Section 11/12 Exemption Remanded; Charitable Purpose of First Aid Training to be Assessed

By | March 16, 2025
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Section 11/12 Exemption Remanded; Charitable Purpose of First Aid Training to be Assessed

Issue: Whether an assessee society involved in imparting first aid training and earning fees for training, certification, and protection awards is entitled to claim exemption under Sections 11 and 12 of the Income-tax Act, 1961, and whether the Assessing Officer (AO) failed to properly assess the charitable nature of the society’s activities.

Facts:

  • The assessee society was involved in imparting first aid training to students, schools, companies, and institutions, earning training fees and membership fees.
  • The assessee also earned income from certification and protection awards.
  • The AO held that the assessee was running full-fledged business activities of a commercial nature and that its activities fell under “advancement of any other object of public utility.”
  • Consequently, the AO denied the assessee’s claim for exemption under Sections 11 and 12.
  • Neither the AO nor the Commissioner (Appeals) considered whether the society’s activities were charitable or not.

Decision:

  • The court held that the order of the AO was to be set aside.
  • The court restored the matter back to the AO for a finding as to whether the activity of imparting first aid training and collecting fees for certification and protection awards fell within the objects of the assessee society and, in turn, constituted a charitable activity or general public utility.

Key Takeaways:

  • Charitable Purpose Assessment: The AO must properly assess whether the activities of an assessee society constitute a charitable purpose under Section 2(15) of the Income-tax Act, 1961.
  • General Public Utility: The AO must determine whether the activities fall under “general public utility” and whether they are genuinely charitable or commercial.
  • Sections 11 and 12 Exemption: The eligibility for exemption under Sections 11 and 12 depends on the charitable nature of the activities.
  • Remand for Reassessment: If the AO fails to properly assess the charitable nature of the activities, the matter should be remanded for reassessment.
  • First Aid Training: The court directed the AO to specifically consider whether imparting first aid training is a charitable activity.
  • Section 2(15): Defines “charitable purpose.”
  • The court is reinforcing the need for the tax authority to properly investigate the charitable nature of activities before denying exemptions.

IN THE ITAT DELHI BENCH ‘C’
Income-tax Officer (Exemption)
v.
St. John Ambulance Association
Naveen Chandra, Accountant member
and Mahavir Singh, Vice president
IT Appeal No.2359 (Del) of 2018
[Assessment Year 2014-15]
JANUARY  31, 2025

Arun Kishore and Alok Suri, CAs for the Appellant. Om Prakash, Sr. DR for the Respondent.
ORDER

1. This appeal by Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-40, Delhi in appeal No.298/2016-17 vide dated 04/01/2018. Assessment was framed by Income Tax Officer (Exemption), Ward-22, New Delhi for the Asst. Year 2014-15 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide order dated 26/12/2016.
2. The only issue in this appeal of Revenue is as regards to the order of CIT(A) allowing exemption u/s 11 of the Act by holding that the assessee is not covered within the meaning of proviso to section 2(15) of the Act as assessee carrying on objects of the, General Public Utility’ (GPU). For this, the Revenue has raised following two grounds:-
“1. Whether on the facts and in the circumstances of the case, Ld. CIT(A) was correct in holding that the activities of the assessee of publication of books & training instructions, voluntary training of first aid, hygiene, sanitation, disaster management etc. is in nature of education within the meaning of section 2(15) of the IT Act.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is correct in not appreciating the fact that the activities of the assessee is commercial in nature and squarely fall under the ‘General Public Utility and hits the proviso to Section 2(15) of the Income Tax Act.
3. The brief facts of the case are that the Assessing Officer noted that as per the Income and Expenditure Account for the period under consideration, the assessee had generated surplus of Rs.1,23,90,309/-against the total receipts of Rs.2,36,30,463/-. Vide note sheet entry dated 30/11/2016, the assessee was required to justify its activities that it does fall within the meaning of proviso to section 2(15) of the Act as GPU. In response, it was submitted that the activities of the assessee fell under the limb ‘Education’ within the meaning of section 2(15). Copies of syllabi for lay Lecturer’s Training Courses, First-aid syllabus, syllabus for home nursing were also enclosed. It was also submitted that as an incidental activity of the prime activity of providing education by dissemination of information by way of theory and practical, the assessee had income on account of bank interest, donation and miscellaneous income which was used for the aims and objects of the society. It was submitted that collection of training fee represents imparting of education, giving technical training, providing of books and literatures and the educational services were provided by medical qualified trained staff and certificates are issued.
4. It was the claim of assessee that it does not fall under the limb of advancement of any other object of general public utility was also noted from the Income and Expenditure Account that for the relevant assessment year the assessee had generated huge profit/surplus from the activities of providing first aid training. Reliance on the amended provisions of section 2(15), it was held that trusts having objects of advancement of any other object of general public utility cannot do business even if they comply with the provisions of section 11(4A) beyond gross receipt of Rs. 25 lakhs. It was also held that the receipts arising out of activity in the nature of rendering any service in relation to any trade, commerce or business for a cess or fee and receipts are more than 25 lakhs. It was also held that the assessee is claiming expenditure in the Income and Expenditure Account whose nature itself proves that the assessee is running full fledged business activities which is commercial in nature and the activity carried on by the assessee falls under ‘Advancement of any other object of public utility. In view of this it was held that both the proviso to section 2(15) are applicable in this case and that the assessee is not entitled to claim the benefits of exemption under sections 11 and 12 of the Act as the activities carried on during the year are not charitable. The income of the assessee was assessed as normal AOP. Further, whole of the surplus generated from business activities of the assessee was held to be liable to tax as normal business income. Depreciation on fixed assets purchased in the earlier years was not allowed as the same had already been treated as application in the earlier years. Income was assessed at Rs.1,83,66,000/-. Aggrieved, assessee preferred appeal before CIT(A).
5. The CIT(A) after considering the submissions and documents of the assessee hold that the assessee is eligible for exemption u/s 11 of the Act. For this, CIT(A) relied on his predecessor orders for Asst. Year 2012-13 (which is noted in the CIT(A)’s order) and he observed in para 4.2.2 to 4.2.6 as under: –
“4.2.2 I have considered the assessment order and also the submissions of the appellant. I have also referred to the orders of CIT(A)-40 for assessment year 2011-12 in appellant’s own case in appeal no.35/2014-15 and orders of the CIT(A)-36 for assessment year 2012-13 in appeal no.59/2015-16. The Il. CIT(A)-36 in her order for assessment year 2012-13 has held as under:
“6.1 The same issue of the assessee being covered by the amended proviso to section 2(15) of the 1.T. Act was raised in the A.Y. 201112 also. For A.Y. 2011-12, the Ld. CIT(A) has held that “the society is carrying on charitable activities and is also engaged in providing educational services which are covered under the definition of Charitable Purposes u/s. 2(15) of the L.T. Act, as such the addition of Rs.1,23,89,241/- is deleted.” A number of case laws have been relied upon by the Ld. CIT(A) including that the Science Olympiad Foundation [2014]  273/33 ITR(T) 451 (Delhi – Trib.), DivyaYogMandir Trust 153 ITD 367 (Delhi), Women’s India Trust ITR 506 (Bombay), /154 ITD 220 (Delhi – Trib.) etc., wherein it has been variously held that meaning of the term educational activities cannot be a restricted meaning, nursing training where sales or generation of funds for furthering objects do not indicate trade, commerce or business and the trust was entitled to exemption u/s. 2(15) (Women’s India Trust), where the society was organizing study courses merely because incidental income was also earned for achieving the dominant object, it could not be said that the assessee was doing trade commerce or business (IIC). The facts of the case are same as that for A.Y. 2011-12. It is seen front the assessee’s submissions that it is carrying out training and education related to paramedic and nursing and also charging fees for such education and training which is not exorbitant. Thus, it is apparent that the assessee is carrying out the educational activities and therefore will not be covered under the proviso to section 2(15) of the I.T. Act. The charging of fees in such a case cannot be considered as indulging in trade, commerce and business. The exemption u/s. 11/12 of the I.T. Ac may therefore be allowed as in A.Y. 2011-12. Since the exemption is allowed, the issue of taxing of surplus or total receipt becomes infructuous.

4.2.3 Since the facts of the case are similar to those for assessment years 2011-12 and 2012- 13, respectfully following the orders of my ld. predecessor, it is held that the assessee is carrying out training and education relating to paramedic and nursing and also charging fees for such education and training and it is apparent that the assessee is carrying out educational activities and will, therefore, be not covered by the proviso to section 2(15). Hence, the Assessing Officer is directed to allow exemption under sections 11 and 12 with all consequential benefits as was done for assessment years 2011-12 and 2012-13.
4.2.4 Since exemption under section 11 has been allowed, the issue of taxing of surplus and allowing 15% deduction becomes infructuous.
4.2.5 As regards the issue of depreciation, the Hon’ble Delhi High Court, in the case of DIT(Exemption) v. Indraprastha Cancer Society in ITA No. 240, 348, 406, 463 & 464/2014 vide the order dated 18.11.2014, have held that the assessee is eligible for depreciation in the case of charitable or religious institution also. Further, recently in the case of Commissioner of Income-tax-III, Pune v. Rajasthan and Gujarati Charitable Foundation, Poona in Civil Appeal No. 7186/2014 vide order dated 13/12/2017, the Hon’ble Supreme Court have held that depreciation is allowable in case of charitable institutions. In view of this, the claim of depreciation of the appellant is allowed.
4.2.6 As regards disallowance on account of donation given to Indian Red Cross Society, from the assessment order it is seen that the Assessing Officer has not given any reason for disallowing the same. This has presumably been disallowed since exemption had been denied under section 11. Since exemption has been granted under section 11, the Assessing Officer is directed to verify the receipt and the registration under section 12A of Indian Red Cross Society and allow the same.”
6. We have heard the rival contentions and perused the material available on record. Admittedly, the assessee is a registered society U/s 12A of the Act and earning income from bank interest, training fees, membership fee and miscellaneous income. Admittedly, the assessee society was involved in imparting first aid training to students, schools, companies and institutions etc., and earning training fees and also membership fee. In term of that, the assessee has earned the following income during the relevant financial year 2013-14 relevant to assessment year 2014-15:

Receipts
Amount (Rs.)
Bank Interest
41,86,913/-
Fee for Certification & Protection Awards
1,92,21,186/-
Donation Received
2,22,634/-
Admittedly, assessee’s majority income i.e., the fee for certification and protection awards, is amounting to Rs. 1,92,21,186/-. This is out of total receipt of Rs. 2,36,30,733/-. We noted that this issue is adjudicated by the Hon’ble Supreme Court in the case of ACIT (Exemptions) v. Ahmedabad Urban Development Authority, (2022) 449ITR1(SC), wherein the Hon’ble Supreme Court has laid down certain principles, and particularly about the GPU. The Hon’ble Supreme Court has considered this issue at paragraphs 166 to 173, as under:
“166. What then is the interpretation of the expression “incidental” profits, from “business” being “incidental to the attainment of the objectives of the GPU charity (which occurs in Section 11(4A))? As stated earlier, the interpretation of that expression in Thanthi Trust (supra) was in the context of a per se charity, l.e., where the trust’s object was education. However, the restrictive or negative terms enjoining GPU charities from carrying on profitable activity had been deleted in 1983 (w.e.f. 01.04.1984). In Surat Art Silk (supra), the court had articulated the determinative test for defining whether a Trust was a GPU charity if its predominant object was to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se deprive it of tax exemption. This decision was interpreted in the context of Section 11(4A) by this court in Thanthi Trust, to hold that business can be incidental to attainment of the trust’s objects.
167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity’s object. Thus, the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under Section 2(15) through its proviso directs and thereby marks a departure from the previous law, is – firstly that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly and the equally important consideration is the imposition of a quantitative standard – i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit of Rs.10,00,000 (w.e.f. 01.04.2009), Rs.25,00,000 (w.e.f. 01.04.2012), and 20% (w.e.f. 01.04.2016) of the total receipts. Lastly, the “ploughing” back of business income to “feed” charity is an irrelevant factor again emphasizing the prohibition from engaging in trade, commerce or business.
168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to “income being profits and gains of business” with a further reference to its being incidental to the objects of the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or income derived from incidental activities. The proper way of reading reference to the term “incidental” in Section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to Section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (i) to proviso to Section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of Section 11(4A). Further, the obligation under Section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to Section 2(15) can be computed and ascertained in an objective manner.
169. The conclusion recorded above is also supported by the language of seventh proviso 142 to Section 10(23C). Whereas Section 2(15) is the definition clause, Section 10 lists out what is not income. Section 10(23C) – by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of Section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso – much like Section 11(4A) and the definition – carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes Section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded.
170. Classically, the idea of charity was tied up with eleemosynary 143. However, “charitable purpose” – and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render Services to the public with the condition that they would not charge “more than is actually needed for the rendering of the services, – may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, – may be a little surplus is left over at the end of the year -the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit”.
171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what Section 2(15) emphasizes is that so long as a GPU’s charity’s object involves activities which also generates profits (incidental), or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to.
172. Yet another manner of looking at the definition together with Sections 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted – if the quantum of such profits do not exceed 20% of its overall receipts.
173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi’s philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15).”
In similar circumstances as in the present case, the Hon’ble Supreme Court, further, from paragraphs 247 to 252, has considered issue, as under:
“247. The revenue appeals a decision of the Allahabad High Court affirming the order of the ITAT which had directed the CIT to grant registration under Section 12AA of the Income Tax Act.
248. The assessee is a registered society which was formed with the object of establishing and running a health club, Arogya Kendra; its object included organization of emergency relief centre, etc. Other objects, included promotion of moral values, eradication of child labour, dowry, etc. The assessee had entered into arrangements with the state agencies to supply mid-day meals to students of primary schools in different villages through contracts entered into with the Basic Shiksha Adhikari, District Meerut. It is a matter of record that the materials for preparation of mid-day meal was supplied by the government. The assessee society claimed that it only obtains nominal charges for preparation of mid-day meals. The assessee’s claim for registration was rejected on the ground that it was involved in commercial activity. Upon appeal, the ITAT agreed with the assessee that supply of mid-day meals did not constitute business or commerce and that it promoted the objects of general public utility.
249. The revenue in its appeal contends that the assessee’s only activity for the relevant year was supply of mid-day meals to primary schools. This was not relatable to any object of the society. The assessee’s contention is that the state ordinarily would have carried on the activity of supply of mid-day meals. Yet, nevertheless it outsourced its activity to an outside agency like the assessee which performed it for nominal charges.
250. This court is of the opinion that there is no clarity with respect to whether the activity of supplying mid-day meals falls within the objects clause of the assessee society. The order of the ITAT as well as the High Court disclosed that the assessee’s objects involved maintenance of health clubs, Arogya Kendra, promotion of moral values and provision of emergency relief. These do not however include the activity which it actually performed, i.e.. entering into contracts for supply of mid-day meals and the activity of cooking and supply of mid-day meals. In the absence of fuller material, it would not be possible for the court to assess the activity with which the assessee was engaged, and determine whether it could be said to legitimately fall within the description of GPU.
251. The first consideration would be whether the activity concerned was or is in any manner covered by the objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards supplying the services, the activity may fall within the description of one advancing the general public utility. If on the other hand, there is a significant mark-up over the actual cost of service, the next step would be ascertain whether the quantitative limit in the proviso to Section 2(15) is adhered to. It is only in the event of the trust actually carrying on an activity in the course of achieving one of its objects, and earning income which should not exceed the quantitative limit prescribed at the relevant time, that it can be said to be driven by charitable purpose.
252. This court, in the normal circumstances, having regard to the above discussion, would have remitted the matter for consideration. However, it is apparent from the records that the tax effect is less than Rs.10 lakhs. It is apparent that the receipt from the activities in the present case did not exceed the quantitative limit of Rs. 10 lakhs prescribed at the relevant time. In the circumstances, the impugned order of the High Court does not call for interference.”
Finally, while summarizing the conclusions, the Hon’ble Supreme Court, in paragraphs 253(A3) and (A4), held as under: “A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on costbasis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.
A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has now been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Sectio 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm th interpretation and bring uniformity across the statutory provisions.”
7. We noted that neither the AO nor the CIT(A), in the present case, has not considered the activities of the assessee as elaborated by the Hon’ble Supreme Court, whether aim of the trust or GPU is charitable or not? To consider the principle lay down by Hon’ble Supreme Court in the above case, we set aside the order of CIT(A) and that of the AO, and, remand the matter back to the file of the AO with the following direction:
i.

Whether, in the assessee’s case in achieving the GPU object, if the charity involves itself in activities that entail charging amounts only at cost or marginal mark up over cost or derive some profit, the prohibition against carrying on business or service is not attracted, if the quantum of such profits did not exceed 20% of its overall receipts. This needs reconsideration.
ii.

The AO will give finding whether the activity of imparting first aid training and collecting fees for certification and protection awards falls within the objects of the clauses of the assessee’s society and, in turn, it is charitable activity or general public utility (GPU) ?
8. In terms of the above, the matter is restored back to the file of the AO, and the appeal of the revenue is allowed for statistical purposes.
9. In the result, the appeal filed by revenue is allowed for statistical purposes.