M/s. Help, New Delhi V. ADIT (E), New Delhi

ITA 4497/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7589 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Capital expenditure
• Section: 12; 11

Judgement Text

DELHI BENCH C : NEW DELHI BEFORE SHRI G. D. AGARWAL, HONBLE VICE PRESIDENT AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 4497 & 4790/DEL/2012 (ASSESSMENT YEAR 2009 - 10) HELP C/O. VINOD KUMAR BINDAL & CO, CA, SUSHIL BHAWAN, D - 219, VIVEK VIHAR PHASE - 1, NEW DELHI AAATH2639G VS. ADIT (E), TRUST CIRCLE - II, NEW DELHI (APPELLANT) (RESPONDENT) O R D E R PER A. T. VARKEY, JUDICIAL MEMBER THESE ARE CROSS APPEAL S AGAINST THE ORDER OF THE LD CIT(A), XXI, NEW DELHI DATED 11.06.2012 FOR THE ASSESSMENT YEAR 2009 - 10. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A SOCIETY WHO HAS CONSTRUCTED A DHARAMS H ALA FOR THE PURPOSE OF PROVIDING ACCOMMODATION TO PATIENTS VISITING HOSPITAL S IN DELHI. HOWEVER, THE AO NOTED THAT IN THE INSTANT YEAR, THE ASSESSEE S MAIN SOURCE OF RECEIPT ARE FROM ACCOMMODATION CHARGES, RENT RECEIPT, BED CHARGES AND OTHER INCIDENTAL INCOME, WHI CH ACCORDING TO AO ARE OF COMMERCIAL NATURE. HE THEREFORE, HELD THAT THE ASSESSEE IS COVERED BY PROVISO TO SECTION 2(15) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT) , AND IS NOT THUS ELIGIBLE FOR EXEMPTION U/S 11 OF THE ACT . AND HE ALSO HELD THAT ASSESSEE IS OPERATING A DHARAMSHALA WHICH IS GENERAL PUBLIC UTILITY AS A COMMERCIAL ACTIVITY AND SO THE ENTIRE SURPLUS IS TAXABLE. APPELLANT BY : VINOD BINDAL, SANJEEV BINDAL, ADV RESPONDENT BY : PAMINDER KAUR, SR. DR PAGE 2 OF 11 3. THE LD CIT(A) CONFIRMED THE ACTIONS OF THE AO BY OBSERVING AS UNDER: - 3.3 IN THIS REGARD I AM INCLINED TO AGRE E WITH THE VIEW OF THE AO, WHEREIN, HE HAS VERY CATEGORICALLY DEMONSTRATED THAT ASSESSEE HAS GENERATED A SURPLUS OF RS18,83,528/ - , THUS, RESULTING NET PROFIT OF 19.25% OF THE TOTAL INCOME. FURTHERMORE, IT HAS BEEN NOTED BY AO THAT ASSESSEE IS OPERATING A DHARAMSHALA WHICH IS A GENERAL PUBLIC UTILITY AND GETTING RECEIPTS FROM THE PATIENTS FOR BED CHARGES, ACCOMMODATION CHARGES, INCIDENTAL SERVICES INCLUDING CANTEEN, CAFETERIA ETC. THUS, IT HAS BEEN FOUND THAT ASSESSEE IS RUNNING ITS OPERATION LIKE A HOTEL. FURTHERMORE, THE ACTIVITIES DONE BY THE APPELLANT ARE NOT IN THE NATURE SO AS TO BE TERMED AS RELIEF TO THE POOR BECAUSE RUNNING A DHARAMSHALA CAN NEVER BE HELD AS RELIEF TO THE POOR. THUS, CONTENTION OF THE APPELLANT THAT ITS ACTIVITIES ARE UNDER THE AMBI T OF FIRST THREE LIMBS OF SECTION 2(15) OF THE ACT, IS FOUND TO BE MISCONCEIVED AS IT HAS BEEN FOUND THAT APPELLANT IS RUNNING A DHARAMSHALA WHICH CANNOT BE ACCEPTED AS RELIEF TO THE POOR. SO, FINDING O F THE AO REMAINS CONCLUSIVE, WHEREIN, HE HAS DEMONSTRA TED THAT ASSESSEE IS HIT BY THE AMENDED PROVISIONS OF SECTION 2(15) OF THE IT ACT W.E.F ASSESSMENT YEAR 2009 - 10. THERE IS FORCE IN THE FINDING OF THE AO THAT APPELLANT TRUST IS CONSISTENTLY MAKING PROFIT FROM YEAR TO YEAR AND HAS GENERATED SURPLUS E.G. FOR THIS YEAR SURPLUS HAS BEEN GENERATED TO THE TUNE OF RS.18,83,528/ - AND FOR ASSESSMENT YEAR 2008 - 09 IT WAS TO THE TUNE OF RS.26,22,922/ - . SO, IN MY CONSIDERED OPINION, ACTION OF AO IS JUSTIFIED, WHEREIN, HE HAS HELD THAT ACTIVITIES OF THE APPELLANT TRUST A RE SQUARELY HIT BY AMENDMENT IN SECTION 2(15) OF THE IT ACT EFFECTIVE FROM ASSESSMENT YEAR 2009 - 10. IN VIEW OF THE ABOVE DISCUSSION, GROUNDS NO.1 & 2 OF THE APPELLANT ARE DISMISSED. 4. BEFORE US, IT WAS CONTENDED THAT THE APPELLANT - SOCIETY WAS ESTABLISHED IN THE YEAR 1993 UNDER THE SOCIETIES REGISTRATION ACT, 1860 AS A NON - PROFIT ORGANIZATION. IT WAS SUBMITTED THAT A PLOT OF LAND WAS ALLOTTED BY DDA IN THE YEAR 2001 FOR CONSTRUCTING A DHARAMSHALA AT 11, SERVICE CENTRE, OPP. DDA CHILLA SPORTS COMPLEX, VASUND HARA ENCLAVE, DELHI - 96 (NE AR DHARAMSHILA CANCER HOSPITAL), ON THE RECOMMENDATION OF THE SOCIAL WELFARE DEPARTMENT, GOVERNMENT O F NCT OF DELHI. IT WAS SUBMITTED THAT A DHARAMSHALA, NAMED MANAV ASHRAY, WAS CONSTRUCTED BY THE ASSESSEE IN F INANCIAL YEAR 2004 - 0 5 FOR THE PURPOSE OF PROVIDING CARE TO MEDICAL PATIENTS AND THEIR ATTENDANTS PAGE 3 OF 11 VISITING DELHI HOSPITALS FOR TREATMENT FROM FAR FLUNG PLACES BY PROVIDING ACCOMMODATIONS AND MEALS TO THEM AT HIGHLY CONCESSIONAL/ SUBSIDIZED CHARGES. IT WAS SUBMITTED THAT THE DHA RMSHALA WAS NOT USED FOR ANY OTHER PURPOSE. MAXIMUM PERIOD OF STAY OF A PATIENT IS 15 DAYS AT A TIME. TO MEET THE OPERATING COST OF DHARAMSHALA PARTLY, SUMS RANGING FROM RS.105/ - TO RS.470/ - PER DAY WERE RECEIVED FOR THE USE OF BOARDING AND LODGING FACILIT Y DEPENDING ON THE TYPE OF ACCOMMODATION AND FACILITIES AVAILED BY THE PATIENTS/ ATTENDANTS. AN ATTENDANT IS ALLOWED TO S T AY FREE OF COST WITH THE PATIENT IN A ROOM - ACCOMMODATION. IT WAS SUBMITTED THAT THE ASSESSEE SOCIETY IN ORDER TO AUGMENT ITS RESOURCES SO AS TO KEEP PROVIDING THE CHARITABLE ACTIVITIES CONTINUOUSLY, WAS CONSTRAINED TO RECOVER ITS DAY - TO - DAY RUNNING, MAINTENANCE AND UPKEEP COST OF DHARAMSHALA, WHICH IF LEFT TO THE GENEROSITY OF PEOPLE TO MAKE VOLUNTARY DONATI ONS AT THEIR SWEET WILL CAUSE UNPREDICTABILITY ABOUT FUND AVAILABILITY; AND THE DHARAMSHALA ITSELF MAY CEASE TO FUNCTION ONE DAY DUE TO THE PAUCITY OF FUNDS. THE LD AR SUBMITTED THAT FREE MEALS ARE PROVIDE D TO THE PATIENTS THREE TIMES A DAY, BUT NOMINAL CH ARGES ARE RECOVERED FROM THE ATTENDANTS WHEN THEY EAT IN THE CANTEEN CALLED 'CAFETERIA'. LIKEWISE, WHENEVER TV IS PROVIDED IN THE ROOM, ITS RUNNING COST ON ELECTRICITY & MAINTENANCE IS NOMINALLY RECOVERED BY THE ASSESSEE. SO THE LD AR SUBMITTED THAT COLLEC TION OF SUBSIDIZED CHARGES DOES NOT MEAN THAT THESE SERVICES ARE BEING COMMERCIALLY EXPLOITED BY THE ASSESSEE. IN FACT, RECOVERY OF EXPENSES IS SUBSIDIZED BY THE ASSESSEE SINCE AS AGAINST TOTAL RECOVERY OF RS.71.86 LACS MADE FROM DHARAMSHALA FACILITIES (I. E., APART FROM THE RENTAL INCOME OF RS. PAGE 4 OF 11 25.94 LACS RECEIVED FROM BANKS), TOTAL EXPENSES OF RS. 78.97 LACS WERE INCURRED FOR PROVIDING THE SAID SERVICES DURING THE RELEVANT PREVIOUS YEAR AS PER THE INCOME & EXPENDITURE ACCOUNT FOR THE YEAR ENDED ON 31/03/09 . THE LD AR FURTHER SUBMITTED THAT IN ADDITION TO PROVIDING D HARAMSHALA FACILITIES, THE ASSESSEE ALSO PROVIDED AMBULANCE SERVICES TO ITS RESIDENT - PATIENTS AND RECOVERED THE OPERATIONAL COST ONLY . DURING THE RELEVANT PREVIOUS YEAR TOTAL RECOVERY OF RS.1.29 LACS WAS MADE AGAINST DIRECT COST OF RS. 1.28 LACS INCURRED ON FUEL AND REPAIRS. THE SAID SERVICES WERE ALSO PROVIDED TOWARDS ATTAINMENT OF ITS OBJECTIVES ONLY BY THE APPELLANT AND THE SAME CANNOT BE UNDERSTOOD AS THE SERVICES RENDERED IN RELATION TO CARR YING ON OF ANY TRADE, COMMERCE OR BUSINESS. THE LD AR SUBMITTED TO THE REMARK IN RESPECT OF THE AO S AVERMENT IDEALLY CHARITY SHOULD BE DONE FREE OF COST , THAT IN THE CASE OF THE ASSESSEE EVEN IF IT WANTED TO RECOVER SOME COST FROM THE CUSTOMERS IT S HOULD NOT HAVE RESULTED INTO A PROFIT OF 19.25% OF ITS TOTAL INCOME (I.E., SURPLUS OF RS. 18,83,528/ - ON TOTAL INCOME OF RS. 97,80,123/ - ). ACCORDING TO THE AR THE SAID SURPLUS OF 19.25% WORKED OUT BY THE AO ABOVE IS MISLEADING AND IT DOES NOT REFLECT THE TRUE PICTURE SINCE IT INCLUDES RENTS RECEIVED FOR THE PORTIONS LET - OUT TO BANKS, AND DOES NOT REFLECT THE TRUE POSITION OF SURPLUS/DEFICIT ACTUALLY DERIVED FROM RUN NING OF DHARAMSHALA. ACCORDING TO THE LD AR, IN FACT, THERE WAS A MEAGRE SURPLUS OF RS. 64,967/ - IN ASSESSMENT YEAR 2008 - 09 WHILE THERE WAS A DEFICIT OF RS.7,10,620 / - REPORTED IN ASSESSMENT YEAR 2009 - 10 FROM RUNNING OF DHARAMSHALA AND TOOK OUR ATTENTION TO THE PB WHERE THE PAGE 5 OF 11 PHOTOCOPIES OF THE COMPUTATION OF ASSESSABLE INCOME FOR THE ASSESSMENT YEAR S 2008 - 09 & 2009 - 10, ACKNOWLEDGEMENT OF FILING THE RELEVANT RETURNS OF INCOME AND THE AUDITED ANNUAL ACCOUNTS FOR THE YEAR ENDED ON 31/03/ 20 08 & 31/03/ 20 09 . THE LD AR FURTHER SUBMITTED THAT WITH A VIEW TO MAKING CHARITABLE ORGANIZATIONS SELF - RELIANT SO THAT THEY HAVE A STEADY FLOW OF FUNDS FOR THEIR SMOOTH FUNCTIONING INSTEAD OF BEING DEPENDENT ON GRANTS & DONATIONS, DDA PERMITTED THE ALLOTTEES OF INSTITUTIONAL LAND IN DELHI TO SUB - LET 25% OF THEIR TOTAL BUILT - UP AREA FOR SUB - LETTING TO SERVICE ORGANIZATION LIKE BANKS. ACCORDINGLY, AFTER RECEIVING AN EXPLICIT PERMISSION FROM DDA IN THIS REGARD, THE ASSESSEE ALSO LET - OUT SOME PORTIONS TO TWO BANKS AND RECEIVED TOTAL RENT OF RS.25.94 LACS DURING THE RELEVANT PREVIOUS YEAR. THIS FUND WAS USED FOR SUBSIDIZING DHARAMSHALAS RUNNING COST, WHICH REPORTED A DEFICIT OF RS.7.11 LACS FOR THE FINANCIAL YEAR CONCERNED. THUS, ACCORDING TO THE LD AR, IT IS NOT THE CASE AS MADE OUT BY THE AO THAT THE ASSESSEE EARNED A PROFIT OF 19.25% FROM DHARAMSHALA IN ASSESSMENT YEAR 2009 - 10. ON THE CONTRARY, THE ASSESSEE - TRUST INCURRED A DEFICIT OF RS.7.11 LACS FROM DHARAMSHALA. 5. ON THE OTHER HAND THE LD DR, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN THE INSTANT YEAR, ASSESSEE DECLARED A SURPLUS OF RS.18,83,528/ - . THE SURPLUS HAS ORIGINATED ON ACCOUNT OF EXCESS OF RECEIPTS OF RS.97,80,123/ - AND EXPENDITURE OF RS.78,96,595/ - . FURTHER OUT OF THE RECEIPT OF RS.97,80, 123/ - , RENT RECEIPT AGGREGATES TO RS.25,94,148/ - . IF THE PAGE 6 OF 11 AFORESAID RENTAL INCOME IS EXCLUDED, THEN THE RECEIPTS FROM DHARMSHALA WOULD BE OF RS.71,85,975/ - . WHEREAS, CO RRESPONDING EXPENDITURE IS RS.78,96,595/ - . IN OTHER WORDS THERE IS NO SURPLUS ON OPERATION OF DHARMSHALA BY THE ASSESSEE SOCIETY. IT APPEARS THAT THE AO, WITHOUT HAVING REGARD TO ABOVE FACTUAL POSITION HAS MISDIRECTED HIMSELF, BY HOLDING THAT SINCE THERE I S SURPLUS AND ASSESSEE IS GETTING RECEIPTS FROM OPERATION OF DHARMSHALA, IT AUTOMATICALLY IMPLIES COMMERCIAL ACTIVITY SO AS TO FALL WITHIN THE KEN OF PROVISO TO SECTION 2(15) OF THE ACT AND THUS MAKING THE ASSESSEE INEL IGIBLE TO CLAIM EXEMPTION U/S 11 AND 12 OF THE ACT. THE HONBLE GURJ A RAT HIGH COURT IN THE CASE OF DIT VS. SABARMATI ASHRAM GAUSHALA TRUST REPORTED IN 25 ITR 701 HELD AS UNDER: - 5. TERM 'CHARITABLE TRUST' IS DEFINED IN SECTION 2(15) OF THE ACT WHICH INCLUDES THE RELIEF TO THE POOR, EDUCATIO N, MEDICAL RELIEF, PRESERVATION OF ENVIRONMENT; INCLUDING WATERSHEDS, FORESTS AND WILDLIFE AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST AND ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. PROVISO TO SECTION 2(15) AND FURTHER PROVISO WHEREOF INSERTED BY FINANCE ACT, 2010 W.EF. 1 ST APRIL 2009 READ, THUS - 'PROVIDED THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATIO N TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION OF THE INCOME FROM SUCH ACTIVITY: - PROVIDED FURTHER THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE V ALUE OF THE RECEIPTS FROM THE ACTIVITIES, REFERRED TO THEREIN IS TWENTY FIVE LAKH RUPEES OR LESS IN THE PREVIOUS YEAR.' 6. THE LEGAL CONTROVERSY IN THE PRESENT TAX APPEAL CENTERS AROUND THE FIRST PROVISO. IN THE PLAIN TERMS, THE PROVISO PROVIDES FOR EXCL USION FROM THE MAIN OBJECT OF THE DEFINITION OF THE TERM 'CHARITABLE PURPOSES' AND APPLIES ONLY TO CASES OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. IF THE CONDITIONS PROVIDED UNDER THE PROVISO ARE PAGE 7 OF 11 SATISFIED, ANY ENTITY, EVEN IF INVOLVED IN ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY BY VIRTUE TO PROVISO, WOULD BE EXCLUDED FROM THE DEFINITION OF 'CHARITABLE TRUST'. HOWEVER, FOR THE APPLICATION OF THE PROVISO, WHAT IS NECESSARY IS THAT THE ENTITY SHOULD BE INVOLVED IN CARRYING ON ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. IN SUCH A SITUATION, THE NATURE, USE OR APPLICATION, OR RETENTI ON OF INCOME FROM SUCH ACTIVITIES WOULD NOT BE RELEVANT. UNDER THE CIRCUMSTANCES, THE IMPORTANT ELEMENTS OF APPLICATION OF PROVISO ARE THAT THE ENTITY SHOULD BE INVOLVED IN CARRYING ON THE ACTIVITIES OF ANY TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITIES OF RENDERING SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. SUCH STATUTORY AMENDMENT WAS EXPLAINED BY THE FINANCE MINISTER'S SPEECH IN THE PARLIAMENT. RELEVANT PORTION OF WHICH READS AS UNDER: - I ONCE A GAIN ASSURE THE HOUSE THAT GENUINE CHARITABLE ORGANIZATIONS WILL NOT IN ANY WAY BE AFFECTED. THE CBDT WILL, FOLLOWING THE USUAL PRACTICE, ISSUE EXPLANATORY CIRCULAR CONTAINING GUIDELINES FOR DETERMINING WHETHER ANY ENTITY IS CARRYING ON 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. WHETHER THE PURPOSE IS A CHARITABLE, PURPOSE WILL DEPEND ON THE TOTALITY OF THE FACTS OF THE CASE. ORDINARILY, CHAMBERS OF COMME RCE AND SIMILAR ORGANIZATIONS RENDERING SERVICES TO THEIR MEMBERS WOULD NOT BE AFFECTED BY THE AMENDMENT AND THEIR ACTIVITIES WOULD CONTINUE TO BE REGARDED AS 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'.' 7. IN CONSONANCE WITH SUCH ASSURA NCE GIVEN BY THE FINANCE MINISTER ON THE FLOOR OF THE HOUSE, CBDT ISSUED A CIRCULAR NO.11 OF 2008 DATED 19 TH DECEMBER 2008 EXPLAINING THE AMENDMENT AS UNDER: - '3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS' AD VANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' I.E., THE FOURTH LIMB OF THE DEFINITION OF ' CHARITABLE PURPOSE' CONTAINED IN SECTION 2(15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UNDER SECTION 10(23C) OF THE A CT IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. 3.1 TH ERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX UNDER SECTION 11 ON THE GROUND THAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSE AS THESE ARE COVERED UNDER' PAGE 8 OF 11 ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. UNDER THE PRINCIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN PERSONS WHO ARE ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLUS RETURNED TO THE PERSONS FO RMING SUCH ASSOCIATION IS NOT CHARGEABLE TO TAX. IN SUCH CASES, THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANI ZATIONS AND THEIR ACTIVITIES ARE RESTRICTED 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 SUCH ORGANIZATIONS HAVE DEALI NGS WITH NON - MEMBERS, THEIR CLAIM TO BE CHARGEABLE ORGANIZATIONS WOULD NOW BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2(15). 3.2 IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASSESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' IS A QUESTION OF FACT. IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAI M THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTLITY WILL BE ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BU SINESS. EACH CASE WOULD, THEREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALISATION IS POSSIBLE. ASSESSEE, WHO CLAIM THAT THEIR OBJECT CHARITABLE PURPOSE' WITHIN THE MEANING OF SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH IS IN THE N ATURE OF TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS.' 8. WHAT THUS EMERGES FROM THE STATUTORY PROVISIONS, AS EXPLAINED IN THE SPEECH OF FINANCE MINISTER AND THE CBDT CIRCULAR, IS THAT THE AC TIVITY OF A TRUST WOULD BE EXCLUDED FROM THE TERM' CHARITABLE PURPOSE' IF IT IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR A CESS, FEE AND/OR ANY OTHER CONSIDER ATION. IT IS NOT AIMED AT EXCLUDING THE GENUINE CHARITABLE TRUSTS OF GENERAL PUBLIC UTILITY BUT IS AIMED AT EXCLUDING ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS WHICH ARE MASKED AS CHARITABLE PURPOSE'. 9. MANY ACTIVITIES OF GENUINE CHARITABL E PURPOSES WHICH ARE NOT IN THE NATURE OF TRADE, COMMERCE OR BUSINESS MAY STILL GENERATE MARKETABLE PRODUCTS. AFTER SETTING OFF OF THE COST, FOR PRODUCTION OF PAGE 9 OF 11 SUCH MARKETABLE PRODUCTS FROM THE SALE CONSIDERATION, THE ACTIVITY MAY LEAVE A SURPLUS. THE LAW DOES NOT EXPECT THE TRUST TO DISPOSE OF ITS PRODUCE AT ANY CONSIDERATION LESS THAN THE MARKET VALUE. IF THERE IS ANY SURPLUS GENERATED AT THE END OF THE YEAR, THAT BY ITSELF WOULD NOT BE THE SOLE CONSIDERATION FORJUDGING WHETHER ANY ACTIVITY IS TRADE, COMM ERCE OR BUSINESS - PARTICULARLY IF GENERATING SURPLUS IS WHOLLY INCIDENTAL TO THE PRINCIPAL ACTIVITIES OF THE TRUST; WHICH IS OTHERWISE FOR GENERAL PUBLIC UTILITY, AND TH EREFORE, OF CHARITABLE NATURE. 7. APPLYING THE ABOVE RATIO, WE HOLD THAT THE ASSESS EE SOCIETY IS A CHARITABLE SOCIETY, WHICH IS NOT ENGAGED IN ANY BUSINESS, TRADE OR COMMERCE SO AS TO DISENTITLE THE CLAIM OF EXEMPTION U/S 11 AND 12 OF THE ACT. SURPLUS ALONE CANNOT BE A GROUND TO CONCLUDE THAT ACTIVITIES ARE COMMERCIAL IN NATURE. IN THE I NSTANT CASE IT IS UNDISPUTED THAT THE ACTIVITIES ARE CHARITABLE IN NATURE, BUT SOLELY ON THE GROUND OF SURPLUS, SUCH ACTIVITIES HAVE BEEN HELD TO BE OF COMMERCIAL IN NATURE. WE ALREADY HAVE FOUND THAT THERE WAS NO SURPLUS PER - SE FROM THE OPERATION OF DHARA MSHALA . IN ANY CASE THE INCIDENTAL SURPLUS CANNOT BE TERMED AS COMMERCIAL ACTIVITY. WE THEREFORE ALLOW THE CLAIM OF THE ASSESSEE AND DIRECT THE AO TO ALLOW EXEMPTION U/S 11 AND 12 OF THE ACT. THE GROUND RAISED IS THUS ALLOWED. 8. GROUND NO.2 PERTAINS TO T REATMENT OF RENTAL INCOME UNDER THE HEAD BUSINESS INCOME INSTEAD OF INCOME FROM HOUSE PROPERTY. 9. SINCE WE HAVE ALREADY HELD THAT THE APPELLANT SOCIETY IS ELIGIBLE FOR EXEMPTION U/S 11 AND 12 OF THE ACT, THE NECESSARY COROLLARY IS THAT TREATMENT OF HEADS OF INCOME BECOME IRRELEVANT. THE HONBLE SUPREME COURT IN CIT VS. PROGRAMME FOR COMMUNITY ORGANIZATION (2001) 248 ITR (SC) WHILE APPROVING THE KERALA HIGH COURT DECISION REPORTED IN (1997) 228 ITR 620 (KERALA) AS TO THE MANNER OF COMPUTATION OF CHARITABLE INSTITUTION HELD THAT INCOME HAS TO PAGE 10 OF 11 BE COMPUTED ON COMMERCIAL BASIS AND NOT HEAD - WISE ON STATUTORY BASIS. (REFER CBDT CIRCULAR NO.5P, DATED 19.06.1998). AS A RESULT THIS GROUND RAISED IS REJECTED. ITA NO.4790 - DEL - 2012 10. THE SOLITARY GROUND OF THE REVENUE RELATES TO CLAIM OF DEPRECIATION BY THE APPELLANT SOCIETY ON CAPITAL ASSETS IN THE INSTANT YEAR. 11. THE LD CIT(A) ALLOWED THE SAID CLAIM BY THE FOLLOWING THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF VISHWA JAGRITI MISSION, REPO RTED AT 20112 - TIOL - 271 - HC - DEL - IT, WHEREIN, IN THE RELEVANT PARAGRAPH NO.13 THE H O N'BLE HIGH COURT HAS HELD AS UNDER. - 'P. 13; - THE JUDGMENT OF THE SUPREME COURT IN ESCORTS LIMITED VS. UNION OF INDIA (SUPRA) HAS BEEN RIGHTLY HELD TO BE INAPPLICABLE TO THE PRESENT CASE. THERE ARE TWO REASONS AS TO WHY THE JUDGMENT CANNOT BE APPLIED TO THE PRESENT CASE. FIRSTLY, THE SUPREME COURT WAS NOT CONCERNED WITH THE CASE OF A CHARITABLE TRUST/INSTITUTION INVOLVING THE QUESTION AS TO WHETHER ITS INCOME SHOULD BE COMPUTE D ON COMMERCIAL PRINCIPLES IN ORDER TO DETERMINE THE AMOUNT OF INCOME AVAILABLE FOR APPLICATION TO CHARITABLE PURPOSES. IT WAS A CASE WHERE THE ASSESSEE WAS CARRYING ON BUSINESS AND THE STATUTORY COMPUTATION PROVISIONS OF CHAPTER IV - D OF THE ACT WERE APPLI CABLE. IN THE PRESENT CASE, WE ARE NOT CONCERNED WITH THE APPLICABILITY OF THESE PROVISIONS. WE ARE CONCERNED ONLY WITH THE CONCEPT OF COMMERCIAL INCOME AS UNDERSTOOD FROM THE ACCOUNTING POINT OF VIEW. EVEN UNDER NORMAL COMMERCIAL ACCOUNTING PRINCIPLES, TH ERE IS AUTHORITY FOR THE PROPOSITION THAT DEPRECIATION IS A NECESSARY CHARGE IN COMPUTING THE NET INCOME. SECONDLY, THE SUPREME COURT WAS CONCERNED WITH THE CASE WHERE THE ASSESSEE HAD CLAIMED DEDUCTION OF THE COST OF THE ASSET UNDER SECTION 35(1) OF THE A CT, WHICH ALLOWED DEDUCTION FOR CAPITAL EXPENDITURE INCURRED 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 OF DEPRECIATIO N IN RESPECT OF THE SAME ASSET. THE SUPREME COURT RULED THAT, UNDER GENERAL PRINCIPLES OF TAXATION, DOUBLE DEDUCTION IN REGARD TO THE SAME BUSINESS OUTGOING IS NOT INTENDED UNLESS CLEARLY EXPRESSED. THE PRESENT CASE IS NOT ONE OF THE TYPE, AS RIGHTLY DISTI NGUISHED BY THE CIT APPEALS).' PAGE 11 OF 11 12. HAVING CONSIDERED THE RIVAL SUBMISSION, AND RESPECTFULLY FOLLOWING THE AFORESAID RATIO OF THE JURIS DICTIONAL HIGH COURT WE CONCUR WITH THE VIEW OF THE LD CIT(A). 13. AS A RESULT THE GROUND RAISED BY THE REVENUE IS DISMISS ED. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 2 . 12 . 2014. - S D / - - S D / - ( G. D. AGARWAL) (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATED : 1 2 / 12 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI