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Case Law Details

Case Name : Maharaja Shivchatrapati Pratishthan Vs Tax Recovery Officer (ITAT Pune)
Appeal Number : ITA No. 407/PUN/2020
Date of Judgement/Order : 14/02/2023
Related Assessment Year :

Maharaja Shivchatrapati Pratishthan Vs Tax Recovery Officer (ITAT Pune)

ITAT Pune held that as receipts from business activity is more than 20% of the total receipts, character of ‘charitable purpose’ as given in section 2(15) will be lost and accordingly, exemption under section 11 of the Income Tax Act not available.

Facts- the assessee is a trust and engaged in highlighting life of Chatrapati Shree Shivaji Maharaj by organizing drama “Janta Raja”. The assessee was registered u/s. 12A of the Act on 20-06-1974. According to the AO, the assessee claimed exemption of receipts of Rs.1,32,96,611/-from organizing drama on commercial basis and he opined since the receipts on such drama on commercial basis are more than 25 lakh, denied exemption u/s. 11 of the Act taking into consideration second proviso of section 2(15) of the Act. The CIT(A) confirmed the order of AO in denying exemption u/s. 11 of the Act.

Conclusion- Held that proviso to section 2(15) provides an exception which explains that such an activity will continue to be charitable if the requisite conditions are satisfied. The first condition is that such an activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; the second, is that the aggregate receipts from such activity do not exceed 20% of the total receipts. Admittedly, as discussed above, the aggregate receipts in the present case from such activity are more than 20% of the total receipts. Therefore, we hold that the assessee does not satisfy condition of advancement of any other object of general public utility so as to be covered u/s. 2(15) of the Act. Thus, we find no infirmity in the order of CIT(A) and it is justified. Thus, the grounds raised by the assessee are dismissed.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal by the assessee against the order dated 07-02-2020 passed by the Commissioner of Income Tax (Appeals)-10, Pune [‘CIT(A)’] for assessment year 2010-11.

2. We find that this appeal was filed with a delay of 64 days. Upon hearing both the parties, we find that the delay of 64 days is saved by the decision of Hon’ble Supreme Court passed during National Lockdown imposed on account of pandemic Covid-19. Therefore, the delay of 64 days is condoned.

3. The assessee raised six grounds of appeal amongst which the only issue emanates for consideration as to whether the CIT(A) is justified in confirming the order of AO in denying exemption u/s. 11 of the Act.

4. The ld. AR, Shri Sunil U. Pathak fairly conceded that the issue in the present appeal is covered against the assessee by the order of this Tribunal in assessee’s own case for A.Y. 2013-14 in ITA No. 2640/PUN/2017 vide its order dated 19-01-2023 which is placed on record. The ld. DR, Shri Ramnath P. Murkunde admitted the same and prayed to dismiss the grounds of appeal raised by the assessee.

5. We note that the assessee is a trust and engaged in highlighting life of Chatrapati Shree Shivaji Maharaj by organizing drama “Janta Raja”. The assessee was registered u/s. 12A of the Act on 20-06-1974. According to the AO, the assessee claimed exemption of receipts of Rs.1,32,96,611/-from organizing drama on commercial basis and he opined since the receipts on such drama on commercial basis are more than 25 lakh, denied exemption u/s. 11 of the Act taking into consideration second proviso of section 2(15) of the Act. The CIT(A) confirmed the order of AO in denying exemption u/s. 11 of the Act.

6. A similar issue as rightly conceded by the ld. AR came up before this Tribunal in assessee’s own case for A.Y. 2013-14. The Tribunal by placing reliance on the decision of Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority reported in (2022) 115 CCH 253 ISCC held that if the receipts from the business activity are more than 20% of the total receipts, the character of “charitable purpose”, as given in section 2(15), will be lost. The Hon’ble Supreme Court in the said case interpreted the relevant portion of section 2(15) of the Act to examine, that if the receipts of the assessee from pursuing such object of public utility are on cost-to-cost basis or having a minimal profit on one hand or having significant mark-up on costs on the other. The object of general public utility will be considered as pursued by the concerned authority/trust for charitable purpose u/s. 2(15) of the Act, if the receipts from the above referred business activity are not more than 20% of the total receipts from business and non–business activities. Having taking into the same this Tribunal held that the profit element in the performance of the drama is more than 40% of the gross receipts, the performance of organizing drama Janta Raja under the head “Historical Education” it ceases to fall within the domain of “charitable purpose” as the business receipts exceed 20% of the total receipts. The relevant from paras 5 to 9 of the said order is reproduced here-in-below for ready reference :

“5. We have heard the rival submissions and gone through the relevant material on record. The assessee claims itself to be imparting “education” as per section 2(15) and hence eligible for exemption u/s 11 of the Act. Before analyzing the connotation and applicability of the expression `education’, it would be worthwhile to note the actual activity carried on by the assessee. It can be seen from para 7 of the assessment order, which factual position has not been controverted by the assessee either before the ld. CIT(A) or the Tribunal, that it was organizing drama `Janta Raja’ for different institutes/companies for fee. Such institutes/companies were, in turn, selling tickets and passes etc. on commercial basis. This shows that the assessee was organizing the drama for the payer institutes/companies, who were then exploiting it commercially by selling tickets and earning revenue at their own end. The assessee, as such, is not directly organizing the drama for any education, but for earning profit. This gets fortified by the fact that as against the receipts of Rs.1.96 crore, the assessee incurred costs only to the tune of Rs.1.16 crore on this activity.

6. The term “education” has not been defined in the Act. It has been interpreted in the context of section 2(15) by the Hon’ble Supreme Court in Sole Trustee Loka Shikshana Trust (supra) by holding that: `The word “education” has not been used in that wide and extended sense, according to which every acquisition of further knowledge constitutes education. According to this wide and extended sense, travelling is education, because as a result of travelling you acquire fresh knowledge. Likewise, if you read newspapers and magazines, see pictures, visit art galleries, museums and zoos, you thereby add to your knowledge. …. But that is not the sense in which the word “education” is used in cl. (15) of s. 2. What education connotes in that clause is the process of training and developing the knowledge, skill, mind and character of students by normal schooling.’ It clearly emerges from the factual narration made above that the assessee is not into developing any knowledge of students by normal schooling. In view of the above interpretation of the term, it is ostensible that the activity carried on by the assessee does not fall in the realm of “education” as used in section 2(5) of the Act.

7. The ld. AR submitted that the assessee’s case also falls within the last clause of “charitable purpose” as used in section 2(15), namely, “the advancement of any other object of general public activity”. He submitted that albeit the authorities below covered the assessee’s case within the ambit of this expression, but still failed to grant benefit of the exemption. He focussed on the nature of activity carried on by the assessee with a view to persuade the bench that it was for the “the advancement of any other object of general public activity”, eligible for the exemption.

8. Section 11 of the Act grants exemption in respect of income from property held for charitable or religious purposes. Section 2(15) defines “charitable purpose”. This section, inter alia, talks of “the advancement of any other object of general public activity”. A proviso has been attached to this provision, which restricts the scope of the expression as covered within the ambit of section 2(15) of the Act. The impact of the proviso is that the advancement of any other object of general public activity shall not be considered as a “charitable purpose”, if it involves carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to the trade, commerce or business for a cess or fee or any other consideration. This proviso has an exception which says that such an activity will continue to be charitable if the requisite conditions are satisfied. The first condition is that such an activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and the, second, is that the aggregate receipts from such activity do not exceed 20% of the total receipts. Both the conditions have to be cumulatively satisfied. We are not delving into the scope of the first condition for the time being with a view to ascertain if the activity done by the assessee is for the advancement of any other object of general public activity? Howbeit, it is pertinent to note that the last limb of section 2(15), as is the case under consideration, recently came up for consideration before the Constitution Bench of the Hon’ble Supreme Court in ACIT(E) Vs. Ahmedabad Urban Development Authority (2022) 115 CCH 0253 ISCC. The Hon’ble Apex court interpreted the last branch of section 2(15) under various categories of assessees, including the authorities established by statute, non-statutory bodies and private trusts. Crux of the interpretation of the relevant part of section 2(15) by the Hon’ble Apex Court is to, first, examine if the receipts of the assessee from pursuing such object of general public utility are on cost-to-cost basis or having a minimal profit on one hand or having significant mark-up on costs on the other. Whereas the latter is a business activity but the former is nonbusiness. The object of general public utility will be considered as pursued by the concerned authority/trust for charitable purpose u/s 2(15) of the Act, if the receipts from the above referred business activity are not more than 20% of the total receipts from business and non–business activities. Per contra, if receipts from the business activity are more than 20% of the total receipts, the character of “charitable purpose”, as given in section 2(15), will be lost. The ld. AR relied on certain decisions to buttress the claim for exemption. In our view, such judgments interpreting the relevant part of section 2(15) need to be aligned with the interpretation as given by the Hon’ble Summit Court. Since such judgments are anterior in time and running contrary to the view point of the highest court of the land in the above referred case, we desist from separately discussing each one of them just by holding that they do not survive in the current panorama.

9. Adverting to the facts of the extant case, it is seen that the assessee performed the drama for various institutes/companies earning revenue of Rs.1.96 crore. The costs incurred for performing such activity are only Rs.1.16 crore. This transpires that the profit element in the performance of the drama is more than 40% of the gross receipts. Such profit rate patently falls in the category of `significant mark-up cases’ and hence business activity. No further break-up of the revenue into cost-to-cost basis or nominal mark-up por una parte and significant mark-up por otra parte, has been brought to our notice. This deciphers that the activity of the drama was done in a uniform way on significant margin of 40%. Considering the fact that the assessee earned huge margin on performance of the activity, which is in the nature of business, it ceases to fall within the domain of “charitable purpose”, as the business receipts exceed 20% of the total receipts. We thus hold that the assessee does not satisfy the condition of “advancement of any other object of general public utility” so as to be covered u/s.2(15) and, ex consequenti, becoming eligible for the benefit of exemption u/s.11 of the Act.”

7. In the light of the above, we note that section 11 of the Act grants exemption in respect of income from property held for charitable or religious purposes. Sub-section (15) of section 2 defines charitable purpose, inter alia, explains advancement of any other object of general public activity. Further, a proviso has been attached to this provision, which restricts the scope of the expression as covered within the ambit of section 2(15) of the Act. The impact of the proviso is that the advancement of any other object of general public activity shall not be considered as a “charitable purpose”, if it involves carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to the trade, commerce or business for a cess or fee or any other consideration. Further, this proviso provides an exception which explains that such an activity will continue to be charitable if the requisite conditions are satisfied. The first condition is that such an activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; the second, is that the aggregate receipts from such activity do not exceed 20% of the total receipts. Admittedly, as discussed above, the aggregate receipts in the present case from such activity are more than 20% of the total receipts. Therefore, we hold that the assessee does not satisfy condition of advancement of any other object of general public utility so as to be covered u/s. 2(15) of the Act. Thus, we find no infirmity in the order of CIT(A) and it is justified. Thus, the grounds raised by the assessee are dismissed.

8. In the result, the appeal of assessee is dismissed.

Order pronounced in the open court on 14th February, 2023.

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