C/TAXAP/95/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 95 of 2020 COMMISSIONER OF INCOME TAX (EXEMPTIONS) Versus UNITED WAY OF BARODA Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 MRS SWATI SOPARKAR (870) for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J. B. PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 25/02/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J. B. PARDIWALA) 1. This tax appeal under Section 260A of Income Tax Act, 1961 (for short Act, 1961) is at instance of Revenue and is directed against order passed by Income Tax Appellate Tribunal, Ahmedabad, Bench dated 25.06.2019 in ITA No.2658/Ahd/2017 for A.Y. 2014-15. 2. facts, giving rise to this tax appeal, may be summarized as under; 2.1 assessee is charitable institution registered under Section 12A of Act, 1961. assessee filed its return of income declaring total income as Nil after claiming exemption under Section 11 of Act, 1961 of Rs.6,18,37,514/-. However, after assessment, total income was determined at Rs.4,53,97,808/-. Assessing Officer came to conclusion that assesee had received Page 1 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER total income of Rs.5,48,04,054/- which included Rs.4,37,61,637/- as income received from organizing event of Garba during Navratri festival. According to Assessing Officer, assessee sold passes and gave food stalls on rent etc. which constitutes 79.85% of its total income. assessee, during year, had declared gross receipts of Rs.5,27,40,432/- and showed surplus of Rs.26,27,243/-. assessee thereby claimed Rs.4,42,59,665/- as income for charitable purpose. Assessing Officer held that activities of assessee as per amended provision of Section 2(15) of Act could not be said to be advancement of any other object of general public utility and, therefore, assessee was not liable to claim benefit under Sections 11 and 12 respectively of Act, more particularly, in view of Section 13(8) of Act. Assessing Officer, having regard to gross receipts of Rs.5,48,04,054/- made addition of Rs.58,90,500/- on account of interest on FSF fund and Rs.1,67,90,118/- on account of anonymous donation. 2.2 assessee, being dissatisfied with assessment order, went in appeal before CIT (A). CIT (A), vide its order dated 15th September, 2017 allowed appeal of assessee taking view that activities of assessee could be termed as charitable in nature and assessee would be eligible for benefit under Sections 11 and 12 respectively of Act, 1961. 2.3 Revenue, being dissatisfied with order passed by CIT (A), went in appeal before Appellate Tribunal. Tribunal, while dismissing appeal of Revenue, concurred with findings recorded by CIT (A). In such circumstances, referred to above, Revenue is here before Page 2 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER this Court with present appeal. 2.4 Revenue has proposed following questions of law for consideration of this Court; (A) Whether, on facts and in circumstances of case, Hon'ble ITAT is justified in allowing benefit of Section 11 and 12 when Assessing Officer has clearly brought on record that assessee is covered under proviso to Section 2(15) r.w.s. 13(8) of Act.? (B) Whether on facts and in circumstances of case and in law, Hon'ble Tribunal was justified in allowing benefit of section 11 and 12 to assessee by confirming decision of Ld. CIT (A) without appreciating that assessee is covered under proviso to section 2(15) of Act i.e., advancement of any other object of general public utility? (C) Whether on facts and in circumstances of case and in law, Hon'ble Tribunal was justified in allowing expenses assistance to voluntary agencies, public education program, expenses for community service, doubtful loan provided as application of income? (D) Whether on facts and in circumstances of case and in law, Hon'ble Tribunal is correct in deleting additions relying on decision of Coordinate Bench in ITA No.3565/Ahd/2016 for A.Y.2011- 12 which has not been accepted, though further appeal was not preferred on account of quantum of tax involved? (E) Whether on facts and in circumstances of case and in law, Hon'ble ITAT is justified in giving decision in favour of assessee and against revenue, though there is no nexus between conclusion of facts and primary facts upon which conclusion is based, thereby rendering decision, which is perverse? (F) Whether on facts and circumstances of case and in law, findings of Hon'ble ITAT are contrary to evidence on record, thereby rendering Page 3 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER decision, which is perverse.? 3. Ms. Bhatt, learned standing counsel appearing for Revenue vehemently submitted that CIT (A) as well as Appellate Tribunal committed serious error in holding that activities of assessee fall within Section 2(15) read with Section 13(8) of Act. Ms. Bhatt laid much emphasis on fact that although assessee is charitable trust registered under Section 12A of Act, yet that by itself is not sufficient to bring case within ambit of Section 2(15) of Act. According to Ms. Bhatt, for relevant year, actual activities of assessee should be taken into consideration. Ms. Bhatt laid much emphasis on fact that from one particular event, i.e,. Garba huge income has been derived by assessee. According to Ms. Bhatt, case on hand squarely falls within proviso to Section 2(15) of Act. It is argued that once activity of assessee falls within ambit of trade, commerce or business, then it no longer remains charitable activity and assessee is not entitled to claim any exemption under Sections 11 and 12 respectively of Act. Ms. Bhatt submitted that no income has been generated for year under consideration from activities which are said to be charitable in nature. 4. Ms. Bhatt seeks to rely on decision of this Court in case of N. N. Desai Charitable Trust vs Commissioner of Income Tax, 2000 246 ITR 452 Guj. 5. Ms. Bhatt also pointed out that decision of Delhi High Court in case of India Trade Promotion Organization vs. DGIT,. 371 ITR 333 (D) may support case of assessee, or in other words, may fortify Page 4 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER findings recorded by CIT (A) and Appellate Tribunal, but at same time, said decision is now under consideration before Supreme Court. Ms. Bhatt pointed out that leave has been granted and appeal has been admitted. 6. On other hand, Mr. S. N. Soparkar, learned senior counsel assisted by Mr. B. S. Soparkar, learned counsel appearing for assessee has vehemently opposed this appeal. Mr. Soparkar would submit that none of questions, as proposed by Revenue, could be termed as substantial questions of law. 7. It is argued that all questions, as proposed by Revenue, are now no longer res integra in view of two pronouncements of this High Court (i) Principal Commissioner of Income Tax (Exemptions) vs. Naroda Enviro Projects Ltd., Tax Appeal No.189 of 2019 and (ii) Director of Income Tax (Exemption) vs. Gujarat Cricket Association, Tax Appeal No.268 of 2012. Mr. Soparkar would submit that all relevant aspects of matter have been duly considered by CIT (A) as well as by Appellate Tribunal and, in such circumstances, no interference is warranted. 8. Having heard learned counsel appearing for parties and having gone through materials on record, only question that falls for our consideration is whether questions of law as proposed by Revenue could be termed as substantial questions of law. 9. Assessing Officer recorded following findings; Page 5 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER 4.6 At outset, it is to mention here that assessee is organizing Garba event on eve of Navratri. Amongst total income of Rs.5,48,04,054/, Rs. 4,37,61,637lare generated from said garba events. Thus, out of total income, 79.85% partakes from garba event only. As mentioned in foregoing para, assessee is organizing Garba event on eve of Navratri. Amongst therefore, it is beyond pale of doubt that the, assessee s prime objective of garba organization. activities of assessee are aimed at earning profit as it is carrying on activity in nature of trade, commerce or business. Further profit making by assessee is not mere incidental. Section 13(8) of Act states that section 11 and 12 benefits will not be available to assessee if first proviso of section 2(15) is applicable. relevant portion of section 13(8) of Act is reproduced as sunder: "(8) Nothing contained in section 11 or section 12 shall operate so as to exclude any income from total income of previous year of person in receipt thereof if provisions of first proviso to clause (15) of section 2 become applicable in case of such person in said previous year." 4.7 sources of income of assessee clearly depict its commercial nature. income of assessee consists of selling of passes to boys/girls and leasing of stalls etc. Further, in compact oxford English dictionary (South Asia Edition), business is meant as "a person's regular occupation or trade, Commercial Activity". word commerce is meant as "the activity of buying and selling especially on large scale". trade is defined as buying and selling of goods or services". Thus, on entirety of facts and circumstances, assessee's case falls within all yardsticks in amended provisions of legislature. In case, it is construed that assessee's garba activity is commercial and do not partakes characteristics of Charitable Purpose within meaning of amended provisions of section 2(15) of Act. 4.8 Further, assessee had relied upon CBDT's circular No.11/2008 dated 19.12.2008. It is to mention Page 6 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER here that said circular No.11/2008 is superseded by Circular No. 02/2012 [F.No.142/01/2012-SO(TPL)1, dated 225-2012, which inter alia explains as under: 5.1 To purposes of Act, charitable purposes has been defined in section 2(15) which, among others, include "the advancement of any other object of general public utility". 5.2 However, "the advancement of any other object of general public utility" is not considered as charitable purpose, if it involves carrying on of any activity in nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of income from such activity, if receipts from such activities is above specified limit in previous year. 5.3 Second proviso to section 2 (15) of Act has been amended to provide that specified monetary limit in respect of receipts from such activities shall be 25 lakh rupees instead of 10 lakh rupees." One may argue that assessee has been granted registration u/s 12A of Act. registration to assessee was granted on 09.O4.2010 i.e. well before insertion of section 13(8) of Act by Finance Act, 2012. Secondly, provisions of section 12A and 12AA are material and relevant, for purpose of granting registration u/s 12AA of Act. Needless to say that it is well settled legal proposition that registration proceedings u/s 12A read with section 12AA of Act are not to be confused with assessment proceedings wherein provisions of section 11, 12 and 13 of Act are applicable Now let us examine whether garba activity by appellant involves carrying on of any activity in nature of trade, commerce, or business. It has been held by honorable ITAT Amritsar Bench in case of "Jhalandar Development Authority" 124 TFJ 598, that words used in proviso "any activity in nature of trade, commerce, or business are of wider import THEN activity of trade, commerce or business. It has been held in case of Entertainment Society of Goa Vs. CIT 34, Taxman. Page 7 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER Com 210 (Panji-Tribunal) that activity being conducted by assessee need not be trade, commerce, or business activity. It is sufficient that it is similar to trade, commerce, or business activity. 10. CIT (A), while allowing appeal preferred by Assessee held as under; 5.2 I have carefully considered rival contention as well as observation of A.O. It is observed from remand report that appellant has itself admitted to have received amount of Rs.1,67,90,118/- as anonymous donations u/s. 115BBC at Schedule-VC of return of income filed by appellant. As it is voluntary declaration made by appellant in its return of income, there was no reason why AO should have asked any further question during assessment proceedings. However, during appellate proceedings appellant has submitted that said amount was received as corpus donation in form of foreign inward remittances from Stitching Fusion Study Foundation. It was by error and clerical mistake in return of income so filed was reflected under Schedule VC of ITR-7 as anonymous donations It also further submitted that said amount as corpus donation has not been declared as income of appellant from property held by trust in its computation of income. On contrary said amount is shown as corpus donation in balance sheet of appellant trust. I have seen computation of income as well as balance sheet submitted by appellant. contention of appellant is correct. income received by appellant has been of Rs. 6,18,37,514/-. Nowhere in this it has offered amount of Rs.1,67,90,118/- As said amount is capital receipt appellant would be eligible for deduction u/s.11(1)(d). perusal of balance sheet also reflects that appellant has reflected said amount at Schedule-l of Balance Sheet with remark that corpus donation received during year. appellant should have filed revised return of income rectifying its own mistake in return of income. As amount received by appellant is capital receipt in form of corpus donation it cannot be considered as its income from property held by trust. Therefore, notwithstanding remand proceedings, I am of considered opinion that said Page 8 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER amount cannot be added to income of appellant as I have already held that appellant is exempted entity. Therefore, appellant would be eligible for all benefits of sec. 11 & 12. grounds of appeal nos. 4, S, 6 & 7 are hereby allowed. 11. Appellate Tribunal, while dismissing appeal of Revenue held as under; 4. There are thus two issues requiring our adjudication in this appeal- first, whether or not CIT(A) was justified in holding that proviso to Section 2(15) will not have any application on facts of this case and thus benefit of Section 11 cannot be declined to assessee; and, second- whether or not CIT(A) was justified expenses, like assistance to voluntary agencies, management assistance and training, public education programme, research and publications and expenses for community service, as application of income for purposes of Section 11 of Act. 5. To adjudicate on these issues, only few material facts need to be taken note of. assessee before us is society registered as charitable institution registered under section 12AA of Act. assessee filed return of income on 26.9.2011 showing NIL income. During course of scrutiny assessment proceedings, Assessing Officer noticed that assessee has shown gross receipts of Rs 3,81,01,051, and surplus of Rs 39,94,650. In computation of income, assessee had claimed application of funds for charitable purposes to extent of Rs.3,81,16,559 and claimed exemption under section 11 of Act. When Assessing Officer probed matter further, he found that out of total receipts of Rs.3,81,01,051, sum of Rs.2,73,26,591 (i.e. 71.72% of revenues) is in respect of garba event only. Assessing Officer also noted that assessee organizes one of most popular and prestigious garba event in Baroda in highly professional manner, that assessee charges entry fees from participants as also stall owners, and that it is in nature of business activity. It was in this backdrop that assessee required assessee to justify eligibility for exemption of income under section 11, in light of provisions of Section 13(8) read with Page 9 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER proviso to Section 2(15). In response to this requisition, assessee explained at length about activities of United Way of Baroda, which includes supporting 120 NGOs and volunteer driven activities that link, support and deliver health and human services to improve quality of life in society. Its mission was said to be to improve and make Baroda better place to live in and its vision was stated to be to increase organized capacities of people and to take care of one another. It was also pointed out that objectives of society include mobilizing resources from local communities and people having affiliation and concern for India in general, and Gujarat in particular, residing in India or abroad and to apply them for strengthening services in education, health and human care and other social sectors existing in Baroda and State of Gujarat and assessing on continuing basis need for human service programs, to seek solution to human problems, to assist in development of new or expansion or modification of existing human services programs, and to foster cooperation among local, state and national agencies for providing service to community. It was also pointed out that assessee contributes by strengthening services in education, by providing vocational training to disabled, helping orphans, empowering women through various programs and providing mid meal to poor students. details of eye camp and thalassemia screening and detection camp conducted by assessee were also furnished. assessee also gave details of how monies are spent to these ends. As regards application of proviso to Section 2(15), it was pointed out that only when institutions are carrying out activities on commercial lines with profit motive, this provision comes into play. It was pointed out that surplus funds are purely incidental and institution is not run on commercial lines at all. Elaborate legal submissions were made on scope of proviso to Section 2(15) and its legislative history and background. reference was also made to CBDT circular No. 11/2008 dated 29th December 2008 in support of proposition proviso to Section 2(15) will not apply in respect of activities involving relief to poor, education or medical relief, even if it incidentally involves carrying on of commercial activities. It was then pointed out that main object of trust is to mobilize resources from local communities and people having affiliation and Page 10 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER concern for India in general, and Gujarat in particular, residing in India or abroad, and to apply them for strengthening services in education, health and human care and other social sectors of underprivileged. It was thus contended that proviso to Section 2(15) will have no application in this case. assessee also made elaborate submissions on connotations of expressions business activities and made out case as to how activities of assessee, even with respect to holding garba event, do not constitute business activities. 7. Assessing Officer was of view that how income is applied is one thing, but what is much more important is, what he termed as, gravity of generation of income. He referred to provisions of Section 2(15), as amended with effect from 1st April 2009, and observed that after insertion of above proviso, advancement of any other object of public utility shall not be charitable purpose, if it involves carrying on of (i) any activity in nature of trade, commerce or business; (ii) any activity of rendering any services in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application or retention of income from such activity. He then referred to monetary threshold limits brought about by Finance Act, 2010, with respect to revenues generated by such activities. Assessing Officer then referred to, and relied upon, memorandum explaining provisions of Finance Act, 2008. He then noted that main activity of assessee is to organize garba event which generates more than 71% of its revenues and such predominant object can at best be object of general public utility. It was then noted that application of earnings from this activity will not end nature of prime activity. He then referred to provisions of Section 13(8) and observed that benefits of section 11 and 12 will not be applicable even in case of registered charitable institution in situation in which provisions of Section 2(15) come into play as in this case. Assessing Officer reiterated that sale of entry tickets and hiring out of stalls is clearly commercial activity. Assessing Officer thus rejected claim of exemption under section 11. While he allowed deduction, in computation of income, of such expenses as were incidental to Page 11 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER earning of income, Assessing Officer disallowed following expenses : Sr. Particulars Amount (Rs.) No. 1 FSF Doubtful Loan Provided 2205000 2 Assistance to Voluntary Agencies 10822700 3 Management Assistance & 120317 Training 4 Public Education Programme 468116 5 Research & Publications 37179 6 Expenses for community services 898840 13. In pursuance of these objects, even if assessee performs some activities, which can be alleged to be on commercial lines, are performed, charitable nature of objects will not be vitiated as proviso to Section 2(15) comes into play only in respect of any other object of general public utility and is not covered by specific objects pointed out earlier- including relief to poor, education and medical relief. Nothing, therefore, really turns on garba event being organized on basis of, what can be termed as, commercial principles. That aspect of matter is not relevant in present case. As we have noted earlier, one of major object of assessee society is mobilizing resources from local communities and people having affiliation and concern for India in general, and Gujarat in particular, residing in India or abroad and to apply them for strengthening services in education, health and human care and other social sectors existing in Baroda and State of Gujarat, and there is also no dispute that considerable work in this area has been carried out in this area as evident from material produced before Assessing Officer, copies of which have been filed before us as well. genuineness of this object, and furtherance of this object, cannot even be doubted. We are satisfied that activities carried out by assessee are in nature of education, medical relief and help to poor which are specifically covered by section 2(15) and not by its residuary segment. proviso to Section 2(15) thus indeed has no application in matter. As for denial of deduction in respect of Page 12 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER expenses like assistance to voluntary agencies, management assistance and training, public education programme, research and publications and expenses for community service, that is only consequential in nature inasmuch as deductions were declined in computation of business income from garba event but then once proviso to Section 2(15) is held to be inapplicable on facts of this case, these expenses are to be treated as application of income. Learned representatives do not dispute this position. 12. Section 2(15) of Act, 1961 reads thus; 2(15) "charitable purpose" includes relief of poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and advancement of any other object of general public utility: Provided that advancement of any other object of general public utility shall not be charitable purpose, if it involves carrying on of any activity in nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for cess or fee or any other consideration, irrespective of nature of use or application, or retention, of income from such activity, unless (i) such activity is undertaken in course of actual carrying out of such advancement of any other object of general public utility; and (ii) aggregate receipts from such activity or activities during previous year, do not exceed twenty per cent of total receipts, of trust or institution undertaking such activity or activities, of that previous year; 13. Prior to introduction of Proviso to Section 2(15) of Act, there was no dispute that assessee herein was established for charitable purposes and, therefore, its income was not to be included in total income and was, therefore, Page 13 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER granted benefit of exemption. income received by assessee is from organizing event of Garba by sale of tickets and also leasing out food and beverages outlets at venue of event. However, dominant and main object of assessee cannot be said to be organizing event of Garba. charitable activities which assessee has been undertaking has been discussed by Appellate Tribunal. We take notice of fact that assessee has been supporting 120 non-government organizations. assessee is into health and human services for purpose of improving quality of life in society. objectives of Society includes mobilizing resources from local communities. It organizes medical camps for thalassemia affected children. It also provides vocational training to disabled orphans, undertakes various program for empowering women including providing midday meal to poor students. activities like organizing event of Garba including sale of tickets and issue of passes etc. cannot be termed as business. two authorities have taken view that profit making is not driving force or objective of assessee. This is indicative of fact that any income generated by assessee from events like Garba does not find its way into pockets of any individual or entities. It is to be utilized fully for purposes of objects of assessee. As held in many pronouncements, expression trade , commerce' and business as occurring in first Proviso to Section 2(15) of Act must be read in context of intent and purport of section 2(15) of Act and cannot be interpreted to mean any activity which is carried on in organized manner. purpose and dominant object for which institution carries on its activities is material to determine whether Page 14 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 C/TAXAP/95/2020 ORDER same is business or not. object of introducing first proviso is to exclude organizations which are carrying on regular business from scope of "charitable purpose". activity would be considered 'business' if it is undertaken with profit motive, but in some cases, this may not be determinative. Normally, profit motive test should be satisfied, but in given case activity may be regarded as business even when profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that activity undertaken is in fact in nature of business. 14. In overall view of matter, more particularly, having regard to concurrent findings recorded by two authorities, we are of view that we should not interfere with order passed by Appellate Tribunal. 15. In result, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) Vahid Page 15 of 15 Downloaded on : Tue Mar 03 16:00:25 IST 2020 Commissioner of Income-tax (Exemptions) v. United Way of Baroda