Security services by Trust in confirmation to its objects for general public utility will be considered as “charitable” in Nature

Brief of the Case

In the case of Gujarat Industrial Security Force Society v Dy. DIT (Exemption)  it was held that the activity related to providing security services whose objective was to provide employment to youth and retired army personnel will not be treated as “business activity” but an activity which is “charitable” in nature.It further held that that the registration u/s 12AA is not an empty formality.

Facts of the Case

• The assessee is a registered society providing security services which gave employment to young and unemployed persons as well as provide jobs to ex-army and police officials. It applied for section 12AA registration which was granted by DIT(E) as it was found that the activity of Assessee were charitable in nature. The assessee claimed exemptions u/s 11(1)(a) and 11(2). The AO denied any kind of exemptions as he found that the activity of assessee is a “business” whereas the Assessee contended that their activities are “charitable” in nature as they are created by State Government to generate employment and give security services to Government and semi-government organizations. Also, there was no profit making element involved in this.
• The registration u/s 12AA was also cancelled due to the issue of “business activity”.

Order of Lower Authorities

The ld.DIT(E) upheld the orders of AO and denied the exemptions to assessee by observing that Asssessee were carrying out Business Activities.

Judgment of the Hon’ble Tribunal

The Hon’ble Tribunal while considering the arguments of both the sides observed that the assessee enjoys section 12AA registration since 01-04-2005. The ld. DIT(E) cancelled its registration by taking into account its accumulated profit from 2006-07 to 2008-09 by holding that its activities of providing security services were on a business scale. But the said order was set aside by the Hon’ble Tribunal itself. The Hon’ble Tribunal relied on the Judgment of Hon’ble apex court in DCIT vs. Surat City Gymkhana (2008) 300 ITR 214 (SC) where it was held that when a trust is registered, an assessing authority cannot question its objects as to whether the same comprise of charity element or not in subsequent proceedings. Further, the reliance was made on Hiralal Bhagwati vs. CIT (Guj) (2000) 246 ITR 188, where it was held that section 12AA registration is not an empty formality. After making the reliance on these two Judgments the Hon’ble tribunal held that lower authority made a mistake while affirming AO’s order.

Then, on the second issue whether assessee’s activities in providing security services involve any business element or not so as to deny it exemption u/s 11. The Hon’ble Tribunal observed that the fee was so modest that the activity could not be termed as for “profit motive” by relying on the Judgment of the Hon’ble Jurisdictional High court in the judgment DIT(E) vs. Sabarmati Ashram Gaushala Trust in Tax Appeal No. 1162 of 2013, where the facts were that the Assessee was the trust whose main objectives of the trust was to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding.

Therefore, in that case after considering the nature of activity it was held that the generation of surplus at the end of year will not be the only criteria to determine the activity as “trade, business or commerce” as the facts of the case are totally covered u/s 2(15) which covers the activities related to “charitable nature” as these were related to “general public utility”.

By considering the above grounds the Hon’ble Tribunal allowed the exemptions u/s 11(1)(a) and 11(2) and decided in the favour of Assessee.