No charity in providing assistance to entrepreneurs for fees in setting up industries

ITAT CHENNAI BENCH ‘A’

Tamil Nadu Industrial Guidance & Export Promotion Bureau

versus

Assistant Director of Income-tax, (Exemptions)-IV, Chennai

IT Appeal No. 201 (Mds.) of 2013
[ASSESSMENT YEAR 2009-10]

Date of Pronouncement – 21.03.2013

ORDER

Vikas Awasthy, Judicial Member – The assessee has filed appeal against the order of the CIT(A) -XII, Chennai dated 30.10.2012 relevant to the assessment year 2009-10.

2. The brief facts of the case are that the assessee is a society registered under the Tamil Nadu Societies Registration Act. The assessee society is formed by Government of Tamil Nadu with the objects of advising, scouting and impressing on corporates especially foreign corporates to set up industrial units in the State of Tamil Nadu. The assessee is also registered under section 12A of the Income Tax Act, 1961 as a charitable organization.

3. For the assessment year 2009-10, the assessee filed its return of income on 18.10.2010 admitting Nil income. The case of the assessee was selected for scrutiny and notice under section 143(2) was issued to the assessee on 15.9.2011. The case of the assessee is, that the assessee is a Government body and charitable institution, it has been set up with an object of providing information and assistance to entrepreneurs for establishing industrial units in the State of Tamil Nadu. The assessee admitted receipts of Rs. 2.00 crores on account of single window assistance for setting up of industries in the State. The assessee is providing services to entrepreneurs in lieu of fees depending upon the size of investment in the projects. The assessee has been accepting fees as per the order of the Government of Tamilnadu in G.O. Ms.No.588 dated 10.09.1998 on the basis of various slabs which are specified herein below:-

The Assessing Officer vide assessment order dated 29.12.2011 held that in view of the amended provision of section 2(15) of the Income Tax Act, the activities carried on by the assessee are in the nature of trade, commerce or business and are not for charitable purposes. The Assessing Officer held that the assessee lost its character of charitable organization and thus not eligible for exemption under section 11 of the I.T. Act. The Assessing Officer treated the assessee as an AOP.

4. Aggrieved against the assessment order, the assessee preferred an appeal before the CIT(A). The CIT(A) vide impugned order upheld the findings of the Assessing Officer and dismissed the appeal of the assessee with the following observations:-

“The above collection of fees was for processing the application, for guidance, providing information etc. in establishing the projects, to assist them in availing the financial facilities, to obtain customs clearance and other facilities etc. Thus the assessee is rendering services to its clients (investors/entrepreneurs) who in turn engage in manufacturing and other business activities. Therefore, the fees collected by the assessee is directly amounts to the services rendered by it in relation to the trade, business and commerce. Therefore, the assessee is considered to be engaged in the activities which are in the nature of rendering services in relation to any trade, commerce or business for a cess or fee or any other consideration, the second limb of proviso to section 2(15) of the Act. Hence, the assessee is directly covered by the proviso to section 2(15) and hence, not eligible to be classified as “general public utility” for the purpose of benefits u/s.2(15) of the Act.

In view of the above observations the assessee’s activities do not constitute “advancement of an object of general public utility” as it involves carrying of any activities which are in the nature of rendering services in relation to trade, business, commerce.”

Aggrieved against the order of the CIT(A), the assessee has come in second appeal before the Tribunal.

5. Shri B. Suresh appearing on behalf of the assessee submitted that the assessee is a society and is an extended arm of the State Government. It is providing single window facility for entrepreneurs to set up industry in the State of Tamilnadu. The objectives of the society are not in the nature of carrying on any trade or commerce or business or any services in relation thereto and hence, it is not earning any profit out of the activities being carried out. The AR further submitted that as per the aims and objects of the assessee, its activities result in economic development of the State which in turn benefits people by granting employment opportunity for the unemployed thereby it serves as a relief to the poor. The activities of the society results in additional collection of both direct and indirect taxes and the fees charged by the assessee society earns foreign exchange as majority of receipts are from foreign business houses. The AR further submitted that mere charging of fees for rendering of services will not change the character and the nature of services rendered by the society. In order to support his contentions, he relied on the judgement of the Hon’ble Delhi High Court in the case of Bureau of Indian Standards v. DGIT(Exemptions) [2012] 27 taxmann.com 127.

6. On the other hand, the DR appearing on behalf of the Revenue strongly supporting the order of the CIT(A) submitted that the case of the assessee is squarely covered by the amended provisions of section 2(15) of the Income Tax Act. Therefore, the assessee has lost the character of charitable activity. Thus the appeal of the assessee is liable to be dismissed. In order to support his contentions, the DR relied on the judgement of the Hon’ble Andhra Pradesh High Court in the case of Andhra Pradesh State Seed Certification Agency v. Chief CIT[2012] 28 taxmann.com 288.

7. We have heard the submissions made by both the parties and have perused the orders of the authorities below as well as the judgements referred to by both the sides. The A.R. has placed on record a copy of Memorandum of Association and bye-laws of the assessee society to show the aims and objects of the assessee society. At this juncture, it would be important to find out whether the assessee would be covered by the proviso to section 2(15) of the Act. The assessee is allegedly undertaking charitable activities which are of general public utility. Before deciding the issue it would be relevant to refer to provisions of section 2(15) of the Act, which is reproduced herein below:-

“2(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 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 ten lakh rupees] or less in the previous year;]”

8. The assessee in the instant case is providing single window facility for setting up of industry in the State of Tamil Nadu. It would not be out of place to mention here that the assessee is providing such facility only to those who approach the assessee for setting up of industry in the State. For rendering such service, the assessee is charging huge fee. The assessee is not providing single window clearance facility to public at large rather it is providing facility to the entrepreneurs especially foreign business house (as has been admitted by the assessee) by charging convenience fees known as “Single Window Fee”.

9. The assessee is said to be an extended arm of the State Government for setting up of industry. It is the duty of the State to provide certain basic amenities for setting up industry or trade or business. If the argument of the A.R. is to be accepted that activities of the assessee contribute in collection of direct and direct taxes for the nation and is providing employment opportunities to the people in the State thereby serving as relief for the poor, then it would not be wrong to say that all industrial houses set up in the State are doing charitable activities by providing employment and generating revenue for the nation in the form of excise, income-tax, customs duty etc. As has been rightly pointed out by the CIT(A) that the assessee is rendering services to its clients (investors/entrepreneurs) which in turn engage in manufacturing or other business activities against the fee termed as single window fee.

10. The fee collected by the assessee is in lieu of services rendered to the big business houses which by no stretch of imagination can be termed as charitable activity especially after the insertion of proviso to section 2(15) of the Act with effect from 1.4.2009. The A.R. has relied on the judgement of Hon’ble Delhi High Court in the case of Bureau of Indian Standards (supra). We find that the ratio laid down by the Hon’ble Delhi High Court in the aforesaid case is not applicable in the facts and circumstances of the present case. Bureau of Indian Standards is a sovereign entity created under the Statute i.e. Bureau of Indian Standards Act, 1986. It is a statutory body empowered to frame rules or regulations, exercise coercive powers, including inspection, raids etc. They possess search and seizure powers and are invariably subjected to Parliamentary or legislative oversight. The object for setting up such regulatory bodies is to ensure general public utility by prescribing of standards and enforcing such standards through accreditation and continuing supervision through inspection etc. Such activities cannot be considered as trade, business or commercial activity merely because the testing procedures or accreditation involves charging of such fees. The Hon’ble Delhi High Court has held that it cannot be said that public utility of evolving, prescribing and enforcing standards “involves” the carrying on of trade or commercial activity.

11. In the instant case, the assessee although an extended arm of State Government formed as a society to carry out charitable activities in the nature of ‘general public utility’ is in fact providing assistance to industrial houses and entrepreneurs for setting up of industry in the State of Tamil Nadu. The assessee facilitates in providing license, approval and permission from various Government agencies for setting up of industry in the State, for which it is charging fee. The fee charged by the assessee is not remitted to the Government treasury or exchequer. After insertion of proviso to section 2(15) of the Act, the assessee has lost its character of charitable organization. The assessee is a service provider.

Therefore, we do not find any infirmity in the order of the CIT(A). The order of the CIT(A) is upheld and the appeal of the assessee is dismissed as it is devoid of merit.

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