Case Law Details
The CIT(E) has concluded that the assessee trust is not genuine and does not exist for charitable purpose for the sole reason that it charges fees from the students undergoing course in garment making and designing. In our view this can neither be the basis to conclude that the activities of the assessee are not genuine or the first proviso to section 2(15) of the Act would be applicable. The decision rendered by the Honorable Delhi High Court in the case of India Trade Promotion Organization Vs DGIT (Exemption) (supra) clearly supports the plea of the assessee in this regard. There is no material brought on record to show that the primary desire or motive is to earn profit. On the other hand, the objects of the assessee are admittedly advancement of any other object of general public utility. The decision rendered by the Honorable Delhi High Court in the case of CIT Vs Shri Ram Education Foundation (supra) also supports the plea of the assessee that training women in the art of stitching and embroidery by running a vocational training center would constitute the object of general public utility. As already observed there is nothing brought on record to show that the activities of the assessee are driven by profit motive. In these circumstances we are of the view that the conditions for grant of registration u/s 12AA of the Act are duly satisfied as the activities of the assessee are genuine and its objects are also charitable. We therefore direct the registration u/s 12AA of the Act be granted. Since the registration u/s 12AA of the Act is being granted to the assessee, the assessee would also be entitled to grant of approval u/s 80G(5)(vi) of the Act. The same is also directed to be granted.
Full Text of the ITAT Order is as follows:-
These are appeals by the Assessee against two orders dated 18.11.2015 of C.I.T.(Exemptions), Kolkata rejecting the application of the assessee for grant of registration u/s 12AA of the Income Tax Act, 1961 (Act) and rejecting the application for grant of approval u/s 80G (5)(vi) of the Act.
2. The Assessee is a Trust which came into existence pursuant to a deed of trust dated 27.02.20 15 executed at Siliguri by one Shri Balwant Rai Jain. The main objects of the trust as contained in clause-4(a) of the trust deed reads as follows :
“To open, found, establish, promote, set up, take over, run, maintain, assist, finance, support and/or aid or help in the setting up and/or running schools, colleges, universities, lecture halls, reading rooms, libraries, hostels, boarding houses, training and vocational institutions and other establishments or institutions for advancement of education, knowledge and learning and for training in arts, crafts, commerce, science, literature, humanities and other useful subject in all their manifestations.”
3. The Assessee applied for grant of registration u/s 12A of the Act as well as approval u/s 80G(5)(vi) of the Act vide applications dated 09.06.20 15 filed in the office of Commissioner of Income Tax (Exemption) i.e. CIT(E) on 16.07.20 15. Under section 12A of the Act, on receipt of an application for grant of registration u/s 12A of the Act, the Commissioner has to satisfy himself about the genuineness of the activities of the trust and about the objects of the trust i.e. it is for charitable purpose. Once he is satisfied about the two aspects he has to grant registration to the trust. In the present case the CIT(E) found that the assessee trust during the previous year had conducted vocational training in garment making and designing and had received fees from the students undergoing course in garment making and designing. The CIT(E) was of the view that as per the 1st proviso to section 2 (15) of the Act such activity cannot be regarded as charitable purpose.
4. Sec.2 (15) of the Act, which defines the expression “Charitable purpose” for the purpose of the Act, had undergone an amendment by the Finance Act, 2008 with effect from 01-04-2009. The expression charitable purpose, prior to the aforesaid amendment read as follows;
“(15) “Charitable purpose” includes relief to the poor, education, medical relief and the advancement of any other object of general public utility”
The definition after the amendment reads as follows;
“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”.
It can be seen from the proviso to Sec.2(15) which came into effect from 01-04-2009 that 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.
5. The CIT(E) in rejecting the application of the assessee for grant of registration u/s 12A of the Act based his conclusion on the proviso to section 2(15) of the Act referred to above and concluded that the activities of the assessee trust were not genuine and not in accordance with the proviso to section 2(15) of the Act and therefore the application for grant of registration is being rejected. Consequent to the rejection of the application for grant of registration u/s 12AA of the Act the application for grant of approval u/s 80G(5(vi) of the Act was also rejected by CIT(E). Both the orders were passed on 18.11.2015.
6. Aggrieved by the aforesaid orders the assessee has preferred the present appeals before the Tribunal.
7. We have heard the submissions of the ld. Counsel for the assessee. The ld. Counsel submitted that the trust came into existence only on 27.02.2015. It had conducted certain vocational training courses in garment making and designing. The CIT(E) has accepted the fact that the activity of imparting educational training in garment making and designing would be for charitable purpose falling within the clause “Advancement of any other object of general public utility”. This is so because the CIT(A) has made a reference to the first proviso to section 2(15) of the Act which is applicable only when the objects of the trust/institution constitutes advancement of any other object to general public utility. The ld. Counsel made a reference to the decision of the Honorable Delhi High Court in the case of India Trade Promotion Organization Vs DGIT (Exemption) and Others 371 ITR 333 (Delhi) wherein the Honorable Delhi High Court on similar facts came to the conclusion that merely because fee or some other consideration is collected or received by an institution, it would not loose its character of having been established for charitable purpose. The Honorable Delhi High Court also held that if the dominant activity of the institution was not business, trade or commerce then any such incidental or ancillary activity would also not fall under the category of trade, commerce or business. In other words the driving force of the institution should not be the desire to earn profits but to do charity. In such circumstances the first proviso to section 2(15) of the Act would not apply. The ld. Counsel submitted that the aforesaid decision would squarely apply to the facts of the present case as the assessee in the present case had not derived any surplus during the previous year relevant to A.Y. 2016- 17. A copy of the audited income and expenditure account as on 31.03.2016 was filed before us which shows that the assessee’s expenditure was more than the income it received in the form of fees from students amounting to Rs. 28,435/-. According to him therefore the inference drawn by CIT(E) that the assessee trust was not genuine and that its objects were not charitable under the 1st proviso to section 2(15) cannot be sustained.
8. The ld. Counsel drew our attention to the decision of Honorable Delhi High Court in the case of CIT Vs Shri Ram Education Foundation [2001] 116 Taxman 832 (Delhi) wherein income earned from running a vocational training center training women in art of stitching and embroidery was considered as an object of general public utility not involving carrying on any activity for the profit. Reference was also made to the decision of the Honorable Bombay High Court in the case of Breach Candy Hospital Trust Vs CCIT [2010] 192 Taxman 98 (Bombay) wherein it was held that having excess of income over expenditure by itself cannot lead to an inference that there was profit motive so long as the excess is used for charitable purpose. Reliance was also placed on the decision of ITAT, Kolkata in the case of ITO(E)(1) Vs Indian Leather Products Association, Kolkata in ITA No. 735/Kol/2013 order dated 02.12.2015 laying down identical proposition. The Ld. DR, on the other hand, submitted that certain facts with regard to excess of expenditure over income relating to the period after the date of the impugned order have been brought to the notice of this Tribunal by the assessee. It was his prayer that the question as to whether the objects of the assessee are charitable or not has not been fully addressed by CIT(E) in the impugned order and the matter should be remanded for fresh consideration to CIT(E).
9. We have given a very careful consideration to the rival submissions. As rightly contended by the ld. Counsel for the assessee the CIT(E) has accepted that the objects of the assessee would fall within the category of “advancement of any other object of general public utility”. In our view clause- 4(a) of the objects of the trust would show that the assessee can be regarded even as carrying on the charitable purpose of “Education”. We however make it clear that we are not going into this question and proceed on the basis that the objects of the assessee fall within the charitable purpose “advancement of any other object of general public utility”.
10. The CIT(E) has concluded that the assessee trust is not genuine and does not exist for charitable purpose for the sole reason that it charges fees from the students undergoing course in garment making and designing. In our view this can neither be the basis to conclude that the activities of the assessee are not genuine or the first proviso to section 2(15) of the Act would be applicable. The decision rendered by the Honorable Delhi High Court in the case of India Trade Promotion Organization Vs DGIT (Exemption) (supra) clearly supports the plea of the assessee in this regard. There is no material brought on record to show that the primary desire or motive is to earn profit. On the other hand, the objects of the assessee are admittedly advancement of any other object of general public utility. The decision rendered by the Honorable Delhi High Court in the case of CIT Vs Shri Ram Education Foundation (supra) also supports the plea of the assessee that training women in the art of stitching and embroidery by running a vocational training center would constitute the object of general public utility. As already observed there is nothing brought on record to show that the activities of the assessee are driven by profit motive. In these circumstances we are of the view that the conditions for grant of registration u/s 12AA of the Act are duly satisfied as the activities of the assessee are genuine and its objects are also charitable. We therefore direct the registration u/s 12AA of the Act be granted. Since the registration u/s 12AA of the Act is being granted to the assessee, the assessee would also be entitled to grant of approval u/s 80G(5)(vi) of the Act. The same is also directed to be granted.
11. In the result both the appeals are allowed.
Order pronounced in the Court on 12.05.2017.
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