

c)  On appeal, the CIT (A) had confirmed the order of the AO. On further appeal, the Tribunal held in favour of assessee. The aggrieved-revenue filed the instant appeal.

The High Court held in favour of assessee as under:

1)  The proviso to section 2(15) applies only to cases of advancement of any other object of general public utility, if the conditions provided under the proviso are satisfied. However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business.

2)  Many activities of genuine charitable purposes, which are not in the nature of trade, commerce or business, may still generate marketable products. The law does not expect the trust to dispose of its produce at any consideration less than the market value;

3)  If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating 'surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature.

4)  The objects of the trust clearly established that the same was for general public utility and were for charitable purposes. Profit making was neither the aim nor object of the Trust. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, it would not render the activity as in the nature of trade, commerce or business;

5)  The proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of 'public utility'. Thus, the Tribunal had not committed any error in directing the Assessing Officer to provide exemption under section 11 and holding that the proviso to section 2(15) was not applicable to this case. – DIT (Exemption) v. Sabarmati Ashram Gaushala Trust [2014] 44 taxmann.com 141 (Gujarat)

Explicit religious trust won't get registration; Madarsa with dual purpose of charity and religious gets registration

The Supreme Court held as under:

1)  The objects of trust providing for activities of religious nature and were restricted to the specific communities were objects with religious purpose only. However, other objects would not be purely religious in nature if such objects trace their source to the Holy Quran and resolve to abide by the path of godliness shown by Allah;

2)  The establishment of Madarsas or institutions to impart religious education to the masses would qualify as a charitable purpose under the head of education under the provisions of section 2(15). The Madarsas do not confine themselves to only dissipation of religious teachings but also contribute to the holistic education of an individual;

3)  Therefore, the objects of the trust exhibited the dual tenor of religious and charitable purposes and activities;

4)  From the phraseology in section 13(1)(b), it could be inferred that the Legislature intended to include only the trusts established for charitable purposes in such provision. That, however, would not mean that if a trust was a composite one, i.e., one for both religious and charitable purposes, it would not be covered by clause (b);

5)  What was intended to be excluded from being eligible for exemption under section 11 was a trust for charitable purpose which was established for the benefit of any particular religious community or caste;

6)  In the instant case, the objects of the trust were based on religious tenets under Quran according to religious faith of Islam. The perusal of the objects and purposes of the trust would clearly demonstrate that the activities of the trust, though, were both charitable and religious, yet were not exclusively meant for a particular religious community;

7)  The objects of trust did not channel the benefits to any community and, thus, would not fall under the provisions of section 13(1)(b).Thus, assessee was a charitable and religious trust which did not benefit any specific religious community and, therefore, it would be eligible to claim exemption under section 11.- CIT v. Dawoodi Bohara Jamat [2014] 43 taxmann.com 243 (SC)