The Association of Surgeons of India, CHENNAI V. DDIT, CHENNAI

ITA 2238/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8895 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 08-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M MURUGABOOPATHY
• Assessee Lawyers: S SRIDHAR
• Keywords: Charitable institution; Cancellation of registration
• Section: 12AA; 11

Judgement Text

, / , IN THE INCOME TAX APPELLATE TRIBUNAL B / SMC BENCH, CHENNAI ... , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER !./ ITA NOS.2238 & 2239/MDS/2014 # $%# / ASSESSMENT YEARS : 2009-10 & 2010-11 M/S THE ASSOCIATION OF SURGEONS OF INDIA, C/O SHRI S. SRIDHAR, ADVOCATE, NEW NO.14, OLD NO.82,FLAT NO.5, 1 ST AVENUE, INDIRA NAGAR, ADYAR, CHENNAI - 600 020. PAN : AAATT 1233 G V. THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS) I, CHENNAI - 600 034. ('(/ APPELLANT) ()*'(/ RESPONDENT) '( + , / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE )*'( + , / RESPONDENT BY : SHRI M. MURUGABOOPATHY, ADDL. CI T - $ + ./ / DATE OF HEARING : 15.06.2016 01% + ./ / DATE OF PRONOUNCEMENT : 01.07.2016 / O R D E R BOTH APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME T AX (APPEALS) VII, CHENNAI, DATED 16.06.2014 AND PERT AIN TO ASSESSMENT YEARS 2009-10 AND 2010-11. SINCE COMMON ISSUE ARISES FOR CONSIDERATION IN BOTH THESE APPEALS, I H EARD THESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2 I.T.A. NOS.2238 & 2239/MDS/14 2. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT THE ASSESSEE-SOCIETY IS REGISTERED UNDER SECTI ON 12AA OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') AS CHARIT ABLE INSTITUTION. THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 11 OF THE ACT IN RESPECT OF ITS INCOME GENERATED OUT OF THE PROPERTY HELD UNDER TRUST. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE HAS RECE IVED RENTAL INCOME TO THE EXTENT OF ` 33,14,700/- FROM AUDITORIUM. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE-SOCIETY IS USING THE AUDITORIUM FOR THE OBJECT OF THE SOCIETY AND IT WAS NOT LET OUT FOR AN Y COMMERCIAL PURPOSE. HOWEVER, THE ASSESSING OFFICER FOUND THAT LETTING OUT THE AUDITORIUM IS IN THE NATURE OF TRADE, COMMERCE, BUS INESS, ETC. AND FOUND THAT THE ASSESSEE-SOCIETY IS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE ACT. THE LD.COUNSEL FURTHER SUBM ITTED THAT EVEN THOUGH THE ASSESSING OFFICER INITIATED PROCEEDING F OR CANCELLATION OF REGISTRATION GRANTED UNDER SECTION 12AA OF THE ACT, THE REGISTRATION GRANTED UNDER SECTION 12AA WAS NOT CANCELLED AND IT CONTINUES TO BE PENDING. 3. REFERRING TO THE ORDER OF THE CIT(APPEALS), MORE PARTICULARLY PAGE 5, THE LD.COUNSEL SUBMITTED THAT THE CIT(APPEA LS) HAS REPRODUCED THE OBJECTS OF THE ASSESSEE-SOCIETY AT P ARA 3.4. AFTER 3 I.T.A. NOS.2238 & 2239/MDS/14 EXAMINING THESE OBJECTS, THE DIRECTOR OF INCOME TAX (EXEMPTIONS) GRANTED REGISTRATION UNDER SECTION 12AA OF THE ACT. THE LD.COUNSEL FURTHER SUBMITTED THAT MERELY BECAUSE THE AUDITORIU M WAS LET OUT FOR COACHING MEDICAL STUDENTS FOR POST GRADUATE ENTRANC E EXAMINATION THAT CANNOT BE A REASON TO SAY THAT IT WAS NOT IN C ONNECTION WITH THE OBJECTS OF THE SOCIETY. ONE OF THE OBJECTS OF THE ASSESSEE SOCIETY IS TO ENCOURAGE AND ADVANCE THE STUDY AND PRACTICE OF THE SCIENCE AND ART OF SURGERY. THEREFORE, THE ASSESSEE HAS TO NECESSARILY TRAIN THE STUDENTS, WHO COMPLETED UNDER GRADUATE MEDICINE SO THAT THEY CAN COMPETE THE COMPETITIVE EXAMINATION IN POST GRA DUATE MEDICAL COURSES. THIS CANNOT BE CONSIDERED TO BE A COMMERC IAL ACTIVITY MERELY BECAUSE THE ASSESSEE-SOCIETY CHARGES FEES. ACCORDING TO THE LD. COUNSEL, IT IS NOT THE CASE OF THE REVENUE THAT THE FUNDS OF THE ASSESSEE-SOCIETY WAS DIRECTED TO THE ACTIVITIES OTHER THAN THE OBJECTS OF THE SOCIETY. IN THE ABSENCE OF ANY SUCH ALLEGATIONS, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) IS N OT JUSTIFIED IN CONFIRMING THE ORDERS OF THE ASSESSING OFFICER. 4. ON THE CONTRARY, SHRI M. MURUGABOOPATHY, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASS ESSEES LETTING OUT AUDITORIUM AND RECEIVING RENTAL INCOME CANNOT B E CONSIDERED TO BE CHARITABLE ACTIVITY. REFERRING TO THE COACHING CLASSES CONDUCTED 4 I.T.A. NOS.2238 & 2239/MDS/14 BY THE ASSESSEE, THE LD. D.R. SUBMITTED THAT THE AS SESSEE WAS CHARGING HEAVY FEES FROM MEDICAL STUDENTS FOR CONDU CTING COACHING CLASSES, THEREFORE, IT IS OBVIOUS THAT THE ASSESSEE WAS LETTING OUT THE AUDITORIUM ON COMMERCIAL LINE AND THERE WAS NO TRAC ES OF OBJECTS OF THE ASSESSEE IN CONDUCTING THE COACHING CLASSES. E NCOURAGING AND ADVANCING THE STUDENTS OF ART AND SURGERY IS ONE OF THE OBJECTS OF THE SOCIETY. HOWEVER, THE ASSESSEE-SOCIETY IS ACTU ALLY RUNNING AN AUDITORIUM WHICH IS LET OUT AND PUT TO COMMERCIAL U SE FOR EARNING INCOME. THEREFORE, THE ACTIVITIES OF THE SOCIETY A RE IN THE NATURE OF TRADE OR COMMERCE. HENCE, ACCORDING TO THE LD. D.R ., THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDERS OF TH E ASSESSING OFFICER. 4. I HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHE R SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE- SOCIETY IS ADMITTEDLY REGISTERED UNDER SECTION 12AA OF THE ACT BY THE DIRECTOR OF INCOME TAX (EXEMPTIONS). FOR THE Y EARS UNDER CONSIDERATION, THE ASSESSING OFFICER DENIED EXEMPTI ON UNDER SECTION 11 OF THE ACT ON THE GROUND THAT THE ACTIVI TY OF THE SOCIETY RUNNING THE AUDITORIUM IS IN THE NATURE OF TRADE, C OMMERCE OR PROVIDING SERVICES IN RELATION TO TRADE. AS RIGHTL Y SUBMITTED BY THE LD.COUNSEL FOR THE ASSESSEE, THE DIRECTOR OF INCOME TAX 5 I.T.A. NOS.2238 & 2239/MDS/14 (EXEMPTIONS) AFTER EXAMINING THE OBJECTS OF THE ASS ESSEE-SOCIETY, WHICH WERE REPRODUCED BY THE CIT(APPEALS) AT PARA 3 .4 OF THE IMPUGNED ORDER, GRANTED REGISTRATION UNDER SECTION 12AA OF THE ACT. THE ASSESSEE HAS MULTIPLE OBJECTS AND ONE OF THE OB JECTS WAS TO ENCOURAGE AND ADVANCE THE STUDY AND PRACTICE OF THE SCIENCE AND ART OF SURGERY. THE ASSESSEE IS ALSO OWNING AN AUD ITORIUM WHICH WAS LET OUT AND EARNING RENTAL INCOME. THE QUESTIO N ARISES FOR CONSIDERATION IS WHEN THE ASSESSEE WAS OWNING AN AU DITORIUM AND LETTING OUT THE SAME, WHETHER THAT WOULD AMOUNT TO CARRYING ON TRADE OR COMMERCE? AS SEEN FROM THE OBJECTS OF THE SOCIE TY, MAINTAINING THE AUDITORIUM IS NOT THE OBJECT OF THE SOCIETY. T HE MAIN OBJECTS OF THE SOCIETY ARE REPRODUCED BY THE CIT(APPEALS) AT P ARA 3.4 OF THE IMPUGNED ORDER. UNDER SECTION 11 OF THE ACT, THE I NCOME OF THE TRUST / SOCIETY DERIVED FROM PROPERTY HELD UNDER TR UST IS EXEMPTED FROM TAXATION ON APPLICATION. THEREFORE, FOR THE P URPOSE OF EXEMPTION, THE INCOME HAS TO BE NECESSARILY GENERAT ED FROM THE PROPERTY HELD UNDER THE TRUST. IT IS NOT IN DISPUT E THAT THE AUDITORIUM CAN ALSO BE HELD AS PROPERTY UNDER TRUST. WHEN THE AUDITORIUM WAS HELD UNDER TRUST, THE INCOME GENERATED OUT OF THAT AUDITORIUM IS EXEMPTED UNDER SECTION 11 OF THE ACT ON APPLICATION TO THE OBJECTS OF THE SOCIETY FOR WHICH IT WAS FORMED. AFTER GOIN G THROUGH THE 6 I.T.A. NOS.2238 & 2239/MDS/14 PROVISIONS OF SECTION 11(4) AND 11(4A) OF THE ACT, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT TRADE OR COMMERCE IS NO T TOTALLY PROHIBITED. A TRADE OR COMMERCE OR ANY PROPERTY CA N BE HELD UNDER TRUST FOR THE PURPOSE OF CARRYING ON THE OBJECTS OF THE TRUST. IN OTHER WORDS, FOR FUNDING CHARITY OR CARRYING OUT THE OBJE CTS OF THE TRUST, THE ASSESSEE-TRUST HAS TO BE NECESSARILY GENERATE FUNDS . THE FUNDS CAN BE GENERATED IN SEVERAL WAYS. ONE OF THE WAYS OF GENERATING FUND IS BY MAINTAINING THE AUDITORIUM UNDER TRUST. IN THIS CASE, THE AUDITORIUM WAS HELD UNDER TRUST OF THE SOCIETY FOR THE PURPOSE OF GENERATING FUNDS. THE INCOME GENERATED OUT OF THE AUDITORIUM WAS USED TO THE OBJECTS OF THE TRUST. 5. THE CIT(APPEALS), AFTER REFERRING TO THE COACHIN G CLASSES FOR WHICH THE AUDITORIUM WAS LET OUT, FOUND THAT THE AS SESSEE WAS CHARGING HEAVY FEES FROM MEDICAL STUDENTS. HOWEVER , HE HAS NOT REFERRED ANY QUANTUM OF FEES CHARGED BY THE ASSESSE E-SOCIETY. CHARGING FEE BY ITSELF CANNOT BE A REASON TO DISALL OW THE CLAIM OF THE ASSESSEE. A CHARITABLE INSTITUTION IS NOT EXPE CTED TO DO CHARITY AT FREE OF COST. A CHARITABLE INSTITUTION IS ENTIT LED TO COLLECT A REASONABLE FEE FOR MEETING THE EXPENDITURE. EVEN A CHARITABLE SOCIETY NEEDS MONEY FOR THE PURPOSE OF CARRYING OUT ITS CHARITABLE OBJECTS. THEREFORE, THIS TRIBUNAL IS OF THE CONSID ERED OPINION THAT 7 I.T.A. NOS.2238 & 2239/MDS/14 LETTING OUT THE AUDITORIUM FOR CONDUCTING COACHING CLASSES FOR POST GRADUATE ENTRANCE EXAMS CANNOT BE CONSIDERED TO BE OUTSIDE THE OBJECTS OF THE ASSESSEE-SOCIETY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT LETTING OUT THE AUDITORIUM FOR THE PUR POSE OF CONDUCTING COACHING CLASSES FOR POST GRADUATE ENTRANCE EXAMS I S IN FURTHERANCE OF ITS OBJECTS. THEREFORE, THE INCOME GENERATED OUT OF LETTING OUT THE AUDITORIUM HAS TO BE NECESSARILY CO NSIDERED AS INCOME GENERATED FROM THE PROPERTY HELD UNDER THE T RUST. 6. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF THE AUTHORITIES BELOW. THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW EXEMPTION UNDER SECTION 11 OF THE ACT. 7. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 1 ST JULY, 2016 AT CHENNAI. SD/- ( ... ) (N.R.S. GANESAN) /JUDICIAL MEMBER /CHENNAI, 3! /DATED, THE 1 ST JULY, 2016. KRI. 8 I.T.A. NOS.2238 & 2239/MDS/14 + ).45 65%. /COPY TO: 1. '( /APPELLANT 2. )*'( /RESPONDENT 3. - 7. () /CIT(A)-VII, CHENNAI-34 4. DIT (EXEMPTIONS), CHENNAI 5. 5$8 ). /DR 6. 9# : /GF.