ORDER

B. Ramakotaiah, Accountant Member – These appeals are by Revenue and cross-objections are by assessee against the orders of Ld. Commissioner of Income Tax (Appeals)-II, Hyderabad dated 30-07-2014 for the AYs. 2009-10 & 2011-12, on the issue whether assessee is involved in charitable activity or not?

2. Briefly stated, assessee is a Government company owned by Government of Andhra Pradesh, engaged in the business of providing. It filed return of income on 30-09-2009 claiming exemption u/s. 11 of the Income Tax Act [Act] of entire income of Rs. 1,47,35,757/-. The return was processed u/s. 143(1). Subsequently, a notice u/s. 148 was issued on the ground that:—

i.		That the corporation is not eligible for exemption u/s. 11;
ii.		Provision of gratuity of Rs. 3,40,11,894/- was not allowable;
iii.		Provision for leave salary of Rs. 2,09,20,086/- was not allowable;
iv.		Loss on sale of fixed assets being capital in nature of Rs. 6,615/- is not allowable;

3. Coming to the facts and details of the case, the AO denied exemption u/s. 11 for the reasons mentioned below:—

(a)		That Section 2(15) of the IT Act, 1961 denotes that, ‘Charitable purposes 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:]
(b)		That the assessee is involved in trading activity by buying commodities and selling through public distribution system. Therefore, it does not fall within the ambit of section 2(15) of the Act.
(c)		Income derived from the assessee is no way different from any other assessee carrying on any business. The only difference is that the assessee makes purchases and sells them at the prices determined by the Government. But this difference does not make the assessee’s activity a charitable activity as it is doing business for earning profit.
(d)		Just because the company is a government company, it does not mean that its activity is a charitable activity.
(e)		The assessee company is involved in purchase and sale of essential commodities like rice, wheat, LPG Gas, Sugar, Oil, Kerosene etc. at fixed prices by the Government and in turn gets subsidy and commission from Government, therefore, the company is in trading business with a motive to earn profit. Therefore, does not fall u/s. 2(15) and therefore, the exemption u/s. 11 cannot be granted.

4. Assessee submitted before the Ld. CIT (A) as under:—

‘(a)		The assessee, A.P. State Civil Supplies Corporation, an undertaking of Government of Andhra Pradesh – established with an objective to ensure supply of food grains, edible oils, dall etc., to the masses/general public through the approved outlets by State Civil supplies department by grant of substantial subsidies given by the Govt. of A.P. and is a Corporation governed and controlled by the Govt. of A.P.
(b)		The main activities of the Corporation are, purchase/procurement, storage and distribution essential commodities to the poor and needy people of the society. The Corporation is dealing in levy items like rice, edible oils, sugar etc.
(c)		The Assessee Corporation has, been carrying out its object of distribution of essential commodities to the people of Andhra Pradesh particularly to the poorer section of the society at lower prices with the support of subsidy being provided by the Government of Andhra Pradesh. Without the subsidy the Corporation cannot survive.
(d)		It is carrying on its business with no PROFIT MOTIVE. Whereas in the case of a trader or an ordinary business man all these issues does not exist.
(e)		The purchase quantity and rates are fixed by the Govt. which is not a case of normal trade or business.
(f)		The distributions of all levy commodities are to be done according to the instructions of the Government which is again not in general trade or business.
(g)		Therefore, calling the activities of the assessee as normal business activities is totally incorrect and without any evidentiary value.
(h)		The objects of the assessee are Charitable in nature and as such it had been claiming its Income if any, (though actually belongs to Government) as exempt under sec. 11 of the Income tax Act.
(i)		Further during the year under consideration, the organization’s gross receipts are of Rs. 4249.11 cr and the net profit is Rs. 4.67 cr. The gross receipts includes sales of Rs. 2144.46 cr and the subsidy, of Rs. 2102.65 cr, without which there would have been heavy losses:—

	Subsidy on PDS	1959.04 cr
	Subsidy on Rice	3.74 cr
	Subsidy on others (NNM)	3.85 cr
	Subsidy on others (RGDALL, Poil)	136.02 cr
	Total Subsidy	2102.65 cr

(j)		Thus the activities of the assessee are unlike an ordinary business man or trader but are in the nature of relief to the poor and therefore “charitable” and eligible for exemption of income u/s 11 of the Act.
(k)		The appellant relied on the following decisions:

“[1981] 130 ITR 28 (SC)Surat Art Silk Cloth Mfrs. Association case wherein held:

The test is “What is the predominant object of the activity – whether it is to carry out a charitable purpose or to earn profit? If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arise from the activity”

This view was again upheld by the Gujarat High Court on appeal by the revenue in [2014] 362 ITR 539 (Guj.)Director of Income Tax (Exemption) v. Sabarmati Ashram Gaoushala Trust wherein held:

“In plain terms the first proviso to section 2(15) of the Income Tax Act, 1961, inserted with retrospective effect from April 1, 2009, by the Finance Act, 2010, provides for exclusion from the main object of the definition of the term “charitable purposes” and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of “charitable trust. The statutory provisions, as explained on the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term “charitable purpose” if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for a cess, .fee or any other consideration. It is not aimed at excluding activities genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as “charitable purpose”. Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating “surplus” is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. ”

Further, the above same view was upheld by the Hon’ble tribunal in the case of [2014] 160 TTJ (Hyd) 771 The Institute & Electronics Engineers Inc. v. Director of Income Tax (Exemption):

Charitable Trust – Registration U/s.12AA – Charitable purpose vis-a-vis profit motive – object of the assessee being in the nature of charitable activities, registration U/s.12AA cannot be denied on the ground that some profit has been earned by assessee, so long as provisions of 55. 11, 12 and 12AA are complied with and there is no violation of S. 13 – After the omission of the clause “not involving carrying any activities of profit” from s. 2 (15) by the Finance Act, 1983 w.e.f 1st April, 1983, the element of profit cannot be excluded from the definition” Charitable purpose”.’

Relying on the above case laws the appellant pleaded for exemption u/s. 11 of the I.T. Act, 1961.

5. After considering the detailed submissions of assessee, Ld. CIT (A) has held in favour of assessee stating as under:—

‘5. The appellant is engaged in the activity of procuring essential commodities like rice, wheat, oil, sugar, LPG Gas, Kerosene etc. etc., and sells them at subsidized rate through public distribution system and the beneficiaries are people falling below the poverty line, mostly, lower income groups. It is pertinent to mention that the provisions of section 2(15) were amended by Finance Act, 2008 w.e.f. 01.04.2009.

Before amendment the section read as under:

“Charitable purpose” includes relief to the poor, education, medical relief and advancement of any other object of general public utility.

After the amendment w.e.f. 01.04.2009 the section reads as under:

“Charitable purpose” includes relief of the poor, education, medical relief, 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:

5.1 It is pertinent to mention that the CBDT vide Circular No. 11 of 2008 dated 19.12.2008 had explained in detail the purpose of this amendment as under:

Section 2(15) of the Income Tax Act, 1961 (‘Act’) defines “charitable purpose” to include the following:-

(i)		Relief of the poor
(ii)		Education
(iii)		Medical relief, and
(iv)		the advancement of any other object of general public utility.

An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of ‘charitable purpose’. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the ‘advancement of any other object of general public utility’ shall not be a charitable purpose if it involves the carrying on of –

(a)		any activity in the nature of trade, commerce or business; or
(b)		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.

2. The following implications arise from this amendment –

2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities.

2.2 ‘Relief of the poor’ encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11 (4A) or the seventh proviso to section 10(23C) which are that

(i)		the business should be incidental to the attainment of the objectives of the entity, and
(ii)		separate books of account should be maintained in respect of such business.

Similarly, entities whose object is ‘education’ or ‘medical relief’ would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.

3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is ‘advancement of any other object of general public utility’ i.e. the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under ‘any other object of general public utility’. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants.

Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15).

3.2 In the final analysis, however, whether the assessee has for its object ‘the advancement of any other object of general public utility’ is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ‘general public utility’ will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is ‘charitable purpose’ within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business.

5.2 As evident from the clarification given in Circular no. 11 dated 19.12.2008, it is amply clear that this provision was brought into Act w.e.f. 01.04.2009 to prohibit certain industries and trade associations, claiming exemption u/s. 11 on the ground that their objectives are charitable in nature. It was further made clear that whether such entity is carrying out activity in the nature of trade or not depends on the facts of each case. Paragraph 2.1 of the Circular makes it amply clear that the activities aimed at providing relief to the poor, education, medical relief etc. etc. will fall u/s.2(15) even if such activity incidentally involves carrying on commercial activity. Further, para 2.2 of the Circular makes absolutely clear that ‘Relief of the poor’ encompasses a wide range of objectives for the welfare of the socially disadvantaged and the needy people like orphans, destitute, handicapped, disadvantaged women and children etc. etc. Therefore, the entities having such objectives will continue to be eligible for exemption even if they incidentally carry on commercial activity. The spirit of amendment brought in w.e.f. 01.04.2009 is not to deny the benefits to the organisations providing relief to the poor, rather it is aimed to deny exemption to the organizations claiming the benefit under the guise of providing relief to the poor.

5.2 It is pertinent to mention that the Hon’ble High court of Andhra Pradesh in the appellant’s own case in case Reference No. 59 of 1992 held that the Corporation is a Charitable Institution within the meaning of section 2(15). After elaborate discussion this judgement was delivered on 21.08.1990 much prior to the amendment to section 2(15). Nevertheless, the activities of the corporation remain same for decades right from inception to till date. After having considered all the information on record, the primary objective of the Corporation is to provide food to the poor at the subsidized rates which certainly falls within the ambit of section 2(15). In the process of providing food grains to the crores of people, the corporation should run itself in a commercial manner so that it can sustain itself, that does not mean the corporation is doing business activity. The primary purpose and objective of the very existence of the Corporation is to supply essential commodities to the needy, poor, therefore, fall within the ambit of section 2(15)’.

6. Aggrieved Revenue has raised the following grounds:—

“2. The learned CIT (A) erred in ignoring the fact that assessee-company is involved in purchase and sale of essential commodities like rice, wheat, LPG Gas, Sugar, Oil, Kerosene etc. at the prices fixed by the government and in turn gets subsidy and commission from the government and therefore it is trading/business with a motive to earn profit.

3. The learned CIT (A) has not discussed the issue of quality of rice, wheat, oil etc. being supplied through the PDS system and the amount of benefit that is passed on to the consumer/beneficiary. It is well known fact that the essential commodities supplied through PDS are of poor quality and are available at the same price in the open market. Therefore, there is no advancement of any object in the interest of general public.

4. The learned CIT (A) has erred in not discussing the issue of utilization of subsidy given by state government in purchasing the essential commodities to be supplied through PDS system by the assessee corporation. As these facts have not been brought on record, it is concluded that the subsidy amount has not been utilized for advancement of any other object of general public utility. Hence the assessee is not eligible for claim u/s 2(15).

5. The learned CIT (A) erred in ignoring the fact that assessee’s alleged claim of ‘general public utility’ is nothing but only a colorable device to conceal its real intention of conducting business with a profit motive”.

7. Ld. CIT-DR referring to the order of the AO and orders of ITAT on the issue in earlier years, submitted that the object of the company does not specifically mention relief of poor and its assessee own claim as ‘general public utility’. Referring to the observation of ITAT (TM case) about ‘general public utility’ and judgment of Hon’ble AP High Court and amended definition of Section 2(15), it was the submission that relief of poor is a wider term and a panoramic view cannot be taken if assessee subsidises the price and definition of Section 2(15) cannot be interpreted in the fashion considered by Ld. CIT. The phrases in the definition of ‘charitable nature’ are separate and destitute and cannot be considered in a broader view. It was further submitted that Government gives subsidy but not reimbursement. Therefore, assessee’s activity cannot be considered as ‘relief of poor’. It is a trading/business activity and there can be incidental benefit to poor but not main activity.

8. Ld. AR referring to the order of ITAT as well as Hon’ble High Court submitted that there is no doubt about the activities of assessee being charitable in nature and the issue was crystallized by the orders in earlier years. The amendment to Section 2(15) does not in any way effect assessee and there is no profit element in assessee’s activity of providing ration to the poor and weaker sections.

9. We have considered the rival contentions. In our view, the AO has unnecessarily disturbed the stand taken in earlier years when facts are same. All the arguments now raised by the AO have already been considered earlier and the ITAT in assessee’s own case A.P. State Civil Supplies Corpn. v. ITO [1991] 37 ITD 1 (Hyd.) (TM) has held as under:—

“The Memorandum of the assessee in item III has made a bifurcation between the main objects sub-division (a) and objects incidental or ancillary to the attainment of the main objects sub-division (b). Clause 28 falls in sub-division(b). The Memorandum itself describes the clause as an object incidental or ancillary to the attainment of the main objects. Merely because a profit resulted, the object does not cease to be charitable. No activity can be efficiently, properly, adequately or economically carried on unless it is carried on business principles. This is all that the ancillary and incidental objects spell out. Even assuming that any declaration of dividends was permissible under clause 28 of the Memorandum of Association as it stood before amendment, the dividend would go in its entirety to the Government, i.e., it goes to the public and consequently there would be no chance of any element of private gain, if by private gains it is meant that the gain ensure for individuals other than “State”. Even if dividends are to be declared, if its utilisation is for public purposes, the entity does not lose its character of charitable nature. The assessee was set up by assets transferred to it by the Government. It is only in the fitness of the things that in the event of the assessee company being wound up, whatever assets are left out of those which are received on transfer initially together with accretion thereto should revert to the Government which had transferred its own assets to the assessee company for setting up. Therefore, on the facts, the distribution of assets in the present case is only a return of the asset to the government with whose assets the assessee came into being. On the facts, therefore, article 132 also does not militate against the conclusion that the assessee is a charitable entity. For the aforesaid reason and on any analysis of the activities of the Corporation in the light of the various judicial pronouncements, the activities are charitable in nature within the meaning of section 2(15)”.

10. This view was upheld by the Hon’ble AP High Court in the appeal of Revenue in CR No. 59/1992 dt. 04-03-2003 as under:—

“The Tribunal noticed that the assessee is required to deal in food grains, foodstuffs, and other essential commodities. It is a Government run institution and its dominant object is to ensure supply of food grains. edible oils etc., to the masses through approved outlets by grant of substantial subsidies in order to hold the price line, which is the main object of price stabilization/equalization fund in Article 6. The Tribunal also noticed that in the particular assessment year, the State Government granted subsidy of Rs. 44,66,51,914/-, but for which, the Corporation would have suffered huge losses. It is under those circumstances, the Appellate Tribunal found that the assessee-institution itself has come into existence with an object to ensure distribution of food grains and edible oils to the masses through the approved outlets. For the purposes of the Act, the Appellate Tribunal found that the income derived by the Corporation is utilized for charitable purpose. Charitable purpose as defined in sub-section (2) of Section 15 of the Act includes the relief of poor, education, medical relief and the advancement of any other objects of general public utility. It is under those circumstances, the Appellate Tribunal held that the primary object of the assessee-Corporation is a charitable one.

The Tribunal applied the ratio laid down by the Supreme Court in C.I.T. v. Apsrtc and also another decision rendered by t.h.is Court in Girijan Cooperative Corporation Limited v. Commissioner of Income tax. The findings so recorded by the Appellate Tribunal, in our considered opinion, are not vitiated for any reason whatsoever. The Appellate TribW1al did not commit any error in upholdi.i1g the plea of the assessee that the main and dominant object of the assessee-Civil Supplies Corporation is a charitable one.

The Tribunal adverted to the point urged by the Revenue that there is a provision even in the Articles of Association for providing the manner and method in which the profits earned by the Corporation are to be utilized. It was the case of the Revenue that the very fact that the assessee-Corporation is entitled to make the profits makes its activities as business activity. It was Contended that the Civil Supplies Corporation indulges in pure and simple trading activity in the food grains like any other businessman. The Tribunal lightly pointed out, of course, relying upon the Supreme Court Judgment referred to above that no activity can be efficiently, properly, adequately or economically carried on unless it is carried on business principles. Mere provision in the memorandum of articles of association providing as to how the profits if any earned by the assessee-corporation are to be utilized itself shall have no bearing upon the question as to whether the assessee is a charitable one or not. The reasoning of the Tribunal, in our considered opinion, is neither perverse nor vitiated. At any rate, there is nothing on record to suggest that the Corporation made any profits as such. Even otherwise, the Tribunal noticed that the expression ‘not involving the carrying on of any activity for profit in Section 2(15) of the Act were omitted by the Finance Act, 1988 with effect from 1-4-1984. Therefore, the question as to whether the profit earned or capable of earning has any bearing on the question as to whether the Civil Supplies Corporation is a charitable organization or not has become academic.

For the aforesaid reasons, we do not find any reason or justification to take a different view other than one taken by the Appellate ‘Tribunal. As has been rightly observed by the Appellate Tribunal, even if any dividends are declared, the utilization of the ‘same by the Corporation is undoubtedly for public purpose. Therefore, the Corporation does not lose its character of charitable nature. In such view of the matter, the 1st question referred for our opinion is answered against the Revenue and in favour of the assessee.

So far as the next question is concerned, the Appellate Tribunal took the correct view that whether the amendment to clause 28 of the Memorandum of Articles of Association took effect from 16-11-1981, the date which fell prior to the commencement of the accounting period on 2-1- 1989 or a date which fell subsequent to the accounting period is of no consequence and has no relevance. Since the Tribunal had arrived at the conclusion that the activities are charitable in nature within the meaning of Section 2(15) of the Act, the view taken by the Tribunal is absolutely correct and does not suffer from any infirmity. For the aforesaid reasons, it is unnecessary to answer the question referred for our opinion at the instance of the assessee.”.

11. The assessee was established with an object to ensure supply of food grains, edible oils, dall etc., to the masses/general public through the approved outlets by State Civil supplies department by grant of substantial subsidies given by the Govt. and is a Corporation governed and controlled by the Govt. of A.P {then}. The main activities of the Corporation are purchase/procurement, storage and distribution essential commodities to the poor and needy people of the society in general. The Corporation is dealing in levy items like rice, edible oils, sugar etc. The Assessee Corporation has been carrying out its object of distribution of essential commodities to the people particularly to the poorer section of the society at lower prices with the support of subsidy being provided by the then Government of Andhra Pradesh. Without the subsidy the Corporation cannot survive. The sale price is less than the procurement price. This activity no way can be considered as trading activity. Whereas in the case of a trader or an ordinary business man sale price generally will be more than cost and there can not be rate fixed by government. Therefore, calling the activities of the assessee in the nature of an ‘ordinary business man does’ is totally incorrect and without any evidentiary value.

12. Further during the year under consideration, as submitted the organizations gross receipts are of Rs. 4249.11 cr and the net profit is Rs. 4.67 cr. The gross receipts includes sales of Rs. 2144.46 cr the following subsidies, of Rs. 2102.65 cr without which there would have been heavy losses:—

	Cr.
Subsidy on PDS	1959.04
Subsidy on Rice	3.74
Subsidy on others (NNM)	3.85
Subsidy on others	136.02
Total Subsidy	2102.65

Thus, the activities of the assessee are unlike an ordinary business man or trader but can be considered in the nature of relief to the poor and therefore “charitable” and eligible for exemption of income u/s 11 of the Act.

13. As regards the issue of amendment to Section 2(15) of the Act, the provisions of Sec. 2(15) before and after amendment is as under:—

Before amendment

“charitable purpose” includes relief to the poor, education, medical relief and advancement of any other object of general public utility

After amendment ie. substituted for above by Finance Act, 2008, w.e.f. 01-04-2009

“charitable purpose” includes relief to the poor, education, medical relief and 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 income from such activity;

Prima facie upto and assessment year 2008-2009 “charitable purpose” includes relief of poor, education, medical relief and any other object of public utility. The sec 2(15) amended w.e.f. 1-4-2009 that advancement of any other object of general public utility shall not be a “charitable purpose” if it involves the carrying on of

(a)		Any activity in the nature of trade, commerce or business or,
(b)		Any activity of rendering of any service in relation to any trade commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity.

14. Therefore from the above proviso point of view it is clear that in order to deny the benefit of exemption the activity must be advancement of any other object of general public utility and the above two conditions ie., (a) and (b) exist. As far as the first condition is concerned it is not in trading and it is a decided fact before various appellate authorities that the activities of the organization are charitable and hence the said proviso is not applicable. As far as the second condition is concerned ie. any activity of rendering of any service in relation to any trade commerce or business, for a fee or cess or any other consideration irrespective of the nature of use or application of the income from such activity, or the retention of such income by the concerned entity, it is essential that one should render any service in relation to any trade, commerce or business for a fee or cess or any other consideration and since assessee is neither a service organization nor rendering any services, this part of amendment is also totally not applicable to the case.

15. Some of the settled case laws in favour of assessee:—

(a)		Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1978] 121 ITR 1 (SC) wherein held
		The test is “What is the predominant object of the activity – whether it is to carry out a charitable purpose or to earn profit? If the predominant object is to carry out a charitable purpose and not to earn profit, the purpose would not lose its charitable character merely because some profit arise from the activity”.
(b)		Sabarmati Ashram Gaushala Trust v. Asstt. DIT (Exemption) [2013] 144 ITD 280 (Ahd. – Trib.)
		“Assessee carrying on commercial activity, not with profit earning motive but as incidental to fulfillment of its charitable objects, was not hit by proviso to Sec 2(15) so as to suffer denial of exemption U/s 11”.

Held:

“The proviso to Sec 2(15) is applicable only in relation to last limb of the definition of charitable purpose i.e “advancement of any other object or general public utility” which means the activities which promote the welfare of the general public and not the individual interest of some person or persons or private profit and private gain. Reading of the proviso to s. 2(15) along with speech of the Finance Minister and the CBDT Circular No. 11 of 2008 Dt. 19th Dec., 2008 make it clear that only the institutions carrying on commercial activities with intention to earn profits are intended to be covered by the proviso, not the genuine charitable institutions. The activity will be deemed to be in the nature of trade, commerce or business, only if same is carried on with the intention to earn profit.’

This view was again upheld by the Gujarat High Court in DIT (Exemption) v. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539  wherein held:—

‘In plain terms the first proviso to section 2(15) of the Income Tax Act, 1961, inserted with retrospective effect from April 1,2009, by the Finance Act, 2010, provides for exclusion from the main object of the definition of the term “charitable purposes” and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of “charitable trust. The statutory provisions, as explained on the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term “charitable purpose” if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for a cess, fee or any other consideration. It is not aimed at excluding activities genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as “charitable purpose”. Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave’ a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself not be the sale consideration for judging whether any activity is trade, commerce or business particularly if generating “surplus” is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature.’

(c) Institute & Electronics Engineers Inc. v. DIT (Exemption) [2014] 146 ITD 263 (Hyd.):—

‘Charitable trust – Registration u/s. 12AA- Charitable purpose vis-a-vis profit motive – object of the assessee being in the nature of charitable activities, registration u/s. 12AA cannot be denied on the ground that some profit has been earned by assessee, so long as provisions of SS. 11,12 and 12AA are complied with and there is no violation of S. 13 – After omission of the clause “not involving carrying any activities of profit” from S. 2(15) by the Finance Act, 1983 w.e.f 1st April, 1983, the element of profit cannot be excluded from definition “Charitable purpose”.’

16. In view of the principles laid down by the Hon’ble Supreme Court and in assessee’s own case by jurisdictional High Court, we uphold the order of Ld. CIT (A) and dismiss the grounds raised by Revenue.

17. Cross-Objections are raised in support of orders of Ld. CIT (A), therefore, they are academic in nature and are not required for specific adjudication.

18. In the result, the Revenue’s appeals are dismissed and Cross-Objections are treated as allowed.

ORDER

H.S. Sidhu, Judicial Member – This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 12.9.2013 pertaining to assessment year 2010-11.

2. The following issues have been raised by the Revenue:-

“1.		On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in ignoring that the assessee’s predominant objectives are to conduct examinations for the candidates for Chartered Accountants and to regulate it’s members and it does not provide any Scholastic education, therefore, its activities do not fall within the category of education covered by the definition of the expression ‘charitable purpose’ which is second limb of the section 2(15) of the Income Tax Act, 1961.
2.		On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law as Hon’ble Supreme Court in the case of Sole Trusty, Lok Shikshana Trust v. Commissioner of Income tax [1975] 10 ITR 234 (SC) has defined word ‘education’ and observed that the sense in which the word “education” has been used in section 2(15), is the systematic instruction, schooling or training given to young in preparation for the work of life. The word “education” has not been used in that wide and extended sense according to which every acquisition of further knowledge constitutes education.
3.		On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in ignoring that the assessee’s activity falls under the category of ‘Advancement of any other object of general public utility” and first proviso to section 2(15) is early applicable on it as ‘income-from coaching class’ was explicitly business receipt in nature.
4.		The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing.”

 

3. In this case Assessing Officer has observed that the assessee is established by the Act of Parliament of ICAI Act of 1949 and the assessee comes under the Ministry of Corporate Affairs. The assessee is registered u/s. 12A of the Income Tax Act, 1961 (hereinafter referred the Act) and has been claiming exemption u/s. 11 of the Act which has been denied by the Assessing Officer mainly on the ground that the assessee is involved in commercial activities as the assessee receives coaching fees from the students of CA while giving coaching to the CA students. He further held that assesee’s case falls under the category of General Public Utility and proviso to section 2(15) of the Act is clearly applicable in this case. Accordingly, exemption u/s. 11 & 12 of the Act is denied to the assessee society and its income is computed as normal AOP. The Assessing Officer assessed the income of the assessee at Rs. 12305.37 lacs vide his order dated 21/3/2013 passed u/s. 143(3) of the I.T. Act, 1961.

4. Against the aforesaid order of the AO, assessee appealed before the CIT(A), who vide his impugned order dated 12.9.2013 has allowed the appeal of the Assessee.

5. Aggrieved with the order of the Ld. CIT(A) dated 12.9.2013, Revenue is in appeal before the Tribunal.

6. Ld. DR relied upon the order of the Assessing Officer and reiterated the contentions raised in the grounds of appeal and requested that Appeal filed by the Revenue may be allowed by setting aside the order of the Ld. CIT(A), because the activities of the assessee-society does not fall within the category of education covered by the definition of the expression ‘charitable purpose’. However, she submitted that the assessee’s activity falls under the category of “Advancement of any other object of general public utility”. Ld. DR has further stated that Department has filed an appeal against the order of the Hon’ble High Court which has been followed by the Ld. CIT(A) in the impugned order while allowing the Appeal of Assessee before the Hon’ble Supreme Court which is still pending, therefore, she requested that the decision of the Tribunal may be kept in abeyance till the outcome of the Hon’ble Supreme Court.

7. On the other hand, Ld. Authorised Representative of the Assessee has stated that the main activities of the assessee-society are to enroll CA students, to provide study material, to conduct classes, to conduct examination, to award degree of CA and other courses, to regular the profession of CA and to issue accounting standards etc. The coaching classes are conducted for the benefit of the CA students to make them professionally efficient and the coaching classes are integral part of imparting education and its activities come under the definition of education u/s. 2(15) of the Act. It was further submitted that the exemption to the assessee was denied earlier on the ground that the assessee is involved in commercial activities but the exemption has been granted to the assessee for the assessment years 2005-06, 2006-07, 2007-08 by the Ld. CIT(A) and the Tribunal and the High Court. Hence, the present issues in dispute is squarely covered by the various decisions of the Tribunal, Hon’ble High Court and the Hon’ble Supreme Court of India. To support his contention, he filed the Paper Book containing pages 1 to 96 having the copies of the following judicial decisions:-

1.		Dismissal of Department SLP by Hon’ble Supreme Court of India in the matter of DDIT and Ors. v. ICAI and Orsdated 27.1.2014.
2.		Judgment of the Hon’ble Delhi High Court in the matter of ICAI and Anr. v. DGIT and Ors. Dated 4.7.2013.
3.		Judgment of the Hon’ble High Court in the matter of DIT (E) v. ICAI dated 11.5.2012.
4.		ITAT order dated 18.10.2010 for the AY 2005-06 in ITA No. 1853/Del/2010 titled as ICAI v. DIT(E).
5.		ITAT order dated 09.1.2012 for the AY 2006-07 in ITA No. 1384/Del/2010 titled as ADIT(E) v. ICAI.
6.		ITAT order dated 16.6.2011 for AY 2007-08 in ITA No. 1930/Del/2011 titled as ADIT(E) v. ICAI.
7.		ITAT order dated 17.4.2014 for AY 2009-10 in ITA No. 2088/Del/2013 titled as DDIT(E) v. ICAI.

8. We have heard both the parties and perused the records, especially the impugned order and the case laws cited therein and also by the Ld. Counsel of the Assessee, as aforesaid. We find that the request of the Ld. DR for keeping in abeyance the Tribunal order is not tenable, because she was unable to produce the copy of any Stay Order granted by the Hon’ble Supreme Court of India, in the SLP Appeal filed by the Revenue, as stated by her. Hence, under the circumstances, we reject the said request of the Ld. DR and proceed further to adjudicate the issue in dispute on merit.

8.1 We find that the Ld. CIT(A) has elaborately discussed the issue in dispute in his impugned order dated 12.9.2013 vide para no. 2.2 to 3 at page no. 3 to 4. The relevant portion of his finding is reproduced as under:-

“”2.2 I have considered the order of the AO and the submissions of the assessee and I find the considerable merit in the submissions of the assessee that the case of the assessee is fully covered in favour of the assessee by the orders of the Ld. CIT(A), Hon’ble Tribunal and Hon’ble High Court allowing exemption to the assessee uls 11 and holding that the assessee is an educational institution. There was a similar issue of denial of exemption uls 11 and my predecessor after examining the issue has allowed exemption u/s 11 for the assessment years 2006-07, 2007-08 & 2009-10. The Ld. CIT (A) had allowed exemption to the assessee for the assessment year 2007-08 which has been also allowed by the Hon’ble Tribunal vide the order dated 16/06/2011 in ITA No. 1930IDel/2011 and the departmental appeal has been dismissed. The DIT(E) had denied exemption to the assessee in the proceedings uls 263 for the A.Y 2005-06 but the Hon’ble Tribunal has cancelled the order of the DIT(E) vide the order dated 18/10/2010 in ITA No. 1853/Del/2010. The department had filed appeal against the order of the Hon’ble Tribunal but the Hon’ble High Court has dismissed the departmental appeal vide the order dated 19/9/2011 in ITA No. 869/2011. The Hon’ble Delhi High Court in the order dated 4/7/2013 has also directed the DGIT(E) to grant exemption to the assessee uls 10(23C)(iv) holding that the assessee is an educational institution. The AO is also aware that the case of the assessee is covered in favour of the assessee but has not allowed exemption to the assessee and the ground the department has not accepted these orders and the department is in appeal in the Hon’ble Supreme Court vide Para 43 of the assessment order. After considering all the facts and circumstances of the, case I am of the view that the case of the assessee is fuly covered in favour of the assessee by the assessee’s own case of earlier years by the orders of the Ld. CIT(A), Hon’ble Tribunal and Hon’ble High Court and as such respectfully following the above orders the appeal of the assessee is allowed and the AO is directed to allow exemption to the assessee.

3. In the result, the appeal of the assessee is allowed.”

8.2 After going through the aforesaid findings, we are of the considered opinion that the issue in dispute is squarely covered by the various decisions of the ITAT, Hon’ble High Court and the Hon’ble Supreme Court of India in assessee’s own in preceding assessment years. For the sake of clarity, we are discussing here-in-below the ITAT, Delhi Bench decision dated 17.4.2014 passed in ITA No. 2088/Del/2013 for the preceding assessment year i.e. 2009-10, titled Dy. Director of Income Tax (E) v. The Institute of Chartered Accountants in which the exactly similar issues have been dealt with and the Appeal has been decided against the Revenue and in favour of the Assessee. The relevant portion i.e. para no. 2 to 7 at pages 1 to 8 of the aforesaid order of the Tribunal dated 17.4.2014 is reproduced as under:-

“2. Ground no.3 of the revenue is general in nature which needs no adjudication. Remaining grounds of the revenue reads as under:-

“1.		On the facts and in the circumstances of the case, the ld. CIT(A) has erred in ignoring that the assessee’s predominant objectives are to conduct examinations for the candidates for the Chartered Accountants and to regulate it members and it does not provide any scholastic education, therefore, its activities do not fall within the category of education covered by the definition of the expression ‘charitable purpose’ which is second limb of the section 2(15) of the I.T. Act, 1961.
2.		On the facts and in the circumstances of the case, the ld. CIT(A) has erred in ignoring the judgment of Hon’ble Supreme Court in the case of Sole Trusty, Lok Shikshana Trust v. Commissioner of Income Tax [1975] 10 ITR 234(C) wherein the Hon’ble Apex Court has defined the word ‘education’ and observed that the sense in which the word ‘education’ has been sued in section 2(15), is the systematic instruction, schooling or training given to young in preparation for the work of life. The word ‘education’ has not been used in section 2(15), is the systematic instruction, schooling or training given to young in preparation for the work of life. The word ‘education’ has not been used in that wide and extended sense according to which every acquisition of further knowledge constitutes education.”

3. We have heard rival arguments of both the parties and carefully perused the record placed before us. During the arguments, assessee’s representative submitted copies of the decisions of ITAT Delhi ‘H’ Bench in assessee’s own case i.e. ITA No. 1930/D/2011 dated 16.6.2011 for AY 2007-08, copy of the judgment of Hon’ble High Court of Delhi dated 04.07.2013 in assessee’s own case by which writ petitions of the assessee for AY from 2006-07 to 2011-12 have been allowed by setting aside impugned orders of Director General Income Tax (Exemption) dated 13.04.2012 and 28.9.2012 with a direction to DGIT(E) to recognize the petitioner/assessee as eligible u/s 10(23)(c)(iv) of the Income Tax Act, 1961(for short the Act) for charitable purposes, having regard to its object and importance, subject to the petitioner/assessee complying with the other provisions of the Act. The AR also submitted a copy of the orders of Hon’ble Supreme Court of India in Special Leave to Appeal (Civil) No. CC792/2014 dated 27.01.2014 by which Special Leave Petition of the department against the order of the judgment of Hon’ble High Court of Delhi dated 04.07.2013 (supra) have been dismissed. Ld. DR submitted that the Commissioner of Income Tax(A) has erred in ignoring that the assessee’s predominant objectives are to conduct examination for the CAs and to regulate its members and it does not provide any scholastic education, thus, its activities do not fall within the category of education covered by the definition of the expression “charitable purposes” which is the second limb of section 2(15) of the Act.

4. The DR further pointed out that the Commissioner of Income Tax(A) has erred in not taking cognizance of the decision of Hon’ble Supreme Court in the case of sole trustee, Loka Shikshana Trust v. Commissioner of Income Tax[1975] 101 ITR 234 (SC) wherein the Hon’ble Apex Court has defined the word “Education” and observed that the meaning of the word “Education” has been defined and used in section 2(15) of the Act and as per this provision, the systematic instruction, schooling or training given to the young is preparation for the work of life is education. The DR further pointed out that the word ‘education’ has not been used in that wide and extended sense and, accordingly, any other acquisition of further knowledge constitutes education.

5. Replying to the above, the AR pointed out para 4 to 8 of the order of ITAT ‘H’ Bench in ITA No. 1930/D/2011 (supra) wherein dismissing the appeal of the revenue, it has been held that the assessee institute is an educational institute, hence its income will be exempt u/s 11 as education falls within the meaning of charitable purposes u/s 2(15) of the Act. The relevant operative observations and findings part of this order read as under:-

“4. Upon assessee’s appeal Ld. Commissioner of Income Tax (Appeals), referred to his own appellate order for A.Y. 2006-07 as under:-

“I have considered the submissions made by the Ld. Authorised Representative of the appellant institution visa-vis finding of the Assessing Officer made out in the assessment order in respect of holding the income of coaching classes as an activity of business. The main emphasis of the Assessing Officer in arriving to conclusion that income of the appellant Institute from coaching classes is an activity of business, is the figure of earning from coaching classes as reflected by him in the table prepared in the assessment order giving detailed of gross income of coaching, expenditure incurred in coaching and net earning from coaching classes from assessment year 2002-03 to assessment year 2008-09 and his remark that the appellant Institute is earning huge income over the years like any businessman earn from the activities of business. However, on the other side the Ld. Authorised Representative of the appellant emphasized that the conducting of coaching classes through Regional Councils, the appellant Institute, following its main purpose and objective of giving training to the future Chartered Accountants, for which it has been enacted by the Parliament and further emphasizing that CBDT while granting Notification u/s 10(23C)(iv) of the Act to the appellant Institute was well aware about the component of its income reflected in Annual accounts filed with the application for applying for exemption of income u/s. 10(23C)(iv) of the Act consistently to the assessment year 2005-06, and therefore the objection of the Assessing Officer in this respect is misconceived, even on the Principle of Doctrine of Consistency enunciated by Hon’ble Supreme Court in the case of Radhaswamy Satsang (cited supra). Pursing the Chartered Accountants regulations, annual accounts of the appellant Institute and written arguments of the Ld. Authorised Representative and judicial precedents brought to my notice on the issue involved, I am inclined to accept the argument of the ld. counsel that income of coaching classes of the appellant Institute is not an activity of business as alleged by the Assessing Officer in the assessment order, but the said income has arisen from the ancillary activity arisen from the main objects for which it has been enacted by the Parliament and further accepted as such by Central Board of Direct Taxes year to year, while notifying it for the purpose of Section 10(23C)(iv) of the Act. The observation of the Assessing Officer that the appellant Institute is earning huge income over the years and this surplus income is earned in a systematic and organized way, the way in which business activities are carried out is also misconceived as merely because profit has resulted from the activity of imparting education would not change the character of the Institution. The Hon’ble Supreme Court in the case of Surat Art Silk Cloth Manufactures Association and Hon’ble Delhi High Court in the very recent judgement in the case of sister concern of the appellant Institute ICAI Accounting Research Foundation reported at 321 ITR 73 held that the mere fact of generating income, while carrying out the ancillary objects for achieving the main objects, would not per se change the character of the assessee till the surplus received qua these activities are utilized for advancement of the objectives for which the assessee has been established. Hence, ground no. 6 is allowed in favour of the appellant.”

The Ld. Commissioner of Income Tax (Appeals) further took note that Hon’ble ITAT, Delhi Bench in ITA No. 1853/Del/2010 also held that:

“The institute as such merely it is receiving coaching fee from students for imparting education, cannot be said to have been carrying on the business and accordingly it is not required to maintain separate books of accounts as alleged by DIT(E). The income of the coaching classes earned by the assessee institute is within its objects and its regulations and further these activities are educational activity within the definition of section 2(15) of the Income Tax Act, 1961, and consequently therefore cannot be activity of business for which separate books of accounts are required to be maintained. The order of the DIT(E) is therefore not sustainable as the income of the institute is exempt not only u/s 10(23C)(iv) but also under section 11. The Institute is an educational institute and hence its income will also be exempt u/s. 11 as education falls within the meaning of charitable purpose under section 2(15) of the Act.”

5. Against the above order, the revenue is in appeal before us.

6. Ld. counsel of the assessee submitted that the issue is covered in favour of the assessee by the decision of this tribunal in assessee’s own case in ITA No. 1853/Del/2010 for A.Y. 2005-06. In this regard, ld. counsel of the assessee referred para 15 of the above said order which reads as under:-

“15. The Institute as such merely it is receiving coaching fee from students for imparting education, cannot be said to have been carrying on business and accordingly it is not required to maintain separate books of accounts as alleged by DIT(E). The income of the coaching classes earned by the assessee institute is within its objects and its Regulations and further these activities are educational activity within the definition of section 2(15) of the Income Tax Act, 1961, and consequently therefore cannot be activity of business for which separate books of accounts are required to be maintained. The order of the ld.DIT(E) is therefore, not sustainable as the income of the Institute is exempt not only u/s 10(23C)(iv) but also under section 11. The institute is an educational institute and hence its income will also be exempt under section 11 as education falls within the meaning of charitable purpose under section 2(15) of the Act.”

7. In light of the above, ld. counsel of the assessee contended that this issue stands covered in favour of the assessee by the decision of this tribunal as above.

7.1 Ld. Departmental Representative could not controvert this proposition. He fairly agreed that this issue stands covered by the said tribunal order.

8. Accordingly, in the background of the aforesaid discussion and precedent, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals), hence, we uphold the same.”

6. In the light of above, ld. AR submitted that the sole issue agitated by the revenue in this appeal stands covered in favour of the assessee by above decision of this Tribunal. Ld. DR could not substantially controvert this proposition and has fairly agreed that this issue stands covered by the said Tribunal order in favour of the assessee and against the revenue. Accordingly, on the basis of discussion and earlier order of this Tribunal as reproduced hereinabove and respectfully following the same as an order of Coordinate Bench of this Tribunal as a precedent, we do not find any infirmity, illegality or any other valid reason to interfere with the impugned order of the Commissioner of Income Tax(A). Hence, we uphold the same. Accordingly, both the grounds of the revenue being devoid of merits are dismissed.

7. In the result, the appeal of the revenue is dismissed.”

9. Respectfully following the precedents of the Coordinate Benches of the Tribunal, decisions of the Hon’ble High Court of Delhi and the Hon’ble Supreme Court of India delivered in the preceding assessment years in assessee’s own, as discussed above, we do not find any infirmity, illegality or any other valid reason to interfere with the well reasoned order passed by the Ld. CIT(A), hence, we uphold the same and dismiss the Appeal filed by the Revenue.

10. In the result, the appeal filed by the Revenue stands dismissed.

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A. Kanakaraj, CA for the Appellant. M. Srinivasa Rao, CIT for the Respondent.

ORDER

Chandra Poojari, Accountant Member – These appeals by the assessee are directed against the common order of the Commissioner of Income-tax(Appeals) dated 22.11.2013 for the assessment years 2009-10 and 2010-11. Since, common issues are involved in these appeals, these are clubbed together, heard together and disposed of by this common order for the sake of convenience.

2. The first common grievance of the assessee in these appeals is with regard to non-granting of exemption u/s.11 of the I.T. Act, 1961.

3. The facts of the case are that the trust filed its return of income for the assessment years 2009-10 and 2010-11 on 30.9.2009 and 30.0.2010 respectively admitting Nil income. The returns were processed u/s. 143(1) of the Act. The case was taken up for scrutiny and notice u/s. 143(2) was issued to the assessee. The assessments were completed u/s. 143(3) determining total income of Rs. 9,79,71,460/- and Rs. 10,57,29,890/- for the assessment years 2009-10 and 2010-11 respectively. At the time of scrutiny proceedings, the AO found that the assessee expended Rs. 15,67,818/- and Rs. 13,33,979/- towards charitable purpose out of the gross receipts of Rs. 16.04 crores and Rs. 16.05 crores, for the assessment years 2009-10 and 2010-11 respectively. Further, the AO found that by running the newspaper ‘murasoli’ the trust earned a net surplus of Rs. 9,79,71,460/- in the assessment year 2009-10. According to the AO, the activity squarely falls within the ambit of amended provisions of sec.2(15) of the Act, as the assessee’s object is of general public utility and the activities of the assessee are in the nature of trade, commerce or business. Therefore, the AO brought to tax the surplus of Rs. 9,79,71,460/- in the AY 2009-10 and Rs. 10,57,29,890/- in the AY 2010-11 and completed the assessments. While completing the assessment, the AO added the sum of Rs. 1,00,000/- (corpus donation) as income and disallowed the depreciation of Rs. 20,61,256/- on the assets purchased in earlier years. Accordingly, the AO denied the exemption u/s.11 of the Act. Aggrieved, the assessee went in appeal before the CIT(Appeals). However, the CIT(Appeals) observed that the activity carried on by the assessee cannot be considered as charitable and denied the exemption u/s.11 of the Act. Against this, the assessee is in appeal before us.

4. The ld. AR submitted that the lower authorities are wrong in observing that printing and publishing of ‘murasoli’ newspaper amount to advancement of any other object of general public utility involving the carrying of an activity in the nature of trade, commerce or business and taxing the entire income without granting exemption u/s.11 of the Act. According to the ld. AR, the assessee is engaged in various activities, which are given below :

(i)		to improve and spread tamil language, literature and culture and also to take steps to make tamil as effective medium of communication for the modern age and to create and enhance public awareness among the common man so as to make them as good and effective citizens of an enlightened democratic society by inculcating general knowledge.
(ii)		To utilize modern equipments, innovations and technologies like television, audio, video and radio and other electronic media for effectively achieving the above object.
(iii)		To publish and run newspapers, magazines and other communication media like books, pamphlets and the like for the above said objects with which the trust is founded.
(iv)		To run and administer educational institutions for the benefit of all people; such educational institution may also be in regard to arts, engineering, medical and other professional subjects.
(v)		To run dispensaries and hospitals for the benefit of the poor.
(vi)		To assist generally everyone in regard to providing scholarship for education and also financial assistance for the needy and indigent towards medical aid.

The trust achieves the objects clause (i), in the following two ways:

(a)The Trust is authorized to run newspaper as per clause (iii) of the above objects. Hence the trust is running “Murasoli” and this is used as a tool to achieve the main object of improving and spreading tamil language by inculcating general knowledge among the common man. Running of “Murasoli” is not the main object but it is used as a tool to improve and spread tamil language as it shows how the language is to be used and it coaches the reads how the language is to be handled.”

4.1 Further, according to the ld. AR, the assessee has spent huge amount to improve the tamil language and conducted Bharathidasan poetry competition every year in which more than 5000 students from schools and colleges throughout the State of Tamil Nadu and Puducherry participated. He submitted that ‘murasoli’ newspaper is spreading tamil language around the world and publishing of ‘murasoli’ newspaper cannot be construed as commercial activity. Further, according to the ld. AR, it is not a activity involving commerce, trade or business and it is duly development of education. He submitted that ‘murasoli’ newspaper was in existence from 1942 and it has become the property of the trust. According to ld. AR, u/s.11(4A) of the Act, the income derived from business held under the trust wholly for charitable or religious purposes shall not be included in the total income of the previous year of the trust or institution, if the business is incidental to the attainment of the objects of the trust. Further, the ld. AR, submitted that issue of violation of sec.13(1)(c) of the Act was not raised by the AO but raised by the CIT(Appeals) without giving any opportunity to the assessee to give comments on it. Therefore, he submitted that the CIT(Appeals) is not justified in not considering the newspaper running expenses as charitable. Regarding interest on fixed deposits in the name of trust, the ld. AR submitted that the same cannot be brought to tax. Similarly, he submitted that depreciation on assets to be granted. For this purpose, the ld. AR relied on various decisions, which are kept on record.

5. On the other hand, the ld. DR submitted that activity of publishing of newspaper carried on by the assessee is a commercial one. Being so, the assessee cannot be granted exemption u/s.11 of the Act.

6. We have heard both the parties and perused the material on record and various case law cited by the parties. Sec. 11 of the Act stipulates that the income from property held for charitable or religious purpose shall not be included in the total income of the previous year of the person in receipt of the income to be given effect in the manner as specified therein. The term ‘charitable purpose’ has not been defined under the statute; but for the inclusive nature of the term as specified under s. 2(15) of the Act, which as existed before the amendment is as follows :

‘Sec. 2(15) : “Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.’

As per s. 2 of the Finance Act, 2008, the said provision was amended adding a ‘proviso’ w.e.f. 1st April, 2009 as follows :

“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.”

The Department has taken a stand that by virtue of the amendment as above, the assessee is not entitled to exemption u/s.11 of the Act.

6.1 The ld. AR submitted that, the idea and understanding of the Department with regard to the scope of amendment to sec.2(15) is thoroughly wrong and misconceived. There is no trade or business in the activities pursued by the assessee in publishing of newspaper will not take it outside the purview of charity and hence, that the “proviso” added to sec. 2(15) of the Act, is not at attracted to the case in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words “not involving the carrying on of any activity for profit”. By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when the words “not involving the carrying on of any activity for profit” were deleted. Thus the contention is that after 1st April, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under sec. 11 of the Act.

6.2 To analyse the scope and object of the amendment, the learned counsel placed reliance on the “Budget Speech” of the Minister for Finance, which stated as follows [298 ITR (St.) 33, 65] :

“‘Charitable purpose’ includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under ‘charitable purpose’. Obviously, this was not the intention of Parliament and hence I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected” (para 180).

6.3 The learned counsel pointed out that, the amendment was brought about as a measure of rationalization and simplification, streamlining the definition of charitable purpose and not as a measure of taxation. It is also stated that the concept of charity in India is wider, simultaneously adding that, by virtue of the amendment, the position that existed prior to 1st Feb., 1984 has been brought back and that is all. This however will not tilt the balance in any manner in the case of the assessee so as to take the activities outside the charitable purpose, particularly in view of the fact that in publishing of newspaper will not constitute any trade or business. According to the ld. AR, to perform charity, income is inevitable and contended that the activities being pursued by the assessee may constitute a trade or business, if it is not applied for the purposes of charity. Contrary to this, the ld. DR submitted that though the object of the assessee is to carry on charitable activities, but it does not carry those charitable activities, and it was only carrying on publishing of newspaper in a commercial manner, which cannot be construed as charitable activity. In other words, it was contended by the ld. DR that the assessee carried on activities in a business oriented manner, it will definitely come within the fourth limb of the amended sec.2(15) of the Act, where the prohibition of activity in the nature of trade, commerce or business for any activity of rendering service or any other consideration, irrespective of the nature of the use or application or retention of the income of such activity is specified and hence, not entitled to any exemption.

6.4. To analyse the activities carried on by the assessee, we have to go through the nature of activities pursued by the assessee as enumerated and perusal of that activities carried on by the assessee, cannot be oust the involvement of “trade, commerce or business” or “any service in connection with trade, commerce or business” as contemplated under the statute. Further, we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption u/s.11 of the Act. and the position available after amendment to sec.2(15) brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to s. 2(15), the 4th limb as to the advancement of “any other object of general public utility” will no longer remain as charitable purpose, if it involves carrying on of :

(a)		any activity in the nature of trade, commerce or business,
(b)		any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity.

6.5 The first limb of exclusion from charitable purpose under cl. (a) will be attracted, if the activity pursued by the institution involves any trade, commerce or business. But the situation contemplated under the second limb [cl. (b)] stands entirely on a different pedestal, with regard to the service in relation to the trade, commerce or business mentioned therein. To put it more clear, when the matter comes to the service in relation to the trade, commerce or business, it has to be examined whether the words “any trade, commerce or business” as they appear in the second limb of cl. (b) are in connection with the service referred to the trade, commerce or business pursued by the institutions to which the service is given by the assessee. If the said words are actually in respect of the trade, commerce or business of the assessee itself, the said clause [second limb of the stipulation under cl. (b)] is rather otiose. Since the activity of the assessee involving any trade, commerce or business, is already excluded from the charitable purpose by virtue of the first limb [cl. (a)] itself, there is no necessity to stipulate further, by way of cl. (b), adding the words “or any activity of rendering any service in relation to any trade, commerce or business ………..”. As it stands so, giving a purposive interpretation to the statute, it may have to be read and understood that the second limb of exclusion under cl. (b) in relation to the service rendered by the assessee, the terms “any trade, commerce or business” refers to the trade, commerce or business pursued by the recipient to whom the service is rendered (as there may be a situation involving in publishing of newspaper.

6.6 Further, in similar circumstances, the co-ordinate Bench of the Tribunal in the case of Young Women’s Christian Association of Madras v. Jt. DIT [2014] 62 SOT 65 (Channai – Trib.) has held as under :

•		“Generally speaking, the activities carried on by the assessee such as running orphanages, old age homes, rehabilitation centres, day care centres for elderly, vocational training to girls from slums, etc. cannot be considered as activities of medical relief or education or relief of the poor.
•		It is true that the activities carried on by the assessee take care of the poor people also. But those activities cannot be classified under any of the specific activities of relief of the poor; education or medical relief.
•		The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on ‘advancement of any other object of general public utility’. When that is the case, the assessee is hit by the proviso given under section 2(15).
•		The proviso reads that ‘advancement of any other object of general public utility’ shall not be 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 any trade, commerce or business for consideration, irrespective of the application of the money.
•		Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its International Guest House and Working Women’s Hostel.
•		Alternatively, one has to look into section 11(4A). Sub-section (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the assessee and separate books of account are maintained by such trust or institution in respect of such business.
•		In the present case, there is no dispute on the fact that the assessee is carrying on the business of running an International Guest House (IGH) and Working Women’s Hostel (WWH). The assessee is maintaining separate accounts for the above business activities. But, the crucial question is whether running of IGH and WWH is a business incidental to the attainment of the objectives of the trust or not.
•		By any stretch of imagination, it is not possible to hold that the business of running IGH and WWH are incidental to the above stated objectives of the assessee-trust. “Incidental” means offshoot of the main activities; inherent by-product of principal activities.
•		Activities to compliment and support the main objectives are not in the nature of incidental to the business. They are supporting activities, at the maximum. The genesis of incidental activities must be from the principal activities themselves. There cannot be one source for the principal activities and another source for incidental activities.
•		In the present case, even if activities of the assessee were stated to be relief of poor, medical relief and education, it was not possible to conclude that running of business in the form of IGH and WWH were business incidental to the carrying on of main objective of the assessee-trust. Therefore, the assessee is not protected by the provision stated in section 11 (4A), either.”

6.7 Thus, as observed earlier, publishing of newspaper is a commercial line which cannot be considered as charitable activity, so as to grant exemption u/s.11 of the Act. Accordingly, we are in agreement with the lower authorities and we deny the exemption u/s.11 of the Act.

6.8 Regarding depreciation, we have to make it clear that the claim of depreciation to be granted on written down value of the assets. In other words, if the assessee has already claimed capital expenditure on acquisition of assets as application of income in earlier years and the value of the assets on which depreciation claimed has been fully allowed as expenditure or application in the earlier years that cannot be any claim of depreciation once again. The present claim of depreciation cannot be a double deduction over and above the fully value of the assets, if it was granted as application of income in earlier years. With these observations, this ground is allowed for statistical purposes.

6.9 Regarding taxability of interest income, it is to be taxed under the head “income from other sources” and it is not an exempted income and there is no reason to exempt the same from taxation as the assessee is not entitled exemption u/s.11 of the Act, in view of the judgment of the Supreme Court in the case of Bangalore Club v. CIT [2013] 350 ITR 509

6.10 To sum up, the income of the assessee for these two assessment years is directed to compute by the Assessing Officer in accordance with law and it is needless to mention herein that when the income is computed in accordance with law as business income in the light of the above findings, usual deductions are allowable under the provisions of the Act while computing the income under the head “business”. More so, deduction under sections 30 to 38 of the Act, is to be allowed, if it is not already granted to the assessee.

7. In view of this, all other grounds raised by the assessee in these appeals are only academic and do not require any adjudication.

8. In the result, the appeals of the assessee are allowed for statistical purposes.