Mehrangarh Museum Trust, JAIPUR V. ACIT (Exemption), JODHPUR

CO 15/JODH/2015

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2193 (ITAT-JODHPUR)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 15-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 17-11-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S K MADHUK
• Assessee Lawyers: RAJIV PANDEY
• Keywords: Gift; Business income; Charitable institution; Question of law; Cancellation of registration; Revenue expenditure; Capital expenditure
• Section: 143(3); 80G; 12A; 12AA; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI N.S. SAINI , HONBLE ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, HONBLE JUDICIAL MEMBER ITA NO S . 152 TO 155 & 189 / JODH /201 5 (ASST. YEAR S : 200 5 - 0 6 TO 2007 - 08, 2010 - 11 & 2011 - 12 ) ACIT (EXEMPTIONS) , JODHPUR . VS. MEHRANGARH MUSEUM TRUST, UMAID BHAWAN, JODHPUR. PAN NO. AAATM 1259 K (APPELLANT) (RESPONDENT) C.O.NOS. 14, 15, 17/JODH/2015 AND C.O.NOS. 07 & 04/JODH/2016 ( ITA NO S . 152 TO 155 & 189 / JODH /201 5) (ASST. YEAR S : 200 5 - 0 6 TO 2007 - 08, 2010 - 11 & 2011 - 12 ) MEHRANGARH MUSEUM TRUST, UMAID BHAWAN, JODHPUR. VS. ACIT (EXEMPTIONS), JODHPUR. PAN NO. AAATM 1259 K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAJIV PANDEY C A. DEPARTMENT BY : S HRI S.K. MADHUK - DR DATE OF HEARING : 1 5 / 0 3 /201 6 . DATE OF PRONOUNCEMENT : 1 5 / 03 /201 6 . O R D E R PER N.S. SAINI , ACCOUNTANT MEMBER TH E S E ARE THE APPEAL S FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 1 , JODHPUR , DATED 03 /0 2 /201 5 . 2 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN DIRECTING THE ALLOW EXEMPTION U/S 11 OF THE ACT OF THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT ( APPEALS ) - I JODHPUR HAS ERRED IN HOLDING THAT THE ASSESSEE'S CASE FALLS IN THE CATEGORY OF PRESERVING THE MONUMENTS AND PLACE OF HISTORICAL OBJECTS AS SUCH THE PROVISO TO SEC 2(15) OF THE ACT DOES NOT APPLY IN THE ASSESSEE'S CASE. 3. ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN HOLDING THAT THE ASSESSEE'S TRUST HAS NOT INCURRED EXPENSES BEYOND THE OBJECTS OF THE TRUST DESPITE THE FACT THAT THE TRUST HAS INCURRED EXPENSES BEYOND THE OBJECTS OF THE TRUST DESPIT E THE FACT THAT THE TRUST HAS INCURRED EXPENSES ON THE REPAIR AND MAINTENANCE OF THE COMMERCIAL ASSET. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN HOLDING THAT THE ASSESSEE'S TRUST HAS NOT INC URRED EXPENSES BEYOND THE OBJECTS OF THE TRUST DESPITE THE FACT THAT THE TRUST HAS INCURRED EXPENSES ON AHICHHTRAGARH FORT AND NAGAUR FORT WHOSE ULTIMATE BENEFICIARY IS MAHARAJA GAJ SINGH OF JODHPUR WHO IS THE MANAGING TRUSTEE AND PERSON SPECIFIED U/S 13(3 ) OF THE ACT. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L / JODHPUR HAS ERRED IN HOLDING THAT THE PROVISION OF SEC 13(L)(C)(II) ARE NOT APPLICABLE IN THE ASSESSEE'S CASE DESPITE THE FACT THAT THE MAHARAJA GAJ SINGH OF JODHPUR IS HOLDING SUBSTANTIAL SHARES IN M/S JODHANA HERITAGE RESORTS PVT . LTD AND M/S MARUDHAR H OTEL PVT . LTD WHO IS MANAGING TRUSTEE AND PERSON SPECIFIED U/S 13(3) OF THE ACT AND THESE COMPANIES ARE REAL BENEFICIARY OF THE HOTEL BEING RUN ON THE PROPERTY OF HANUWANT TRUST 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APP EALS) - L, JODHPUR HAS ERRED IN DIRECTING TO ALLOW CAPITAL EXPENDITURE AS APPLICATION OF INCOME. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN DIRECTION TO ALLOW FOREIGN CONTRIBUTION AS CORPUS DON ATION. 8. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN DIRECTING TO ALLOW BENEFIT OF SEC 11(2) AND OTHER CONSEQUENTIAL BENEFITS AVAILABLE TO A TRUST WHERE EXEMPTION U/S 11 IS ALLOWED. 9. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN HOLDING THAT THE ASSESSEE IS NOT ENGAGED IN ANY COMMERCIAL ACTIVITIES DESPITE THE FACT THAT THE HOTEL RUN BY THE OTHER ENTITIES WAS MAINLY FINANCED BY THE ASS ESSEE TRUST. 3 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 10. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(APPEALS) - L, JODHPUR HAS ERRED IN ALLOWING THE ASSESSE E 'S APPEAL RESULTING INTO RELIEF OF RS 2,99,07,827/ - . 3 . AT THE TIME OF HEARING, BOTH THE PARTIES BEFORE US AGREED THAT THE ISSUE IS COVERED BY THE ORDER OF THIS TRIBUNAL PASSED IN THE CASE OF ASSESSEE ITSELF IN ITA NO. 51/JODH/2013 FOR THE ASSESSMENT YEAR 2009 - 10 ORDER DATED 28/06/2013 . 4 . WE FIND THAT THE TRIBUNAL IN THE ASSESSMENT YEAR 2009 - 10 , HELD AS UNDER: - 3.2 GROUND NO. 2 READ AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF EXEMPTION CLAIMED U/S 11 OF INCOME TAX. ACT, 1961 AND IN HOLDING THAT THE ASSESSEE TRUST DOES NOT COMPLY WITH PROVISIONS OF SECTION 2(15) OF INCOME TAX ACT, 1961 AND FURTHER ERRED IN NOT FOLLOWING PROVISIONS OF LAW ON THE SUBJECT. 3.3 THE FACTS OF THIS GROUND HAVE ALREADY BEEN NARRATED. IT WA S ARGUED BY THE LD. A.R. THAT THE APPELLANT IS A CHARITABLE TRUST, REGISTERED UNDER SECTION 12AA OF THE ACT, VIDE ORDER DATED 13.08.2007, WITH EFFECT FROM 01.04.2001. THE APPELLANT TRUST WAS SETTLED ON 15.03.1972 BY MAHARAJA GAJ SINGHJI, WITH CASH AND COLL ECTION OF ANTIQUITIES, WITH THE OBJECT OF SETTING UP A WORLD CLASS MUSEUM IN JODHPUR, FOR THE BENEFIT OF PUBLIC AT LARGE. IT WAS FURTHER STATED THAT IN ORDER TO MEET THE OBJECT OF SETTING UP A MUSEUM, MEHRANGARH FORT WAS GIVEN ON LEASE BY MAHARAJA GAJ SIN GHJI TO THE APPELLANT, VIDE LEASE DEED DATED 19.06.1974, FOR AN INDEFINITE PERIOD. MEHRANGARH FORT IS AN ANCIENT AND HISTORICAL PLACE, WHICH IS A PROTECTED MONUMENT IN TERMS OF PROVISIONS OF SECTION 3(4) OF THE RAJASTHAN MONUMENTS ARCHAEOLOGICAL SITES & ANTIQUITIES ACT, 1961. THIS FACT IS EVIDENT FROM THE PHOTOGRAPHS PLACED ON RECORD, WHICH DEMONSTRATES THAT THE FORT HAS BEEN DECLARED AS AN ARCHAEOLOGICAL MONUMENT. IT WAS FURTHER SUBMITTED THAT MEHRANGARH FORT WAS CONSTRUCTED MORE THAN 500 YEARS AGO. IN VIEW OF THE CONSIDERABLE EXPENDITURE EXPECTED TO BE INCURRED TO RESTORE AND MAINTAIN THE FORT, NOMINAL ANNUAL RENT OF RS. 100 P.A WAS FIXED FOR INITIAL 10 YEARS [REFER CLAUSE 1 @PG 73 OF THE PB]. VIDE LETTER DATED 20.05.1992, ANNUAL RENT OF THE FORT CONTIN UED TO REMAIN @RS. 100 P.A. [REFER PG 75 OF THE PB]. THEREAFTER, ALL EXPENSES ON MAINTENANCE WERE AGREED TO BE BORNE BY THE APPELLANT. SINCE 01.04.1972, THE APPELLANT SET UP A MUSEUM IN THE PRECINCTS OF THE FORT FOR DISPLAYING THE ARTICLES / ANTIQUITIES SE TTLED IN THE APPELLANT TRUST. 4 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 3.4 PER CONTRA, THE LD. D.R. HAS REITERATED ALL THE REASONS GIVEN IN THE A.O.S AND LD. CIT(A)S ORDERS 3.5 THE MAIN OBJECT OF THE TRUST WAS TO ESTABLISH A MUSEUM. THE RELEVANT CLAUSES OF THE TRUST DEED ARE EXTRACTED BELOW: WHEREAS THE SETTLOR IS IN POSSESSION OF LARGE NUMBER OF PICTURES, PAINTINGS, PORTRAITS, WORKS OF ART , COINS OF ANTIQUITY, ARTISTIC(SLIVER, IVORY, CHINA GLASS) WARE, CUT GLASS, BOOKS OF ART , PRICELESS RUGS, ANTIQUES, CURIOS, WEAPONS OF ALL TYP ES, OBSOLETE AND OTHERWISE, OLD ARMOUR, SHIELDS, SWORDS , DAGGERS ETC. AND OTHER VARIOUS MISCELLANEOUS ITEMS REPRESENTING THE COLLECTION OF MANY GENERATIONS OF RULERS OF JODHPUR AND IS DESIROUS OF SETTLING PART OF THE COLLECTION FOR CHARITABLE PURPO SES AND IN ORDER TO SECURE THIS OBJECT, IS DESIROUS OF ESTABLISHING A MUSEUM FOR THE BENEFIT OF THE PUBLIC AT LARGE . . 6. THE TRUSTEES SHALL PROTECT, PRESERVE, ENLARGE AND IMPROVE THE COLLECTIONS AND ARTICLES AND THINGS TO BE RECEIVED BY THEM FROM TIME TO TIME AND WILL TAKE ALL NECESSARY STEPS TO THE BEST OF THEIR ABILITY AND MEANS TO PROMOTE, ENLARGE AND IMPROVE THE COLLECTIONS TO BE SO RECEIVED AND HELP SEEKERS OF KNOWLEDGE, IN THE STUDY AND RESEARCH IN ART, LITERARY, SCIENTIFIC, HISTORIC AND RELI GIOUS MATTERS LEADING TO THE PROGRESS AND DEVELOPMENT OF KNOWLEDGE IN GENERAL. 7. ALL INHABITANTS OF JODHPUR AND ALL VISITORS TO JODHPUR CITY, WITHOUT ANY DISCRIMINATION OF CASTE, CREED OR RELIGION SHALL, SUBJECT TO THE RULES AND REGULATIONS AS FRAMED OR ALTERED FROM TIME TO TIME BY THE ADMINISTRATORS AND THE MANAGEMENT OF THE TRUST, BE AT LIBERTY TO VISIT THE MUSEUM. 8. IF ANY CAPITAL ENDOWMENTS OR ADDITIONS TO CORPUS IN CASH OR IN KIND OR ANY VOLUNTARY CONTRIBUTIONS OR DONATIONS OR SUBSCRIPTION S OR LEGACIES SHALL BE MADE OR GIVEN FOR THE PURPOSES OF THE TRUST, HEREBY CONSTITUTED OR OTHERWISE FOR THE PURPOSES OF THESE PRESENTS UPON OR SUBJECT TO SPECIAL CONDITIONS, IT SHALL BE LAWFUL FOR THE TRUSTEES TO APPLY THE SAME NOT IN DEROGATION OF TH E PURPOSES FOR WHICH THE TRUST IS CONSTITUTED BUT OTHERWISE AS NEARLY AS POSSIBLE IN CONFORMITY WITH THE PROVISIONS OF AND PURPOSES OF THE TRUST. 9. THE TRUSTEES MAY HELP BY DONATION OR OTHERWISE OTHER TRUSTS OR INSTITUTIONS HAVING SIMILAR O BJECT OR OBJECTS OR MAY AMALGAMATE THE TRUST OR THE TRUST FUNDS OF THESE PRESENTS OR ANY PORTION OR PORTIONS THERE OF WITH ANY TRUST OR TRUST FUNDS OR 5 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 INSTITUTIONS HAVING SIMILAR OBJECTS UPON SUCH TERMS AS THEY MAY IN THEIR ABSOLUTE DISCRETION THI NK FIT AND PROPER. .. 16. THE TRUSTS SHALL HAVE POWER TO PULL DOWN RENOVATE, REBUILD , ALTER , IMPROVE, DEVELOP, AND REPAIR ANY PROPERTY COMPRISED IN THE TRUST OR CONSTRUCT ANY STRUCTURE ON ANY LAND FORMING THE PART OF TRUST (EMPHASIS SUPPLIED ) IT IS ON THE BASIS OF THE AFORESAID OBJECTIVES, THAT THE APPELLANT WAS GRANTED REGISTRATION UNDER SECTION 12A OF THE ACT WHICH IS IN FORCE TILL DATE. 3.6 WE HAVE FOUND THAT THE APPELLANT HAS, IN ACCORDANCE WITH THE APPROVED OBJECTIVES, BEEN CONSISTENTLY PURSUING ITS CHARITABLE ACTIVITIES FOR THE PAST SEVERAL DECADES AND THE APPELLANT HAD ALWAYS BEEN ALLOWED EXEMPTION UNDER SECTIONS 11/12, INCLUDING IN VARIOUS ASSESSMENTS COMPLETED UNDER SECTION 143(3) OF THE ACT. IT MAY ALSO BE PERTINENT TO M ENTION HERE THAT THERE HAS BEEN NO CHANGE IN FACTS DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT, DURING THE YEAR CONSIDERATION, APPLIED RS. 647,42,176 (COMPRISING REVENUE EXPENDITURE OF RS. 593,37,891 AND CAPITAL EXPENDITURE OF RS. 54,04,285) AGAINS T INCOME OF RS. 812,53,705 AND CLAIMED EXEMPTION UNDER SECTION 11(1)(A) OF THE ACT QUA INCOME OF RS.121,88,056. THE REMAINING INCOME OF RS. 43,23,470 / - DERIVED FROM BUSINESS CARRIED BY THE APPELLANT TRUST WAS OFFERED TO TAX. THE ASSESSING OFFICER/CIT(A), HELD THAT THE OBJECTS/ACTIVITIES OF THE APPELLANT TRUST FELL UNDER THE FOURTH LIMB OF THE DEFINITION OF CHARITABLE PURPOSE GIVEN UNDER SECTION 2(15), I.E. ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY BUT SINCE THE APPELLANT TRUST CARRIED ON COMMERCIAL ACTIVITIES FOR CONSIDERATION, IN VIEW OF PROVISO TO THAT SECTION, INSERTED BY THE FINANCE ACT 2008, W.E.F. 01.04.2009, THE APPELLANT TRUST WAS NO LONGER ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. 3.7 WE HAVE NOTICED THAT THE MAIN REASO NS FOR DENYING EXEMPTION CLAIMED BY THE APPELLANT UNDER SECTIONS 11/12 OF THE ACT CAN BE SUMMARIZED AS BELOW: A) THE PREDOMINANT OBJECTIVE OF THE APPELLANT, BEING ESTABLISHMENT OF MUSEUMS, DID NOT QUALIFY AS PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC NATURE, BUT FELL IN THE RESIDUARY CATEGORY OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY; AND B) THE APPELLANT UNDERTOOK COMMERCIAL ACTIVITIES, SUCH AS, ALLOWING FILMING OF MOVIES, PERMITTING HOTELIERS TO HOST DINNERS AT THE FORT AND ALLOWING CRAFTSMEN TO GIVE LIVE DEMONSTRATION OF THEIR ACTIVITIES. 6 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 3.8 ON APPEAL, THE CIT(A) AFFIRMED THE ORDER OF THE AO AND HELD THAT THE CASE OF THE APPELLANT WAS COVERED WITHIN PROVISO TO SECTION 2(15) OF THE ACT, ON THE FOLLOWING GR OUNDS: C) OBJECTS OF THE APPELLANT DID NOT MENTION ABOUT PRESERVATION OF MONUMENTS OR THINGS; D) E) CASE OF THE APPELLANT FELL IN THE CATEGORY OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY; F) SINCE THE ACTIVITIES OF THE APPELLANT WERE NOT AS PER THE PRESCRIBED OBJECTS, THE APPELLANT WAS NOT ENTITLED TO EXEMPTION UNDER SECTION 11 OF THE ACT; G) RECEIPTS FROM SHOPS, SHOOTING, HOTELIERING, ETC., SHOWED THAT THE FORT HAD BEEN COMMERCIALLY EXPLOITED; H) ACCORDING TO THE CIT(A), SINCE THE APPELLANT TRUST WAS ENGAGED IN ADVANCEMENT OF OBJECT(S) OF GENERAL PUBLIC UTILITY, BUT AT THE SAME TIME, CARRIED ON COMMERCIAL ACTIVITIES FOR CONSIDERATION, THE MISCHIEF OF PROVISIO TO SECTION 2(15) WAS CLEARLY APPLICABLE, RESULTING IN EXEMPTION UNDER SECTION 11 OF THE ACT NO T BEING AVAILABLE TO THE APPELLANT. I) FURTHER, THE CIT(A) DISTINGUISHED THE DECISION IN THE CASE OF ACIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION:121 ITR 1 (SC) STATING THAT IN THE APPELLANTS CASE, MAJOR PART OF RECEIPTS WERE FROM COMMERCIAL ACTI VITIES, WHILE IN THAT CASE, BUSINESS CARRIED BY THE ASSESSEE WAS ANCILLARY/ INCIDENTAL TO THE MAIN OBJECT. 3.9 IN LIGHT OF THE OBJECTS OF AND NATURE OF ACTIVITIES CARRIED ON BY THE APPELLANT, IT WILL KINDLY BE APPRECIATED THAT PROVISO TO SECTION 2(15) OF THE ACT IS NOT APPLICABLE TO THE CASE OF THE APPELLANT,, AS ELABORATELY DISCUSSED HEREUNDER: SECTION 2(15) OF THE ACT DEFINES CHARITABLE PURPOSE AS UNDER: - .. 15) CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST, AND THE ADVANCEME NT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY: .. PROVISO INSERTED THERETO BY THE FINANCE ACT, 2008, WITH EFFECT FROM 01.04.2009, READS AS UNDER: 7 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CH ARITABLE 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, IRRESPECTI VE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY; .. ..(EMPHASIS SUPPLIED) 3.10 THE INTENTION OF THE LEGISLATURE BEHIND INTRODUCTION OF THE AFORESAID PROVISO IN THE DEFINITION OF CHARITABLE PURPOSE IN SECTION 2(15) OF THE ACT CAN BE GATHERED FROM CBDT CIRCULAR NO. 11 DATED 19TH DECEMBER, 2008 REPORTED IN 221 CTR (ST) 1, WHEREIN SCOPE OF THE SAID AMENDMENT HAS BEEN ELABORATED IN THE FOLLOWING WORDS: 3.THE NEWLY AMENDED SECTION 2(15) WILL APPLY ONLY TO THE ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY I.E. THE FOURTH LIMB OF DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SECTION 2(15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UND ER 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 FREQUEN CY OF ACTIVITY. 3.1 THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX UNDER SECTION 11 OR ON THE GROUND THAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSES AS THESE ARE COVERED UNDER THE ANY OTHER OBJECT OF PUBLIC UTILITY. UNDER THE PRIN CIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN THE 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 THE SURPLU S RETURNED TO SUCH PERSONS IS NOT CHARGEABLE TO TAX. THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATION CLAIMS BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF SECTION 2(15) OWING TO THE PRINCIPLE OF MUTUA LITY. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH THE NON MEMBERS, THEIR CLAIM FOR CHARITABLE INSTITUTION WOULD NOW BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN PROVISO TO SECTION 2(15). 3.2 IN THE FINAL ANALYSIS, 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 CONNECTION TO TRADE, COMMERCE OR BUSINE SS, IT WOULD NOT BE ENTITLED TO CLAIM THAT ITS OBJECT IS FOR 8 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 CHARITABLE PURPOSES. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY WILL ONLY BE A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE, OR BUSINESS OR RENDERING OF ANY SERV ICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, HAVE TO BE DECIDED ON ITS OWN FACTS, AND GENERALIZATIONS ARE NOT POSSIBLE . AN ASSESSEE WHO CLAIMS 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 RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS. (EMPHASIS SUPPLIED). 3.11 AS CAN BE SEEN FROM ABOVE, THE AFORESAID C IRCULAR C LARIFIES THAT THE PROVISO APPLIES TO TRUSTS/ INSTITUTIONS FALLING IN THE LAST LIMB OF THE DEFINITION OF CHARITABLE PURPOSE NAMELY ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. FURTHER, WHEN CLAUSE 15 OF SECTION 2 WAS AMENDED TO SEPARATELY IN CLUDE PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC NATURE IN THE DEFINITION OF CHARITABLE PURPOSE, THE INTENT OF THE LEGISLATURE WAS THAT THE PROVISO THERETO WOULD NOT APPLY TO AN INSTITUTION COVERED UNDER THE SAID LIMB. THUS, T HE AFORESAID PROVISO DOES NOT APPLY TO A TRUST/ INSTITUTION ENGAGED IN THE CHARITABLE OBJECT OF PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC NATURE. AGAIN THIS INTENTION CAN BE GATHERED FROM CBDT CIRCULAR NO. 5 OF 2010 DATED 3 RD JUNE, 2010 REPORTED IN 308 ITR (ST) 5, EXPLAINING THE SCOPE OF THE AFORESAID AMENDMENT IN THE FOLLOWING WORDS: 4.2 CLAUSE 15 OF SECTION 2 HAS BEEN AMENDED SO AS TO PROVIDE THAT THE PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) A ND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST WOULD BE EXCLUDED FROM THE APPLICABILITY OF THE AFORESAID PROVISO WHICH IS APPLICABLE TO THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. 4.3 APPLICABILITY THESE AMENDMENTS HAVE BEEN MADE APPLICABLE WITH EFFECT FROM 1ST APRIL, 2009 AND WILL ACCORDINGLY APPLY FOR ASSESSMENT YEAR 2009 - 10 AND SUBSEQUENT YEARS. THE AFORESAID CIRCULAR CLARIFIES THAT PRIOR TO AMENDMENT ANY TRUST/ INSTITUTION FALLING IN THE LAST LIMB WAS NOT TREATED AS A CHARITABLE IF IT WAS INVOLVED IN COMMERCIAL ACTIVITY. AFTER THE AMENDMENT, PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC NATURE HAS BEEN SEPARATELY LISTED SO THAT THE SAID OBJECTS ARE SPECIFICALLY EXCL UDED FROM APPLICABILITY OF CONDITIONS WHICH ARE APPLICABLE TO THE LAST LIMB. ANY ACTIVITY FOR THE PURPOSE OF ADVANCEMENT OF OBJECT OF GENERAL PUBLIC UTILITY WOULD BE CHARITABLE PROVIDED: I) SUCH AN ACTIVITY IS NOT IN THE NATURE OF TRADE, COMMERCE OR B USINESS, II) A) NO FEES IS CHARGED FOR RENDERING THE SERVICE; OR 9 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 B) IN CASE FEES IS CHARGED, RENDERING OF SUCH SERVICE IS NOT IN RELATION TO TRADE, COMMERCE OR BUSINESS. EVEN OTHERWISE, IF THE OBJECTIVES OF THE APPELLANT TRUST FALL WITHIN THE LAST LIMB OF THE DEFINITION OF CHARITABLE PURPOSE AS DEFINED UNDER SECTION 2(15), IT CANNOT RESULT IN THE DENIAL OF EXEMPTION UNDER SECTIONS 11/12 OF THE ACT, AS THE AFORESAID ACTIVITY OF ESTABLISHING MUSEUMS IS CLEARLY IN FURTHERANCE OF THE CHARITABLE OBJECT IVES OF THE APPELLANT TRUST AND IS NOT A BUSINESS/COMMERCIAL ACTIVITY CARRIED ON WITH THE MOTIVE OF EARNING PROFIT. THE AFORESAID PROVISO PROVIDES THAT IF ANY OF THE OBJECTS OF THE ASSESSEE INVOLVE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMER CE OR BUSINESS FOR CESS OR FEE OR ANY OTHER CONSIDERATION, THEN, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OF INCOME, THE ASSESSEE SHALL NOT BE REGARDED AS EXISTING FOR CHARITABLE PURPOSE. SIMILARLY, IF ANY OF THE OBJECTS OF AN ASSESSEE INVOLVE CARR YING ON OF ACTIVITY OF RENDERING SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR CONSIDERATION THEN, TOO, THE ASSESSEE SHALL NOT BE REGARDED AS CARRYING ON ANY ACTIVITY FOR CHARITABLE PURPOSE. THE CIRCULARS CLARIFY THAT THE PROVISO TO SECTION 2(15) OF THE ACT APPLIES TO TRUST/ INSTITUTION FALLING IN THE LAST LIMB OF THE DEFINITION OF CHARITABLE PURPOSE IF SUCH TRUST/ INSTITUTION CARRIES ON COMMERCIAL ACTIVITIES IN THE NATURE OF BUSINESS, TRADE OR COMMERCE. WHAT IS THE DEFINITION OF THE TERM BUSIN ESS? THE HONBLE SUPREME COURT IN THE CASE OF DISTRIBUTERS BARODA P. LTD. (83 ITR 377) HAS HELD THAT BUSINESS REFERS TO REAL, SUBSTANTIAL, ORGANIZED COURSE OF ACTIVITY FOR EARNING PROFITS AS PROFIT MOTIVE IS ESSENTIAL REQUISITE FOR CONDUCTING BUSINES S. FOLLOWING THE ABOVE DECISION, THE SPECIAL BENCH OF THE TRIBUNAL, IN THE CASE OF BJP VS. DCIT : 258 ITR 1 (DEL.) (AT), HAS HELD THAT AN ACTIVITY TO BE TREATED AS BUSINESS SHOULD HAVE A SEMBLANCE OF TRADE, AN ATTRIBUTE OF COMMERCIAL ACTIVITY AND AN EXPE CTATION TO EARN INCOME OVER A REASONABLE PERIOD. THE TRIBUNAL FURTHER HELD THAT THE EXPRESSIONS TRADE AND COMMERCE ARE NARROWER IN SCOPE THAN THE EXPRESSION BUSINESS. THE EXPRESSIONS TRADE OR COMMERCE SIGNIFY ECONOMIC/COMMERCIAL ACTIVITY WITH MOT IVE OF EARNING PROFIT. THE TERM TRADE HAS NOT BEEN DEFINED IN THE ACT. SOME OF THE DICTIONARY MEANINGS OF TRADE ARE AS UNDER: - AS PER WEBSTER'S NEW TWENTIETH CENTURY DICTIONARY, (SECOND EDITION), IS, AMONGST OTHERS, 'A MEANS OF EARNING ONE'S LIVING, OCCUPATION OR WORK'. - IN BLACK'S LAW DICTIONARY 'TRADE' HAS BEEN DEFINED TO MEAN A BUSINESS WHICH A PERSON HAS LEARNT OR HE CARRIED ON FOR PROCURING SUBSISTENCE OR PROFIT; OCCUPATION OR EMPLOYMENT, ETC. - IN HALSBURYS LAWS OF ENGLAND, THIRD EDITION VOL. 38 P. 8, THE WORD `TRADE IS DEFINED AS (A) EXCHANGE OF GOODS FOR GOODS OR GOODS FOR MONEY, (B) ANY BUSINESS CARRIED ON WITH A VIEW T O 10 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 PROFIT, WHETHER MANUAL OR MERCANTILE, AS DISTINGUISHED FROM LEARNED ART OR PROFESSIONS AND FROM AGRICULTURE (SECRETARY, MADRAS GYMKHANA CLUB EMPLOYEES UNION V. MANAGEMENT OF GYMKHANA CLUB, AIR 1968 SC 554, 562; STATE OF PUNJAB V. BAJAJ ELECTRICALS LTD., AIR 1968 SC 739, 741). THE TERM COMMERCE HAS ALSO NOT BEEN DEFINED IN THE ACT. ACCORDING TO WEBSTERS THIRD NEW INTERNATIONAL DICTIONARY, THE TERM COMMERCIAL MEANS OF, IN OR RELATING TO COMMERCE. THE TERM ''COMMERCE' MEANS 'THE EXCHANGE OR BUYING AND SELLING OF COMMODITIES ESPECIALLY ON A LARGE SCALE AND INVOLVING TRANSPORTATION FROM PLACE TO PLACE'. ACCORDING TO CHAMBER'S TWENTIETH CENTURY DICTIONARY, 'COMMERCE' MEANS 'INTERCHANGE OF MERCHANDISE ON A LARGE SCALE BETWEEN NATIONS OR INDIVIDUALS; EXTEND ED TRADE OR TRAFFIC'. WHILE APPLYING THE ABOVE DEFINITIONS, THE DELHI HIGH COURT IN THE CASE OF RAM SWAROOP VS. JANKI DASS JAI KUMAR (AIR 1976 DEL 219), OBSERVED THAT COMMERCIAL MEANS PERTAINING TO COMMERCE; MERCANTILE, THUS, COMMERCE INVOLVES ESSENTI ALLY AN EXCHANGE OF BUYING AND SELLING OF COMMODITIES. IF A PERSON BUYS GOODS WITH A VIEW TO SELLING THEM AT A PROFIT, IT IS AN ORDINARY CASE OF TRADE AND IF THE TRANSACTIONS ARE ON LARGE SCALE THEY ARE CALLED AS COMMERCE: GANNON DUNKERLEY & CO V. STATE OF MADRAS (1954) 5 STC 216 (MAD.). 3.12 THE CONJOINT READING OF THE ABOVE DECISIONS MAKE IT AMPLY CLEAR THAT THE WORDS, TRADE, COMMERCE AND BUSINESS, CONNOTE AND INDICATE A SERIES OF ORGANIZED ACTIVITIES PRIMARILY UNDERTAKEN ON COMMERCIAL LINES FOR PROFIT MOTIVE. AFTER THE INSERTION OF TH E PROVISO TO SECTION 2(15) BY THE FINANCE ACT, 2008, W.E.F. 1.4.2009, THE POSITION THAT EMERGES IS THAT THE PROVISO APPLIES IF ANY OF THE OBJECTS OF AN ASSESSEE INVOLVE CARRYING ON OF ANY COMMERCIAL/ BUSINESS ACTIVITY OR EARNING FEES FOR RENDERING SERVIC ES IN RELATION THERETO. IN THIS REGARD, IS INVITED TO THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF ICAI ACCOUNTING RESEARCH FOUNDATION & ORS VS. DGIT (E): 321 ITR 73. IN THE SAID CASE , THE ASSESSEE UNDERTOOK THREE RESEARCH PROJECTS AND CHARGED FEES FOR THE SAME. THE ASSESSING OFFICER DENIED THE EXEMPTION CLAIMED BY THE ASSESSEE ON THE GROUND THAT ACTIVITIES OF THE ASSESSEE WERE COMMERCIAL SINCE IT WAS CHARGING FEES. THE COURT, WHILE UPHOLDING THE CLAIM OF THE ASSESSEE, HELD THAT THE ACTIVITIES OF TH E ASSESSEE AMOUNTED TO ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY. ON THE ISSUE OF CHARGING OF FEES FOR UNDERTAKING RESEARCH PROJECTS, THE COURT HELD THAT MERE CHARGING OF FEES WOULD NOT RENDER THE ACTIVITY AS COMMERCIAL. THE COURT ALSO DEALT WITH THE AFORESAID AMENDED DEFINITION OF CHARITABLE PURPOSE AND HELD THAT HAVING REGARD TO THE ESSENTIAL CHARACTER OF THE ASSESSEE - FOUNDATION, THE ACTIVITY CARRIED ON BY THE ASSESSEE - FOUNDATION COULD NOT BE REGARDED AS TRADE, COMMERCE OR BUSINESS; OR ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. WHILE ARRIVING AT THE AFORESAID CONCLUSION, THE COURT ALSO TOOK NOTE OF THE JUDGMENTS IN THE CASES OF HAMDARD DAWAKHANA (WAQF) (157 ITR 639 (DEL)) AND K.S.V. REDDIAR (221 ITR 18 (MAD)), EXPLAINING THE SCOPE OF 11 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 BUSINESS AND OTHER TRADING ACTIVITIES. THE RELEVANT PORTIONS OF THE JUDGMENT READ AS FOLLOWS: - 17. IT CLEARLY FOLLOWS THAT EVEN THESE THREE PROJECTS WERE THE RESEARCH PROJECTS WHICH WERE GIVEN TO THE PETITIONER FOUNDATION HAVIN G REGARD TO ITS EXPERTISE IN THIS FIELD. THEREFORE, THESE ACTIVITIES PER SE WOULD NOT BRING OUT THE PETITIONER FOUNDATION OUT OF THE AMBIT OF SECTION 2(15) OF THE ACT. IT CAN BE SAID THAT THE ACTIVITIES AMOUNTED TO 'ADVANCEMENT OF AN OBJECT OF GENERAL PUBL IC UTILITY' WHICH ALSO APPEARS IN THE DEFINITION OF CHARITABLE PURPOSE IN SECTION 2(15) OF THE ACT. THE ONLY ASPECT, IN THIS BACKDROP, WHICH NEEDS TO BE CONSIDERED IS AS TO WHETHER CHARGING OF AMOUNT FROM THE MCD, KMC ETC. FOR UNDERTAKING THESE RESEARCH PR OJECTS WOULD MAKE THE ACTIVITY COMMERCIAL, AS HELD BY THE RESPONDENT NO. 1 IN THE IMPUGNED ORDER. BEFORE WE ANSWER THIS, IT WOULD BE APPOSITE TO TAKE NOTE OF SOME OF THE JUDGMENTS DEFINING CHARITABLE PURPOSE. 18. THE FIRST CASE, WHICH MAY BE RELEVANT ON THIS ASPECT, IS THE JUDGMENT OF THIS COURT IN THE CASE OF ADDL. CIT V. HAMDARD DAWAKHANA (WAKF) [1986] 157 ITR 639. IN THAT JUDGMENT UNAMENDED DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SECTION 2(15) OF THE ACT WAS CONSIDERED. FOLLOWING DISCUSSION CONTAINED IN THE JUDGMENT REPRODUCED UNAMENDED DEFINITION AS WELL, ALONG WITH ITS INTERPRETATION: 'THE MAIN POINT URGED BY MR. WAZIR SINGH WAS BASED ON THE DEFINITION OF CHARITABLE PURPOSE STATED IN SECTION 2( 15 ) OF THE ACT. THIS DEFINITION AS IN THE 1 961 ACT IS AS FOLLOWS: CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT. THUS, THE EMPHASIS IS ON THE FACT THAT THIS CHARITY IS CARRYING ON A BUSINESS, NAMELY, THE HAMDARD DAWAKHANA. IN FACT, THE DEDICATION IS OF A BUSINESS BECAUSE THE DEDICATED PROPERTY IS NEITHER ANY BUILDING, NOR ANY TRADE MARK, BUT THE BUSINESS OF THE HAMDARD DAWAKHANA. IT IS, THEREFOR E, URGED THAT THIS IS NOT A CHARITABLE PURPOSE AT ALL AND, HENCE, NO EXEMPTION CAN BE GRANTED. IT IS POINTED OUT THAT OUT OF THE BUSINESS OF THIS TRUST, THE KHANDANI INCOME IS BEING EARNED BY THE MUTAWALLIS THEMSELVES, SO THERE IS NO SCOPE FOR SAYING THAT THIS IS A CHARITABLE PURPOSE. WE FIND THAT ON A PROPER CONSTRUCTION OF THE ACT, THIS IS NOT THE MEANING TO BE GIVEN TO THE DEFINITION. IN ORDER TO HAVE A CHARITY, YOU MUST HAVE A SOURCE OF INCOME. THE INCOME MAY COME FROM 12 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 GIFTS, OR IT MAY COME FROM RUNNIN G A BUSINESS. IN THIS CASE, THE TRUST IS OF A PORTION OF THE INCOME OF THE HAMDARD DAWAKHANA. ALTHOUGH THE SOURCE OF THE INCOME IS A BUSINESS, THE OBJECT OF THE TRUST IS NOT TO RUN THAT BUSINESS, BUT TO UTILISE THE INCOME OF THAT BUSINESS FOR A CHARITABLE PURPOSE. THE INCOME HAS BEEN DIVIDED INTO TWO PORTIONS, I.E., KHANDANI INCOME AND THE QAUMI INCOME. THAT PORTION OF THE INCOME WHICH IS NOT EARMARKED FOR CHARITY IS SUBJECT TO TAX, BUT THE REMAINING PORTION HAS TO BE USED FOR CHARITABLE PURPOSES. IN OUR V IEW, THE ENTIRE POINT IS NOW COVERED BY THE SUPREME COURTS JUDGMENT IN ADDL. CIT V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1. THE COURT POINTED OUT IN THAT CASE THAT WHEN THE OBJECT OF A TRUST WAS THE CARRYING ON OF AN OBJECT OF GEN ERAL PUBLIC UTILITY, IT IS THAT OBJECT OF GENERAL PUBLIC UTILITY WHICH MUST NOT INVOLVE THE CARRYING ON OF AN ACTIVITY FOR PROFIT. IT WAS POINTED OUT THAT IT WAS IMMATERIAL HOW THE MONEY FOR ACHIEVING OR IMPLEMENTING SUCH PURPOSE WAS FOUND. WHETHER, THAT M ONEY WAS OBTAINED BY THE RUNNING OF AN ACTIVITY FOR PROFIT OR NOT, DID NOT MAKE THE CHARITY NOT CHARITABLE. THUS, IN THE PRESENT CASE, NO DOUBT, THE TRUST EARNS THE MONEY FROM THE HAMDARD DAWAKHANA. IF THAT MONEY IS USED FOR CHARITABLE PURPOSE AND NOT FOR THE CARRYING ON OF ANY BUSINESS AT A PROFIT, THEN THE OBJECT OF THE TRUST IS CHARITABLE, NOTWITHSTANDING THE SOURCE OF THE INCOME. IT IS HARDLY POSSIBLE FOR A CHARITABLE TRUST TO WORK WITH NO SOURCE OF INCOME. SO, THE MAKERS OF THE TRUST IN THE PRESENT CASE, DEDICATED A PORTION OF THE INCOME OF THE BUSINESS FOR BEING USED FOR CHARITABLE PURPOSE AS LONG AS THE USER OF THAT MONEY IS CHARITABLE, THEN THE EXEMPTION HAS TO BE GRANTED.' (P. 644) 19. THE MADRAS HIGH COURT IN CIT V. K.S. VENKATASUBBIAH REDDIAR [1996] 221 ITR 18 1 HAD THE OCCASION TO DISCUSS IN DETAIL AS TO WHAT WOULD CONSTITUTE BUSINESS AND PROFITS AND GAINS OF BUSINESS OR PROFESSION. TAKING NOTE OF THE DEFINITION OF THE TERM BUSINESS UNDER SECTION 2( 13 ) OF THE ACT AND SOME OTHER STATUTES G IVING SIMILAR DEFINITIONS, THE COURT EXPRESSED THE FOLLOWING VIEW: 'IN THAT CONNECTION, WHILE DEALING WITH THE SAME QUESTION UNDER THE HYDERABAD GENERAL SALES - TAX ACT, THE SUPREME COURT IN STATE OF ANDHRA PRADESH V. H. ABDUL BAKSHI & BROS. [1964] 15 STC 644, OBSERVED AS FOLLOWS (HEAD NOTE): THE EXPRESSION BUSINESS THOUGH EXTENSIVELY USED IS A WORD OF INDEFINITE IMPORT. IN TAXING STATUTES IT IS USED IN THE SENSE OF AN OCCUPATION OR PROFESSION WHICH OCCUPIES THE TIME, ATTENTION AND LABOUR OF A PERSON, NORMALLY WITH THE OBJECT OF 13 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 MAKING PROFIT. TO REGARD AN ACTIVITY AS BUSINESS, THERE MUST BE A COURSE OF DEALINGS EITHER ACTUALLY CONTINUED OR CONTEMPLATED TO BE CONTINUED WITH A PROFIT MOTIVE, AND NOT FOR SPORT OR PLEASURE. IT IS, THEREFORE, CLEAR THAT T HE TWO ESSENTIAL REQUIREMENTS FOR AN ACTIVITY TO BE CONSIDERED AS BUSINESS ARE: ( I ) IT MUST BE A CONTINUOUS COURSE OF ACTIVITY; AND ( II ) IT MUST BE CARRIED ON WITH A PROFIT MOTIVE. . .' (P. 21) 20. THE PRINCIPLES WHICH ARE LAID DOWN IN BOTH THE AFORESAI D CASES PROVIDE COMPLETE ANSWER TO THE ISSUE AT HAND. IT IS TO BE NOTED THAT THE AFORESAID PROJECTS UNDERTAKEN ON BEHALF OF THESE LOCAL BODIES IS NOT A REGULAR ACTIVITY OF THE PETITIONER FOUNDATION. PRIMARY ACTIVITY REMAINS THE SAME, NAMELY, RESEARCH IN AC COUNTING RELATED FIELDS. EVEN THESE PROJECTS WHICH WERE TAKEN UP ON BEHALF OF THOSE LOCAL BODIES FIT IN THE DESCRIPTION OF RESEARCH PROJECTS, WHICH CAN BE TERMED AS ANCILLARY ACTIVITY ONLY. THE CIRCUMSTANCES UNDER WHICH THE PROJECTS WERE UNDERTAKEN MAKE IT CLEAR THAT IT WAS AT THE INSTANCE OF THE GOVERNMENT OF INDIA OR THE STATE GOVERNMENT FOR IMPROVING THE ACCOUNTING AND BUDGETARY SYSTEMS IN THESE LOCAL BODIES. THE EXPERTISE OF THE PETITIONER FOUNDATION IN CARRYING OUT RESEARCH IN THIS FIELD WAS SOUGHT T O BE UTILIZED. THEREFORE, IT CANNOT CONSTITUTE BUSINESS/COMMERCIAL ACTIVITY. MERELY BECAUSE SOME REMUNERATION WAS TAKEN BY THE PETITIONER FOUNDATION FOR UNDERTAKING THESE PROJECTS WOULD NOT ALTER THE CHARACTER OF THESE PROJECTS, WHICH REMAINED RESEARCH A ND CONSULTANCY WORK. IT IS SO CATEGORICALLY HELD IN HAMDARD DAWAKHANA (WAKFS) CASE ( SUPRA ). THE IMPORTANT TEST IS THE APPLICATION OF THE AMOUNTS RECEIVED FROM THOSE PROJECTS. IT IS NOWHERE DISPUTED THAT THE RECEIPTS ARE UTILIZED BY THE PETITIONER FOUNDATI ON FOR ADVANCEMENT OF ITS OBJECTIVES. THE MEMORANDUM OF ASSOCIATION SPECIFICALLY STIPULATES THAT THESE ARE NOT TO BE DISTRIBUTED TO THE MEMBERS AS DIVIDENDS OR PROFITS. IT IS CLEAR THAT MOST OF THE AMOUNT RECEIVED QUA THESE PROJECTS WAS SPENT ON THE PROJEC T AND SURPLUS, IF ANY, IS USED FOR ADVANCEMENT OF THE OBJECTIVES FOR WHICH THE PETITIONER FOUNDATION IS ESTABLISHED. 21. THE AMENDED DEFINITION OF CHARITABLE PURPOSE WOULD NOT ALTER THIS POSITION. NO DOUBT, PROVISO TO THIS DEFINITION CLARIFIES THAT ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY WILL NOT BE TREATED AS CHARITABLE PURPOSE IF IT INVOLVES THE CARRYI NG ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. HOWEVER, WHAT IS NOT APPRECIATED BY THE RESPONDENT NO. 1 IS THAT THE MERELY ON UNDERTAKING THOSE THREE RESEA RCH PROJECTS AT THE INSTANCE OF THE GOVERNMENT/LOCAL BODIES. THE ESSENTIAL CHARACTER OF THE PETITIONER FOUNDATION CANNOT BE CONVERTED INTO THE ONE WHICH CARRIES ON, CANNOT BE TREATED AS THE ACTIVITY WHICH CARRIES ON TRADE, 14 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 COMMERCE OR BUSINESS OR ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. (EMPHASIS SUPPLIED) 3.13 THE DELHI HIGH COURT, IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V. DIRECTOR GENERAL OF INCOME - TAX (EXEMPTIONS): 245 CTR 541, CONCURRED WITH THE VIEW TAKEN IN THE ABOVE DECISION AND OBSERVED AS UNDER: - 19. THE WORD 'BUSINESS' IS A WORD OF LARGE AND INDEFINITE IMPORT. SECTION 2(13) DEFINES BUSINESS TO INCLUDE ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE , COMMERCE OR MANUFACTURE. THE INTENTION OF THE LEGISLATURE IS TO MAKE THE DEFINITION EXTENSIVE AS THE TERM 'INCLUSIVE' HAS BEEN USED. THE LEGISLATURE HAS DELIBERATELY DEPARTED FROM GIVING A DEFINITE IMPORT TO THE TERM 'BUSINESS' BUT MADE REFERENCE TO SEVE RAL OTHER GENERAL TERMS LIKE 'TRADE', 'COMMERCE', 'MANUFACTURE' AND 'ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE AND MANUFACTURE'. 29. IT MAY BE, HOWEVER, POINTED OUT THAT THE TERM 'PROFIT MOTIVE' IS NOT ONLY THE SOLE OR RELEVANT CONSIDERAT ION THAT HAS TO BE KEPT IN MIND. IT IS ONE OF THE ASPECTS. NORMALLY INTENTION TO EARN PROFIT IS REQUIRED. EMPHASIS, HOWEVER IT DOES APPEAR, HAS SHIFTED AND THE CONCEPT AND PRINCIPLE OF 'ECONOMIC ACTIVITY' HAS GAINED ACCEPTABILITY. THE DEFINITION OF THE TER M 'BUSINESS' MAY ALSO VARY WHEN WE ARE EXAMINING TAXABILITY UNDER SALES TAX, EXCISE DUTY, VALUE ADDED TAX, ETC. BECAUSE THESE ARE NOT TAXES ON INCOME BUT THE TAXABLE EVENT OCCURS BECAUSE OF THE 'ECONOMIC ACTIVITY' INVOLVED. EVEN IF A PERSON/AN ORGANIZATION IS CARRYING ON TRADING ON THE PRINCIPLE OF 'NO LOSS NO PROFIT', IT MAY BE LIABLE TO PAY TAXES OR COMPLY WITH THE STATUTE WHEN THE CHARGE, OR INCIDENCE OF TAX, IS ON THE 'ECONOMIC ACTIVITY'. THIS CONCEPT IS TODAY WELL RECOGNIZED IN EUROPEAN UNION AND ENGLA ND ( SEE RIVERSIDE HOUSING ASSOCIATION LTD. V. REVENUE & CUSTOMS COMMISSIONER, (2006) EWHC 2383 (CH) AND THE CASE LAW CITED THEREIN). IT MAY ALSO BE ALSO APPROPRIATE HERE TO REFER THE DECISION OF THE HOUSE OF LORDS IN TOWN INVESTMENTS LTD. V. DEPARTMENT OF THE ENVIRONMENT [1977] 1 ALL ER 813. IN THIS CASE, A GOVERNMENT DEPARTMENT WAS CLAIMING BENEFIT UNDER A LEGISLATION THAT PROTECTED 'BUSINESS TENANCIES' FROM INCREASE IN RENT. THE TERM 'BUSINESS' IN THE SAID CASE BY A MAJORITY DECISION WAS HELD TO INCLUDE G OVERNMENT ACTIVITIES. IT WAS HELD THAT THE WORD 'BUSINESS' IS A ETYMOLOGICAL CHAMELEON; IT SUITS ITS MEANING TO THE CONTEXT IN WHICH IT IS FOUND. IT IS NOT THE TERM OF LEGAL ART BUT IN ITS DICTIONARY MEANING IT INCLUDES ANYTHING WHICH IS AN OCCUPATION, AS DISTINGUISHED FROM PLEASURE - ANYTHING WHICH IS AN OCCUPATION OR A DUTY WHICH REQUIRES ATTENTION IS BUSINESS. IT WAS ALSO OBSERVED THAT BUSINESS CONVEYS IN ORDINARY MEANING THE NOTION 15 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 OF A DISTINCT ENTERPRISE (NOT NECESSARILY FOR PROFIT) HAVING ITS DISTINCT OBJECT, DISTINCT MANAGEMENT AND DISTINCT ASSETS AND LIABILITIES. 33. SECTION 2(15) DEFINES THE TERM 'CHARITABLE PURPOSE'. THEREFORE, WHILE CONSTRUING THE TERM 'BUSINESS' FOR THE SAID SECTION, THE OBJECT AND PURPOSE OF THE SECTION HAS TO BE KEPT IN MIND. WE DO NOT THINK THAT A VERY BROAD AND EXTENDED DEFINITION OF THE TERM ' BUSINESS' IS INTENDED FOR THE PURPOSE OF INTERPRETING AND APPLYING THE FIRST PROVISO TO SECTION 2(15) OF THE ACT TO INCLUDE ANY TRANSACTION FOR A FEE OR MONEY. AN ACTIVITY WOULD BE CONSIDERED 'BUSINESS' IF IT IS UNDERTAKEN WITH A PROFIT MOTIVE, BUT IN SOME CASES THIS MAY NOT BE DETERMINATIVE. NORMALLY THE PROFIT MOTIVE TEST SHOULD BE SATISFIED BUT IN A 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 THE 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 THE ACTIVITY UNDERTAKEN IS INFACT IN THE NATURE OF BUSINESS . THE TEST AS PRESCRIBE IN RAIPUR MFRS. CO.'S CASE ( SUPRA ) AND SAI PUBLICATIONS FUND'S CASE ( SUPRA ) CAN BE APPLIED. THE SIX INDICIA STIPULATED IN LORD FISHER'S CASE ( SUPRA ) ARE ALSO RELEVANT. EACH CASE, THEREFORE, HAS TO BE EXAMINED ON ITS OWN FACTS. 3.1 4 IN THE CASE OF PAVE V. DIT (EXEMPTIONS): ITA NO.6057/DEL./2010, THE DIT (EXEMPTIONS) HAD REJECTED THE REGISTRATION UNDER SECTION 12A AND GRANT OF EXEMPTION UNDER SECTION 80G OF THE ACT ON THE GROUND THAT THE TRUST WAS CHARGING SERVICE FEE FOR PROVIDING S ERVICES. THE DELHI BENCH OF THE TRIBUNAL, ON CONSIDERING THE ISSUE AND TAKING INTO ACCOUNT THE AIMS AND OBJECTS OF THE TRUST, HELD THAT THE TRUST WAS A CHARITABLE INSTITUTION AND WAS ENTITLED TO REGISTRATION UNDER SECTION 12A AS WELL AS RECOGNITION UNDER S ECTION 80G, NOTWITHSTANDING THAT IT WAS CHARGING SOME FEE FOR PROVIDING THE SERVICES. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: 'THE AIMS AND OBJECTS OF THE TRUST ARE CHARITABLE. FROM DETAILS, WE FIND THAT THE ASSESSEE IS CONSTRUCTING TOILET S FOR PUBLIC WHICH IS ALSO A CHARITABLE WORK. THESE PUBLIC TOILETS ARE MADE OUT OF THE GRANTS FROM GOVERNMENT OF UTTAR PRADESH AND ALSO SOME PETTY CONTRIBUTION FROM THE BENEFICIARIES. THE CONTRIBUTION FROM BENEFICIARIES CANNOT BE SAID A COMMERCIAL ACTIVITY . AFTER CLOSE PERUSAL OF THESE FACTS AND TAKING THE PLEADINGS INTO CONSIDERATION, WE HOLD THAT THE ASSESSEE TRUST IS A GENUINE TRUST REGISTERED FOR CHARITABLE PURPOSE, HENCE DESERVES REGISTRATION UNDER SECTION 12A OF THE INCOME - TAX ACT AND THE EXEMPTION UN DER SECTION 80G. THEREFORE, WE SET ASIDE THE ORDER OF THE DIT (EXEMPTIONS) AND DIRECT TO GRANT THE REGISTRATION UNDER SECTION 12A AND ALSO TO GRANT EXEMPTION UNDER SECTION 80G.' 16 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 3.15 IN THE CASE OF BOMBAY PRESIDENCY GOLF CLUB LTD. VS DIT: 52 SOT 149 (MUM TRI.), THE ASSESSEE WAS A CLUB WHICH HAD BEEN GRANTED REGISTRATION U/S 12AA WITH EFFECT FROM 01 - 04 - 2001. A PROPOSAL FOR CANCELLATION OF REGISTRATION WAS SENT FROM THE ITO(E)I(1), MUMBAI TO THE DIT(E) ON THE GROUND THAT THE ASSESSEE HAS BEEN CARRYING ON AC TIVITIES IN THE NATURE OF TRADE, COMMERCE, BUSINESS, ETC., AND IS HIT BY THE PROVISO TO SECTION 2(15) OF THE ACT, APPLICABLE FROM ASSESSMENT YEAR 2009 - 10. ACCORDINGLY, A SHOW CAUSE NOTICE DATED 31 - 10 - 2011 WAS ISSUED TO THE ASSESSEE FOR CANCELLATION OF REGI STRATION U/S 12AA(3). THE DIT(E), FROM THE DETAILS OF INCOME AND EXPENDITURE ACCOUNT, NOTED THE FOLLOWING RECEIPTS WHICH WERE IN THE NATURE OF COMMERCE OR TRADE DURING THE ASSESSMENT YEAR 2009 - 10: SL. NO. PARTICULARS AMOUNT 1. RECEIPT FROM MEMBER RS.192.12 LACS. 2. TOURNAMENT, COMPETITION AND COACHING RECEIPTS RS.18.83 LACS. 3. ACTIVITIES AND EVENTS INCOME RS.18.52 LACS. 4. AMENITIES INCOME RS.143.75 LACS. 5. OTHER INCOME RS.242.20 LACS THE DIT(E) DREW ATTENTION OF THE ASSESSEE TOWARDS THE NEWLY INSERTED PROVISO TO SECTION 2(15) OF THE ACT, APPLICABLE FROM ASSESSMENT YEAR 2009 - 10 AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY UNDER THE SAID PROVISO THE ASSESSEE'S ACTIVITIES SHOULD NOT BE TREATED AS IN THE NATURE OF TRADE, COMMERCE, BUSINESS ETC. IN RESPONSE, THE ASSESSEE SUBMITTED THAT IT WAS NOT HIT BY PROVISO SINCE THE CLUB WAS NOT CARRYING OUT ANY ACTIVITIES IN THE NATURE OF TRADE, COMMERCE, BUSINESS OR ANY ACTIVITIES OF RENDERING AN Y SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR A CESS OR A FEE OR ANY OTHER CONSIDERATION. ITS MAIN OBJECT IS TO PROVIDE FACILITIES RELATING TO GOLF AND TO AFFORD TO THE MEMBERS OF THE CLUB ALL THE USUAL PRIVILEGE, ADVANTAGES AND CONVENIENCE ASSO CIATED WITH THE GAME OF GOLF. IT WAS ALSO AUTHORIZED TO CARRY OUT ACTIVITIES WHICH WERE INCIDENTAL AND AUXILIARY TO PROMOTE THE SAID GAME. ALL THE RECEIPTS AS HAVE BEEN POINTED OUT IN THE SHOW CAUSE NOTICE REVOLVED AROUND THE SAID PROMOTION OF GOLF ONLY. THE DIT(E), HOWEVER, REJECTED THE CONTENTION OF THE ASSESSEE AND AFTER REFERRING TO THE AMENDED PROVISION OF SECTION 2(15) READ WITH PROVISO AND HELD THAT THE RECEIPTS WERE IN THE NATURE OF BUSINESS INCOME. ON APPEAL BEFORE THE TRIBUNAL, ON EXAMINING THE NEWLY INSERTED PROVISO TO SECTION 2(15) OF THE ACT AND PLACING HEAVY RELIANCE ON THE DELHI HIGH COURT JUDGMENT IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA VS. DGIT (E) (SUPRA) HELD THAT THE TEST OF BUSINESS, TRADE OR COMMERCE HAS TO BE VIEWE D FROM THE ANGLE THAT THE ACTIVITY OF THE TRUST HAS CONTINUED ON BUSINESS PRINCIPLE AND PURSUED WITH REASONABLE CONTINUITY. THE TRIBUNAL OBSERVED THAT ALL THE ACTIVITIES OF THE 17 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 ASSESSEE WERE TOWARDS PROMOTION OF GAME OF GOLF AND OTHER ANCILLARY ACTIVITIES CARRIED ARE ONLY INCIDENTAL TO THE SAID GAME ONLY. THUS, ANY TRANSACTION WHICH IS INCIDENTAL OR ANCILLARY TOWARDS FULFILLMENT OF OBJECT OF OTHER GENERAL PUBLIC UTILITY WILL NOT NORMALLY AMOUNT TO BUSINESS, TRADE OR COMMERCE, UNLESS THERE IS SOME INTENTION TO CARRY ON BUSINESS, TRADE OR COMMERCE ON A PERMANENT BASIS OR WITH A REASONABLE CONTINUITY. IF THERE IS SOME INCIDENTAL OR ANCILLARY RECEIPTS DURING THE COURSE OF CARRYING OUT ITS PROMOTIONAL ACTIVITY OF GAME OF GOLF OR FOR MAINTENANCE OF ITS CLUB AND T HE FACILITIES, IT CANNOT BE HELD TO BE IN THE NATURE OF BUSINESS, TRADE OR COMMERCE. THE TRIBUNAL IN THIS CASE ALSO OBSERVED THAT WHERE PRINCIPLE OF MUTUALITY WAS APPLICABLE, REGISTRATION CANNOT BE CANCELLED SIMPLY BY RELYING ON THE PROVISO TO SECTION 2(15 ). THE RELEVANT EXTRACTS OF THE JUDGMENT ARE RE - PRODUCED BELOW: 10. THUS, THE TEST OF BUSINESS, TRADE OR COMMERCE HAS TO BE VIEWED FROM THE ANGLE THAT THE ACTIVITY OF THE TRUST HAS CONTINUED ON BUSINESS PRINCIPLE AND PURSUED WITH REASONABLE CONTINUITY. IF THE PRINCIPLE AND RATIO LAID DOWN BY THE HON'BLE HIGH COURT IS APPLIED IN THE INSTANT CASE, IT WOULD BE SEEN THAT NONE OF ITS RECEIPTS CAN BE SAID TO BE ARISING OR ACCRUING FROM THE ACTIVITIES WHICH HAVE BEEN CARRIED OUT FOR THE PURPOSE OF BUSINESS OR I N THE NATURE OF TRADE OR COMMERCE. ALL ITS ACTIVITIES ARE TOWARDS PROMOTION OF GAME OF GOLF AND OTHER ANCILLARY ACTIVITIES CARRIED ARE ONLY INCIDENTAL TO THE SAID GAME ONLY. ANY TRANSACTION WHICH ARE INCIDENTAL OR ANCILLARY TOWARDS FULFILLMENT OF OBJECT OF OTHER GENERAL PUBLIC UTILITY WILL NOT NORMALLY AMOUNT TO BUSINESS, TRADE OR COMMERCE, UNLESS THERE IS SOME INTENTION TO CARRY ON BUSINESS, TRADE OR COMMERCE ON A PERMANENT BASIS OR WITH A REASONABLE CONTINUITY. THERE IS NO EVIDENCE AND MATERIAL ON RECORD TO SHOW THAT THE ACTIVITIES OF THE ASSESSEE TRUST WERE DONE ON SOUND AND RECOGNIZED BUSINESS PRINCIPLE OR HAVE BEEN PURSUING ITS BUSINESS ACTIVITIES WITH REASONABLE CONTINUITY. IF THERE IS SOME INCIDENTAL OR ANC ILLARY RECEIPTS DURING THE COURSE OF CARRYING OUT ITS PROMOTIONAL ACTIVITY OF GAME OF GOLF OR FOR MAINTENANCE OF ITS CLUB AND THE FACILITIES, IT CANNOT BE HELD TO BE IN THE NATURE OF BUSINESS, TRADE OR COMMERCE. FROM THE PERUSAL OF INCOME AND EXPENDITURE A CCOUNT, IT IS SEEN THAT THERE IS A OPERATING DEFICIT OF 978.96 LAKHS I.E. EXPENDITURES ARE FAR MORE THAN THE RECEIPTS. IN SUCH A SITUATION A CLUB OR TRUST DOES TRY TO GENERATE RECEIPTS TO COVER ITS EXPENDITURE WHICH ARE ONLY FOR FULFILLMENT OF ITS OBJECTS. HOWEVER, SUCH RECEIPTS SHOULD BE STRICTLY CONFINED TO ATTAINMENT OF ITS OBJECT AND NOT FOR SIMPLY ACCUMULATING SURPLUS. THUS, THE EMBARGO OR RIDER GIVEN IN PROVISO TO SECTION 2(15), CANNOT BE THE GROUND FOR CANCELLATION OF REGISTRATION IN THE CASE OF THE ASSESSEE. EVEN OTHERWISE THIS ASPECT HAS TO BE EXAMINED IN THE COURSE OF ASSESSMENT PROCEEDINGS AND NOT FOR THE PURPOSE OF CANCELLATION OF REGISTRATION U/S.12AA(3) WHICH IS CONFINED TO TWIN CONDITIONS LAID DOWN THEREIN . (EMPHASIS SUPPLIED) 18 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 3.16 IN THE C ASE OF HAMSADHWANI VS. DIT (EXEMPTIONS): ITA NO. 494 (MDS.) OF 2011 (ITAT - CHENNAI), THE ASSESSEE - SOCIETY WAS FORMED WITH THE OBJECTIVE OF ADVANCEMENT OF MUSIC, OTHER FINE ARTS AND TRADITIONAL ARTS IN STATE OF TAMIL NADU. IT WAS REGISTERED UNDER SECTION 12A A AND APPLIED FOR RENEWAL OF ITS APPROVAL UNDER SECTION 80G OF THE ACT. THE DIT (EXEMPTION) FOUND THAT RECEIPTS OF ASSESSEE FROM SPONSORSHIP FEES, SALE OF TICKETS AND MUSIC COACHING WAS IN EXCESS OF RS. 10 LAKHS AND, THUS, HELD THAT ASSESSEE WAS HIT BY SEC OND PROVISO TO SECTION 2(15) OF THE ACT. THE DIT (EXEMPTION) ALSO HELD THAT SUCH RECEIPTS WERE IN NATURE OF COMMERCIAL/TRADE RECEIPTS AND, THEREFORE, ACTIVITIES OF ASSESSEE - SOCIETY WERE HIT BY FIRST PROVISO TO SECTION 2(15) OF THE ACT. ACCORDINGLY, THE DIT (EXEMPTION) REJECTED THE APPLICATION FOR RENEWAL FILED BY ASSESSEE. THE ASSESSEE IN THIS REGARD FILED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL HELD THAT WHEN A PERSON SPONSORS A MUSIC PROGRAMME AND SPONSORSHIP FEE IS PAID TO THE ARTIST CONCERNED, IT CO ULD NOT BE SAID THAT THE SPONSORSHIP FEE WAS A RECEIPT IN THE HANDS OF THE ASSESSEE WHICH WAS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. SIMILARLY, CONDUCTING MUSIC COACHING FOR THE PURPOSE OF ADVANCEMENT OF VARIOUS TRADITIONAL MUSIC FORMS OF STATE OF T AMIL NADU, WHICH WAS AN INTEGRAL PART OF CULTURAL LIFE OF PEOPLE OF TAMIL NADU, COULD ALSO NOT BE CONSIDERED TO BE AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE AND BUSINESS, THE TRIBUNAL HELD. OBSERVING THE DIT (E) HAD TAKEN A VERY NARROW VIEW IN THIS REGA RD, THE TRIBUNAL CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS BUT WAS CARRYING ON ITS AVOWED OBJECT OF ADVANCEMENT OF FINE ARTS AND TRADITIONAL ART FORMS, WHICH COULD NOT BE CONSIDER ED AS A COMMERCIAL OR BUSINESS ACTIVITY. THE RELEVANT EXTRACTS OF THE JUDGMENT ARE RE - PRODUCED AS UNDER: IF WE HAVE A LOOK AT SECTION 2(15) OF THE ACT WHICH DEFINES 'CHARITABLE PURPOSE', IT RUNS AS UNDER: - 2.(15) 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, [PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST,] AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE I N 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:] [PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS [TEN LAKH RUPEES] OR LESS IN THE PREVIOUS YEAR;] 19 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 NO DOUBT, IT HAS BEEN SPECIFICALLY PROVIDED IN THE FIRST PROVISO THAT ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SH ALL NOT BE A CHARITABLE PURPOSE IF IT INVOLVES ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR RENDERING ANY SERVICE IN CONNECTION WITH TRADE, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. THE THIRD PROVISO EXCLUDES FROM THE RESTRAINTS IMPOSE D BY FIRST PROVISO, WHERE SUCH RECEIPTS WERE LESS THAN RS.10 LAKHS. THE QUESTION HERE IS WHETHER SPONSORSHIP FEE, WHICH FORMS SUBSTANTIAL PART OF THE AMOUNTS LISTED ABOVE, CAN BE CONSIDERED AS RECEIPT FROM ACTIVITY IN THE NATURE OF TRADE, COMMERCE AND BUSI NESS. IN OUR OPINION, ADVANCEMENT OF TRADITIONAL MUSICAL CULTURE OF TAMIL NADU AND CONDUCTING MUSIC PROGRAMMES FOR THAT PURPOSE, WHERE SUCH MUSIC AND DANCE PROGRAMMES WERE SPONSORED BY VARIOUS PERSONS AND SPONSORSHIP FEE SO RECEIVED, DISTRIBUTED AMONG THE ARTISTS, CAN NEVER BE CONSIDERED AS AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. WHEN A PERSON SPONSORS A MUSIC PROGRAMME AND SPONSORSHIP FEE IS PAID TO ARTIST CONCERNED, WE CANNOT SAY THAT SPONSORSHIP FEE IS A RECEIPT IN THE HANDS OF THE ASSE SSEE WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. SIMILARLY, CONDUCTING MUSIC COACHING FOR THE PURPOSE OF ADVANCEMENT OF VARIOUS TRADITIONAL MUSIC FORMS OF STATE OF TAMIL NADU, WHICH IS AN INTEGRAL PART OF CULTURAL LIFE OF PEOPLE OF TAMIL NADU, C ANNOT ALSO BE CONSIDERED TO BE AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE AND BUSINESS. THIS CAN AT THE BEST BE CONSIDERED AS AN EDUCATIONAL PURSUIT. WHEN THERE ARE COLLEGES RUN FOR COACHING MUSIC, WE CANNOT SAY THAT TRAINING IMPARTED IN MUSIC IS NOT EDU CATION. IN OUR OPINION, THE LD. DIT(E) TOOK A VERY NARROW VIEW IN THIS REGARD AND CAME TO A CONCLUSION THAT THE SPONSORSHIP FEE AND MUSIC COACHING FEE RECEIVED BY THE ASSESSEE WERE FROM THE ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. ASSESSEE, I N OUR OPINION, WAS NOT CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS BUT WAS CARRYING ON ITS AVOWED OBJECT OF ADVANCEMENT OF FINE ARTS AND TRADITIONAL ART FORMS, WHICH CANNOT BE CONSIDERED AS A COMMERCIAL OR BUSINESS ACTIVITY. THE N ATURE OF RECEIPTS OF THE ASSESSEE, IN OUR OPINION, WILL NOT COME WITHIN THE PURVIEW OF FIRST PROVISO TO SECTION 2(15) OF THE ACT EXCEPT FOR SALE OF TICKETS AND THE RECEIPTS FROM SALE OF TICKETS WERE WELL BELOW A SUM OF RS.10 LAKHS. WE ALSO NOTE THAT THE AS SESSEE HAS BEEN REGISTERED UNDER SECTION 12AA OF THE ACT AND SUCH REGISTRATION IS STILL IN VOGUE. IN OUR OPINION, ASSESSEE WAS ELIGIBLE FOR RENEWAL OF APPROVAL UNDER SECTION 80G OF THE ACT WITHOUT DOUBT. ORDER OF DIT(E) IS QUASHED AND HE IS DIRECTED TO GRA NT THE ASSESSEE RENEWAL OF APPROVAL UNDER SECTION 80G OF THE ACT. 3.17 THE DECISION OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF HIMACHAL PRADESH ENVIRONMENT PROTECTION AND POLLUTION CONTROL BOARD VS. CIT: 42 SOT 343 (CHD.), WHEREIN THE TRIBUNA L HELD THAT PROVISO TO S. 2(15) DOES NOT IMPLY THAT IN EACH AND EVERY CASE WHERE AN ASSESSEE 20 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 RECEIVES PAYMENT FOR ANY ACTIVITY, NOT BEING ACTIVITY FOR TRADE, COMMERCE OR BUSINESS, THE SAME WOULD BE HIT BY THE SAID PROVISO. ACCORDING TO THE TRIBUNAL, IN AC CORDANCE WITH CBDT CIRCULAR NO.11 DATED 19.12.2008 (221 CTR (ST.)1), THE PROVISO APPLIES ONLY WHERE THE OBJECT OF GENERAL PUBLIC ACTIVITY IS A MASK OR DEVICE TO HIDE THE TRUE PURPOSE OF TRADE, BUSINESS OR COMMERCE, OR RENDERING OF ANY SERVICE IN RELATION T HERETO. IN OTHER WORDS, THE TRIBUNAL HELD THAT THE PROVISO DOES NOT APPLY TO CASES WHERE THE SERVICES RENDERED ARE PURELY INCIDENTAL TO OR SUBSERVIENT TO THE MAIN OBJECTIVE OF GENERAL PUBLIC UTILITY. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL READ AS UN DER: 14. AS THE ABOVE CBDT CIRCULAR, WHICH IS BINDING ON THE COMMISSIONER UNDER SECTION 119(1)(A) OF THE ACT, APTLY PUTS IT, WHETHER THE ASSESSEE HAS, AS ITS OBJECT, ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY IS ESSENTIALLY A QUESTION OF LAW TO BE DECIDED ON THE FACTS OF THE ASSESSEES OWN CASE AND WHERE OBJECT OF GENERAL PUBLIC ACTIVITY IS ONLY A MASK OR DEVICE TO HIDE THE TRUE PURPOSE OF TRADE, BUSINESS OR COMMERCE, OR RENDERING OF ANY SERVICE IN RELATION THERETO, THE ASSESSEE CANNOT BE SAID TO BE ENGAGED IN A CHARITABLE ACTIVITY WITHIN MEANINGS OF SECTION 2(15) OF THE ACT. AS A COROLLARY TO THIS APPROACH ADOPTED BY TAX ADMINISTRATION, IN OUR CONSIDERED VIEW, IT CANNOT BE OPEN TO LEARNED COMMISSIONER TO CONTEND THAT WHERE AN OBJECT OF GEN ERAL PUBLIC UTILITY IS NOT MERELY A MASK TO HIDE TRUE PURPOSE OR RENDERING OF ANY SERVICE IN RELATION THERETO, AND WHERE SUCH SERVICES ARE BEING RENDERED AS PURELY INCIDENTAL TO OR AS SUBSERVIENT TO THE MAIN OBJECTIVE OF GENERAL PUBLIC UTILITY, THE CARRY ING ON OF BONAFIDE ACTIVITIES IN FURTHERANCE OF SUCH OBJECTIVES OF GENERAL PUBLIC UTILITY WILL ALSO BE HIT BY THE PROVISO TO SECTION 2(15). 15. AS CBDT RIGHTLY PUTS IT, SWEEPING GENERALIZATIONS ARE NOT POSSIBLE AND EACH CASE WILL HAVE TO BE DECIDED ON ITS FACTS. THE QUESTION THEN ARISES WHETHER ON THE PRESENT SET OF FACTS IT CAN BE SAID THAT THE ASSESSEE WAS ENGAGED IN TRADE, COMMERCE OR BUSINESS OR IN RENDERING OF A SERVICE TO TRADE, COMMERCE OR BUSINESS. AS FAR AS ASSESSEE BEING ENGAGED IN TRADE, COMMERCE OR BUSINESS IS CONCERNED, IT IS NOT EVEN LEARNED COMMISSIONERS CASE THAT RUNNING A ORGANIZATION, SET UP UNDER THE STATUTE LAW, FOR CONTROLLING, PREVENTING AND ABATING POLLUTION, IS PURSUING TRADE, COMMERCE OR BUSINESS. OBVIOUSLY, A TRADE, COMMERC E OR BUSINESS IMPLIES AN ACTIVITY WITH PROFIT MOTIVE EVEN THOUGH PUBLIC GOOD MAY BE A SECONDARY BENEFIT FROM SUCH AN ACTIVITY. THAT IS NOT THE CASE BEFORE US. THE LEGAL FRAMEWORK UNDER WHICH THE ASSESSEE IS SET UP IS QUITE CLEAR AND UNAMBIGUOUS AND IT REFL ECTS WILL OF THE LAWMAKERS IN NO UNCERTAIN TERMS, WHICH IS TO PREVENT POLLUTION. 21 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 16. THE NEXT QUESTION IS WHETHER THE LEARNED COMMISSIONER IS JUSTIFIED IN TAKING A STAND THAT THE ASSESSEE EARNING INCOME OVER THE YEARS IN THE NATURE OF LICENCE FEES, CONSE NT FEES, TESTING CHARGES ETC AND SINCE THE BASIC OBJECTIVE OF THE PROTECTION OF ENVIRONMENT PURSUED BY THE BOARD INVOLVES THE CARRYING ON OF SUCH ACTIVITIES AND THE EARNING OF SUCH INCOME, THE ASSESSEE IS HIT BY SECOND LIMB OF PROVISO TO SECTION 2(15) I .E. RENDERING OF SERVICE TO TRADE, COMMERCE OR BUSINESS. IT IS IMPORTANT TO BEAR IN MIND THE FACT THE EXPRESSIONS RENDERING OF ANY SERVICE TO BUSINESS, TRADE OR COMMERCE ARE USED IN CONJUNCTION WITH THE WORDS BUSINESS, TRADE OR COMMERCE AND, THEREFOR E, FOLLOWING THE PRINCIPLES OF NOSCITER O SOCCIS, WE MUST INTERPRET THESE TWO EXPRESSIONS IN THEIR COGNATE SENSE AND AS IF THEY TAKE COLOUR FROM EACH OTHER. BROOMS LEGAL MAXIMS (10TH EDITION) OBSERVES THAT IT IS A RULE LAID DOWN BY LORD BACON THAT COPUL ATION VERBORUM INDICAT ACCEPETATIONEM IN EODEM SENSU I.E. THE COUPLING OF WORDS THAT THEY ARE TO BE UNDERSTOOD IN THE SAME SENSE . A PROFIT MOTIVE IS SURELY THE ESSENCE OF TRADE, COMMERCE OR BUSINESS, AND, THEREFORE, IN A SITUATION IN WHICH SERVICES ARE RE NDERED WITHOUT A PROFIT MOTIVE, SUCH RENDERING OF SERVICE WILL NOT HAVE ANYTHING IS COMMON WITH TRADE, BUSINESS OR COMMERCE. THE APPLICATION OF THE PRINCIPLE OF NOSCITOR O SOCIIS, THEREFORE, WILL REQUIRE THAT IN ORDER TO INVOKE SECOND LIMB OF EXPLANATION T O SECTION 2(15), RENDERING OF SERVICE TO TRADE, COMMERCE OR BUSINESS MUST BE SUCH THAT IT HAS A PROFIT MOTIVE. (EMPHASIS SUPPLIED) 3.18 FURTHER, THE NAGPUR BENCH OF THE TRIBUNAL, IN THE CASE OF SEVAGRAM ASHRAM PRATISTHAN VS. CIT: 129 TTJ 506, HAS CATE GORICALLY OBSERVED THAT THE AMENDED PROVISO TO SEC. 2(15) OF THE ACT IS CONSTRAINT FOR THOSE ASSESSEES WHO ATTEMPT TO DEFRAUD THE REVENUE IN THE GARB OF CHARITABLE PURPOSE, BUT IS NOT MEANT FOR THOSE ASSESSEES WHO ARE REALLY ENGAGED IN ACTIVITIES OF CHARIT ABLE PURPOSE. IN THIS CONTEXT IT MAY ALSO BE PERTINENT TO MENTION THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF DIT (EXEMPTIONS) V. COMMERCE TEACHERS ASSOCIATION: 203 TAXMAN 171 . IN THIS CASE THE DIT (EXEMPTIONS) WHILE GRANTING REGISTRATION UNDER SECTION 12AA OF THE ACT TO THE ASSESSEE VIDE ITS ORDER DATED 28 - 9 - 2 010 HAD, INTER ALIA , IMPOSED THE FOLLOWING CONDITION: 'THE SOCIETY SHOULD NOT CHARGE ANY FEE/AMOUNT FROM THE BENEFICIARIES. ALSO SHALL NOT COLLECT ANY FEES ON ACCOUNT OF TALENT EXAM.' 3.19 THE ASSESSEE CHALLENGED THE ABOVE CONDITION IMPOSED BY THE DIT ( EXEMPTIONS) BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ITS ORDER DATED 11 - 2 - 2011 HELD THAT ABOVE CONDITION WAS UNWARRANTED AND WAS IMPOSED BY THE DIT WITHOUT BACKING FROM THE LAW. THE TRIBUNAL, ACCORDINGLY, EXPUNGED THE AFORESAID CONDITION FROM THE CERTIFICATE OF REGISTRATION ISSUED BY DIT (EXEMPTIONS). THE DEPARTMENT SUBSEQUENTLY FILED AN 22 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 APPEAL BEFORE THE DELHI HIGH COURT. THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 20 - 9 - 2011 DISMISSED THE APPEAL OF THE DEPARTMENT AGREEING WITH THE VIEW TAKEN BY THE TR IBUNAL. THEREFORE, THE LEGAL POSITION THAT EMERGES FROM THE AFORESAID DECISIONS IS THAT WHERE A CHARITABLE TRUST/ INSTITUTION ENGAGED IN ADVANCEMENT OF OBJECT OF GENERAL PUBLIC UTILITY UNDERTAKES/ CARRIES ON COMMERCIAL ACTIVITIES IN THE NATURE OF BUSINES S, TRADE OR COMMERCE WITH A VIEW TO MAKE PROFIT, THEN SUCH TRUST/ INSTITUTION WOULD NOT BE REGARDED AS CHARITABLE, IRRESPECTIVE OF THE FACT THAT PROFIT IS REDEPLOYED INTO THE ACTIVITIES. IF, HOWEVER, SUCH TRUST/ INSTITUTION DOES NOT UNDERTAKE/ CARRY ON C OMMERCIAL ACTIVITIES, THEN THE TRUST/ INSTITUTION WOULD CONTINUE TO BE REGARDED AS CHARITABLE AND THE CHARACTER OF THE TRUST/ INSTITUTION WOULD NOT BE AFFECTED MERELY BECAUSE SOME PROFIT RESULTS FROM THE ACTIVITIES OR FEES/ REMUNERATION IS CHARGED FOR REND ERING ANY SERVICE. IN THE LIGHT OF ABOVE DISCUSSION, IT CAN REASONABLY BE CONCLUDED THAT THE PROVISO TO SECTION 2(15) OF THE INCOME - TAX ACT, IN SUBSTANCE, DOES NOT MAKE A DIFFERENCE WHERE THE ACTIVITIES CARRIED ON BY A CHARITABLE INSTITUTION ENGAGED IN AD VANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY ARE NOT PERVADED WITH PROFIT MOTIVE AND HENCE NOT IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. THE TERMS USED IN THE PROVISO 'IN THE NATURE OF TRADE, COMMERCE OR BUSINESS UNDOUBTEDLY MEAN THAT THE P ROVISO WILL HIT ONLY SUCH CASES WHERE A CHARITABLE INSTITUTION IS CARRYING ON BUSINESS ACTIVITIES WITH A PROFIT MOTIVE IN THE GARB OF CHARITABLE PURPOSE. IT WILL NOT, HOWEVER, AFFECT THE CASE OF CHARITABLE INSTITUTIONS, WHICH ARE GENUINELY CARRYING ON CHAR ITABLE ACTIVITIES. IT HAS BEEN CORRECTLY OBSERVED IN A NUMBER OF CASES THAT A CHARITABLE INSTITUTION CAN CARRY ON CHARITABLE ACTIVITY WITH THE DONATIONS RECEIVED AS WELL AS WITH THE HELP OF THE RECEIPTS FROM RENDERING SERVICES. CHARGING OF FEES TO MEET PA RT OF THE COST FOR RENDERING CHARITABLE SERVICES CANNOT, IT IS SUBMITTED, RESULT IN RENDERING OF SERVICES BEING CONSTRUED AS BUSINESS ACTIVITIES AND, ACCORDINGLY, THE INSTITUTION WOULD CONTINUE TO BE A CHARITABLE INSTITUTION, NOTWITHSTANDING PROVISO TO SE CTION 2(15) OF THE ACT. 3.20 ACCORDINGLY, RELIANCE IS ALSO PLACED ON THE VIEW EXPRESSED BY THE HON'BLE SUPREME COURT IN THE LANDMARK CASE OF ACIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION: 121 ITR 1, WHEREIN IT WAS HELD THAT IT IS NOT THAT IN EVERY CASE WHERE THE ACTIVITY IS BEING CARRIED ON WHICH GIVES RISE TO PROFIT, THAT WOULD AMOUNT TO NON - CHARITABLE ACTIVITY, RESULTING IN FORFEITING EXEMPTION AVAILABLE TO THE TRUST. THE HON'BLE SUPREME COURT IN THIS CASE OBSERVED THAT WHERE AN ACTIVITY WAS NOT PERVADED BY PROFIT MOTIVE BUT WAS CARRIED ON PRIMARILY FOR SERVING THE DOMINANT CHARITABLE PURPOSES, IT WOULD NOT BE CORRECT TO DESCRIBE THE SAME AS AN ACTIVITY FOR PROFIT; BUT WHERE AN ACTIVITY WAS CARRIED ON WITH THE PREDOMINANT OBJECT OF EARNING PR OFIT, IT WOULD BE AN ACTIVITY FOR PROFIT, THOUGH IT MAY BE CARRIED ON IN THE ADVANCEMENT OF THE CHARITABLE PURPOSE OF THE TRUST OR THE INSTITUTION. THE LD. A.R. ALSO RELIED ON THE FOLLOWING DECISIONS, WHEREIN IT IS HELD THAT IF THE PRIMARY OR DOMINANT PUR POSE IS CHARITABLE, IT IS IMMATERIAL THAT THE ANCILLARY PURPOSE IS NON - CHARITABLE: VICTORIA TECHNICAL INSTITUTE V. ADDL. CIT [1991] 188 ITR 57 (SC) 23 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 CIT VS. ANDHRA CHAMBER OF COMMERCE: 55 ITR 722 (SC) CITV. DHARMODAYAM CO. [1977] 109 ITR 527 (SC) CIT VS. FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY: 130 ITR 186 (SC) CIT (ADDL) VS. AUTOMOBILE ASSOCIATION OF SOUTHERN INDIA: 127 ITR 730 (MAD) CIT (ADDNL) VS. MADRAS JEWELLERS AND DIAMOND MERCHANTS ASSOCIATION: 129 ITR 214 (MAD) CIT VS. MAHENDRA MOHTA SEWA NIDI: 152 ITR 516 (P&H) CIT VS. ARYA VYSYA KALYANA NILAYA SANGAM: 159 ITR 324 (AP) CIT VS. ADARSH GRAM TRUST: 159 ITR 41 (RAJ) CIT VS. JK CHARITABLE TRUST: 196 ITR 31 (ALL) CIT VS. HYDERABAD RACE CLUB CHARITABLE TRUST 262 ITR 194 (AP) CIT V. COC HIN CHAMBER OF COMMERCE AND INDUSTRY [1973] 87 ITR 83 (KER) ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION V. CIT [1975] 100 ITR 392(AP) AFFIRMED IN CIT V. ANDHRA PRADESH STATE ROAD TRANSPORT CORPORATION [1986] 159 ITR 1 (SC) THUS, WHERE AN ACTIVITY WAS NOT PERVADED BY PROFIT MOTIVE BUT WAS CARRIED ON PRIMARILY FOR SERVING THE DOMINANT CHARITABLE PURPOSES, IT WOULD NOT BE CORRECT TO DESCRIBE THE SAME AS AN ACTIVITY FOR PROFIT. 3.21 APPLYING THE AFORESAID LEGAL POSITION TO FACTS OF THE APPELLANTS CASE WE HAVE FOUND THAT THE CASE OF THE APPELLANT FALLS IN THE MAIN LIMB OF SECTION 2(15) OF THE ACT, VIZ., PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST A ND FURTHER NONE OF THE OBJECTIVES AND/ OR THE ACTIVITIES IS COMMERCIAL IN NATURE SO AS TO FALL WITHIN THE MISCHIEF OF PROVISO TO SECTION 2(15) OF THE ACT. TRUST IS REQUIRED TO PROTECT, PRESERVE, ENLARGE AND IMPROVE COLLECTIONS AND ARTICLES AND THINGS. T HIS ACTIVITY GETS COVERED IN PRESERVATION OF OBJECTS OF ARTISTIC OR HISTORIC IN NATURE. THE PRIMARY MISSION OF THE APPELLANT IS TO ESTABLISH MUSEUMS. PRESERVATION OF MONUMENTS IS VERY MUCH PART OF ESTABLISHMENT OF MUSEUM EVEN THOUGH NOT SPECIFICALLY STAT ED IN THE TRUST DEED. THE TRUST DEED ENTERED INTO BY THE APPELLANT WAS SIGNED IN YEAR 1972, AT WHICH TIME, THE APPELLANT COULD NOT HAVE ANTICIPATED THE LANGUAGE OF LAW TO BE BROUGHT IN SUBSEQUENTLY, VIZ. PRESERVATION OF MONUMENTS. NEVERTHELESS, IN ACTUAL CONDUCT, THE APPELLANT IS ENGAGED IN PRESERVING MONUMENTS. THIS ACTIVITY OF THE APPELLANT GETS COVERED IN PRESERVATION OF MONUMENTS OF ARTISTIC OR HISTORIC IN NATURE. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT MEHRANGARH FORT AND AHICHHATRAGARH FORT, N AGAUR ARE HISTORIC MONUMENTS, NOTIFIED UNDER SECTION 3(4) OF THE RAJASTHAN MONUMENTS ARCHAEOLOGICAL SITES & ANTIQUITIES ACT, 1961, AS STATED BY THE LD. A.R. THIS ACT HAS BEEN ENACTED BY THE RAJASTHAN STATE GOVERNMENT TO PROVIDE FOR THE PRESERVATION, PROTE CTION, UPKEEP, MAINTENANCE, ACQUISITION AND REGULATION OF, AND CONTROL OVER, ANCIENT AND HISTORICAL MONUMENTS, ARCHAEOLOGICAL SITES AND ANTIQUITIES IN THE STATE OF RAJASTHAN WITH A VIEW TO PRESCRIBE STANDARDS FOR PRESERVATION OF HISTORICAL MONUMENTS. SECT ION 2(I) OF THE SAID ACT DEFINES HISTORICAL MONUMENT TO 24 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 INCLUDE ARCHAEOLOGICAL BUILDING WHICH IS OF HISTORICAL, ARCHAEOLOGICAL OR ARTISTIC IMPORTANCE, INTEREST OR VALUE. THE RELEVANT EXTRACT OF THE SAID SECTION IS REPRODUCED HEREUNDER: 'ANCIENT OR HISTO RICAL MONUMENT' MEANS ANY ARCHAEOLOGICAL BUILDING, STRUCTURE, ERECTION OR MONUMENT OR ANY TUMULUS, TOMB OR PLACE OF INTERMENT OR ANY CAVE, ROCK - SCULPTURE, ROCK - PAINTING OR SCULPTURE OF OR ON STONE, METAL, TERRACOTTA OR OTHER IMMOVABLE OBJECT OR ANY INSCRIP TION OR MONOLITH, WHICH IS OF HISTORICAL, ARCHAEOLOGICAL OR ARTISTIC IMPORTANCE, INTEREST OR VALUE, AND INCLUDES (A) ANY REMAINS THEREOF, (B) THE SITE THEREOF, (C) THE PORTION OF LAND ADJOINING SUCH SITE WHICH MAY BE NECESSARY OR REQUIRED FOR THE PRESERV ATION, PROTECTION, UPKEEP AND MAINTENANCE OF THE SAME, AND (D) THE MEANS OF ACCESS THERETO AND OF CONVENIENT INSPECTION AND REPAIRS THEREOF; BUT DOES NOT INCLUDE AN ANCIENT MONUMENT AS DEFINED IN THE CENTRAL ACT, TO WHICH THE PROVISIONS OF THAT ACT APPLY F OR THE TIME BEING; SECTION 3 OF THE SAID ACT EMPOWERS THE STATE GOVERNMENT TO DECLARE A HISTORICAL MONUMENT AS PROTECTED MONUMENT. THE RELEVANT EXTRACTS OF THE SECTION IS REPRODUCED AS UNDER: 3. POWER TO DECLARE MONUMENTS ETC. TO BE PROTECTED - (1) THE STATE GOVERNMENT MAY DECLARE FOR THE PURPOSES OF THIS ACT (I) ANY ANCIENT OR HISTORICAL MONUMENT TO BE A PROTECTED MONUMENT , OR (II) ANY ARCHAEOLOGICAL SITE TO BE A PROTECTED AREA, OR (III) ANY ANTIQUITY TO BE A PROTECTED ANTIQUITY. (2) BEFORE MAKING AN Y SUCH DECLARATION AS IS REFERRED TO IN SUB - SECTION (1), THE STATE GOVERNMENT SHALL, BY NOTIFICATION IN THE OFFICIAL GAZETTE GIVE TWO MONTHS NOTICE OF ITS INTENTION TO DO SO AND A COPY OF SUCH NOTIFICATION ALONG WITH A STATEMENT OF THE REASONS FOR WHICH S UCH DECLARATION IS PROPOSED TO BE MADE, SHALL BE AFFIXED IN A CONSPICUOUS PLACE AT OR NEAR THE ANCIENT OR HISTORICAL MONUMENT OR THE ARCHAEOLOGICAL SITE WHICH IS PROPOSED TO BE DECLARED AS PROTECTED OR ON OR NEAR THE PLACE WHERE OR IN WHICH SUCH MONUMENT O R THE ANTIQUITY PROPOSED TO BE DECLARED AS PROTECTED IS FOR THE TIME BEING. (3) ANY PERSON INTERESTED IN ANY SUCH MONUMENT, ARCHAEOLOGICAL SITE OR ANTIQUITY MAY, WITHIN TWO MONTHS AFTER THE PUBLICATION OF SUCH NOTIFICATION IN THE OFFICIAL GAZETTE, OBJECT TO THE PROPOSED DECLARATION. (4) ON THE EXPIRATION OF THE SAID PERIOD OF TWO MONTHS THE STATE GOVERNMENT MAY, AFTER CONSIDERING THE OBJECTIONS, IF ANY, RECEIVED BY IT, DECLARE BY NOTIFICATION IN THE OFFICIAL GAZETTE (I) AN ANCIENT OR HISTORICAL MONUMENT TO BE A PROTECTED 25 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 MONUMENT, OR (II) AN ARCHAEOLOGICAL SITE TO BE A PROTECTED AREA, OR (III) AN ANTIQUITY TO BE A PROTECTED ANTIQUITY. SECTION 5 OF THE SAID ACT, FURTHER PROVIDES AS UNDER: A NOTIFICATION PUBLISHED UNDER SUB - SECTION (4) SHALL, UNLESS AND UNTIL IT IS WITHDRAWN, BE CONCLUSIVE EVIDENCE OF THE FACT THAT THE ANCIENT OR HISTORICAL MONUMENT, ARCHAEOLOGICAL SITE OR ANTIQUITY TO WHICH IT RELATES IS A PROTECTED MONUMENT, A PROTECTED AREA OR A PROTECTED ANTIQUITY FOR THE PURPOSES OF THIS A CT. IN TERMS OF THE ABOVE PROVISIONS, THE DIRECTOR, ARCHAEOLOGY & MUSEUMS DEPARTMENT, GOVERNMENT OF RAJASTHAN, JAIPUR, HAS BY SPECIFIC ORDER, IN CONNECTION WITH MEHRANGARH FORT AND AHICHHATRAGARH FORT, NAGAUR DECLARED AS UNDER: PROTECTED MONUMENT UND ER SECTION 3(4) OF THE RAJASTHAN MONUMENTS ARCHAEOLOGICAL SITES & ANTIQUITIES ACT, 1961, THIS IS A PROTECTED MONUMENT . WHOEVER DESTROYS, INJURES, MUTILATES, ALTERS, REMOVES DISPERSES MISUSES, IMPERILS OR ALLOWS TO FALL IT INTO DECAY OR REMOVES ANY SCULPTURES, CARVED IMAGE BAS - RELIEF INSCRIPTION OR OTHER LIKE OBJECTS SHALL BE PUNISHABLE WITH IMPRISONMENT FOR A TERM WHICH MAY EXTEND TO SIX MONTHS OR WITH FINE WHICH MAY EXTEND TO FIVE THOUSAND RUPEES OR BOTH. ON PERUSAL OF THE AFORESAID, IT WILL BE A PPRECIATED THAT THE FORTS WERE HISTORICAL IN NATURE. THUS, THE ACT OF PRESERVATION OF SUCH MONUMENTS UNDOUBTEDLY QUALIFIES AS PRESERVATION OF MONUMENTS OF ARTISTIC OR HISTORIC IN NATURE AS PROVIDED IN SECTION 2(15) OF THE ACT. IN VIEW OF THE ABOVE, THE C ASE OF APPELLANT DOES NOT FALL IN THE LAST LIMB OF SECTION 2(15) OF THE ACT. 3.22 EVEN IF IT WERE TO BE HELD THAT THE ACTIVITIES OF THE APPELLANT FALL UNDER ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, THE APPELLANT WOULD STILL BE ENTITLE D TO CLAIM EXEMPTION UNDER SECTIONS 11/12 OF THE ACT, IN VIEW OF THE PURELY CHARITABLE OBJECTS PURSUED BY THE APPLICANT IN THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED THAT THE APPELLANT WAS FORMED FOR OBJECTS OF N ATIONAL INTEREST. IT DOES NOT AND CANNOT UNDERTAKE ANY COMMERCIAL ACTIVITY IN THE NATURE OF BUSINESS. OUR ATTENTION WAS INVITED TO THE CORRESPONDENCE WITH EMBASSY OF THE FEDERAL REPUBLIC OF GERMANY AND LADY HELEN HAMLYN TRUST, SANCTIONING RELEASE OF GRANT S - IN - AID, ON SAMPLE BASIS. THE SAID SANCTION IS SUBJECT TO SEVERAL CONDITIONS, WHICH INTER ALIA, REQUIRES THE APPELLANT TO SPEND GRANTS - IN - AID EXCLUSIVELY, IN PURSUANCE OF THE OBJECTIVES ENVISAGED IN THE TRUST DEED AND FOR THE PURPOSE FOR WHICH IT IS SANCT IONED AND REFUND THE UNSPENT BALANCE, IF ANY, TO THE RESPECTIVE PARTIES. WHILE PURSUING ITS CHARITABLE OBJECTS AND UNDERTAKING ACTIVITIES IN FURTHERANCE OF THE SAME, THE APPELLANT, DURING THE RELEVANT ASSESSMENT YEAR, INTER - ALIA, RECEIVED THE FOLLOWING RE CEIPTS 26 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 WHICH IS CONSIDERED BY THE ASSESSING OFFICER AS COMMERCIAL INCOME TO DENY THE BENEFIT OF SECTIONS 11/12 OF THE ACT: S. NO. PARTICULARS AMOUNT 1 LICENSE FEES 28,45,118 2 LOCATION FEES (FOR FILM SHOOTING AND FOR ALLOWING HOTELIERS TO HOST DINNER PARTIES) 42,48,150 3 RECOVERIES OF ADMINISTRATIVE COST 52,03,184 TOTAL 122,96,452 THE OBJECT OF THE APPELLANT IS TO OPERATE A MUSEUM AND PRESERVATION OF OBJECTS OF ART AND CULTURE HAVING HISTORICAL IMPORTANCE. TO MEET SUCH OBJECTIVE, THE APPELLANT EXPENDS HUGE AMOUNT FOR PRESERVATION, SAFETY, MAINTENANCE OF ANTIQUITIES AND THE MONUMENTS. SUCH EXPENSES ARE MET FROM THE FEE CHARGED FROM THE VISITORS OF THE MUSEUM. IT WILL BE APPRECIATED THAT FOOTFALLS IN THE MUSEUM ARE NOT EVEN IN ALL MONTHS OF THE YE AR. WHILE IN THE TOURIST SEASON, TOURISTS VISIT THE MUSEUM IN GOOD NUMBERS, IN SUMMER AND RAINY SEASON, THE NUMBER OF VISITORS DRASTICALLY FALLS. APART FROM WEATHER CONDITIONS, THERE ARE SEVERAL OTHER FACTORS THAT IMPACT THE FOOTFALL OF TOURISTS. IN ORDER TO MEET SUCH SHORTFALL, THE APPELLANT UNDERTAKES ANCILLARY ACTIVITIES TO ENHANCE ITS RECEIPTS, WHICH IS THEN UTILIZED TO MAINTAIN THE MUSEUM AND MEET OTHER FIXED COSTS. SOME OF THEM, WHICH IN VIEW OF THE ASSESSING OFFICER ARE ALLEGEDLY COMMERCIAL IN NATURE , ARE BRIEFLY EXPLAINED HEREUNDER: A) LICENCE FEE THE APPELLANT PERMITS FEW CRAFTSMEN TO GIVE LIVE DEMONSTRATION OF THEIR ACTIVITIES, SUCH AS COBBLER MAKING JODHPURI JUTTIS, LOCAL PAINTER MAKING PAINTINGS, WEAVER WEAVING DURRIES, ETC. THE APPELLANT COLLECTS FEES FROM SUCH CRAFTSMEN FOR SERVICES PROVIDED TO THEM WHILE THEY OCCUPY SPACE IN THE MONUMENT. B) LOCATION FEE (FILM SHOOTING) THE APPELLANT PERMITS PRODUCTION HOUSES TO CONDUCT FILM SHOOTING IN THE MONUMENT IN WHICH IT OPERATES MUSEUM, IN LIEU OF RECOVE RY OF FEES FROM SUCH USERS. THIS NOT ONLY ENABLES THE APPELLANT TO EARN INCIDENTAL INCOME BUT HAS ALSO BECOME A SOURCE OF PUBLICITY FOR THE APPELLANT, WHICH HAS RESULTED IN ATTRACTING TOURISTS FROM ALL OVER THE WORLD. C) LOCATION FEE (DINNER PARTIES) THE A PPELLANT ALSO PERMITS HOTELIERS OF JODHPUR TO ORGANIZE DINNER FOR HIGH - END VISITORS, PARTICULARLY FOREIGNERS, WHO ARE EITHER UNABLE TO VISIT THE FORT IN MORNING HOURS OR FOR VISITORS WHO HAVE PREFERENCE TO ENJOY THE NIGHT VIEW OF THE CITY. IN ADDITION TO E NTRANCE FEES, THE APPELLANT RECOVERS LOCATION CHARGES FROM SUCH HOTELIERS, WHICH RESULTS IN ADDITIONAL RECEIPTS TO THE APPELLANT. 27 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 D) THE APPELLANT FURTHER RECOVERS ADMINISTRATIVE COST IN CONNECTION WITH SERVICES PROVIDED TO THE ABOVE MENTIONED PEOPLE. 3.23 AS ELABORATELY EXPLAINED SUPRA, THE APPELLANT IS ENGAGED IN PRESERVATION OF MONUMENTS AND ARTICLES/ THINGS OF HISTORIC NATURE, WHICH IS THE PREDOMINANT OBJECT OF THE APPELLANT. THE AFORESAID ACTIVITIES ARE INCIDENTAL TO THE MAIN OBJECT ONLY. AS HAS BEEN HE LD IN VARIOUS DECISIONS RELIED UPON SUPRA, CHARGING OF FEE TO MEET A PART OF THE COST FOR RENDERING CHARITABLE SERVICES CANNOT, RESULT IN THE SERVICES BEING REGARDED AS BUSINESS ACTIVITIES AND, ACCORDINGLY, THE APPELLANT DOES NOT CEASE TO BE A CHARITABLE I NSTITUTION, NOTWITHSTANDING PROVISO TO SECTION 2(15) OF THE ACT. ACCORDINGLY, GROUND NO. 2 OF THIS APPEAL IS ALLOWED. 5. RESPECTFULLY FOLLOWING THE ORDER OF THIS BENCH OF THE TRIBUNAL QUOTED ABOVE, WE DISMISS THE GROUNDS OF APPEAL OF THE REVENUE . 6 . AT THE TIME OF HEARING , AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS WITHDRAWING THE CROSS OBJECTIONS FILED BY THE ASSESSEE. THEREFORE, THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED AS WITHDRAWN. 7 . IN THE RESULT, APPEAL S OF THE REVENUE AS WELL AS CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF THE HEARING ON TUESDAY , THE 1 5 TH DAY OF MARCH , 201 6 AT JODHPUR . S D / - S D / - (GEORGE MATHAN) (N.S.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER D ATED : 1 5 TH MARCH , 201 6 . VR/ - COPY TO: 28 ITA NOS.152 - 155 & 189/JODH/2015 C.O.NOS.14, 15,17/JODH/2015 AND 07 & 04/JODH/2016 1. THE ASSESS E E. 2. THE REVENUE. 3. THE CIT 4. THE CIT(A) 5. THE D.R . 6. GUARD FILE. BY ORDER .