Sood Sabha, Chandigarh V. ITO(Exemption Ward), Chandigarh

ITA 138/CHANDI/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5079 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 03-06-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Charitable institution
• Section: 32; 12AA; 143(2); 13

Judgement Text

This is an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 30.04.2021 and pertains to assessment year 2016-17, wherein the assessee has taken the following grounds of appeal: “1. That the Ld Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC) Delhi has erred in law and facts by confirming the orders of AO in commenting that the assessee is not carrying on activity for charitable purposes instead its purpose involves carrying on activity in the nature of business and is thus covered by proviso to section 2(15) read with section 13(8) and by subjecting the entire surplus of Rs.62,55,092/- to tax by ignoring the departmental circular No.11/2008 dated 19.12.2008 which is binding on the department. 2. That the Ld CIT (Appeals)-National Faceless Appeal Centre (NFAC) Delhi has erred in law and facts by confirming the orders of AO for not considering addition made to fixed assets amounting to Rs.26,58,327/- as application of income for charitable purposes for the purposes of calculating application of 85% of its income for charitable purposes. 3. That the Ld CIT (Appeals), Delhi is not justified in confirming and disallowing the claim of the assessee in respect of deemed application of expenses amounting to Rs. , ‘ब ’ , । IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.138/Chd/2021 र /Assessment Year: 2016-17 Sood Sabha, Sood Bhawan, Sector 44-A, Chandigarh. v. The Income Tax Officer, (Exemption Ward), CR Building, Sector 17-E, Chandigarh. [PAN: AAJTS 5542 G] ( /Appellant) (!" /Respondent) # $ %/ Appellant by : Mr.A.K.Sood, CA !" # $ % /Respondent by : Mr.Manveet Sehgal, Sr.DR ु नव ई # ( )/Date of Hearing : 22.06.2022 घोषण # ( ) /Date of Pronouncement : 21.07.2022 आ द%श / O R D E R PER VIKRAM SINGH YADAV, ACCOUNTANT MEMBER: ITA No.138/Chd/2021 :: 2 :: 16.34.692/- u/s 11(2) despite the assessee filing Form 10 on 06.06.2020 and Ld. CIT(Exemptions) condoning the delay in late filing of Form 10 vide its letter No.ITBA/COM/F/2020-21/1027573046(1) dated 23.07.2020. 4. The orders of The Ld CIT (Appeals)-ll confirming the orders of the Assessing Officer are against the law and facts of the case on account of Judicial inconsistency as the cases of the assessee for the last so many years are being regularly assessed u/s.143(3) by different assessing officers without any adverse inference on the above issues and there is no change in the facts of the case regarding constitution, objects and activities since grant of registration u/s.12A” 2. Briefly, the facts of the case are that the assessee’s society is registered with Registrar of Societies, Union Territory, Chandigarh, and also registered u/s 12AA of the Act. For the year under consideration, it has filed its return of income declaring total income at Rs.NIL. The case of the assessee was selected for compulsory scrutiny and notice u/s 143(2) and subsequent notices along with questionnaire were issued. In response, the assessee’s society furnished necessary information and documentation which were taken on record and examined by the Assessing officer. 3. As per the Assessing officer, the list of the objects sought to be achieved as so filed by the assessee’s society are of the nature of general public utility as these objects encompasses nearly all objects mentioned in the definition of charitable purpose u/s 2(15) of the Act. As per the AO, the assessee is engaged in letting out rooms, halls for social functions, ladies sangeet, ring ceremony, bhandara, yoga camp / blood donation camp, bhogs, etc. It was held by the AO that letting out the premises of the society for functions, etc., and generation of profit amounting to Rs.62,55,092/- are not furtherance of any activity of charitable nature, but, clearly guided by the profit motive. It was held by the AO that ITA No.138/Chd/2021 :: 3 :: assessee’s society’s objects are in the nature of general public utility but letting out rooms/hall for other purposes only shown that the dominant object of the assessee’s society is to earn profit. It was further held by the AO that the building from which the assessee has earned rent has not been shown in its fixed assets and the same has been shown in another trust namely M/s. Sood Sewa Bhawan Trust, which is registered under separate PAN and assessed to tax separately. Thereafter, a show cause notice dated 17.11.2018 was issued to the assessee, as to why exemption u/s 11 of the Act, may not be disallowed and the surplus amounting to Rs.62,99,306/- be not brought to tax in the hands of the assessee’s society as the activity of letting out rooms/halls are in the nature of commercial activity and covered by the proviso to Sec.2(15) of the Act. 4. In response to show cause notice, the assessee’s society submitted that it is undertaking various kind of charitable activities which mainly constitute/fall under medical field and relief to the poor and does not undertake any activity in the nature of general public utility. It was submitted that charging of room rent does not make it a commercial activity. Even PGI and other government hospitals are charging room rent on concessional rates and that does not change the character of the organization from charity to commercial as these serve the purpose of poor and needy who cannot afford rooms in commercial organizations. It was submitted that these charitable organizations have been instrumental in fulfilling the aspirations of the poor and needy for their medical and ITA No.138/Chd/2021 :: 4 :: educational requirements. It was submitted that the proviso to Sec.2(15) of the Act, is never meant to deprive genuine trusts and institutions whose main object is charity, but in the process of achieving main object, they undertake some income generating activity which is ancillary and incidental to the main object and the income so generated is utilized for achieving the main charitable object. It was submitted that this matter has come up for scrutiny before various High Courts and an unanimous view of the judiciary is that the proviso to Sec.2(15) of the Act has to be applied keeping in mind the dominant object of the trust. Therefore, what is to be seen is whether the dominant object of the assessee’s trust is charitable or not. It was submitted that in the instant case, the dominant object is clearly not to make profit but rather carrying out activities in the medical field and relief to the poor and to undertake such activities, the income from letting out of the rooms/halls are utilized and whatever surplus/remains is further ploughed back in terms of carrying out the said activities. 5. The submissions so filed by the assessee’s society were considered but not found to be acceptable to the AO. It was held by the AO that to better understand and to show that the dominant object of assessee’s society is to maximize profits, the support of statistics in form of financial statements of the assessee’s society need to be considered and financial statement and income expenditure account for the year ended 31.03.2016 were considered. It was observed by the AO that on perusal ITA No.138/Chd/2021 :: 5 :: of the income and expenditure account, it is noticed that the assessee has earned total receipts of Rs.1,52,05,441/- and incurred expenditure of Rs.87,42,207/- and has earned huge profit of Rs.89,50,349/- and the profit percentage which comes to 41.13% is highly excessive, considering the fact that the assessee is registered u/s.12AA of the Act. It was held by the AO that if other incomes are deducted from the total receipts of Rs.1,52,05,441/- income from booking of letting out rooms/halls is worked out at Rs.1,41,73,710/- which constitute 93% of the total receipts which clearly shown the primary activity undertaken by the assessee’s society is booking of rooms/halls etc., and the assessee is claiming to be acting as a charitable entity which has indulged into business venture and commercially exploited the building for enhancing the business prospects. It was held by the AO that on perusal of the objects, the assessee is to provide various kinds of facilities but once we go deeper about the nature of the activities, it is found that the assessee has converted itself into commercial entity and hence, no more doing any charitable activities. It was held by the AO that the assessee has been earning profit year after year from the activity of letting out rooms/halls and further, there is no activity of the Trust which qualifies it as a charitable trust for claiming exemption u/s.11 of the Act. On the basis of the activities undertaken by the assessee’s society, it cannot be taken as a charitable trust within the meaning of Sec.2(15) of the Act, and the income earned therefore, cannot be treated as exempt. It was further held by the AO that the ITA No.138/Chd/2021 :: 6 :: assessee has generated substantial profit and the same is not ploughed bag to feed any charitable activities and thereafter, in his concluding findings, the AO has held as under: “2.23 The perusal of nature of receipts and percentage of profit, clearly the case of the assessee is covered by proviso to section 2(15) of the Act because it has been mentioned that the advancement of any other object of general public utility would not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. Hence, all these activities carried out by the trust are in the nature of business/ commercial activities and which cannot be regarded as having carried out for charitable purposes and the exemption as claimed by virtue of section 2(15) of the Act is not available to the trust and the same is hereby denied for the year under consideration. Since the benefit of section has been denied to the trust, the status is being taken as A.O.P and surplus amounting to Rs.62,55,092/- is added to the taxable income of the assessee. I am satisfied that the assessee has furnishing inaccurate particulars of his income and hence, penalty proceedings u/s.271(1)(c) are being initiated separately.” 6. Thereafter, the AO has determined total taxable income at Rs.78,89,784/- as against the returned income of Rs.NIL and also adding back a sum of Rs.16,34,692/-as the assessee failed to file Form No.9A within the prescribed time limit and the amount of Rs.16,34,692/- which was deemed to be applied u/s.11(1) of the Act explanation-2 was also disallowed and added to the total income of the assessee. 7. Being aggrieved, the assessee carried the matter in appeal before the ld.CIT(A) who has confirmed the said findings of the AO. Against the said findings and order of the ld.CIT(A), NFAC, the assessee is in appeal before us. 8. During the course of hearing, the ld.AR submitted that the assessee’s society has undertaken various charitable activities in furtherance of the objects of the assessee’s society and which also find ITA No.138/Chd/2021 :: 7 :: mention in the assessment order at Para No.2.2, however, the AO has failed to consider the same. It was submitted that in pursuance of the charitable objects of the assessee’s society, it has regularly undertaken the following charitable activities which constitute relief to the poor, yoga and medical welfare scheme as per the details below: 1) PTC (Physiotherapy Centre). 2) Medical testing lab and counseling by retired PGI doctor. 3) Allopathic doctors with free medicines. 4) Homeopathic doctor with free medicines. 5) Free eye centre. 6) Free daily yoga camps morning and evening. 7) Free meditation camps daily. 8) Free medical conferences, talks and consultations. 9) Free library. 10) Music classes morning and evening. 11) Free blood donation camps. 12) Free Riki Classes Monday and Tuesday. 13) Free motivational talks. 14) Social functions like Kirya Ceremonies, social welfare schemes (Aadhar centre), lectures, talks against social evils, awareness camps etc. 15) Stay at concessional rates for all such facilities and people in need than the market and further concessions for the needy, deserving and poor. 16) Providing medical facilities to needy to all section of the society at concessional rates much lower approx. 25% than the market rates generating nominal surplus and providing free facility to the poor. 17) Daily medical consultation facilities are provided to all needy in the form of free homeopathic medicines. 18) Daily free allopathic medical consultation facilities are provided to all. 19) People coming from far off places including drivers, class IV employees and other needy persons on account of performing their official duties, for medical treatments in PGI, Chetanaya Hospital, Sector 32 Hospital and other hospitals, in search of jobs, for examinations and for so many other reasons who cannot afford high rentals are provided facilities of staying at concessional rates. 20) Both Chandigarh and Panchkula Bhawans were taken over by Chandigarh Administration and Haryana Government respectively made COVID -19 Centers during pandemic times. 9. It was submitted that all the objects and charitable activities carried out by the assessee’s society since its inception are covered in the first three limbs as per the definition of charitable purpose in Sec.2(15) of the Act. It was submitted that the assessee has not undertaken any activity ITA No.138/Chd/2021 :: 8 :: in the nature of advancement of any other object of general public utility which involves carrying on any activity of rendering any service in relation to any trade, commerce or business for fees or for any other consideration. It was submitted that none of the activities carried by the assessee’s society constitute advancement of any other object of general public utility. It was submitted that the assessee’s society has been undertaking same charitable activities since its inception without any adverse inference by Revenue authorities. It was submitted that the nature of the activity being charitable since inception have been duly verified and accepted by the Revenue at the time of registration u/s.12AA of the Act and framing of assessment u/s.143(3) of the Act for various assessment years and in support, our reference was drawn to the assessment orders passed u/s.143(3) of the Act for the AYs 2012-13 & 2013-14 respectively. It was submitted that the principle of judicial consistency applies when the facts are same and there is no change in the facts and circumstances from the earlier years when the matter was taken up for scrutiny. It was further submitted that the case of the assessee is directly covered by the CBDT Circular No.11/08 dated 19.12.2018 which clarified that proviso to Sec.2(15) of the Act applies to entities whose purpose is advancement of any other object of general public utility and does not apply for the first three limbs of Sec.2(15) of the Act. ITA No.138/Chd/2021 :: 9 :: 10. It has been further submitted that the assessee has been granted fresh registration by the ld. Pr.CIT vide order dated 15.10.2021 u/s.12AA of the Act, for A.Y 2022-23 to A.Y 2026-2027 with the same objects of relief of the poor, education, medical relief and yoga and in this regard, a copy of Form 10A dated 7.10.2021 and Form 10AC dated 15.10.2021 has been placed on record. 11. Further, the ld. AR has filed a detailed paper book containing documentary evidences of various charitable activities undertaken by the assessee as well as the corresponding expenditure incurred during the year while undertaking such activities. It was accordingly submitted that the order of the ld CIT(A) be set-aside and the assessee be granted necessary relief. 12. Per contra, the CIT/DR relied on the findings of the AO as well as the ld. CIT(A), NFAC. It was submitted that the ld. CIT(A) has clearly held in his order that the AO in the present case has brought out uncontroverted findings that the entire set of activities as undertaken by the assessee has nothing to do with what has been stated in its objectives rather the assessee is clearly engaged in business of running a guest house/letting out rooms/halls for social functions, lady sangeet, ring ceremonies, etc. and in the process, has earned an enormous profit amounting to Rs.62,55,092/- from these activities. It was further held by the ld.CIT(A) that the assessee has not shown the building from which it ITA No.138/Chd/2021 :: 10 :: run its activities rather the building is an asset in another trust which is distinct legal entity. Thereafter, referring to the various decisions, the ld.CIT(A) has held that when the facts show that the dominant object assessee’s society is profit motive, the exemption u/s.2(15) of the Act would not be available to him. As far as the matter of judicial consistency is concerned, it was submitted that the ld CIT(A) has rightly held that a charitable purpose once established in a particular year does not necessarily remain so in every year. It is a matter of examination by the Assessing officer in every year and derivation the conclusion of the eligibility of exemptions in every year. He accordingly supported the order and findings of the ld CIT(A). 13. We have heard the rival contentions and carefully purused the material available on record. Firstly, we find that it is a consistent stand of the assessee society before the lower authorities that there is no change in the objects of the assessee society and it has been carrying on same set of activities in pursuance of the said objects over past number of years and which has been accepted by the Assessing officer while framing the assessment in the earlier years and therefore, questioning the different stand taken by the AO during the year under consideration and which has also been confirmed by the ld CIT(A). On perusal of the records, we find that the AO has not addressed this contention of the assessee and the ld CIT(A) has merely stated that each year is an ITA No.138/Chd/2021 :: 11 :: independent assessment year and the AO has to examine and decide the matter based on facts of that particular year. No doubt, each year is an independent assessment year and the AO is bound by law to examine the activities each year and whether the same are in pursuance of its stated objectives. At the same time, it is a settled legal proposition as has been reiterated by the Courts and this Tribunal from time to time that where there are no material changes in the facts and circumstances of the case and same nature of activities have been carried on in the past years and in the year under consideration and there is no change in law, a view once taken by the Revenue authorities in the past years should not ordinarily be disturbed or varied in the year under consideration. In other words, the principle of consistency has been well enshrined in tax jurisprudence which should be respected and adhered to by the authorities. Therefore, the contention of the assessee regarding consistency in approach by the Revenue authorities need to be appropriately addressed and for that reasons, we believe that the matter deserve to be said set-aside to the file of the Assessing office for examination a fresh and to record a specific finding in this regard as to why he believes that a position accepted by the Revenue in the earlier years should not be followed and the reasons for arriving at such a finding. ITA No.138/Chd/2021 :: 12 :: 14. The second contention which has been raised by the assessee is that its objects fall under the category of medical relief, relief of the poor and yoga and doesn’t fall under the category of “advancement of any other object of general public utility” and as per settled legal position, the proviso to section 2(15) which applies to last limb under the category of “advancement of any other object of general public utility” doesn’t apply in the instant case. In this regard, we find that the AO in para 2.3 of his order has summarily held that as list of objects sought to be achieved by the assessee society encompasses nearly all objects mentioned in the definition of charitable purpose in section 2(15) of the Act, all the objects fall under the category of “general public utility”. In this regard, if we look at the definition of the charitable purpose as defined in section 2(15) of the Act, it defines “charitable purpose" to include relief of the 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 the advancement of any other object of general public utility. In our understanding, prima facie reading of the aforesaid provisions require to identify objects which are falling under individual category of “relief to the poor”, “education”, “yoga”, “medical relief”, etc and in cases, where it is falling under more than one category, then apply the dominant purpose test to identify a suitable category rather than clubbing all the objects as falling under the category of “general public utility” as the language used is “any other ITA No.138/Chd/2021 :: 13 :: object of general public utility” and therefore, the significance and import of “any other object” need to be appreciated and which means that an object which doesn’t fall specifically under any of the earlier categories. In this regard, we find that firstly, the Assessing officer has summarily decided this issue and thereafter, the ld CIT(A) has merely confirmed the findings of the Assessing officer without addressing the matter and the contentions so raised by the assessee and for this reason as well, the matter deserve to be set-aside. In this regard, it is also noted that a fresh registration has been granted by the ld PCIT vide order dated 15.10.2021 u/s.12AA of the Act, for A.Y 2022-23 to A.Y 2026-2027 with the objects of relief of the poor, education, medical relief and yoga to the assessee society. The AO is therefore directed to take the same into consideration and decide the matter afresh and record his specific finding and the basis of arriving at such finding. 15. The third contention which has been raised by the assessee is that applying the dominant purpose test, it is carrying on charitable activities in the medical field and relief to poor, and the activities of running of guest house/renting of halls for social and other functions are activities through which it generate funds besides receiving charity/donations and membership fees and such funds are used for undertaking aforesaid charitable activities. In support, the assessee has submitted documentary evidence in support of undertaking the charitable activities. On the other ITA No.138/Chd/2021 :: 14 :: hand, the contention of the Revenue is that looking at the assessee society’s income and expenditure account, the assessee has shown receipts of Rs 1.41 cr from booking of halls and rooms which amounts to 93% of total receipts and it has generate net profit of 41.13% and further, it is generating huge profits from year-on-year and the same is not ploughed back to feed any charity. On careful perusal of records, we find that the AO has not recorded any findings regarding various charitable activities being carried out by the assessee society, as listed in its written submissions filed before the AO, which also find mention in para 2.8 of the AO’s order, however, there is no finding by the AO disputing such activities being undertaken by the assessee society. On a prima facie read of these activities, we find that a lot of these activities are undertaken without any charges and therefore, the question of reflection of any receipts from such activities in the profit/loss account doesn’t arise. In order to undertake these activities free of any charge which of course require manpower and infrastructure, the assessee society need to generate funds which as claimed are generated through rentals of rooms/halls, etc. Therefore, we believe that where there are activities which are undertaken by the assessee society free of any charges, one needs to examine what the nature of these activities and how the same have been carried on by the assessee society and what are the cost implications thereof. The reflection of such activities in the income and expenditure will be more on the expense side rather than on ITA No.138/Chd/2021 :: 15 :: the revenue side which apparently has escaped the attention of the Assessing officer. For this reason as well, we believe that it would be in fitment of things that the matter is set-aside to the file of the Assessing officer who shall examine the same afresh as per law taking into consideration aforesaid discussions after providing reasonable opportunity to the assessee. Needless to say, the Assessing officer is free to call for any information/documentation and the assessee is also at liberty to raise its contentions and file any information/documentation before the Assessing officer. 16. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced on the 21 st day of July, 2022, in Chandigarh. [ Sd/- (DIVA SINGH) द. /JUDICIAL MEMBER Sd/- ( VIKRAM SINGH YADAV) %) द. /ACCOUNTANT MEMBER /Chandigarh, /दन /Dated: 21 st July, 2022. TLN, Sr.PS आ द%श # ! (0 1 2%1ष(/Copy of the order forwarded to: 1. / The Appellant 2. !" / The Respondent 3. आ आ ु 3(/ CIT 4. आ आ ु 3( ( )/ The CIT(A) 5. 1व4 ! ( न , आ आ ण, / DR, ITAT, Chandigarh 6. 5 ई / Guard File आदेशान ु सार/ By Order सहायक पंजीकार/ Assistant Registrar