Institute for Development and Research in Banking Technology (IDRBT), Hyderabad V. ADIT(Exemptions)-I, Hyderabad, Hyderabad

ITA 1712/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91725 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 20-05-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 07-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LAXMINIWAS SHARMA SMT K
• Assessee Lawyers: DEVELOPMENT
• Keywords: Depreciation; Search and seizure; Charitable institution; Question of law; Difference of opinion; Capital expenditure
• Section: 143(3); 12A; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA.NO.1712/HYD/2014 ASSESSMENT YEAR 2011-2012 IN STITUTE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY (IDRBT) HYDERABAD -500057 PAN AAAI0204K VS. THE ASST. DIRECTOR OF INCOME TAX (E)-1, HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. LAXMINIWAS SHARMA FOR REVENUE : SMT. K. KAMAKSHI DATE OF HEARING : 20.05.2015 DATE OF PRONOUNCEMENT : 30 .06.2015 ORDER PER INTURI RAMA RAO, A.M. THIS APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-IV, HYDERABAD DATED 28.08.2 014 FOR THE A.Y. 2011-2012. 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT S OCIETY WAS ESTABLISHED BY THE RESERVE BANK OF INDIA WITH THE F OLLOWING OBJECTS :- 2 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. (A) THE ADOPT, DEVELOP, PLAN AND PROMOTE THE STUDY THE DISSEMINATION OF KNOWLEDGE AND CONDUCT RESEARCH IN THE AREA OF INFORMATION TECHNOLOGY WITH PARTICULAR REFE RENCE TO THE BUSINESS AND FINANCIAL SECTORS. (B) TO UNDERTAKE PROJECTS AND ACTIVITIES THAT MAY BE NECESSARY FOR FURTHERANCE OF THE USE OF INFORMATION TECHNOLOGY IN BANKING AND FINANCIAL SECTORS (C) TO SERVE AS A CENTRE FOR PROMOTING COOPERATIVE ENDE AVOR AND INTERACTION IN RESEARCH ACTIVITIES BETWEEN THE TECHNOCRATS AND USERS OF INFORMATION TECHNOLOGY IN THE BANKING AND FINANCIAL SECTORS. (D) TO ESTABLISH AND MAINTAIN DATA BANK, LIBRARIES AND INFORMATION SERVICES. (E) TO INITIATE, ESTABLISH AND PARTICIPATE IN COLLABORA TIVE ACTIVITIES WITH OTHER RESEARCHERS AND INSTITUTIONS/ORGANIZATION WITHIN AND OUTSIDE THE CO UNTRY. (F) TO SPONSOR, CONDUCT/ORGANIZE TEACHING AND TRAINING PROGRAMMES, CONFERENCES, SEMINARS, LECTURES AND SIM ILAR OTHER ACTIVITIES ON SUBJECTS OF RELEVANCE TO THE SO CIETY. 3. FOR THE ASSESSMENT YEAR 2011-12, THE APPELLANT S OCIETY FILED THE RETURN OF INCOME ON 29 TH SEPTEMBER, 2011 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION UNDER THE PRO VISIONS OF SECTION 11 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT). AFTER PROCESSING THE S AID RETURN OF INCOME UNDER THE PROVISIONS OF SECTION 143(1) OF TH E ACT, THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND FINAL ASSESSMENT WAS PASSED UNDER SECTION 143(3) OF THE A CT VIDE ORDER DATED 03.02.2014 AT A TOTAL INCOME OF RS.18,06,84,275/- AFTER DENYING THE EXEMPTION U/S. 11 OF THE 3 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. ACT. THE CLAIM OF THE APPELLANT SOCIETY BEFORE THE ASSESSING OFFICER WAS THAT IT HAS BEEN PROVIDING BANKING TECH NOLOGY SERVICES TO THE BANKS APART FROM CARRYING OUT RESEA RCH IN THE FIELD OF BANKING TECHNOLOGY. IT WAS FURTHER SUBMITT ED THAT THE APPELLANT SOCIETY WAS SALSO CONDUCTING A FULL TIME M. TECH. COURSE IN BANKING TECHNOLOGY. THEREFORE, ITS ACTIVI TIES ARE PURELY EDUCATIONAL IN NATURE AND FALLS WITHIN THE A MBIT OF EXPRESSION CHARITABLE PURPOSES AS DEFINED UNDER T HE PROVISIONS OF SEC. 2(15) OF THE ACT. HOWEVER, THE A SSESSING OFFICER TURNED DOWN THE SUBMISSIONS OF THE APPELLAN T SOCIETY AND HELD THAT THE AIMS AND OBJECTS OF THE SOCIETY A RE MOSTLY IN THE NATURE OF ADVANCEMENT OF ANY OTHER OBJECTS OF G ENERAL PUBLIC UTILITY SERVICES AND FOR THIS PURPOSE, HE RE LIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOLE TRUSTEE, LOK SHIKSHANA TRUST V CIT [1975] 101 ITR 234(SC) . THE ASSESSING OFFICER FURTHER HELD THAT THE APPELLANT SOCIETY GENERATED SURPLUS OUT OF ITS RECE IPTS FROM THE CONSULTANCY SERVICES RENDERED TO VARIOUS BANKIN G INSTITUTIONS AND OTHER ORGANIZATIONS. THEREFORE, HE HELD THAT THE APPELLANT SOCIETY IS ENGAGED IN RENDERING SERVI CES IN RELATION TO TRADE, BUSINESS AND COMMERCE. THE ASSES SING OFFICER NOTED THAT THE TOTAL RECEIPTS RECEIVED BY T HE APPELLANT SOCIETY ON ACCOUNT OF RENDERING SUCH SERVICES WERE RS.48,06,14,013/-. HENCE, HE WAS OF THE OPINION THA T THE 4 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. PROVISO TO SECTION 2(15) OF THE ACT IS CLEARLY APPL ICABLE AND, THEREFORE, DENIED THE EXEMPTION CLAIMED U/S. 11 OF THE ACT AND ACCORDINGLY HE BROUGHT TO TAX THE EXCESS OF INC OME OVER EXPENDITURE OF RS.12,37,55,596/- AND ALSO DISALLOWE D THE PRIOR PERIOD EXPENSES OF RS.1,26,807/- AND PROVISION FOR INCOME TAX OF RS.4,63,00,000/- AND PROVISION OF DEFERRED TAX OF RS.5,01,728/- AND DEPRECIATION OF RS.1,00,00,144/- DEBITED TO INCOME AND EXPENDITURE ACCOUNT. 4. BEING AGGRIEVED BY THE ORDER, AN APPEAL WAS FILE D BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV, HYDERABAD, WHO, VIDE ORDER DATED 28.08.2014, PARTLY ALLOWED THE APPEAL. HOWEVER, CONCURRED WITH THE VIEW OF TH E ASSESSING OFFICER THAT THE APPELLANT SOCIETY WAS EN GAGED PARTLY IN EDUCATION AND PARTLY IN ACTIVITIES AIMED AT ADVANCEMENT OF ANY OTHER OBJECT GENERAL PUBLIC UTIL ITY AND HELD THAT THE PROVISO TO SECTION 2(15) OF THE ACT I S APPLICABLE AND CONFIRMED THE ADDITIONS MADE BY THE ASSESSING O FFICER. 5. AGGRIEVED, THE APPELLANT SOCIETY HAD COME UP WIT H THE PRESENT APPEAL BEFORE US BY RAISING THE FOLLOWING G ROUNDS OF APPEAL: GROUNDS OF APPEAL (1) THE CIT(A) ERRED IN FACTS AND LAW WHILE PASSING THE ORDER. 5 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. (2) THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT THE A CTIVITIES OF THE ASSESSEE FALL WITHIN THE PURVIEW OF THE PROV ISO TO SECTION 2(15) OF INCOME TAX ACT, 1961 IGNORING THE FACT THAT ACTIVITIES OF THE ASSESSEE FALL WITHIN THE PURVIEW OF IMPARTING EDUCATION AND RESEARCH IN BANKING TEC HNOLOGY WHICH IS VERY MUCH WITHIN THE FIRST THREE LIMBS OF SECTION 2(15) OF THE INCOME TAX ACT, 1961. (3) THE LD. CIT (A) HAS ERRED IN CONCLUDING THAT THE AS SESSEE IS INELIGIBLE FOR THE CLAIM OF EXEMPTION U/S. 11 EVEN THOUGH THE ACTIVITIES OF THE SOCIETY ARE CHARITABLE IN NAT URE AND ARE IN LINE WITH THE OBJECTIVES OF THE SOCIETY HAVING G OT REGISTERED U/S. 12AA OF THE I.T. ACT, 1961. (4) THE LD. CIT(A) HAS ERRED IN COMPUTING THE INCOME ON MERCANTILE BASIS INSTEAD OF CASH BASIS WHICH IS FOL LOWED BY THE ASSESSEE CONSISTENTLY SINCE A.Y. 1997-98 AND AS REQUIRED FOR SEC. 12AA INSTITUTIONS. THE LD. CIT (A ) ERRED IN NOT APPRECIATING THAT THE ASSESSEE HAS FILED THE DE TAILS OF ITS RECEIPTS AND PAYMENTS ALONG WITH INCOME AND EXPENDI TURE ACCOUNT BEFORE THE ASSESSING OFFICER. (5) THE LD. CIT(A) HAS ERRED IN DISALLOWING PRIOR PERIO D EXPENSES OF RS.1,26,807/- WHICH WAS CLAIMED ON CASH BASIS, DEFERRED TAX LIABILITY OF RS.5,01,728/- AND PROVISION FOR INCOME TAX OF RS.4,63,00,000/- WHICH WERE NOT CLAIMED AS DEDUCTION ON THE GROUND THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER FOR THE PU RPOSE OF COMPUTATION OF INCOME ASSESSEE WAS CONSISTENTLY FOLLOWING CASH SYSTEM OF ACCOUNTING AS SECTION 11 ALLOWS ONLY APPLICATION AND RECEIPTS OF FUND FOR THE COMPUTATION OF INCOME. (6) THE LD. CIT(A) HAS ERRED IN DISALLOWING THE DEPRECIATION OF RS.1,00,00,144/- ON ASSETS, STATING THAT WHERE THE ENTIRE COST OF THE ASSET STANDS ALLOWED BY WAY OF APPLICAT ION OF INCOME U/S.11(1). THE DEPRECIATION CLAIMED BY THE A SSESSEE U/S. 32(1) IS NOT ALLOWED IGNORING THE FACT THAT SU CH CLAIM IS PERMISSIBLE UNDER THE LAW AND ALLOWED SINCE INCEPTI ON CONSISTENTLY. IN THIS REGARD THE AMENDMENT IS W.E.F. A.Y.2015-16. 6 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. (7) FOR THESE AND OTHER GROUNDS WHICH MAY BE RAISED DUR ING OR BEFORE THE APPEAL IS HEARD. IT IS PRAYED THAT RELIE F BE GRANTED. 6. IT WAS ARGUED BEFORE US BY THE AUTHORIZED REPRESENTATIVE THAT THE OBJECTS OF THE APPELLANT SO CIETY ARE PURELY EDUCATIONAL IN NATURE. RENDERING CONSULTANCY SERVICES ON ACCOUNT OF WHICH THE APPELLANT SOCIETY HAD RECEI VED SOME CONSIDERATION IS ONLY FOR THE PURPOSES OF ATTAINMEN T OF THE MAIN OBJECTS AND IN CONNECTION WITH THE MAIN OBJECT S. THEREFORE, THE PROVISO TO SECTION 2(15) OF THE ACT CANNOT BE MADE APPLICABLE TO THE APPELLANT SOCIETY SINCE THE PROVISO IS APPLICABLE ONLY IN RESPECT OF THE ACTIVITIES CARRIE D ON, WHICH ARE IN THE NATURE OF OBJECTS FOR ADVANCEMENT OF GEN ERAL UTILITY SERVICES. HE FURTHER ARGUED THAT THE APPELLANT SOCI ETY CONTINUES TO ENJOY THE REGISTRATION U/S.12A OF THE ACT AND THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DENYING THE EXEMPTION U/S. 11 OF THE ACT. IN THIS CONNECTIO N, HE BROUGHT TO OUR ATTENTION THE EARLIER ORDERS OF THE CO-ORDINATE BENCHES OF THIS TRIBUNAL WHEREBY THE REGISTRATION U /S.12A OF THE ACT WAS GRANTED. IN SUPPORT OF THE CONTENTIONS, HE RELIED UPON THE DECISION RENDERED IN THE CASE OF INDIAN CH AMBER OF COMMERCE VS. INCOME-TAX OFFICER ITAT KOLKATA C BENCH 167 TTJ AND THE HONBLE DELHI HIGH COURT IN THE CAS E OF INDIAN TRADE PROMOTION VS. DIRECTOR GENERAL OF INCO ME 7 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. TAX 371 ITR 333 AND GUJARAT HIGH COURT IN THE CASE OF DIRECTOR OF INCOME-TAX (EXEMPTION) VS. AHMEDABAD MANAGEMENT ASSOCIATION [2014] 366 ITR 85. 7. ON THE OTHER HAND, THE LD. PRINCIPAL CIT/DR ARGU ED THAT THE PROVISO TO SECTION 2(15) IS CLEARLY APPLICABLE TO THE APPELLANT SOCIETY AS THE APPELLANT SOCIETY IS ENGAG ED IN RENDERING OF SERVICES TO TRADE AND COMMERCE AND THE REFORE, SHE URGED UPON THAT THE ORDERS OF THE LOWER AUTHORI TIES SHOULD BE UPHELD. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THE QUESTION THAT COMES UP FOR ADJUDICATION BY US IS WHETHER THE APPELLANT SOCIETY IS ENGAGED IN THE ACTIVITIES WHICH ARE IN THE NATURE OF EDUCAT IONAL OR ADVANCEMENT OF ANY OTHER OBJECTS OF GENERAL PUBLIC UTILITY. IF THE ACTIVITIES OF THE APPELLANT SOCIETY FALL WITHIN THE AMBIT OF EXPRESSION EDUCATION, THEN CLEARLY THE PROVISO TO SECTION 2(15) OF THE ACT IS NOT APPLICABLE. THEREFORE, IT I S NECESSARY TO CONSIDER THE OBJECTS OF THE APPELLANT SOCIETY. THE OBJECTS OF THE APPELLANT SOCIETY ARE EXTRACTED SUPRA. FROM THO SE STATED OBJECTS, IT IS ABUNDANTLY CLEAR THAT THE PRIMARY OB JECTS OF SOCIETY IS TO PROMOTE STUDY, DISSEMINATION OF KNOWL EDGE AND CONDUCT RESEARCH IN THE AREA OF INFORMATION AND TEC HNOLOGY 8 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. SERVICE IN BANKING BUSINESS AND FINANCIAL SECTORS. THE APPELLANT SOCIETY WAS ALSO GRANTED ASSOCIATE INSTIT UTE STATUS OF THE UNIVERSITY OF HYDERABAD FOR UNDERTAKING RESE ARCH FOR AWARD OF PH.D DEGREE UNDER EXTERNAL CATEGORY IN THE AREAS OF COMPUTER SCIENCES INFORMATION TECHNOLOGY. THIS STAT US ENABLES THE APPELLANT SOCIETY TO ENROLL MORE PH.D. STUDENTS TO CARRY OUT THE RESEARCH AND DEVELOPMENT IN VARIOUS AREAS O F BANKING TECHNOLOGY. THE APPELLANT SOCIETY ALSO OFFERS M.TEC H (I.T.) TO THE STUDENTS IN COLLABORATION WITH UNIVERSITY OF HY DERABAD WITH SPECIALIZATION IN BANKING TECHNOLOGY AND INFOR MATION SECURITY. BUT THE PRIMARY OBJECT FOR WHICH THE APPE LLANT SOCIETY WAS CREATED IS TO PROMOTE THE INFORMATION T ECHNOLOGY IN THE BANKING SECTOR AND UNDERTAKE RESEARCH IN THO SE AREAS. THIS IS CLEAR FROM THE GENESIS OF THE ORGANIZATION (REPRODUCED FROM WEBSITE): DURING THE FIRST PHASE OF REFORMS IN THE INDIAN FIN ANCIAL SECTOR, A NEED WAS FELT TO DEVELOP AN INSTITUTE OF HIGHER LEA RNING, WHICH WOULD ALSO PROVIDE THE OPERATIONAL SERVICE SUPPORT IN INFORMATION TECHNOLOGY TO BANKS AND FINANCIAL INSTITUTIONS. THE FOUNDATION FOR INDUCTION OF COMPUTER TECHNOLOGY IN THE INDIAN BANKING SECTOR WAS LAID BY DR. RANGARAJAN COMMITTEE 'S TWO REPORTS IN THE YEARS 1984 AND 1989. BOTH THE REPORT S STRONGLY RECOMMENDED COMPUTERISATION OF BANKING OPERATIONS A T VARIOUS LEVELS WHILE SUGGESTING THE APPROPRIATE ARCHITECTUR E. IN THE YEAR 1993, THE EMPLOYEES' UNIONS OF BANKS SI GNED AN AGREEMENT WITH BANK MANAGEMENTS UNDER THE AUSPICES OF INDIAN BANKS' ASSOCIATION [IBA]. THIS AGREEMENT WAS A MAJO R BREAKTHROUGH IN THE INTRODUCTION OF COMPUTERISED AP PLICATIONS AND 9 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. DEVELOPMENT OF COMMUNICATION NETWORKS IN BANKS. IN THE FOLLOWING TWO YEARS, SUBSTANTIAL WORK WAS DO NE AND THE TOP MANAGEMENTS REALISED THE URGENT NEED FOR TRAINING, RESEARCH AND DEVELOPMENT ACTIVITIES IN THE AREA OF BANKING TECHN OLOGY. BANKS AND FINANCIAL INSTITUTIONS STARTED SETTING UP TECHN OLOGY-BASED TRAINING CENTRES AND COLLEGES. HOWEVER, A NEED WAS FELT FOR AN APEX LEVEL INSTITUTE, WHICH WOULD BE THE BRAIN TRUST FOR BANKING TECHNOLOGY AND SPEARHEAD TECHNOLOGY ABSORPTION IN T HE INDIAN BANKING AND FINANCIAL SECTOR. IN THE YEAR 1994, THE RESERVE BANK OF INDIA FORMED A COMMITTEE ON 'TECHNOLOGY UPGRADATION IN THE PAYMENT SYSTEMS'. THE COMMITTEE RECOMMENDED A VARIETY OF PAYMENT APPLICAT IONS WHICH CAN BE IMPLEMENTED WITH APPROPRIATE TECHNOLOGY UPGR ADATION AND DEVELOPMENT OF A RELIABLE COMMUNICATION NETWORK. THE COMMITTEE ALSO SUGGESTED SETTING UP OF AN INFOR MATION TECHNOLOGY INSTITUTE FOR THE PURPOSE OF RESEARCH AN D DEVELOPMENT AS WELL AS CONSULTANCY IN THE APPLICATION OF TECHNO LOGY TO THE BANKING AND FINANCIAL SECTOR OF THE COUNTRY. AS RECOMMENDED BY THE COMMITTEE, THE INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY [IDRBT] WAS ESTABLIS HED BY THE RESERVE BANK OF INDIA IN MARCH 1996 AS AN AUTONOMOU S CENTRE FOR DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY. 9. NOW THE ISSUE THAT COMES UP FOR CONSIDERATION IS WHETHER THOSE OBJECTS FALL WITHIN THE DEFINITION OF THE TERM EDUCATION APPEARING IN SECTION 2(15) OF THE ACT. THE TERM EDUCATION HAS NOT BEEN DEFINED BY THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE TERM EDUCATION HAD COME UP FOR INTERPRETATION BEFORE THE HONBLE SUPREME COURT IN THE CASE OF SOLE TRUSTEE, LOKA SHIKSHANA TRUST V. COMMISSIONER OF 10 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. INCOME-TAX, MYSORE 101 ITR 234 HELD AS UNDER AT PAGE 241: THE SENSE IN WHICH THE WORD 'EDUCATION' HAS BE EN USED IN SECTION 2(15) IN THE SYSTEMATIC INSTRUCTION , SCHOOLING OR TRAINING GIVEN TO THE YOUNG IS PREPARATION FOR T HE WORK OF LIFE. IT ALSO CONNOTES THE WHOLE COURSE OF SCHOLAST IC INSTRUCTION WHICH A PERSON HAS RECEIVED. THE WORD 'EDUCATION' HAS NOT BEEN USED IN THAT WIDE AND EXTE NDED SENSE, ACCORDING TO WHICH EVERY ACQUISITION OF FURT HER KNOWLEDGE CONSTITUTES EDUCATION. ACCORDING TO THIS WIDE AND EXTENDED SENSE, TRAVELLING IS EDUCATION, BECAUSE AS A RESULT OF TRAVELLING YOU ACQUIRE FRESH KNOWLEDGE. LIKEWISE , IF YOU READ NEWSPAPERS AND MAGAZINES, SEE PICTURES, VISIT ART GALLERIES, MUSEUMS AND ZOOS, YOU THEREBY ADD TO YOU R KNOWLEDGE. AGAIN, WHEN YOU GROW UP AND HAVE DEALING S WITH OTHER PEOPLE, SOME OF WHOM ARE NOT STRAIGHT, Y OU LEARN BY EXPERIENCE AND THUS ADD TO YOUR KNOWLEDGE OF THE WAYS OF THE WORLD. IF YOU ARE NOT CAREFUL, YOUR WALLET I S LIABLE TO BE STOLEN OR YOU ARE LIABLE TO BE CHEATED BY SOME UNSC RUPULOUS PERSON. THE THIEF WHO REMOVES YOUR WALLET AND THE S WINDLER WHO CHEATS YOU TEACH YOU A LESSON AND IN THE PROCES S MAKE YOU WISER THOUGH POORER. IF YOU VISIT A NIGHT CLUB, YOU GET ACQUAINTED WITH AND ADD TO YOUR KNOWLEDGE ABOUT SOM E OF THE NOT MUCH REVEALED REALITIES AND MYSTERIES OF LI FE. ALL THIS IN A WAY IS EDUCATION IN THE GREAT SCHOOL OF LIFE. BUT THAT IS NOT THE SENSE IN WHICH THE WORD 'EDUCATION' IS USED IN CLAUSE (15) OF SECTION 2. WHAT EDUCATION CONNOTES IN THAT CLAUSE IS THE PROCESS OF TRAINING AND DEVELOPING THE KNOWLEDG E, SKILL, MIND AND CHARACTER OF STUDENTS BY NORMAL SCHOOLING. THEREFORE, IT IS CLEAR FROM THE ABOVE JUDGMENT THAT IN ORDER TO FALL WITHIN THE AMBIT AND SCOPE OF THE TERM EDUCAT ION AS ENVISAGED UNDER THE PROVISIONS OF SECTION 2(15) OF THE ACT, THERE MUST BE A SCHOOLING, SYSTEMATIC INSTRUCTIONS OR THE PROCESS OF TRAINING, DEVELOPING THE KNOWLEDGE, SKIL L, MIND AND 11 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. CHARACTER OF STUDENTS BY NORMAL SCHOOLING. IT MAY B E NOTED THAT OFFER OF M.TECH. PROGRAMME TO THE STUDENTS AND AS WELL AS PH.D. PROGRAMME FOR STUDENTS AND GRANT OF STATUS OF ASSOCIATE INSTITUTION OF UNIVERSITY OF HYDERABAD AR E ONLY INCIDENTAL FOR ATTAINMENT OF THE MAIN OBJECTIVES I. E., PROMOTION OF TECHNOLOGY IN BANKING SECTOR. THE HONBLE APEX C OURT HELD IN THE CASE OF CIT VS. ANDHRA CHAMBER OF COMMERCE 55 ITR 722 THAT ONLY THE PREDOMINANT OBJECT FOR WHICH THE ORGANIZATION WAS CREATED IS ALONE TO BE CONSIDERED FOR THE PURPOSE FOR DETERMINING WHETHER THE NATURE OF ACTIV ITIES FALL WITHIN THE SCOPE AND AMBIT OF CHARITY. THE RATIO LAID DOWN IN THIS CASE WAS FOLLOWED AGAIN IN THE CASE OF FIVE JU DGES DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F ADDITIONAL COMMISSIONER OF INCOME-TAX, GUJARAT V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION 121 ITR 1, WHICH HELD AS UNDER VIDE PAGES NOS.11 AND 12: .THE LAW IS WELL SETTLED THAT IF THERE ARE SEVE RAL OBJECTS OF A TRUST OR INSTITUTION, SOME OF WHICH ARE CHARITABLE AND SOME NON- CHARITABLE AND THE TRUSTEES OR THE MANAGERS IN THEI R DISCRETION ARE TO APPLY THE INCOME OR PROPERTY TO ANY OF THOSE OBJ ECTS, THE TRUST OR INSTITUTION WOULD NOT BE LIABLE TO BE REGARDED AS C HARITABLE AND NO PART OF ITS INCOME WOULD BE EXEMPT FROM TAX. IN OTH ER WORDS, WHERE THE MAIN OR PRIMARY OBJECTS ARE DISTRIBUTIVE, EACH AND EVERYONE OF THE OBJECTS MUST BE CHARITABLE IN ORDER THAT THE TRUST OR INSTITUTION MIGHT BE UPHELD AS A VALID CHARITYMOHA MMED IBRAHIM RIZA V. CIT [1930] LR 57 IA 260 AND EAST IN DIA INDUSTRIES ( MADRAS)PVT. LTD. V. CIT [1967] 65 ITR 611 . BUT IF THE PRIMARY OR DOMINANT PURPOSE OF A TRUST OR INSTI TUTION IS CHARITABLE, ANOTHER OBJECT WHICH BY ITSELF MAY NOT BE CHARITABLE BUT 12 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. WHICH IS MERELY ANCILLARY OR INCIDENTAL TO THE PRIM ARY OR DOMINANT PURPOSE WOULD NOT PREVENT THE TRUST OR INSTITUTION FROM BEING A VALID CHARITY CIT V. ANDHRA CHAMBER OF COMMERCE [1 965] 55 ITR 722 . THE TEST WHICH HAS, THEREFORE, TO BE APPLIED IS WHETHER THE OBJECT WHICH IS SAID TO BE NON-CHARITABLE IS A MAIN OR PRIMARY OBJECT OF THE TRUST OR INSTITUTION OR IT IS ANCILLA RY OR INCIDENTAL TO THE DOMINANT OR PRIMARY OBJECT WHICH IS CHARITABLE. IT WAS ON AN APPLICATION OF THIS TEST THAT IN CIT V. ANDHRA CHAM BER OF COMMERCE (SUPRA), THE ANDHRA CHAMBER OF COMMERCE WA S HELD TO BE A VALID CHARITY ENTITLED TO EXEMPTION FROM TAX. THE COURT HELD THAT THE DOMINANT OR PRIMARY OBJECT OF THE ANDHRA C HAMBER OF COMMERCE WAS TO PROMOTE AND PROTECT TRADE, COMMERCE AND INDUSTRY AND TO AID, STIMULATE AND PROMOTE THE DEVE LOPMENT OF TRADE, COMMERCE AND INDUSTRY AND TO WATCH OVER AND PROTECT THE GENERAL COMMERCIAL INTERESTS OF INDIA OR ANY PART T HEREOF AND THIS WAS CLEARLY AN OBJECT OF GENERAL PUBLIC UTILITY AND THOUGH ONE OF THE OBJECTS INCLUDED THE TAKING OF STEPS TO URGE OR OPP OSE LEGISLATION AFFECTING TRADE, COMMERCE OR MANUFACTURE, WHICH, ST ANDING BY ITSELF, MAY BE LIABLE TO BE CONDEMNED AS NON-CHARIT ABLE, IT WAS MERELY INCIDENTAL TO THE DOMINANT OR PRIMARY OBJECT AND DID NOT PREVENT THE ANDHRA CHAMBER OF COMMERCE FROM BEING A VALID CHARITY. THE COURT POINTED OUT THAT IF 'THE PRIMARY PURPOSE BE ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY, I T WOULD REMAIN CHARITABLE EVEN IF AN INCIDENTAL ENTRY INTO THE POL ITICAL DOMAIN FOR ACHIEVING THAT PURPOSE, E.G., PROMOTION OF OR OPPOS ITION TO LEGISLATION CONCERNING THAT PURPOSE, WAS CONTEMPLAT ED'. THE COURT ALSO HELD THAT THE ANDHRA CHAMBER OF COMMERCE DID N OT CEASE TO BE CHARITABLE MERELY BECAUSE THE MEMBERS OF THE CHA MBER WERE INCIDENTALLY BENEFITEDIN CARRYING OUT ITS MAIN CHAR ITABLE PURPOSE. THE COURT RELIED VERY STRONGLY ON THE DECISIONS IN COMMISSIONER OF INLAND REVENUE V. YORKESHIRE AGRICULTURAL SOCIETY [ 1920] 13 TAX CASE 58 AND INSTITUTION OF CIVIL ENGINEERS V. COMMI SSIONER OF INLAND REVENUE [1931] 16 TAX CASE 158 FOR REACHING THE CONCLUSION THAT MERELY BECAUSE SOME BENEFITS INCIDE NTALLY AROSE TO THE MEMBERS OF THE SOCIETY OR INSTITUTION IN THE CO URSE OF CARRYING OUT ITS MAIN CHARITABLE PURPOSE, IT WOULD NOT BY ITSELF PREVENT THE ASSOCIATION OR INSTITUTION FROM BEING A CHARITY. IT WOULD BE A QUESTION OF FACT' IN SUCH CASE 'WHETHER THERE IS NO SUCH PERSONAL BENEFIT, INTELLECTUAL OR PROFESSIONAL, TO THE MEMBERS OF THE SOCIETY OR BODY OF PERSONS AS TO BE INCAPABLE OF BE ING DISREGARDED. 13 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. 10. THE RATIO LAID DOWN IN THE ABOVE CASES IS THAT IN THE CASE OF ENTITY OR ORGANIZATION WHOSE OBJECTS ARE SEVERAL , SOME OF WHICH ARE CHARITABLE AND NON-CHARITABLE; THE TEST O F PREDOMINANT OBJECT FOR WHICH THE ORGANIZATION WAS S ET UP IS ALONE TO BE APPLIED. THEREFORE, IN THE PRESENT CAS E, THE RESEARCH AND DEVELOPMENT IN THE INFORMATION TECHNOL OGY IN THE BANKING SECTOR IS THE PRIME OBJECT FOR WHICH TH E APPELLANT SOCIETY WAS CREATED BY THE RESERVE BANK OF INDIA AS EVIDENT FROM THE GENESIS OF THE ORGANIZATION. OFFER OF M.TE CH COURSE, PH.D. PROGRAMMES ARE ONLY INCIDENTAL FOR ATTAINMENT OF MAIN OBJECTS OF THE ORGANIZATION. THE PRIMARY OBJECT OF PROMOTING THE TECHNOLOGY IN BANKING AND FINANCIAL SECTORS DOE S NOT FALL WITHIN THE AMBIT OF EXPRESSION EDUCATION AS DEFIN ED ABOVE, SINCE THE SAID ACTIVITY DOES NOT INVOLVE SYSTEMATIC INSTRUCTION, SCHOOLING OR TRAINING GIVEN TO THE YOUNG IN PREPARA TION FOR THE WORK OF THE LIFE. THE PROJECTS UNDERTAKEN AND THE R ESEARCH ACTIVITIES BY THE APPELLANT SOCIETY ARE ONLY AIMED AT IMPROVEMENT OF TECHNOLOGY IN INDIAN BANKING AND FIN ANCIAL SECTORS. AS A RESULT OF DEVELOPMENTS IN THESE AREAS , SOCIETY AT LARGE SHALL BE BENEFITED AND SHALL PROMOTE THE WELF ARE OF GENERAL PUBLIC. THE IMPROVEMENT IN TECHNOLOGY RELAT ED TO BANKING SECTOR LEADS TO ECONOMIC PROSPERITY WHICH E NURES FOR THE BENEFIT OF ENTIRE COMMUNITY. THEREFORE, THESE O BJECTS CAN BE SAID TO BE FOR ADVANCEMENT OF ANY OTHER OBJECTS OF GENERAL 14 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. PUBLIC UTILITY, WHICH IS A FOURTH LIMB IN THE DEFIN ITION OF CHARITABLE PURPOSE IN SECTION 2(15) OF THE ACT. T HE PRINCIPLE ENUNCIATED BY HONBLE APEX COURT IN THE CASE OF CIT VS. ANDHRA CHAMBER OF COMMERCE -- 55 ITR 722 HOLDS GOOD. WHEN AN OBJECT SEEKS TO PROMOTE OR PROTECT TH E INTERESTS OF A PARTICULAR TRADE OR INDUSTRY, THAT O BJECT BECOMES AN OBJECT OF PUBLIC UTILITY, BUT NOT SO, IF IT SEEK S TO PROMOTE THE INTERESTS OF THOSE WHO CONDUCT THE SAID TRADE OR IN DUSTRY. THE DISTINCTION BETWEEN THE PROTECTION OF THE INTERESTS OF INDIVIDUALS AND THE PROTECTION OF INTERESTS OF AN A CTIVITY WHICH IS OF GENERAL PUBLIC UTILITY GOES TO THE ROOT OF TH E WHOLE PROBLEM : CIT V. ANDHRA CHAMBER OF COMMERCE, (1965) 55 ITR 722, 727 (SC); ADDL. CIT V. AHMEDABAD MILLOWNE RS ASSOCIATION, (1977) 106 ITR 725, 738 (GUJ)]. APPLYING THE RATIO LAID DOWN IN THE ABOVE CASES TO THE FACTS OF THE PRESENT CASE, WE HAVE NO DEMUR TO HOLD THAT THE OBJECTS OF THE APPELLANT ARE AIMED AT IMPROVING THE INFORMATION TE CHNOLOGY IN THE BANKING AND FINANCIAL SECTOR. THE QUESTION O F PRIVATE GAIN OR PROFIT MOTIVE CANNOT BE ATTRIBUTED TO THE A PPELLANT SOCIETY AS THE RESERVE BANK OF INDIA IS THE CREATOR OF THE APPELLANT SOCIETY. THEREFORE, UNDOUBTEDLY, THE OBJE CTS OF THE TRUST FALL WITHIN THE AMBIT AND SCOPE OF THE EXPRES SION GENERAL PUBLIC UTILITY SERVICES , WHICH IS A FOURTH LIMB OF THE 15 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. DEFINITION OF WORD CHARITABLE AS DEFINED UNDER SECTION 2(15) OF THE ACT. 11. HAVING HELD THAT THE OBJECTS OF THE APPELLANT S OCIETY ARE IN THE NATURE OF GENERAL PUBLIC UTILITY SERVICES, WE NOW HAVE TO CONSIDER WHETHER THE PROVISO TO SECTION 2(15) OF THE ACT IS APPLICABLE OR NOT. THE PROVISO TO SECTION 2(15) OF THE ACT WAS ADDED BY FINANCE ACT, 2008. THE SAID PROVISO READS AS UNDER : PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PU RPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TR ADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF 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 ACTIVI TIES REFERRED TO THEREIN IS [TWENTY-FIVE LAKH RUPEES] OR LESS IN THE PREVIOUS YEAR;] THE SCOPE OF THE PROVISO WAS EXPLAINED BY THE CBDT IN ITS CIRCULAR NO.11 OF 2008, DATED 19.12.2008, AS FOLLOW S : DEPARTMENTAL CIRCULAR.1. DEFINITION OF CHARITABLE PURPOSE UNDER SECTION 2(15) OF HE INCOME-TAX AC, 1 961---REG.--- SECTION 2(15) OF THE INCOME-TAX ACT, 1961 (HE ACT ), DEFINES CHARITABLE PURPOSE TO INCLUDE THE FOLLOWING:-- (I) RELIEF OF THE POOR (II) EDUCATION (III) MEDICAL RELIEF, AND (IV) THE ADVANCEMENT OF ANY OTHER OBJECTION OF GENERAL PUBLIC UTILITY. 16 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. AN ENTITY WITH A CHARITABLE OBJECT OF THE ABOVE NA TURE WAS ELIGIBLE FOR EXEMPTION FROM TAX UNDER SECTION 11 OR ALTERNAT IVELY UNDER SECTION 10(23C) OF THE ACT. HOWEVER, IT WAS SEEN TH AT A NUMBER OF ENTITIES WHO WERE ENGAGED IN COMMERCIAL ACTIVITIES WERE ALSO CLAIMING EXEMPTION ON THE GROUND THAT SUCH ACTIVITI ES WERE FOR THE ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY IN TERMS OF THE FOURTH LIMB OF THE DEFINITION OF CHARITABLE PURPOS E. THEREFORE, SECTION 2(15) WAS AMENDED, VIDE FINANCE ACT, 2008, BY ADDING A PROVISO WHICH STATES THAT THE ADVANCEMENT OF ANY O THER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE P URPOSE IF IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BU SINESS; OR (B) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION T O ANY TRADE, COMMERCE OR BUSINESS; FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRES PECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION OF THE I NCOME FROM SUCH ACTIVITY. 2. THE FOLLOWING IMPLICATIONS ARISE FROM THIS AMENDMEN T 2.1 THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL N OT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 2(15 ), I.E., RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF. CONSEQUENTLY, WH ERE THE PURPOSE OF A TRUST OR INSTITUTION IS RELIEF OF THE POOR, ED UCATION OR MEDICAL RELIEF, IT WILL CONSTITUTE CHARITABLE PURPOSE EVE N IF IT INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. 2.2 RELIEF OF THE POOR ENCOMPASSES A WIDE RANGE OF O BJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DI SADVANTAGED OR NEEDY. IT WILL, THEREFORE, INCLUDE WITHIN ITS AMBIT PURPOSES SUCH AS RELIEF TO DESTITUTE, ORPHANS OR THE HANDICAPPED, DI SADVANTAGED 17 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. WOMEN OR CHILDREN, SMALL AND MARGINAL FARMERS, INDI GENT ARTISANS OR SENIOR CITIZENS IN NEED OF AID. ENTITIES WHO HAV E THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY, SUBJECT, HOWEVER, T O THE CONDITIONS STIPULATED UNDER SECTION 11(4A) OR THE SEVENTH PROV ISO TO SECTION 10(23C) WHICH ARE THAT--- (I) THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAIN MENT OF THE OBJECTIVES OF THE ENTITY, AND (II) SEPARATE BOOKS OF ACCOUNT SHOULD BE MAINTAINED IN RESPECT OF SUCH BUSINESS. SIMILARLY, ENTITIES WHOSE OBJECT IS EDUCATION OR MEDICAL RELIEF WOULD ALSO CONTINUE TO BE ELIGIBLE FOR EXEMPTION AS CHARITABLE INSTITUTIONS EVEN IF THEY INCIDENTALLY CARRY ON A C OMMERCIAL ACTIVITY SUBJECT TO THE CONDITIONS MENTIONED ABOVE. 3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL AP PLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OT HER OBJECT OF GENERAL PUBLIC UTILITY I.E., THE FOURTH LIMB OF TH E DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SECTION 2(15). HE NCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER S ECTION 11 OR UNDER SECTION 10(23C) OF THE ACT IF THEY CARRY ON COMMERC IAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON AN ACTIVITY I N THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT W HICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQ UENCY OF THE ACTIVITY. 3.1 THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAI M EXEMPTION FROM TAX UNDER SECTION 11 ON THE GROUND T HAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSE AS THESE ARE COV ERED UNDER ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. UNDER THE PRINCIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN PERSONS W HO ARE 18 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RES PECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN A NY SURPLUS RETURNED TO THE PERSONS FORMING SUCH ASSOCIATION IS NOT CHARGEABLE TO TAX. IN SUCH CASES, THERE MUST BE COMPLETE IDENT ITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE INST ITUTIONS AS WELL AS MUTUAL ORGANIZATIONS AND THEIR ACTIVITIES ARE R ESTRICTED TO CONTRIBUTIONS FROM AND PARTICIPATION OF ONLY THEIR MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF THE PROVISO TO SECTION 2(15) OWING TO THE PRINCIPLE OF MUTUALITY. HOWEVER, IF SU CH ORGANIZATIONS HAVE DEALINGS WITH NON-MEMBERS, THEIR CLAIM TO BE C HARITABLE ORGANIZATIONS WOULD NOW BE GOVERNED BY THE ADDITION AL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2(15). 3.2 IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASSESSE E 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 BUSINE SS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSIN ESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY WILL B E ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COM MERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATIO N TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, B E DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS POSSIBLE. AS SESSEES, WHO CLAIM THAT THEIR OBJECT IS CHARITABLE PURPOSE WIT HIN THE MEANING OF SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH 19 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. [ CIRCULAR NO.11 OF 2008, DATED 19 TH DECEMBER, 2008]. FURTHERMORE, IN THE MEMORANDUM REGARDING DELEGATED LEGISLATION RATIONALISATION AND SIMPLIFICATION MEASURES, IT HAS BEEN NOTED AS UNDER: 'STREAMLINING THE DEFINITION OF 'CHARITABLE PURPOSE ' SECTION 2(15) OF THE ACT DEFINES 'CHARITABLE PURPOS E' TO INCLUDE RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY. IT HAS BEEN NOTICED THAT A NUMBER OF ENTITIES OPERA TING ON COMMERCIAL LINES ARE CLAIMING EXEMPTION ON THEIR IN COME EITHER UNDER SECTION 10(23C) OR SECTION 11 OF THE ACT ON T HE GROUND THAT THEY ARE CHARITABLE INSTITUTIONS. THIS IS BASE D ON THE ARGUMENT THAT THEY ARE ENGAGED IN THE 'ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY' AS IS INCLUDED IN THE FOURTH LIMB OF THE CURRENT DEFINITION OF 'CHARITABLE PURPOSE'. SUCH A CLAIM, WHEN MADE IN RESPECT OF AN ACTIVITY CARRIED OUT ON COMMERCIAL LINES, IS CONTRARY TO THE INTENTION OF THE PROVISIO N. WITH A VIEW TO LIMITING THE SCOPE OF THE PHRASE 'AD VANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY', IT IS PROPOSED TO AMEND SECTION 2(15) SO AS TO PROVIDE THAT 'THE ADVA NCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' SHALL N OT BE A CHARITABLE PURPOSE IF IT INVOLVES THE CARRYING ON O F (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BU SINESS; OR (B) ANY ACTIVITY OF RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A FEE OR CESS OR A NY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION OF THE INCOME FROM SUCH ACTIVITY, OR TH E RETENTION OF SUCH INCOME, BY THE CONCERNED ENTITY. THIS AMENDMENT WILL TAKE EFFECT FROM THE 1ST DAY OF APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSES SMENT YEAR 2009-10 AND SUBSEQUENT ASSESSMENT YEARS.' 12. A REFERENCE CAN BE MADE TO THE FOLLOWING EXTRAC T FROM THE SPEECH OF THE MINISTER OF FINANCE ON 29.02.2008 : 20 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. '180. 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE P OOR, EDUCATION, MEDICAL RELIEF AND ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY. THESE ACTIVITIES ARE TAX EXEMPT, AS THEY SHOULD BE. HOWEVER, SOME ENTITIES CARRYING ON REGULAR TRADE, COMMERCE O R BUSINESS OR PROVIDING SERVICES IN RELATION TO ANY TRADE COMM ERCE OR BUSINESS AND EARNING INCOME HAVE SOUGHT TO CLAIM TH AT THEIR PURPOSE WOULD ALSO FALL UNDER 'CHARITABLE PURPOSE'. OBVIOUSLY, THIS WAY NOT THE INTENTION OF PARLIAMENT AND, HENCE , I PROPOSE TO AMEND THE LAW TO EXCLUDE THE AFORESAID CASES. GE NUINE CHARITABLE ORGANIZATIONS WILL NOT IN ANY WAY BE AFF ECTED.' 13. FURTHER REFERENCE CAN BE MADE TO THE REPLY OF T HE HONBLE FINANCE MINISTER TO THE DEBATE IN THE LOK S ABHA ON THE FINANCE BILL, 2008: '6. CLAUSE 3 OF THE FINANCE BILL, 2008 SEEKS TO AME ND THE DEFINITION OF 'CHARITABLE PURPOSE' SO AS TO EXCLUDE ANY ACTIVI TY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF REN DERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSIN ESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OR USE OF APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. THE INTENTION IS TO LIMIT THE BENEFIT TO ENTITIES WHICH ARE ENGAGED IN ACTIVITIES SUCH AS RELIEF OF THE POOR, EDUCATION, M EDICAL RELIEF AND ANY OTHER GENUINE CHARITABLE PURPOSE, AND TO DENY I T TO PURELY COMMERCIAL AND BUSINESS ENTITIES WHICH WEAR THE MAS K OF A CHARITY. A NUMBER OF HONOURABLE MEMBERS HAVE WRITTE N TO ME EXPRESSING THEIR CONCERN ON THE POSSIBLE IMPACT OF THE PROPOSAL ON AGRICULTURAL PRODUCE MARKET COMMITTEES (APMC) OR ST ATE AGRICULTURAL MARKETING BOARDS (SAMB). SINCE THERE I S NO INTENTION TO TAX SUCH COMMITTEES OR BOARDS, AND IN ORDER TO REMO VE ANY DOUBTS, I PROPOSE TO INSERT A NEW CLAUSE (26AAB) IN SECTION 10 OF THE INCOME TAX ACT TO PROVIDE EXEMPTION TO ANY INCOME O F AN APMC OR SAMB CONSTITUTED UNDER ANY LAW FOR THE TIME BEING I N FORCE FOR THE PURPOSE OF REGULATING THE MARKETING OF AGRICULTURAL PRODUCE. I ONCE AGAIN ASSURE THE HOUSE THAT GENUINE CHARITABLE ORGA NISATIONS WILL NOT IN ANY WAY BE AFFECTED. THE CBDT WILL, FOLLOWIN G THE USUAL PRACTICE, ISSUE AN EXPLANATORY CIRCULAR CONTAINING GUIDELINES FOR DETERMINING WHETHER AN ENTITY IS CARRYING ON ANY AC TIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVI TY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR B USINESS. WHETHER THE PURPOSE IS A CHARITABLE PURPOSE WILL DE PEND ON THE 21 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. TOTALITY OF THE FACTS OF THE CASE. ORDINARILY, CHAM BERS OF COMMERCE AND SIMILAR ORGANIZATIONS RENDERING SERVICES TO THE IR MEMBERS WOULD NOT BE AFFECTED BY THE AMENDMENT AND THEIR AC TIVITIES WOULD CONTINUE TO BE REGARDED AS 'ADVANCEMENT OF ANY OTHE R OBJECT OF GENERAL PUBLIC UTILITY.' (EMPHASIS SUPPLIED) 14. FROM THE ABOVE, IT IS CLEARLY DISCERNIBLE THAT THE INTENTION OF PARLIAMENT IN INTRODUCING THE PROVISO TO SECTION 2(15) OF THE ACT IS TO DENY EXEMPTION TO THOSE ORGA NIZATIONS OR ENTITIES, WHICH ARE PURELY COMMERCIAL OR BUSINES S IN NATURE OR THE COMMERCIAL BUSINESS ENTITIES, WHICH WEAR THE MASK OF A CHARITY. THE GENUINE CHARITABLE ORGANIZATIONS ARE N OT AFFECTED IN ANY WAY. IT WAS FURTHER CLARIFIED THAT CHAMBERS OF COMMERCE AND SIMILAR ORGANIZATIONS RENDERING SERVIC E TO ITS MEMBERS COULD NOT BE AFFECTED BY INTRODUCTION OF TH E PROVISO. WE, THEREFORE, ARE REQUIRED UPON TO FIND OUT WHETHE R THE OBJECTS OF THE APPELLANT SOCIETY ARE COMMERCIAL OR BUSINESS IN NATURE. KEEPING THIS IN MIND, IT IS TO BE EXAMINED WHAT IS MEANT BY THE EXPRESSION COMMERCIAL OR BUSINESS. THE WORDS TRADE, COMMERCE AND BUSINESS WERE ENUMERATED AND ELUCIDATED IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V. DIRECTOR-GENERAL OF INCOME-TAX (EXEMPTIONS) [2012] 347 ITR 99 (DELHI) AS UNDER (PAGE 113): TRADE, AS PER THE WEBSTER'S NEW TWENTIETH CENTURY DICTIONARY (2ND EDITION), MEANS, AMONGST OTHERS, 'A MEANS OF E ARNING ONE'S LIVING, OCCUPATION OR WORK. IN BLACK'S LAW DI CTIONARY, 'TRADE' MEANS A BUSINESS WHICH A PERSON HAS LEARNT OR HE 22 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. CARRIES ON FOR PROCURING SUBSISTENCE OR PROFIT ; OC CUPATION OR EMPLOYMENT, ETC. THE MEANING OF 'COMMERCE' AS GIVEN BY THE CONCISE O XFORD DICTIONARY IS 'EXCHANGE OF MERCHANDISE, SPECIALLY O N LARGE SCALE'. IN ORDINARY PARLANCE, TRADE, AND COMMERCE C ARRY WITH THEM THE IDEA OF PURCHASE AND SALE WITH A VIEW TO M AKE PROFIT. IF A PERSON BUYS GOODS WITH A VIEW TO SELL THEM FOR PROFIT, IT IS AN ORDINARY CASE OF TRADE. IF THE TRANSACTIONS ARE ON A LARGE SCALE IT IS CALLED COMMERCE. NOBODY CAN DEFINE THE VOLUME, WHICH WOULD CONVERT A TRADE INTO COMMERCE. FOR THE PURPOSE OF THE FIRST PROVISO TO SECTION 2(15), TRADE IS SUFFIC IENT, THEREFORE, THIS ASPECT IS NOT REQUIRED TO BE EXAMINED IN DETAI L. THE WORD 'BUSINESS' IS THE BROADEST TERM AND IS ENC OMPASSES TRADE, COMMERCE AND OTHER ACTIVITIES. SECTION 2(13) OF THE INCOME-TAX ACT DEFINES THE TERM 'BUSINESS' AS UNDER : '2. DEFINITIONS.. . .(13) 'BUSINESS' INCLUDES ANY TRADE, COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE OR MANUFACTURE.' THE WORD 'BUSINESS' IS A WORD OF LARGE AND INDEFINI TE IMPORT. SECTION 2(13) DEFINES BUSINESS TO INCLUDE ANY TRADE , COMMERCE OR MANUFACTURE OR ANY ADVENTURE OR CONCERN IN THE N ATURE OF TRADE, COMMERCE OR MANUFACTURE. THE INTENTION OF TH E LEGISLATURE IS TO MAKE THE DEFINITION EXTENSIVE AS THE TERM 'INCLUSIVE' HAS BEEN USED. THE LEGISLATURE HAS DELI BERATELY DEPARTED FROM GIVING A DEFINITE IMPORT TO THE TERM 'BUSINESS' BUT MADE REFERENCE TO SEVERAL OTHER GENERAL TERMS L IKE 'TRADE', 'COMMERCE', 'MANUFACTURE' AND 'ADVENTURE OR CONCERN IN THE NATURE OF TRADE, COMMERCE AND MANUFACTURE'. IN BLACK'S LAW DICTIONARY, SIXTH EDITION, THE WORD 'BUSINESS' HAS BEEN DEFINED AS UNDER : 'EMPLOYMENT, OCCUPATION, PROFESSION OR COMMERCIAL A CTIVITY ENGAGED IN FOR GAIN OR LIVELIHOOD. ACTIVITY OR ENTE RPRISE FOR GAIN, BENEFIT, ADVANTAGE OR LIVELIHOOD. UNION LEAGUE CLUB V. JOHNSON18 CAL 2D 275. ENTERPRISE IN WHICH P ERSON ENGAGED SHOWS WILLINGNESS TO INVEST TIME AND CAPITA L ON FUTURE OUTCOME. DOGGETT V. BURNET 62 APP DC 103 ; 65 F. 2D 191. THAT WHICH HABITUALLY BUSIES OR OCCUPIES OR ENGAGES THE TIME, ATTENTION, LABOUR AND EFFORT OF PERSONS AS A PRINCI PAL SERIOUS CONCERN OR INTEREST OR FOR LIVELIHOOD OR PROFIT.' 23 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. ACCORDING TO SAMPATH IYENGAR'S LAW OF INCOME TAX (9 TH EDITION), A BUSINESS ACTIVITY HAS FOUR ESSENTIAL CH ARACTERISTICS. FIRSTLY, A BUSINESS MUST BE A CONTINUOUS AND SYSTEM ATIC EXERCISE OF ACTIVITY. BUSINESS IS DEFINED AS AN ACT IVE OCCUPATION CONTINUOUSLY CARRIED ON. BUSINESS VOCATION CONNOTES SOME REAL, SUBSTANTIVE AND SYSTEMATIC COURSE OF ACTIVITY OR CO NDUCT WITH A SET PURPOSE. THE SECOND ESSENTIAL CHARACTERISTIC IS PROFIT MOTIVE OR CAPABLE OF PRODUCING PROFIT. TO REGARD AN ACTIVI TY AS BUSINESS, THERE MUST BE A COURSE OF DEALINGS CONTIN UED, OR CONTEMPLATED TO BE CONTINUED, NORMALLY WITH AN OBJE CT OF MAKING PROFIT AND NOT FOR SPORT OR PLEASURE (BHARAT DEVELOPMENT P. LTD. V. CIT [1982] 133 ITR 470 (DELHI) ). THE THIRD ESSENTIAL CHARACTERISTIC IS THAT A BUSINESS T RANSACTION MUST BE BETWEEN TWO PERSONS. BUSINESS IS NOT A UNIL ATERAL ACT. IT IS BROUGHT ABOUT BY A TRANSACTION BETWEEN TWO OR MORE PERSONS. AND, LASTLY, THE BUSINESS ACTIVITY USUALLY INVOLVES A TWIN ACTIVITY. THERE IS USUALLY AN ELEMENT OF RECIP ROCITY INVOLVED IN A BUSINESS TRANSACTION.' IN THE SAID CASE RELIANCE AND REFERENCE WAS MADE TO STATE OF PUNJAB V. BAJAJ ELECTRICALS LTD. [1968] 2 SCR 536, KHODAY DISTILLERIES LTD. V. STATE OF KARNATAKA [1995] 1 SC C 574, BHARAT DEVELOPMENT (P) LTD. V. CIT [1982] 133 ITR 470/[1980] 4 TAXMAN 58 (DELHI) , BARENDRA PRASAD RAY V. ITO [1981] 129 ITR 295/6 TAXMAN 19 (SC) , STATE OF ANDHRA PRADESH V. H. ABDUL BAKHI & BROS. [1964] 15 STC 664 (SC), STATE OF GUJARAT V. R AIPUR MFG. CO. [1967] 19 STC 1(SC), DIRECTOR OF SUPPLIES & DISPOSAL V. MEMBER, BOARD OF REVENUE [1967] 20 STC 398(SC) AND MRS.SAROJINI RAJAH V. CIT [1969] 71 ITR 504 (MAD) TO EXPLAIN THE TERMS 'TRADE, COMMERCE OR BUSINESS'. THE HONBLE DELHI HIGH COURT AFTER REFERRING TO THE ABOVE JUDGMENT IN THE CASE OF GSI INDIA V. DIRECTOR GENERAL OF INCOME-TAX (EXEMPTION) & ANOTHER [2014] 360 ITR 138 SUCCINCTLY HELD VIDE PARA 19 AS FOLLOWS:- THE FINAL AND DETERMINING FACTORS, IT WAS OBSERVED WAS CONSEQUENTIAL PROFIT MOTIVE OR PURPOSE BEHIND THE A CTIVITY AND WHEN AN ACTIVITY IS TRADE, COMMERCE OR BUSINESS WAS ELUCIDATED IN INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (SUP RA) IN THE FOLLOWING WORDS: 'SECTION 2(15) DEFINES THE TERM CHARITABLE PURPOSE. THEREFORE, WHILE CONSTRUING THE TERM BUSINESS FOR THE SAID SEC TION, THE 24 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. 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 INTERPRETIN G AND APPLYING THE FIRST PROVISO TO SECTION 2(15) OF THE ACT TO INCLUDE ANY TRANSACTION FOR A FEE OR MONEY. AN ACTIVITY WOU LD BE CONSIDERED 'BUSINESS' IF IT IS UNDERTAKEN WITH A PR OFIT MOTIVE, BUT IN SOME CASES THIS MAY NOT BE DETERMINATIVE. NO RMALLY THE PROFIT MOTIVE TEST SHOULD BE SATISFIED BUT IN A GIV EN 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 CONTINUE D ON SOUND AND RECOGNIZED BUSINESS PRINCIPLES, AND PURSUED WIT H REASONABLE CONTINUITY. THERE SHOULD BE FACTS AND OT HER CIRCUMSTANCES WHICH JUSTIFY AND SHOW THAT THE ACTIV ITY UNDERTAKEN IS IN FACT IN THE NATURE OF BUSINESS. TH E TEST AS PRESCRIBE IN RAIPUR MANUFACTURING COMPANY (SUPRA) A ND SAI PUBLICATIONS FUND (SUPRA) CAN BE APPLIED. THE SIX I NDICIA STIPULATED IN LORD FISHER (SUPRA) ARE ALSO RELEVANT . EACH CASE, THEREFORE, HAS TO BE EXAMINED ON ITS OWN FACTS. 15. APPLYING THE TEST ENUMERATED ABOVE TO THE PRESE NT CASE, BY NO STRETCH OF IMAGINATION, IT CAN BE SAID THAT T HE RESERVE BANK OF INDIA HAD SET UP THE APPELLANT SOCIETY WITH A PROFIT MOTIVE. IT IS MOST SIGNIFICANT TO NOTE THAT THE PRO VISIONS OF THE RESERVE BANK OF INDIA DO NOT EMPOWER IT TO CARRY ON ANY ACTIVITY WITH PROFIT MOTIVE. AS ALREADY HELD IN THE PARAGRAPH SUPRA THAT THE ACTIVITIES OF THE APPELLANT SOCIETY ARE CHARITABLE, IT IS NEEDLESS TO SAY THAT THE ACTIVITIES OF THE AP PELLANT SOCIETY ARE NOT IN THE NATURE OF COMMERCIAL, OR BUSINESS. W HEN THE MAIN OBJECTS OF THE APPELLANT SOCIETY ARE NOT BUSIN ESS, THE INCIDENTAL ACTIVITY, WHICH IS PURSUED FOR ATTAINMEN T OF THE MAIN OBJECTS, CANNOT BE CALLED BUSINESS, MERELY BECAUS E THE 25 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. APPELLANT SOCIETY RENDERS SERVICES AGAINST PAYMENT AS FEES OR CESS, EVEN IF RESULTING IN PROFIT. THE HONBLE APEX COURT IN THE CASE OF CIT VS. ANDHRA CHAMBER OF COMMERCE (1965) 55 ITR 722 LAID DOWN THE PRINCIPLE THAT IF THE PRIMA RY PURPOSE OF INSTITUTION WAS ADVANCEMENT OF OBJECTS OF GENERA L PUBLIC UTILITY, IT WOULD REMAIN CHARITABLE, EVEN IF SOME I NCIDENTAL OR ANCILLARY ACTIVITY OR THE PURPOSE FOR ACHIEVING THE MAIN PURPOSE, WAS PROFITABLE IN NATURE. IT WAS HELD AS F OLLOWS : 'THAT IF THE PRIMARY PURPOSE BE ADVANCEMENT OF OBJE CTS OF GENERAL PUBLIC UTILITY, IT WOULD REMAIN CHARITABLE EVEN IF AN INCIDENTAL ENTRY INTO THE POLITICAL DOMAIN FOR ACHI EVING THAT PURPOSE, E.G. PROMOTION OF OR OPPOSITION TO LEGISLA TION CONCERNING THAT PURPOSE WAS CONTEMPLATED.' IT WAS ONLY FOR THE PURPOSE OF SECURING ITS PRIMARY AIMS THAT IT WAS MENTIONED IN THE MEMORANDUM OF ASSOCIATION THAT THE CHAMBER MIGHT TAKE STEPS TO URGE OR OPPOSE LEGISLAT IVE OR OTHER MEASURES AFFECTING TRADE, COMMERCE OR MANUFACTURES. SUCH AN OBJECT OUGHT TO BE REGARDED AS PURELY ANCILLARY OR SUBSIDIARY AND NOT THE PRIMARY OBJECT.' IN CONNECTION TO THE ABOVE CASE IT IS LAID OUT THE SAID CASE DEALT WITH THE ASSESSMENT OF THE ASSESSEE IN THE A.YS 1948-49 TO WHEREIN RELEVANT TO THE SAID AYS 19 48-49 TO 1952-53, BY THE LAST PARAGRAPH OF SUB-SECTION (3) O F THE IT ACT, 1922', CHARITABLE PURPOSES' WAS DEFINED AS ' IN THIS SUB-SECTION 'CHARITABLE PURPOSE' INCLU DES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCE MENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, BUT NOTHING CONTAINED IN CLAUSE (I) OR CLAUSE (II) SHALL OPERATE TO EXEMPT F ROM THE PROVISIONS OF THIS ACT PART OF THE INCOME FROM PROP ERTY HELD UNDER A TRUST OR OTHER LEGAL OBLIGATION FOR PRIVATE RELIGIOUS PURPOSES WHICH DOES NOT ENURE FOR THE BENEFIT OF TH E PUBLIC. ' THE ADDING OF THE WORDS 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT: WAS INTRODUCED BY THE INCOME T AX ACT, 1961. HON'BLE APEX COURT IN THE EARLIEST DECISION IN THE CASE OF SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (SUPRA) HELD THE THEORY OF 26 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. DOMINANT OR PRIMARY OBJECT OF THE TRUST TO BE THE D ETERMINING FACTOR SO AS TO TAKE THE CARRYING ON OF THE BUSINES S ACTIVITY MERELY ANCILLARY OR INCIDENTAL TO THE MAIN OBJECT, AS EXTR ACTED SUPRA . AGAIN THE HON'BLE APEX COURT IN THE CASE OF CIT VS. FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY 130 ITR 186 HELD: 'THAT THE DOMINANT OBJECT WITH WHICH THE FEDERATION WAS CONSTITUTED BEING A CHARITABLE PURPOSE VIZ. PROMOTI ON, PROTECTION AND DEVELOPMENT OF TRADE, COMMERCE AND I NDUSTRY, THERE BEING NO MOTIVE TO EARN PROFITS, THE RESPONDE NT WAS NOT ENGAGED IN ANY ACTIVITY IN THE NATURE OF BUSINESS O R TRADE, AND, IF ANY INCOME AROSE FROM SUCH ACTIVITY IT WAS ONLY INCIDENTAL OR ANCILLARY TO THE DOMINANT OBJECT FOR THE WELFARE AN D COMMON GOOD OF THE COUNTRY'S TRADE, COMMERCE AND INDUSTRY, AND ITS INCOME WAS, THEREFORE, EXEMPT FROM TAX UNDER S.11 O F THE IT ACT, 1961' AGAIN REITERATING THE DOMINANT PURPOSE THEORY, THE HON'BLE SC IN THE CASE OF CST V. SAI PUBLICATION FUND 258 ITR 70 LAID OUT AS FOLLOWS: '... IF THE MAIN ACTIVITY IS NOT BUSINESS, THEN ANY TRANSACTION INCIDENTAL OR ANCILLARY WOULD NOT NORMALLY AMOUNT T O 'BUSINESS' UNLESS AN INDEPENDENT INTENTION TO CARRY ON 'BUSINE SS' IN THE INCIDENTAL OR ANCILLARY ACTIVITY IS ESTABLISHED. IN SUCH CASES, THE ONUS OF PROOF OF AN INDEPENDENT INTENTION TO CARRY ON 'BUSINESS ': CONNECTED WITH OR INCIDENTAL OR ANCILLARY SALES WILL REST ON THE DEPARTMENT. THUS, IF THE MAIN ACTIVITY OF A PERSON IS NOT TRADE , COMMERCE ETC., ORDINARILY INCIDENTAL OR ANCILLARY ACTIVITY M AY NOT COME WITHIN THE MEANING OF 'BUSINESS'. IN THE RECENT DECISION WHICH DEALS SPECIFICALLY WIT H THE NEWLY AMENDED SECTION 2(15) OF THE ACT, IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V. DIRECTOR GENERAL OF INCOME-TAX (EXEMPTIONS) [2012] 347 ITR 99/202 TAXMAN 1/13 TAXMANN.COM 175 DELHI HC, LAYING DOWN THE VERY SAME PRINCIPLE H ELD AS UNDER: 'THAT THE FUNDAMENTAL OR DOMINANT FUNCTION OF THE I NSTITUTE WAS TO EXERCISE OVERALL CONTROL AND REGULATE THE ACTIVI TIES OF THE MEMBERS/ENROLLED CHARTERED ACCOUNTANTS. A VERY NARR OW VIEW HAD BEEN TAKEN THAT THE INSTITUTE WAS HOLDING COACH ING CLASSES AND THAT THIS AMOUNTED TO BUSINESS. ' 27 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. IN ANOTHER CASE, THE HONBLE DELHI HIGH COU RT IN THE CASE OF ICAI ACCOUNTING RESEARCH FOUNDATION & ANR. VS. DIRE CTOR GENERAL OF INCOME-TAX (EXEMPTIONS) & ORS. - (2010) 321 ITR 73, AFTER REFERRING TO THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT (ADDL.) VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (1980) 121 ITR 1 (SC) (PARAS 29) HELD THAT (A) THE ACTIVITIES UNDERTAKEN BY THE INSTITUTION AMOUNTED TO ADVANCEM ENT OF AN OBJECT OF GENERAL PUBLIC UTILITY IN THE DEFINITION OF CHARITABLE PURPOSE IN SECTION 2(15) OF THE ACT. CHARGING OF AM OUNTS FROM THE GOVERNMENT BODIES FOR UNDERTAKING THESE RESEARCH PR OJECTS WOULD NOT MAKE THE ACTIVITY COMMERCIAL. THE PROJECTS WE RE UNDERTAKEN AT THE INSTANCE OF THE GOVERNMENT OF INDIA OR THE S TATE GOVERNMENTS FOR IMPROVING THE ACCOUNTING AND BUDGET ARY SYSTEMS IN THESE LOCAL BODIES. THE EXPERTISE OF THE FOUNDATION IN CARRYING OUT RESEARCH IN THIS FIELD WAS SOUGHT TO B E UTILIZED. THEREFORE, IT COULD NOT CONSTITUTE BUSINESS/COMMERC IAL ACTIVITY. MERELY BECAUSE SOME REMUNERATION WAS TAKEN BY THE F OUNDATION FOR UNDERTAKING THESE PROJECTS THAT WOULD NOT ALTER THE CHARACTER OF THESE PROJECTS, WHICH REMAINED RESEARCH AND CONS ULTANCY WORK. MOST OF THE AMOUNT RECEIVED QUA THESE PROJECT S WAS SPENT ON THE PROJECT AND THE SURPLUS, IF ANY, IS USED FOR ADVANCEMENT OF THE OBJECTIVES FOR WHICH THE FOUNDATION WAS ESTABLI SHED. (B) THE PROJECTS UNDERTAKEN ON BEHALF OF THESE LOCA L BODIES WERE NOT A REGULAR ACTIVITY OF THE FOUNDATION. THE PRIMARY ACTIVITY REMAINED RESEARCH IN ACCOUNTING RELATED FIELDS. EVE N THESE PROJECTS WHICH WERE TAKEN UP ON BEHALF OF THOSE LOC AL BODIES FIT IN THE DESCRIPTION OF RESEARCH PROJECTS WHICH COULD BE TERMED ANCILLARY ACTIVITY ONLY. (C) THE AMENDED DEFINITION OF CHARITABLE PURPOSE WOUL D NOT ALTER THIS POSITION. MERELY ON UNDERSTANDING TH OSE THREE RESEARCH PROJECTS AT THE INSTANCE OF THE GOVERNMENT /LOCAL BODIES THE ESSENTIAL CHARACTER OF THE FOUNDATION COULD NOT BE CONVERTED INTO THE ONE WHICH CARRIES ON TRADE, COMMERCE OR BU SINESS OR ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO TR ADE, COMMERCE OR BUSINESS. AGAIN, THE HONBLE DELHI HIGH COURT IN THE CASE OF BUREAU OF INDIAN STANDARDS VS. DIRECTOR GENERAL OF INCOME-TAX (EXEMPTIONS) (2013) 358 ITR 78 HELD AS FOLLOWS VIDE PARA 16 OF T HE JUDGMENT : 28 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. 16. WHAT SURVIVES TO BE DETERMINED IS WHETHER ANY OF B IS'S ACTIVITIES FALL WITHIN THE LATTER AND LARGER CATEGO RY OF 'INVOLVED IN THE CARRYING ON OF ANY ACTIVITY OF RENDERING ANY SE RVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS'. THE EXPRESSION S 'ANY ACTIVITY,' 'RENDERING ANY SERVICE' AND 'IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS' IMPLY THAT THE INTENTION OF T HE LEGISLATURE WAS TO MAKE THE LATTER PART OF THE EXCEPTION BROAD AND INCLUSIVE. IT SEEMS THAT THE EXCEPTION (THE FIRST PROVISO) IS INT ENDED TO CATCH WITH ITS AMBIT ANY AND ALL COMMERCIAL ACTIVITY, EXCEPT W HAT FALLS WITHIN THE SECOND PROVISO (WHICH BARS APPLICATION OF THE E XCEPTION IN CASES WHERE THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES MENTIONED THEREIN IS LESS THAN TEN LAKH RUPEES IN T HE RELEVANT PREVIOUS YEAR). THE BUREAU, IT WOULD APPEAR AT THE FIRST BLUSH, RENDERS SERVICE IN RELATION TO TRADE, COMMERCE OR B USINESS BY GRANTING CERTIFICATION/QUALITY MARKS IN RETURN OF L ICENSE FEE. APPARENTLY, PARLIAMENT INTENDED TO CLARIFY THAT NOT ALL ACTIVITIES OF STATE AGENCIES (SOME OF WHICH MIGHT BE SET UP TO CA RRY ON TRADING AND COMMERCIAL ACTIVITIES) CAN BE CONSIDERED CHARIT ABLE. THIS CAN BE GATHERED FROM THE NOTES ON CLAUSES ATTACHED TO T HE FINANCE BILL, 2008: 'GOVERNMENT FEELS THAT CLAIM OF STATUS OF 'CHARITAB LE ORGANISATION' BY THE ORGANISATIONS CARRYING OUT ACT IVITIES ON COMMERCIAL LINES IS CONTRARY TO LEGISLATIVE INTENTI ON. FINANCE BILL, 2008 SEEKS TO AMEND SECTION 2(15) W.E .F. APRIL 1, 2009, BY SUBSTITUTING EXISTING DEFINITION WITH FOLL OWING DEFINITION: 'CHARITABLE PURPOSE INCLUDES RELIEF OF THE POOR, ED UCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJ ECT OF GENERAL PUBLIC UTILITY: PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT O F GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, I F 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 O R ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY.' IN THESE CIRCUMSTANCES, 'RENDERING ANY SERVICE IN R ELATION TO TRADE, COMMERCE OR BUSINESS' CANNOT, IN THE OPINION OF THE COURT, RECEIVE SUCH A WIDE CONSTRUCTION AS TO ENFOLD REGUL ATORY AND 29 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. SOVEREIGN AUTHORITIES, SET UP UNDER STATUTORY ENACT MENTS, AND TASKED TO ACT AS AGENCIES OF THE STATE IN PUBLIC DU TIES WHICH CANNOT BE DISCHARGED BY PRIVATE BODIES. OFTEN, APART FROM THE CONTROLLING OR PARENT STATUTES, LIKE THE BIS ACT, THESE STATUTO RY BODIES (INCLUDING BIS) ARE EMPOWERED TO FRAME RULES OR REG ULATIONS, EXERCISE COERCIVE POWERS, INCLUDING INSPECTION, RAI DS; THEY POSSESS SEARCH AND SEIZURE POWERS AND ARE INVARIABLY SUBJEC TED TO PARLIAMENTARY OR LEGISLATIVE OVERSIGHT. THE PRIMARY OBJECT FOR SETTING UP SUCH REGULATORY BODIES WOULD BE TO ENSUR E GENERAL PUBLIC UTILITY. THE PRESCRIBING OF STANDARDS, AND ENFORCIN G THOSE STANDARDS, THROUGH ACCREDITATION AND CONTINUING SUP ERVISION THROUGH INSPECTION ETC, CANNOT BE CONSIDERED AS TRA DE, BUSINESS OR COMMERCIAL ACTIVITY, MERELY BECAUSE THE TESTING PRO CEDURES OR ACCREDITATION INVOLVES CHARGING OF SUCH FEES. IT CA NNOT BE SAID THAT THE PUBLIC UTILITY ACTIVITY OF EVOLVING, PRESCRIBIN G AND ENFORCING STANDARDS, 'INVOLVES' THE CARRYING ON OF TRADE OR C OMMERCIAL ACTIVITY. SIMILARLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF GSI INDIA VS.DIRECTOR GENERAL OF INCOME-TAX (EXEMPTION) & ANR . [2014] 360 ITR 138 HELD VIDE PARA 36 OF THE JUDGMENT AS UNDER: .THE OBJECT OF THE PROVISO IS TO DRAW A DISTINCTION BETWEEN CHARITABLE INSTITUTIONS COVERED BY THE LAST LIMB WH ICH CONDUCT BUSINESS OR OTHERWISE BUSINESS ACTIVITIES ARE UNDER TAKEN BY THEM TO FEED CHARITY. THE PROVISO APPLIES WHEN BUSINESS WAS/IS CONDUCTED AND THE QUANTUM OF RECEIPTS EXCEEDS THE S PECIFIED SUM. THE PROVISO DOES NOT SEEK TO DISQUALIFY CHARITABLE ORGANIZATION COVERED BY THE LAST LIMB, WHEN A TOKEN FEE IS COLLE CTED FROM THE BENEFICIARIES IN THE COURSE OF ACTIVITY WHICH IS NO T A BUSINESS BUT CLEARLY CHARITY FOR WHICH THEY ARE ESTABLISHED AND THEY UNDERTAKE. AGAIN, THE HONBLE DELHI HIGH COURT IN THE CASE OF INDIA TRADE PROMOTION ORGANIZATION VS. DIRECTOR GENERAL OF INCO ME-TAX (EXEMPTIONS) & ORS. [2015] 371 ITR 333, HELD VIDE P ARA 58 AS FOLLOWS:- 58 . IN CONCLUSION, WE MAY SAY THAT THE EXPRESSION 'CH ARITABLE PURPOSE', AS DEFINED IN SECTION 2(15) CANNOT BE CON STRUED LITERALLY AND IN ABSOLUTE TERMS. IT HAS TO TAKE COLOUR AND BE CONSIDERED IN THE CONTEXT OF SECTION 10(23C)(IV) OF THE SAID ACT. IT IS ALSO CLEAR THAT IF THE LITERAL INTERPRETATION IS GIVEN TO THE PROVI SO TO SECTION 2(15) OF 30 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. THE SAID ACT, THEN THE PROVISO WOULD BE AT RISK OF RUNNING FOWL OF THE PRINCIPLE OF EQUALITY ENSHRINED IN ARTICLE 14 O F THE CONSTITUTION OF INDIA. IN ORDER TO SAVE THE CONSTITUTIONAL VALID ITY OF THE PROVISO, THE SAME WOULD HAVE TO BE READ DOWN AND INTERPRETED IN THE CONTEXT OF SECTION 10(23C)(IV) BECAUSE, IN OUR VIEW , THE CONTEXT REQUIRES SUCH AN INTERPRETATION. THE CORRECT INTERP RETATION OF THE PROVISO TO SECTION 2(15) OF THE SAID ACT WOULD BE T HAT IT CARVES OUT AN EXCEPTION FROM THE CHARITABLE PURPOSE OF ADVANCE MENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THAT EXC EPTION IS LIMITED TO ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSI NESS OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO AN Y TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDER ATION. IN BOTH THE ACTIVITIES, IN THE NATURE OF TRADE, COMMERCE OR BUS INESS OR THE ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO AN Y TRADE, COMMERCE OR BUSINESS, THE DOMINANT AND THE PRIME OBJECTIVE H AS TO BE SEEN. IF THE DOMINANT AND PRIME OBJECTIVE OF THE INSTITUTION , WHICH CLAIMS TO HAVE BEEN ESTABLISHED FOR CHARITABLE PURPOSES, IS P ROFIT MAKING, WHETHER ITS ACTIVITIES ARE DIRECTLY IN THE NATURE O F TRADE, COMMERCE OR BUSINESS OR INDIRECTLY IN THE RENDERING OF ANY S ERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, THEN IT WOULD N OT BE ENTITLED TO CLAIM ITS OBJECT TO BE A 'CHARITABLE PURPOSE'. ON T HE FLIP SIDE, WHERE AN INSTITUTION IS NOT DRIVEN PRIMARILY BY A DESIRE OR MOTIVE TO EARN PROFITS, BUT TO DO CHARITY THROUGH THE ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY, IT CANNOT BUT BE REGARDED A S AN INSTITUTION ESTABLISHED FOR CHARITABLE PURPOSES. THE RATIONAL THAT CAN BE CULLED OUT FROM THE ABOVE DECISIONS IS THAT ONCE THE PRIMARY OBJECTS OF AN IN STITUTION ARE ESTABLISHED TO BE IN THE NATURE OF CHARITY, THEN TH E PROVISO TO SECTION 2(15) OF THE ACT CAN NOT BE MADE APPLICABLE . IN OTHER WORDS, THE EXISTENCE OF THE PROVISO IN SUBSTANCE WI LL NOT MAKE ANY DIFFERENCE. THE PROVISO WILL HIT ONLY SUCH CASE S WHERE THE ENTITY OR ORGANIZATION IS CARRYING ON BUSINESS ACTI VITY WITH A PROFIT MOTIVE IN THE GARB OF CHARITABLE PURPOSE. IT WILL NOT HOWEVER AFFECT THE CASE OF INSTITUTION WHICH ARE GE NUINELY CARRYING ON CHARITABLE ACTIVITIES. THE WORDS USED B Y THE LEGISLATURE IN THE PROVISO IN THE NATURE OF TRADE, COMMERCE OR BUSINESS' . IF WE GIVE DUE IMPORTANCE TO THE ABOVE MENTIONED WORDS, THE ONLY 31 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. CONCLUSION WILL BE THAT THE PROVISO WILL EFFECT ONL Y SUCH CASES WHERE THE ACTIVITIES OF A CHARITABLE INSTITUTION CA N BE CONSIDERED TO BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. IN FACT, THE SAME CONTROVERSY, WHICH HAS BEEN THERE IN THE PAST, WHET HER A CHARITABLE INSTITUTION IS CARRYING ON THE ACTIVITIE S ONLY OF CHARITABLE NATURE OR IS CARRYING ON ACTIVITIES WHIC H ARE IN THE NATURE OF BUSINESS, IS EMERGING FROM THIS PROVISO A LSO. IN OTHER WORDS, THE PROVISO WILL NOT GIVE RISE TO ANY NEW CONTROVERSY WHICH HAD NOT BEEN IN THE PAST. THE FU RTHER WORDS USED IN THE PROVISO, THAT FOR A CESS OR FEE O R ANY OTHER CONSIDERATION, HAVE TO BE READ ALONGWITH THE NATURE OF ACTIVITIES, I.E. , TRADE, COMMERCE OR BUSINESS. WHEN AN INSTITUTION IS CARRYING ON ACTIVITIES IN THE NATURE OF TRADE, , COMMERCE OR BUSINESS OBVIOUSLY IT WILL BE CHAR GING FEE, ETC. IT MAY BE CHARGING FEE EVEN WHEN RENDERING/PRO VIDING SERVICES AS PART OF CHARITABLE ACTIVITY IN ORDER TO SUPPLEMENT ITS INCOME FOR CARRYING ON CHARITABLE ACTIVITIES. IN TH AT CASE THE PROVISO WILL NOT HAVE ANY IMPLICATION AS THE ACTIVI TIES WOULD NOT BE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS . ACCORDINGLY, THE PROVISO INSERTED IN THE DEFINITION OF 'CHARITABLE PURPOSE' WILL NOT SUBSTANTIALLY HAVE ANY IMPACT ON THE MEANING OF CHARITABLE PURPOSE. 16. THE CIRCUMSTANCES UNDER WHICH THE SERVICES RENDERED BY THE APPELLANT SOCIETY TO THE BANKS MAKE CLEAR TH AT THERE IS NO PROFIT MOTIVE IN SUCH ACTIVITIES BECAUSE THESE A CTIVITIES WERE ENTRUSTED TO THE APPELLANT SOCIETY BY THE RESE RVE BANK OF INDIA AS A PART OF ITS SUPERVISORY ROLE OVER THE BANKS IN INDIA. IN OUR CONSIDERED OPINION, VIEWED FROM ANY A NGLE, THE OBJECTS, EITHER MAIN OR ANCILLARY, ARE NOT IN THE N ATURE OF 32 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. BUSINESS OR TRADE OR COMMERCE. THE BANKS MERELY USE D THE EXPERTISE OF APPELLANT SOCIETY IN THE BANKING OPERA TIONS. THE QUESTION OF THE PROFIT MOTIVE IN UNDERTAKING SUCH A CTIVITIES CAN NOT BE IMAGINED KEEPING IN VIEW THE CIRCUMSTANCES U NDER WHICH THE APPELLANT SOCIETY IS OPERATED. THE OBJECT S OF THE APPELLANT SOCIETY ARE TOTALLY CHARITABLE IN NATURE AND DO NOT CARRY ON ANY ACTIVITY IN THE NATURE OF TRADE, COMME RCE OR BUSINESS. THEREFORE, THE PROVISO TO SECTION 2(15) O F THE ACT CANNOT BE APPLIED TO THE APPELLANT SOCIETY AS CLARI FIED BY THE CIRCULAR NO.11 OF 2008 ISSUED BY THE CBDT. IT IS WO RTHWHILE TO MENTION HERE THAT THE HONBLE FINANCE MINISTER HAD ALSO CLARIFIED, DURING THE COURSE OF THE DEBATE IN THE P ARLIAMENT, THAT THE PROVISO TO SEC. 2(15) OF THE ACT IS NOT IN TENDED TO APPLY TO GENUINE CHARITABLE ORGANIZATIONS. IT WAS F URTHER CLARIFIED BY THE HONBLE FINANCE MINISTER THAT THE CHAMBERS OF COMMERCE AND SIMILAR ORGANIZATIONS RENDERING SERVIC ES TO THEIR MEMBERS WOULD NOT BE AFFECTED BY INTRODUCTION OF THIS PROVISO. IT IS FAIRLY SETTLED LAW NOW THAT REFERENC E CAN BE MADE TO THE SPEECH MADE BY THE HONBLE FINANCE MINISTER AT THE TIME OF PILOTING THE BILL IN THE PARLIAMENT IN ORDE R TO ASCERTAIN THE TRUE MEANING OF THE WORDS AND THE LANGUAGE EMPL OYED IN THE STATUTE. THE HONBLE SUPREME COURT IN THE CASES OF K.P.VARGHESE V. ITO 131 ITR 597 , KERALA SATE INDUSTRIAL DEVELOPMENT CORPORATION VS. CIT 259 ITR 51 AND 33 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. DESHBANDHU GUPTA & CO. V. DELHI STOCK EXCHANGE ASSOCIATION LTD. AIR 1979 SC 1049 HAD HELD THAT THE HONBLE FINANCE MINISTERS SPEECH CAN BE RELIED UPO N TO THROW LIGHT ON THE OBJECT AND PURPOSE OF PARTICULAR PROVI SION INTRODUCED BY THE FINANCE BILL. THIS IS IN THE NATU RE OF CONTEMPORANEOUS EXPOSITION FURNISHING LEGITIMATE AID TO CONSTRUCTION. 17. IN THIS BACKDROP, WHICH NEEDS TO BE CONSIDERED IS AS TO WHETHER THE CHARGING OF AMOUNTS FROM THE BANKS FOR THE SERVICES RENDERED BY THE APPELLANT SOCIETY WOULD MA KE THE ACTIVITY COMMERCIAL AS HELD BY THE ASSESSING OFFI CER.THE MERE FACT THAT THE APPELLANT SOCIETY HAD GENERATED SURPL US, DURING THE COURSE OF CARRYING ON THE ANCILLARY OBJECTS, SH ALL NOT ALTER THE CHARACTER OF THE MAIN OBJECTS SO LONG AS THE PR EDOMINANT OBJECT CONTINUES TO BE CHARITABLE AND NOT TO EARN T HE PROFIT. PLEASE REFER TO THE JUDGMENTS RENDERED BY THE HONB LE APEX COURT IN THE CASES OF ADDL. CIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 AND CIT V. A.P. STATE ROAD TRANSPORT CORPORATION [1986] 159 ITR 1. THE HONBLE SUPREME COURT IN THE CASE OF CIT V. A.P. STATE ROAD TRANSPORT CORPORATION HELD AS UNDER: 34 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. . IT IS NOW FIRMLY ESTABLISHED BY THE DECISIONS OF TH IS COURT IN SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATIONS CASE [1980] 121 ITR 1 (SC) AND BAR COUNCIL OF MAHARASHTRAS CASE [1981] 130 ITR 28 (SC), THAT THE TEST IS WHAT IS THE PREDOMINANT OBJECT OF THE ACTIVITYWHETHER IT IS TO CARRY OUT A CHARITABLE PURPOSE OR TO EARN PROFIT? IF THE PREDO MINANT OBJECT IS TO CARRY OUT A CHARITABLE PURPOSE AND NOT TO EARN PROF IT, THE PURPOSE WOULD NOT LOSE ITS CHARITABLE CHARACTER MERELY BECA USE SOME PROFIT ARISES FROM THE ACTIVITY. THE RATIO IN THE ABOVE CASE WAS AGAIN FOLLOWED BY T HE HONBLE SUPREME COURT IN THE CASE OF THIAGARAJAR CHARITIES V. ADDL. COMMISSINER OF INCOME-TAX & ANOTHER 225 ITR 1010 AND A.P. HIGH COURT IN THE CASE OF GIRIJAN CO-OPERATIVE CORPORATION LTD. V. COMMISSION ER OF INCOME-TAX 178 ITR 359. 18. RECENTLY, THE HONBLE SUPREME COURT IN THE CASE OF QUEENS EDUCATIONAL SOCIETY V. CIT [2015] 372 ITR 699 HAD REVERSED THE DECISION OF THE UTTARKHAND HIGH CO URT, WHICH HELD THAT WHEN THERE IS HEAVY PROFIT THE EDUCATIONA L INSTITUTION IS INTENDED FOR PROFIT AND THEREFORE, EXEMPTION WAS DENIED. THE VERY FACT THAT THE PROFIT WAS LARGE MADE THE HO NBLE HIGH COURT TO BELIEVE THAT THERE WAS A PROFIT MOTIVE IN ESTABLISHING THE EDUCATIONAL INSTITUTION. THE HONBLE SUPREME CO URT AFTER REFERRING TO THE JUDGMENTS OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST V. UNION OF INDIA [2010] 327 ITR 73 AND DELHI HIGH COURT IN ST. LAWRENCE EDUCATIONAL SOCIETY (REGD.) V. CIT [2013] 353 ITR 320 AND TOLANI EDUCATION SOCIETY V. 35 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. DEPUTY DIT (EXEMPTIONS) [ 2013] 351 ITR 184, WHICH ARE CONTRARY TO THE JUDGMENT OF UTTARAKHAND HIGH COURT IN THE CASE OF CIT V. QUEENS EDUCATIONAL SOCIETY 319 ITR 160, HELD AS FOLLOWS:- .WE REITERATE THAT THE CORRECT TESTS WHICH HAVE BEEN CULLED OUT IN THE THREE SUPREME COURT JUDGMENTS STA TED ABOVE, NAMELY, SURAT ART SILK CLOTH, ADITANAR AND AMERICAN HOTEL AND LODGING, WOULD ALL APPLY TO DETERMINE WHETHER AN ED UCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. 19. NEEDLESS TO MENTION, THE RATIO LAID DOWN IN THE CASES SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION, ADITANAR EDUCATIONAL INSTITUTION AND AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE IS THAT MERE EXISTENCE OF SURPLUS FROM THE ACTIVITY DOES NO T MEAN THAT IT WILL CEASE TO BE ONE EXISTING SOLELY FOR CH ARITABLE PURPOSE. THE TEST TO BE APPLIED IS ONLY THE NATURE OF PREDOMINANT ACTIVITY TO DETERMINE WHETHER THE INSTI TUTION IS EXISTING FOR CHARITABLE PURPOSE OR OTHERWISE. THERE FORE, IN THE INSTANT CASE ALSO, THE MERE FACT THAT THERE WAS A S URPLUS FROM THE ANCILLARY ACTIVITIES CARRIED ON BY THE APPELLAN T SOCIETY DOES NOT MEAN THAT ITS OBJECTS CEASES TO BE CHARITABLE. 20. THEREFORE, VIEWED FROM ANY ANGLE, WE HOLD THAT THE APPELLANT SOCIETY IS ENTITLED FROM EXEMPTION OF INC OME UNDER 36 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. THE PROVISION OF SECTION 11 OF THE ACT AND THE PROV ISO TO SECTION 2(15) OF THE ACT CANNOT BE APPLIED TO THE A PPELLANT SOCIETY AS IT IS NOT ENGAGED IN ANY ACTIVITY WHICH ARE IN THE NATURE OF TRADE, COMMERCE AND BUSINESS. ACCORDINGLY , WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXEMPTION UNDER THE PROVISIONS OF SEC. 11 OF THE ACT. 21. THE NEXT GROUND OF APPEAL RELATES TO THE DISALL OWANCE OF PRIOR PERIOD EXPENSES OF RS.1,26,807/- AND DEFERRED TAX LIABILITY OF RS.5,01,728/- AND PROVISION FOR INCOME -TAX OF RS.4,63,00,000/-. IT APPEARS THE A.O. HAS DISALLOWE D THESE EXPENSES ON THE GROUND THAT APPELLANT SOCIETY WAS N OT ENTITLED TO EXEMPTION UNDER THE PROVISIONS OF SEC. 11 OF THE ACT. IN THE PRECEDING PARA, WE ALREADY HELD THAT TH E APPELLANT SOCIETY IS ENTITLED FOR EXEMPTION UNDER THE PROVISI ONS OF SECTION 11 OF THE ACT. ONCE IT IS HELD THAT THE APP ELLANT SOCIETY IS ELIGIBLE FOR EXEMPTION U/S. 11 OF THE ACT, AS A LOGICAL COROLLARY, THE INCOME OF THE APPELLANT SOCIETY HAS TO BE COMPUTED ON COMMERCIAL PRINCIPLES AS HELD BY THE HO NBLE SUPREME COURT IN THE CASE OF CIT V. PROGRAMME FOR COMMUNITY ORGANIZATION (2001) 248 ITR 1. IF THE COMMERCIAL PRINCIPLES FOR DETERMINING THE INCOME AR E APPLIED, IT IS BUT NATURAL THAT THE ADJUSTMENT OF THE EXPENS ES INCURRED BY THE APPELLANT SOCIETY FOR CHARITABLE PURPOSES IN THE EARLIER 37 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. YEAR AGAINST INCOME EARNED BY THE APPELLANT SOCIETY IN THE SUBSEQUENT YEAR WILL HAVE TO BE REGARDED AS APPLICA TION OF INCOME OF THE APPELLANT SOCIETY FOR CHARITABLE PURP OSE IN THE SUBSEQUENT YEAR IN WHICH SUCH ADJUSTMENT HAS BEEN M ADE HAVING REGARD TO THE BENEVOLENT PROVISIONS CONTAINE D IN SECTION 11 AND WILL HAVE TO BE EXCLUDED FROM THE IN COME OF THE APPELLANT SOCIETY UNDER SECTION 11(1)(A) RELIAN CE IN THIS REGARD IS PLACED ON THE DECISION IN THE CASE OF CIT V. SHRI PLOT SWETAMBER MURTI PUJAK JAIN MANDAL , (1995) 211 ITR 293, 300 (GUJ). FURTHER, WE ALSO NOTE THAT THE PROVISIONS OF SECTION 11(1)(A) OF THE ACT DOES NOT PRESCRIBE T HAT INCOME OF THE YEAR SHOULD HAVE BEEN APPLIED ONLY IN THE YE AR IN WHICH INCOME HAS ARISEN. THEREFORE, WE HOLD THAT THE PRE- OPERATIVE EXPENSE OF RS.1,26,807/- SHOULD BE ALLOWED AS DEDUC TION. 22. SIMILARLY, THE PROVISIONS FOR PAYMENT OF TAX SH OULD BE ALLOWED AS APPLICATION OF INCOME FOR CHARITABLE PUR POSES. EXPENDITURE BY WAY OF PAYMENT OF TAX OUT OF CURREN T YEARS INCOME HAS TO BE CONSIDERED AS APPLICATION FOR CH ARITABLE PURPOSES BECAUSE THE PAYMENT HAS BEEN MADE TO PRESE RVE THE CORPUS, THE EXISTENCE WHEREOF IS ESSENTIAL FOR THE APPELLAN T SOCIETY ITSELF. PLEASE REFER TO CIT V. JANAKI AMMAL AYYA NADAR TRUST, (1985) 153 ITR 159 (MAD). ALSO SEE, CIT V. G ANGA CHARITY TRUST FUND, (1986) 162 ITR 162 (GUJ); CIT V . GANGA 38 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. CHARITY TRUST FUND, (1993) 115 CTR (GUJ) 325, 326; CIT V. APOSTOLOS RAPTAKOS TRUST, (1998) 143 TAXATION 387, 388 (BOM), CIT V. NIZAMS SUPPLEMENTAL RELIGIOUS ENDOW MENT TRUST (1981) 127 ITR 378 (AP). HOWEVER, WE NOTE FROM THE ASSESSMENT ORDER THAT THE APPELLANT SOCIETY HAD DEB ITED THE ABOVE PROVISION FOR TAXATION TO INCOME AND EXPENDIT URE ACCOUNT. THE ASSESSING OFFICER HAD ADOPTED THE EXCE SS OF INCOME OVER EXPENDITURE FOR TAXATION AND FURTHER AD DITION OF PROVISION FOR INCOME TAX WAS MADE. FOR THE PURPOSE OF COMPUTATION OF INCOME AVAILABLE FOR APPLICATION FOR CHARITABLE PURPOSES, IT IS ONLY THE ACTUAL RECEIPTS AND PAYMEN TS WHICH ARE ALL ALONE TO BE CONSIDERED. THEREFORE, WE DIREC T THE ASSESSING OFFICER TO ALLOW THE PROVISION FOR TAXATI ON ONLY IN THE YEAR IN WHICH ACTUAL PAYMENT IS MADE. 23. THE NEXT GROUND OF APPEAL RELATES TO THE ALLOWA BILITY OF DEPRECIATION. THE ISSUE IS NO MORE RES INTEGRA AND IT IS COVERED BY THE DECISION OF CO-ORDINATE BENCH, HYDER ABAD IN THE CASE OF A.P. OLYMPIC ASSOCIATION , HELD VIDE PARA 8 TO 16 AS FOLLOWS: 8. . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND EXAMINED THE ISSUE. THERE IS NO DISPUTE WITH REGARD TO THE F ACT THAT THE ASSESSEE IS REGISTERED UNDER SECTION 12AA OF THE IN COME-TAX ACT. THERE IS ALSO NO DISPUTE THAT THE ASSESSEE HAS SHOW N ALL THE RECEIPTS IN INCOME-EXPENDITURE ACCOUNT AND CLAIMED VARIOUS 39 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. EXPENSES IN ITS COMPUTATION OF INCOME, WHILE DECLAR ING EXCESS OF INCOME OVER EXPENDITURE. IT IS ALSO NOT IN DISPUTE THAT THE INCOME OF THE ASSESSEE-TRUST HAS TO BE COMPUTED WITH REFERENC E TO THE PROVISIONS OF SECTIONS 11 AND 13. THEREFORE, THE PR INCIPLES GOVERNING THE COMPUTATION OF INCOME UNDER THE HEAD 'BUSINESS' MAY NOT APPLY TO THE COMPUTATION OF INCOME UNDER TH E ABOVE PROVISIONS, SINCE THE INCOME OF A CHARITABLE INSTIT UTION HAS TO BE COMPUTED UNDER ORDINARY PRINCIPLES OF COMMERCIAL AC COUNTING, AND DEPRECIATION HAS TO BE ALLOWED ON DEPRECIABLE ASSET S HELD BY A CHARITABLE INSTITUTION TO ARRIVE AT THE INCOME OF 7 5 PER CENT. (NOW 85 PER CENT.) WHICH IS REQUIRED TO BE APPLIED FOR CHAR ITABLE PURPOSE. IN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF ESCORTS LTD./J.K. SYNTHETICS LTD. (SUPRA), THE HON'BLE SUPR EME COURT WAS TO CONSIDER THE ISSUE WHEREIN THE DEPRECIATION WAS ALSO CLAIMED ON AN ASSET WHICH WAS CLAIMED AS A DEDUCTION WHILE USI NG FOR RESEARCH, AS 'CAPITAL EXPENDITURE ON SCIENTIFIC RES EARCH'. ON THOSE FACTS, THE HON'BLE SUPREME COURT HELD THAT DEPRECIA TION WAS INADMISSIBLE SINCE THE ENTIRE COST OF THE ASSET USE D FOR RESEARCH WAS CLAIMED AS DEDUCTION. HOWEVER, THE SAME PRINCIP LE MAY NOT APPLY TO THE COMPUTATION OF INCOME UNDER SECTION 11 OF THE TRUST. 9. THE HON'BLE KERALA HIGH COURT IN THE CASE OF LISSI E MEDICAL INSTITUTIONS (SUPRA), TAKING INTO CONSIDERATION OF CLARIFICATION ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES IGNORING ITS O WN CIRCULAR 5-P (LXX-6) OF 1968 DATED JUNE 19, 1968, OPINED THAT TH ERE COULD BE LEAKAGE OF REVENUE AND GENERATION OF BLACK MONEY, I F DEPRECIATION WAS ALLOWED. THUS, THE HON'BLE KERALA HIGH COURT GA VE DECISION IN FAVOUR OF THE REVENUE AND DIRECTED THE ASSESSEE TO RE-DRAW THE ACCOUNTS. 10. THE DECISION OF THE CO-ORDINATE BENCH, WHICH THE L EARNED COMMISSIONER OF INCOME-TAX (APPEALS) RELIED ON, I.E ., IN THE CASE OF SRI VENKATA SAI EDUCATIONAL SOCIETY (SUPRA) HOWE VER, DID NOT DECIDE THE ISSUE BUT RESTORED THE MATTER TO THE FIL E OF THE ASSESSING OFFICER TO EXAMINE ; WHETHER ASSETS HAVE BEEN CLAIM ED AS EXEMPTION IN EARLIER YEARS ON WHICH DEPRECIATION WA S CLAIMED. HOWEVER, IN A LATER ORDER BY THE CO-ORDINATE BENCH OF THE INCOME- TAX APPELLATE TRIBUNAL, HYDERABAD IN THE CASE OF AS STT. DIT (EXEMPTION) V. ROYAL EDUCATIONAL SOCIETY IN IT APPE AL NO. 1378/HYD/2011, DATED JUNE 28, 2012, HOWEVER, ALLOWE D THE CLAIM OF DEPRECIATION AND DISMISSED THE REVENUE'S A PPEAL. THE CO- ORDINATE BENCH RELIED ON THE DECISION OF THE HON'BL E PUNJAB AND HARYANA HIGH COURT IN THE CASE OFMANAV MANGAL SOCIE TY (SUPRA) 40 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. AND CIT V. MARKET COMMITTEE [2011] 330 ITR 16/[2012] 20 TAXMANN.COM 559 (PUNJ. & HAR.) , IN ARRIVING AT THAT DECISION. THUS, THERE WAS A DIFFERENCE OF OPINION ON THE ABOVE ISSU E AT THAT POINT OF TIME. 11. THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE C ASE OF MANAV MANGAL SOCIETY (SUPRA) HAS CONSIDERED AND ALLOWED THE CLAIM OF DEPRECIATION (PAGE 423) : 'THE AMOUNT SPENT ON CONSTRUCTION OF SCHOOL BUILDIN G AT PANCHKULA IS A CAPITAL EXPENDITURE BUT FOR THE PURP OSE OF SECTION 11 IT IS AN OUTGOING EXPENDITURE WHICH IS A PPLICATION OF INCOME OF THE APPELLANT-TRUST FOR CHARITABLE PURPOS E. THE APPELLANT SHALL ALSO BE ENTITLED TO CLAIM DEPRECIAT ION ON THE SCHOOL BUILDING'. 12. THIS DECISION WAS FOLLOWED IN THE CASE OF CIT V. T INY TOTS EDUCATION SOCIETY [2011] 330 ITR 21/11 TAXMANN.COM 242 BY THE HON'BLE PUNJAB AND HARYANA HIGH COURT. 13. THIS ISSUE HAS ELABORATELY BEEN DISCUSSED BY THE H ON'BLE DELHI HIGH COURT IN THE CASE OF VISHWA JAGRITI MISSION (S UPRA) AND TOOK A OVER VIEW OF THE EXISTING DECISIONS ON THE ISSUE WHILE HOLDING AS UNDER : '11. THE REVENUE IS IN APPEAL AGAINST THE AFORESAID ORDER OF THE TRIBUNAL. WE ARE NOT INCLINED TO ADMIT THE APPE AL AND FRAME ANY SUBSTANTIAL QUESTION OF LAW SINCE NONE ARISES F ROM THE ORDER OF THE TRIBUNAL. THERE IS NO DISPUTE THAT THE ASSESSEE HAS BEEN GRANTED REGISTRATION UNDER SECTION 12AA VIDE O RDER DATED SEPTEMBER 11, 2009, AND, THEREFORE, IT WAS ENTITLED TO EXEMPTION OF ITS INCOME UNDER SECTION 11. THE ONLY QUESTION IS WHETHER THE INCOME OF THE ASSESSEE SHOULD BE COMPUT ED ON COMMERCIAL PRINCIPLES AND IN DOING SO WHETHER DEPRE CIATION ON FIXED ASSETS UTILISED FOR THE CHARITABLE PURPOSES S HOULD BE ALLOWED. ON THIS ISSUE, THERE SEEMS TO BE A CONSENS US OF JUDICIAL THINKING AS IS SEEN FROM THE AUTHORITIES R ELIED UPON BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AS WELL AS THE 41 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. TRIBUNAL. IN CIT V. THE SOCIETY OF THE SISTERS OF S T. ANME, AN IDENTICAL QUESTION AROSE BEFORE THE KARNATAKA HIGH COURT. THERE THE SOCIETY WAS RUNNING A SCHOOL IN BANGALORE AND WAS ALLOWED EXEMPTION UNDER SECTION 11. THE QUESTION AR OSE AS TO HOW THE INCOME AVAILABLE FOR APPLICATION TO CHARITA BLE AND RELIGIOUS PURPOSES SHOULD BE COMPUTED. JAGANNATHA S ETTY, J. SPEAKING FOR THE DIVISION BENCH OF THE COURT HELD T HAT INCOME DERIVED FROM PROPERTY HELD UNDER TRUST CANNOT BE TH E 'TOTAL INCOME' AS DEFINED IN SECTION 2(45) OF THE ACT AND THAT THE WORD 'INCOME' IS A WIDER TERM THAN THE EXPRESSION 'PROFI TS AND GAINS OF BUSINESS OR PROFESSION'. REFERENCE WAS MADE TO T HE NATURE OF DEPRECIATION AND IT WAS POINTED OUT THAT DEPRECIATI ON WAS NOTHING BUT DECREASE IN THE VALUE OF PROPERTY THROU GH WEAR, DETERIORATION OR OBSOLESCENCE. IT WAS OBSERVED THAT DEPRECIATION, IF NOT ALLOWED AS A NECESSARY DEDUCTI ON FOR COMPUTING THE INCOME OF CHARITABLE INSTITUTIONS, TH EN THERE IS NO WAY TO PRESERVE THE CORPUS OF THE TRUST FOR DERIVIN G THE INCOME. THE CIRCULAR NO. 5-P (LXX-6) OF 1968, DATED JULY 19 , 1968 WAS REPRODUCED IN THE JUDGMENT IN WHICH THE BOARD HAS T AKEN THE VIEW THAT THE INCOME OF THE TRUST SHOULD BE UNDERST OOD IN ITS COMMERCIAL SENSE. THE CIRCULAR IS AS UNDER : 'WHERE THE TRUST DERIVES INCOME FROM HOUSE PROPERTY , INTEREST ON SECURITIES, CAPITAL GAINS, OR OTHER SOURCES, THE WORD 'INCOME' SHOULD BE UNDERSTOOD IN ITS COMMERCIAL SENSE, I.E., BOOK INCOME, AFTER ADDING BACK ANY APPROPRIATIONS OR APP LICATIONS THEREOF TOWARDS THE PURPOSE OF THE TRUST OR OTHERWI SE, AND ALSO AFTER ADDING BACK ANY DEBITS MADE FOR CAPITAL EXPEN DITURE INCURRED FOR THE PURPOSES OF THE TRUST OR OTHERWISE . IT SHOULD BE NOTED, IN THIS CONNECTION, THAT THE AMOUNTS SO ADDE D BACK WILL BECOME CHARGEABLE TO TAX UNDER SECTION 11(3) TO THE EXTENT THAT THEY REPRESENT OUTGOINGS FOR PURPOSES OTHER THAN TH OSE OF THE TRUST. THE AMOUNTS SPENT OR APPLIED FOR THE PURPOSE S OF THE TRUST FROM OUT OF THE INCOME COMPUTED IN THE AFORES AID MANNER, SHOULD BE NOT LESS THAN 75 PER CENT. OF THE LATTER, IF THE TRUST IS TO GET THE FULL BENEFIT OF THE EXEMPTION UNDER SECT ION 11(1).' 12. A SIMILAR VIEW WAS EARLIER EXPRESSED BY THE AND HRA PRADESH HIGH COURT IN CIT V. TRUSTEE OF H.E. H. THE NIZAM'S SUPPLEMENTAL RELIGIOUS ENDOWMENT TRUST [1981] 127 ITR 378 (AP) AND BY THE MADRAS HIGH COURT IN CIT V. RAO BAHADUR CALAVALA CUNNAN CHETTY CHARITIES [1982] 135 ITR 485 (MAD) . THE MADHYA PRADESH HIGH COURT IN CIT V. RAIPUR PALL OTTINE 42 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. SOCIETY [1989] 180 ITR 579 (MP) HAS HELD, FOLLOWING THE JUDGMENT OF THE KARNATAKA HIGH COURT CITED ABOVE, T HAT IN COMPUTING THE INCOME OF A CHARITABLE INSTITUTION/TR UST, DEPRECIATION OF ASSETS OWNED BY THE TRUST/INSTITUTI ON IS A NECESSARY DEDUCTION ON COMMERCIAL PRINCIPLES. THE G UJARAT HIGH COURT, AFTER REFERRING TO THE JUDGMENTS OF THE KARNATAKA, MAHARASHTRA AND MADHYA PRADESH HIGH COURTS CITED AB OVE, ALSO CAME TO THE SAME CONCLUSION AND HELD THAT THE AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNTS OF THE CHARITA BLE INSTITUTION HAS TO BE DEDUCTED TO ARRIVE AT THE INCOME AVAILABL E FOR APPLICATION TO CHARITABLE AND RELIGIOUS PURPOSES. 13. THE JUDGMENT OF THE SUPREME COURT IN ESCORTS LTD. V. UNION OF INDIA [1993] 199 ITR 43 (SC) HAS BEEN RIGHTLY HELD TO BE INAPPLICABLE TO THE PRESENT CASE . THERE ARE TWO REASONS AS TO WHY THE JUDGMENT CANNOT BE APPLIE D TO THE PRESENT CASE. FIRSTLY, THE SUPREME COURT WAS NOT CO NCERNED WITH THE CASE OF A CHARITABLE TRUST/INSTITUTION INV OLVING THE QUESTION AS TO WHETHER ITS INCOME SHOULD BE COMPUTE D ON COMMERCIAL PRINCIPLES IN ORDER TO DETERMINE THE AMO UNT OF INCOME AVAILABLE FOR APPLICATION TO CHARITABLE PURP OSES. IT WAS A CASE WHERE THE ASSESSEE WAS CARRYING ON THE BUSIN ESS AND THE STATUTORY COMPUTATION PROVISIONS OF CHAPTER IV- D OF THE ACT WERE APPLICABLE. IN THE PRESENT CASE, WE ARE NOT CO NCERNED WITH THE APPLICABILITY OF THESE PROVISIONS. WE ARE CONCERNED ONLY WITH THE CONCEPT OF COMMERCIAL INCOME AS UNDER STOOD FROM THE ACCOUNTING POINT OF VIEW. EVEN UNDER THE NORMAL COMMERCIAL ACCOUNTING PRINCIPLES, THERE IS AUTHORIT Y FOR THE PROPOSITION THAT DEPRECIATION IS A NECESSARY CHARGE IN COMPUTING THE NET INCOME. SECONDLY, THE SUPREME COU RT WAS CONCERNED WITH THE CASE WHERE THE ASSESSEE HAD CLAI MED DEDUCTION OF THE COST OF THE ASSET UNDER SECTION 35 (1) OF THE ACT, WHICH ALLOWED DEDUCTION FOR CAPITAL EXPENDITURE INC URRED ON SCIENTIFIC RESEARCH. THE QUESTION WAS WHETHER AFTER CLAIMING DEDUCTION IN RESPECT OF THE COST OF THE ASSET UNDER SECTION 35(1), CAN THE ASSESSEE AGAIN CLAIM DEDUCTION ON ACCOUNT O F DEPRECIATION IN RESPECT OF THE SAME ASSET. THE SUPR EME COURT RULED THAT, UNDER GENERAL PRINCIPLES OF TAXATION, D OUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING I S NOT INTENDED UNLESS CLEARLY EXPRESSED. THE PRESENT CASE IS NOT ONE OF THIS TYPE, AS RIGHTLY DISTINGUISHED BY THE COMMI SSIONER OF INCOME-TAX (APPEALS). 43 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. 14. HAVING REGARD TO THE CONSENSUS OF JUDICIAL OPIN ION ON THE PRECISE QUESTION THAT HAS ARISEN IN THE PRESENT APP EAL, WE ARE NOT INCLINED TO ADMIT THE APPEAL AND FRAME ANY SUBS TANTIAL QUESTION OF LAW. THERE DOES NOT APPEAR TO BE ANY CO NTRARY VIEW PLAUSIBLE ON THE QUESTION RAISED BEFORE US AND AT A NY RATE NO JUDGMENT TAKING A CONTRARY VIEW HAS BEEN BROUGHT TO OUR NOTICE. IN THE CIRCUMSTANCES, WE DECLINE TO ADMIT T HE PRESENT APPEAL AND DISMISS THE SAME WITH NO ORDER AS TO COS TS'. 14. SIMILAR VIEW WAS ALSO TAKEN BY THE CO-ORDINATE BEN CH OF THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN THE CAS E OF ASSTT. CIT V. SHRI ADICHUNCHANAGIRI SHIKSHANA TRUST [2013] 141 ITD 575/31 TAXMANN.COM 157 WHEREIN IT WAS HELD THAT CHARITABLE OR RELIGIOUS TRUST REGISTERED UNDER SECTION 12A CAN CL AIM BENEFIT UNDER SECTION 11 IN THE FORM OF APPLICATION OF FUNDS AS W ELL AS DEPRECIATION UNDER SECTION 32 IN RESPECT OF PROPERT Y HELD UNDER THE TRUST. THE SAME OPINION WAS FOLLOWED BY THE INCOME- TAX APPELLATE TRIBUNAL, BANGALORE TRIBUNAL IN THE CASE OF DY. DIT (EXEMPTION) V. CUTCHI MEMON UNION [2013] 60 SOT 260/38 TAXMANN.COM 276 WHEREIN ALSO SIMILAR OPINION WAS EXPRESSED. 15. THUS, ON THIS ISSUE, THERE ARE DECISIONS OF THE HO N'BLE GUJARAT HIGH COURT, THE MADHYA PRADESH HIGH COURT, THE KERA LA HIGH COURT, THE BOMBAY HIGH COURT, THE PUNJAB AND HARYAN A HIGH COURT AND THE DELHI HIGH COURT IN FAVOUR OF THE ASS ESSEE, WHEREAS, THERE IS ONLY A LONE JUDGMENT OF THE HON'BLE KERALA HIGH COURT AGAINST THE ABOVE OPINION CONFIRMING THE REVENUE'S CONTENTION. IN VIEW OF THE MAJORITY OPINION OF VARIOUS HIGH COURTS , WE ARE OF THE OPINION THAT AMOUNT OF DEPRECIATION DEBITED TO THE ACCOUNT OF CHARITABLE INSTITUTION HAS TO BE ALLOWED IN ORDER T O ARRIVE AT THE INCOME AVAILABLE FOR APPLICATION TO THE CHARITABLE PURPOSE. 16. SINCE THE HON'BLE DELHI HIGH COURT IN THE CASE OF VISHWA JAGRUTI MISSION (SUPRA) HAS DISTINGUISHED VARIOUS J UDGMENTS ON THE ISSUE, WE DO NOT INTEND TO DISCUSS THE SAME AGA IN. HOWEVER, WE RESPECTFULLY AGREE WITH THE PRINCIPLES LAID DOWN BY THE HON'BLE DELHI HIGH COURT, WHICH WERE IN FAVOUR OF THE ASSES SEE ALLOWING THE CLAIM OF DEPRECIATION. 44 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. 24. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE D IRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION AS AN A PPLICATION OF INCOME. 25. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 .06.2015. SD/- SD/- (SAKTIJIT DEY) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD DATED 30 TH JUNE, 2015 COPY TO 1. INSTITUTE FOR DEVELOPMENT AND RESEARCH IN BANKIN G TECHNOLOGY (IDRBT), CASTLE HILLS, ROAD NO.1, MASAB TANK, HYDERABAD -500 057 2. ASSISTANT DIRECTOR OF INCOME TAX (E) - 1, HYDERABAD. 3. CIT(A)-IV, HYDERABAD 4. DIRECTOR OF INCOME TAX (EXEMPTIONS), HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD 6. GUARD FILE 45 ITA.NO.1712/HYD/2014 INSTITUTE FOR DEVELOPMENT & RESEARCH IN BANKING TECHNOLOGY (IDRBT), HYDERABAD. SL. NO. DESCRIPTION DATE INITIALS 1. DATE OF DICTATION BY THE AUTHOR ON COMPUTER SR. PS 2. DRAFT PLACED BEFORE THE DICTATING MEMBER SR.PS 3. DRAFT PLACED BEFORE THE SECOND MEMBER A .M. 4. DRAFT APPROVED BY THE SECOND MEMBER J.M. 5. DATE OF APPROVED ORDER COMES TO THE SR. PS SR.PS 6. DATE OF PRONOUNCEMENT OF ORDER SR.PS 7. DATE OF FILE SENT TO THE BENCH CLERK SR.P S 8. DATE ON WHICH FILES GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER