M/s. Nirmithi Kendra, Trichur V. The DCIT, Trichur

ITA 45/COCH/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4090 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-10-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 21-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A S BINDHU
• Keywords: Business income; Charitable institution; Benefit of exemption
• Section: 12A; 11

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM I .T . A. NO. 45 / COCH/ 201 7 ASSESSMENT YEAR : 20 13 - 14 M/S. NIRMITHI KENDRA, AYYANTHOLE, THRISSUR-680 003. [PAN:AAATN 4238M] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX (EXEMPTION), TRICHUR. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) I .T .A. NO.111/COCH/2018 ASSESSMENT YEAR : 2009 - 10 1.M/S. NIRMITHI KENDRA, NIRMITHI CAMPUS, BAZAR P.O., ALAPPUZHA-688 012 [PAN:AAATN 3676P] VS. THE INCOME TAX OFFICER (EXEMPTION) WARD, ALAPPUZHA. (ASSESSEE - APPELLANT) (RE VENUE - RESPONDENT) A SSESSEE BY SHRI R. SREENIVASAN, CA /SHRI ANIL D.NAIR, ADV. REVENUE BY SMT. A.S. BINDHU, DR D ATE OF HEARING 23 / 10 /2018 DATE OF PRONOUNCEMENT 2 6 / 10 /2018 I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 2 O R D E R PER CHANDRA POOJARI, AM: THESE APPEALS FILED BY TWO DIFFERENT ASSESSES ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF THE CIT(A), KOTTAYAM DATED 20/03/2018 AND CIT(A), THRISSUR DATED 25/11/2016 AND PERTAIN TO THE ASSESSMENT YEARS 2009-10 AND 2013-14. 1.1 SINCE THE ISSUE IN THESE TWO APPEALS IS COMMON, THEY WERE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON, CONSOLIDATED ORDER. 2. THE ISSUE IN THESE TWO APPEALS IS WITH REGARD TO GRANTING OF EXEMPTION U/S. 11 OF THE I.T. ACT. 3. THE FACTS OF THE CASE AS NARRATED IN ITA NO.45/COCH/2017 ARE THAT THE ASSESSEES HEREIN WERE GRANTED REGISTRATION U/S. 12A OF THE I.T ACT. THE SAME WAS DENIED BY THE ASSESSING OFFICER ON THE REASON THAT THE ACTIVITIES OF THE ASSESSEES DID NOT FALL UNDER UNDER ANY OF THE OBJECTIVES SUCH AS RELIEF FOR THE POOR, EDUCATION, MEDICAL RELIEF, THE PRESERVATION OF ENVIRONMENT (INCLUDING WATER SHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST BUT COMES UNDER THE OBJECTIVES OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE ASSESSING OFFICER HELD THAT THE I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 3 ASSESSEES OBJECTIVE COMES UNDER THE FIRST PROVISO TO SECTION 2(15) OF THE ACT AND AS THE TURNOVER OF THE ASSESSEES IS MUCH MORE THAN THE RECEIPTS PRESCRIBED UNDER THE SECOND PROVISO TO SUB SECTION 2(15), THE OBJECT OF THE ASSESSEES CANNOT BE CONSIDERED AS A CHARITABLE PURPOSE. THEREFORE, THE ASSESSING OFFICER TREATED THE INCOME OF THE ASSESSEES AS NOT ELIGIBLE FOR EXEMPTION U/S. 11 OF THE ACT THOUGH THE ASSESSESE WERE ISSUED A CERTIFICATE U/S. 12A OF THE ACT BY THE CIT. 4. ON APPEAL, THE CIT(A) CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER . 5. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A CHARITABLE SOCIETY PROMOTED BY THE GOVERNMENT OF KERALA AND NOT CARRYING OUT ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS WITH A PROFIT MOTIVE. IT WAS SUBMITTED THAT THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION ACTIVITIES UNDER GENERAL, MP AND MLA CATEGORIES WITHOUT ANY PROFIT MOTIVE AND ALL THE WORKS UNDERTAKEN ARE PUBLIC UTILITY WORKS BY UTILIZING THE FUNDS PROVIDED BY MLAS, MPS AND LOCAL BODIES. IT WAS SUBMITTED THAT FINANCE (INDUSTRIES & PUBLIC WORKS B) DEPARTMENT, GOVERNMENT OF KERALA HAS ISSUED AN ORDER DATED 7.8.2015 WITH THE REVISED GUIDELINES FOR SELECTION OF ACCREDITED AGENCIES FOR EXECUTION OF PUBLIC WORKS. AS PER THE ORDER, DISTRICT NIRMITHI KENDRAS CAN BE ENTRUSTED WITH THE EXECUTION OF PUBLIC WORKS AND IN ALL THE PUBLIC WORKS, THE TOTAL ESTIMATE COST OF THE WORK WILL NOT EXCEED THE COST BEING FOLLOWED BY STATE PUBLIC I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 4 WORKS DEPARTMENT. ACCORDING TO THE LD. AR, THE CENTAGE CHARGE FOR THE ORGANIZATIONS UNDERTAKING THE WORKS WILL BE AS PER THE RATE FIXED BY THE GOVERNMENT AND ACTUAL EXPENDITURE WILL ALSO BE AS THE CONTINGENCY CHARGES SUBJECT TO CEILING FIXED BY THE CENTRAL GOVERNMENT. THE LD. AR SUBMITTED THAT THERE IS NO PROFIT ELEMENT IN THE TOTAL ESTIMATED COST FIXED FOR THE PUBLIC WORKS. THERE WILL BE ONLY CENTAGE CHARGES TO THE AGENCIES UNDERTAKING THE WORKS INCLUDING PLANNING, DESIGNING, TENDERING, SUPERVISING AND HANDING OVER. ACCORDING TO THE LD. AR, THE CENTAGE CHARGE IS A PERCENTAGE ON THE TOTAL ESTIMATED COST. 5.1. IT WAS SUBMITTED THAT FINANCE DEPARTMENT, GOVERNMENT OF KERALA VIDE ITS LETTER DATED 13/1/2004 NOTED THAT THE SCHEMES EXECUTED BY BENEFICIARY COMMITTEE AND GOVERNMENT ACCREDITED AGENCIES LIKE NIRMITHI KENDRAS, COSTFORD ETC. UNDER THE SOCIAL DEVELOPMENT FUND FOR MLAS WERE EXEMPTED FROM SALES TAX, PURCHASE TAX, CONTRIBUTION TO CONSTRUCTION WORKERS WELFARE FUND. IT WAS ALSO SUBMITTED THAT LOCAL ADMINISTRATION DEPARTMENT, GOVERNMENT OF KERALA, IN ITS ORDER DATED 21/3/1998 HELD THAT PERMISSION WAS ACCORDED TO NIRMITHI KENDRA AND CENTRE OF SCIENCE AND TECHNOLOGY FOR RURAL DEVELOPMENT (COSTFORD), THRISSUR TO TAKE UP WORKS OF PANCHAYATHS USING UNTIED FUNDS AT ESTIMATE RATES PREPARED BY THEM SUBJECT TO CERTAIN CONDITIONS. ACCORDING TO THE LD. AR, ONE OF THE CONDITIONS IS THAT NO PROFIT SHALL BE ALLOWED TO BE BUILT INTO THE ESTIMATE. HOWEVER, SUPERVISORY CHARGES OF NOT MORE THAN 2.5% CAN BE ALLOWED. I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 5 5.2 IT WAS SUBMITTED THAT THE ASSESSEE WAS ONLY UNDERTAKING CONSTRUCTION OF PUBLIC WORKS SUCH AS PANCHAYATH COMMUNITY HALL, KUDUMBASREE WOMENS HOSTEL, KRISHIBHAVAN OFFICE, VAYANASALA OFFICE ETC BY USING MPS, MLAS AND LOCAL AUTHORITY FUNDS AND THERE IS NO PROFIT ELEMENT IN THESE WORKS. IT WAS SUBMITTED THAT THE ASSESSEE WAS ONLY RECEIVING CONSULTANCY CHARGES (UPTO A MAXIMUM OF 8% OF THE ESTIMATE COST) FOR THESE WORKS. IT WAS SUBMITTED THAT THE ASSESSEE WAS INCURRING VARIOUS ADMINISTRATIVE EXPENSES SUCH AS EMPLOYEE BENEFIT EXPENSES, ELECTRICITY CHARGES, TRAVELLING EXPENSES ETC. IN CONNECTION WITH THE DAY TO DAY RUNNING OF THE ORGANIZATION. THEREFORE, IT WAS SUBMITTED THAT THE CONSULTANCY CHARGES RECEIVED IS THE ONLY AMOUNT WHICH CAN BE USED FOR MEETING THE ADMINISTRATIVE EXPENSES OF THE ASSESSEE. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE WAS ENGAGED ONLY IN PUBLIC WORKS AND THERE IS NO PROFIT MOTIVE IN UNDERTAKING THESE WORKS AND THHESE WORKS ARE IN CONNECTION WITH THE FUNDS RECEIVED FROM VARIOUS MPS, MLAS AND LOCAL BODIES. ACCORDING TO THE LD. AR, THE TEST WHICH HAS TO BE APPLIED IS WHETHER THE PREDOMINANT OBJECT OF THE ACTIVITY INVOLVED IN CARRYING OUT THE OBJECT OF GENERAL PUBLIC UTILITY IS TO SUB-SERVE THE CHARITABLE PURPOSE OR TO EARN PROFIT. FOR THIS PURPOSE, THE LD. AR RELIED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SAMAJ KALAYAN PARISHAD, MODINAGAR VS. ITO (2007) (105 ITD 29) (DEL)(SB), WHEREIN IT WAS HELD THAT THE ASSESSEE TRUST FORMED FOR PURPOSES OF EDUCATION AND MEDICAL RELIEF, DERIVING INCOME FROM INSURANCE AGENCY, THE INCOME OF WHICH WAS UTILIZED FOR CHARITABLE OBJECTS, COULD I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 6 NOT BE DENIED THE BENEFIT OF EXEMPTION UNDER SECTION 11. IF THE PROFITS MUST NECESSARILY FEED A CHARITABLE PURPOSE UNDER THE TERMS OF THE TRUST, THE MERE FACT THAT THE ACTIVITIES OF THE TRUST WOULD YIELD PROFIT, WILL NOT ALTER THE CHARITABLE CHARACTER OF THE TRUST. THE TEST IS THE GENUINENESS OF THE PURPOSE TESTED BY THE OBLIGATION CREATED TO SPEND THE MONEY EXCLUSIVELY OR ESSENTIALLY ON CHARITY. 5.3 IT WAS SUBMITTED THAT IF PROFIT MAKING RESULTS FROM THE ACTIVITIES OF PUBLIC UTILITY AND IF THESE PROFITS CAN BE UTILIZED FOR CHARITABLE PURPOSES THEN, THE TRUST WOULD BE EXEMPTED FROM INCOME FAX. FOR THIS, THE LD. AR SUBMITTED THAT THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOLE TRUSTEE LOKA SHIKSHANA TRUST (1975) (101 ITR 234) HAS BEEN FOLLOWED IN A NUMBER OF CASES BOTH BY THE SUPREME COURT AND THE HIGH COURT. IT WAS SUBMITTED THAT WHERE THE OBJECT IS ONE OF THE GENERAL PUBLIC UTILITY AND WHILE SOME AMOUNT IS RECEIVED, THE SURPLUS NEED NOT BE CONSTRUED AS VIOLATIVE OF CHARITABLE NATURE OF THE INSTITUTION. THUS, IT WAS SUBMITTED THAT THE ASSESSEE HAD UTILIZED THE SURPLUS FOR MEETING THE OBJECTS OF THE TRUST. IT WAS THEREFORE PRAYED THAT THE ORDER OF THE ASSESSING OFFICER TREATING THE ASSESSEE AS AN ASSOCIATION OF PERSONS MAY BE CANCELLED. 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE MAIN OBJECTIVES OF THE ASSESSEE FOR WHICH THE TRUST WAS FORMED ARE AS FOLLOWS: 1. TO SERVE AS SEMINAL AGENCY TO GENERATE AND PROPAGATE INNOVATIVE IDEAS ON HOUSING. I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 7 2. A PRODUCTION CENTRE TO PREFABRICATE STANDARDIZED HOUSING MATERIALS INCLUDING RUBBLE FILLER BLOCKS, HOLLOW BRICKS, SANITARY WARES, ELECTRICAL FITTINGS, TILES, ALLIED HOUSE MATERIALS, ETC. 3. A NODAL AGENCY TO SERVE AS A CATALYST IN THE FIELD OF HOUSING ENSURING HORIZONTAL CO-ORDINATION IN IMPLEMENTATION OF HOUSING PROGRAMMES. 4. A CHAIN FOR RETAIL OUTLETS OF HOUSING MATERIALS, AND SUCH OTHER OBJECTIVES. 7.1 DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION ACTIVITIES AS WELL AS SALE OF MATERIALS TO THE PUBLIC. IN THE ACCOUNT STATEMENTS SUBMITTED BY THE ASSESSEE, IT WAS FOUND THAT TH E ASSESSEE IS ENGAGED IN EXECUTING VARIOUS CONSTRUCTION PROJECTS WHICH INCLUDE: 1. GENERAL PROJECTS 2. MPLADS PROJECTS AND 3. ML A PROJECTS. 1. UNDER THE GENERAL PROJECTS, THE ASSESSEE IS ENGAGED IN CONSTRUCTION OF COMMUNITY HALL, KUDUMBASREE WORKING WOMENS HOSTEL, TOILET BLOCKS, ETC. 2. UNDER THE MPLADS PROJECTS, THE ASSESSEE IS ENGAGED IN CONSTRUCTION OF ANGANWADIS, KITCHEN & DINING HALL, SMART CLASSROOMS, SCHOOL BUILDING, ETC. 3. UNDER THE MLA PROJECTS, THE ASSESSEE IS ENGAGED IN ANGANWADIS, DISPENSARIES, LIBRARY BUILDINGS, CLASS ROOMS, ETC. THE ASSESSEE RECEIVED FUNDS FOR UNDERTAKING THESE PROJECTS AND THESE PROJECTS WERE UNDERTAKEN BY THE ASSESSEE IN A VERY SYSTEMATIC AND ORGANIZED MANNER. 7.2 THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER TREATED THE INCOME FROM ACTIVITIES UNDERTAKEN BY THE ASSESSEE AS TAXABLE INCOME BY INVOKING THE PROVISIONS OF SECTION 2(15) OF THE I.T. ACT. ACCORDING TO THE LD. AR, NONE OF THE I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 8 OBJECTIVES OF THE ASSESSEE WERE CARRIED ON WITH ANY PROFIT MOTIVE OR INVOLVED IN ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. ACCORDING TO THE LD. AR, THE ASSESSEE HAD UNDERTAKEN ACTIVITIES OF THE GOVERNMENT OF KERALA SO AS TO FACILITATE THE IMPLEMENTATION OF THE GOVERNMENT PROJECTS AT VERY LOWEST RATE. THE LD. AR ALSO CONTENDED THAT REGISTRATION U/S. 12A OF THE ACT WAS GRANTED TO THE ASSESSEE AND THERE HAS BEEN NO QUESTION OF THE ASSESSEE INDULGING IN ANY TRADE OR COMMERCIAL ACTIVITIES. THE OBJECTIVES OF THE ASSESSEE ARE MAINLY TO CARRY OUT CHARITABLE ACTIVITIES AND NOT OF GENERAL PUBLIC UTILITY. AS SUCH, THE PROVISO OF SECTION 2(15) OF THE ACT WAS NOT APPLICABLE TO THE ASSESSEE WAS ERRONEOUS AND BEYOND THE INTENTION OF THE LEGISLATION. THE ACTIVITIES CARRIED OUT BY THE ASSESSEE WERE FOR THE PURPOSE OF ATTAINMENT OF THE OBJECTIVES OF THE ASSESSEE. 7.3 AS PER THE PROVISIONS OF SECTION 2(15) OF THE INCOME TAX ACT, 1961, 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 OR RUNNING SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. PROVIDED FURTHER, THAT THE FIRST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FROM THE ACTIVITIES REFERRED TO THEREIN IS RS. 25 LAKHS OR LESS IN THE PREVIOUS YEAR. THUS, PROVISIONS OF SEC.2(15) ARE ABUNDANTLY CLEAR AND DOES NOT REQUIRE ANY INTERPRETATION. I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 9 7.4 THE ACTIVITIES CARRIED ON BY THE PRESENT ASSESSEE CANNOT BE CONSIDERED AS ACTIVITIES OF MEDICAL RELIEF OR EDUCATION OR RELIEF TO THE POOR. THE CORRECT WAY TO EXPRESS THE NATURE OF ACTIVITIES CARRIED ON BY THE ASSESSEE IS TO SAY THAT THE ASSESSEE IS CARRYING ON ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. WHEN THAT IS THE CASE, THE ASSESSEE IS HIT BY THE PROVISO TO SEC. 2(15) OF THE I.T. ACT. THE PROVISO READS THAT ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF ITS INVOLVING CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE RELATING TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE APPLICATION OF MONEY. THEREFORE, WE FIND THAT THE CASE OF THE ASSESSEE IS HIT BY THE PROVISO TO SECTION 2(15) OF THE I.T. ACT AND THE ASSESSEE IS NOT ENTITLED FOR THE BENEFIT OF SECTION 11 OF THE ACT ON THE INCOME GENERATED FROM SUCH ACTIVITIES. 7.5 ALTERNATIVELY, WE HAVE TO LOOK INTO SECTION 11(4A) OF THE ACT. SUB-SECTION (4A) PROVIDES THAT EXEMPTION SHALL NOT BE APPLIED IN RELATION TO ANY INCOME OF ANY TRUST OR INSTITUTION, BEING PROFITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO ATTAINING OF THE OBJECTIVES OF THE ASSESSEE OR AS THE CASE MAY BE, INSTITUTION, AND BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TRUST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION ACTIVITIES AS WELL AS SALE OF MATERIAL TO THE I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 10 PUBLIC OUT OF THE FUNDS PROVIDED BY MPS, MLAS AND LOCAL BODIES AND MAINTAINED SEPARATE ACCOUNTS FOR THE ABOVE BUSINESS ACTIVITIES. NOW THE QUESTION IS WHETHER CARRYING ON OF SUCH ACTIVITIES IS A BUSINESS INCIDENTAL TO THE ADVANCEMENT OF ANY OF THE OBJECTS OF THE ASSESSEE OR NOT. BY ANY STRETCH OF IMAGINATION, IT IS NOT POSSIBLE TO HOLD THAT THE BUSINESS CARRIED ON BY THE ASSESSEE IS INCIDENTAL TO THE OBJECTS MENTIONED IN THE MEMORANDUM OF ASSOCIATION. ON THE OTHER HAND, IT IS A PRE-DOMINANT ACTIVITY CARRIED ON BY THE ASSESSEE. IN OTHER WORDS, INCIDENTAL IS AN OFFSHOOT OF THE MAIN ACTIVITIES, INHERENT BYE-PRODUCT OF PRE-DOMINANT ACTIVITIES. THE ACTIVITIES COMPLEMENTING THE MAIN ACTIVITIES ARE NOT IN THE NATURE OF INCIDENTAL TO THE BUSINESS. IT IS INCIDENTAL IF IT IS SUPPORTING THE ACTIVITIES TO THE MAIN ACTIVITIES. IN THE PRESENT CASE, THE ACTIVITIES CARRIED ON BY THE ASSESSEE IS ITSELF PRINCIPAL ACTIVITIES AND NOT INCIDENTAL ACTIVITIES. HENCE, IT IS NOT POSSIBLE TO HOLD THAT THE CONSTRUCTION ACTIVITIES CARRIED OUT BY THE ASSESSEE IS NOT PROTECTED BY THE PROVISIONS OF SETION 11(4A) OF THE ACT. IN VIEW OF THIS, WE DO NOT FIND ANY MERIT IN THE ARGUMENT OF THE LD. AR. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 8. WE NOW PROCEED TO CONSIDER THE QUESTION WHETHER THE SAID ACTIVITIES CARRIED ON BY THE ASSESSEE WERE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS OF THE TRUST. WE FAIL TO SEE ANY CONNECTION BETWEEN THE ACTIVITIES RELATING TO CONSTRUCTION BUSINESS AND THE ATTAINMENT OF THE OBJECTS OF THE TRUST. THE MERE FACT THAT WHOLE OR SOME PART OF THE INCOME FROM RUNNING OF IS USED FOR CHARITABLE PURPOSES I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 11 WOULD NOT RENDER THE BUSINESS ITSELF BEING CONSIDERED AS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS. WE ARE IN AGREEMENT WITH THE DEPARTMENT THAT THE APPLICATION OF INCOME GENERATED BY THE BUSINESS IS NOT RELEVANT CONSIDERATION AND WHAT IS RELEVANT IS WHETHER THE ACTIVITY IS SO INEXTRICABLY CONNECTED OR LINKED WITH THE OBJECTS OF THE TRUST THAT IT COULD BE CONSIDERED AS INCIDENTAL TO THOSE OBJECTIVES. 9. IT WAS CONTENDED BY THE LD. AR THAT THE SURPLUS FUNDS GENERATED FROM THE CONSTRUCTION BUSINESS WAS SPENT TOWARDS CHARITABLE ACTIVITIES AND THEREFORE, THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S. 11(4) OF THE I.T. ACT. WE ARE UNABLE TO ACCEPT THIS CONTENTION. INITIALLY, THE ASSESSEE CARRIED ON THE BUSINESS ITSELF WHICH IS NOT AT ALL PROPERTY HELD UNDER TRUST. THIS ACTIVITY IS A BUSINESS ACTIVITY AND THE PROVISIONS OF SECTION 11(4A) OF THE ACT IS APPLICABLE. 10. IT WAS CONTENDED THAT IF THE PROFITS OF THE BUSINESS CARRIED ON BY THE TRUST ARE UTILIZED BY THE TRUST FOR THE PURPOSES OF ACHIEVING THE OBJECTIVES OF THE TRUST, THEN THE BUSINESS SHOULD BE CONSIDERED TO BE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS OF THE TRUST AS OBSERVED BY THE SUPREME COURT IN THE CASE OF ACIT VS. THANTHI TRUST (2001) 247 ITR 785 WHICH IS AS UNDER: AS IT STANDS, ALL THAT IT REQUIRES FOR THE BUSINESS INCOME OF A TRUST OR INSTITUTION TO BE EXEMPT IS THAT THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF OBJECTIVES OF THE TRUST OR INSTITUTION. A BUSINESS WHOSE INCOME IS UTILIZED BY THE TRUST OR THE INSTITUTION FOR THE PURPOSES OF ACHIEVING THE OBJECTIVES OF THE TRUST ..IN ANY EVENT, IF THERE BE ANY I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 12 AMBIGUITY IN THE LANGUAGE EMPLOYED, THE PROVISION MUST BE CONSTRUED IN A MANNER THAT BENEFITS THE ASSESSEE. 11. PRIMA FACIE THE ABOVE OBSERVATION WOULD APPEAR TO SUPPORT THE ASSESSEES CASE IN THE SENSE THAT EVEN IF IS HELD NOT TO CONSTITUTE A BUSINESS HELD UNDER TRUST, BUT ONLY AS A BUSINESS CARRIED ON BY OR ON BEHALF OF THE TRUST, SO LONG AS THE PROFITS GENERATED BY IT ARE APPLIED FOR THE CHARITABLE OBJECTS OF THE TRUST, THE CONDITION IMPOSED U/S. 11(4A) OF THE ACT SHOULD BE HELD TO BE SATISFIED, ENTITLING THE TRUST TO THE TAX EXEMPTION. 12. IN OUR OPINION, THESE OBSERVATIONS HAVE TO BE UNDERSTOOD IN THE LIGHT OF THE FACTS BEFORE THE SUPREME COURT IN THE CASE OF THANTHI TRUST (SUPRA), WHEREIN THE TRUST CARRIED ON THE BUSINESS OF A NEWSPAPER AND THAT BUSINESS ITSELF WAS HELD UNDER TRUST. THE CHARITABLE OBJECT OF THE TRUST WAS THE IMPARTING OF EDUCATION WHICH FALLS U/S. 2(15) OF THE ACT. THE NEWSPAPER BUSINESS WAS INCIDENTAL TO THE ATTAINMENT OF THE OBJECT OF THE TRUST, NAMELY THAT OF IMPARTING EDUCATION AND THE PROFITS OF THE NEWSPAPER BUSINESS ARE UTILIZED BY THE TRUST FOR ACHIEVING THE OBJECT OF IMPARTING EDUCATION. IN THIS CASE, THERE IS NO SUCH NEXUS BETWEEN THE ACTIVITIES CARRIED ON AND THE OBJECTS OF THE ASSESSEE THAT CAN CONSTITUTE AN ACTIVITY INCIDENTAL TO THE ATTAINMENT OF THE OBJECTS, NAMELY, TO PROMOTE CAUSE OF CHARITY, MISSION ACTIVITIES, WELFARE, EMPLOYMENT, DIFFUSION OF USEFUL KNOWLEDGE, UPLIFTMENT AND EDUCATION AND TO CREATE AN AWARENESS OF SELF-RELIANCE AMONG THE MEMBERS OF THE PUBLIC ETC. WE ARE THEREFORE, OF THE OPINION THAT THE I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 13 OBSERVATIONS OF THE SUPREME COURT MUST BE UNDERSTOOD AND APPRECIATED IN THE BACKGROUND OF THE FACT IN THAT CASE AND SHOULD NOT BE EXTENDED INDISCRIMINATELY TO ALL CASES. BEING SO, WE ARE INCLINED TO HOLD THAT THE ASSESSEE IS NOT ENTITLED FOR ANY EXEMPTION U/S. 11 OF THE I.T. ACT. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 45/COCH/ 2017 IS DISMISSED. 14. SINCE THE FACTS IN ASSESSEES APPEAL IN ITA NO. 45/COCH/2017 IS SIMILAR TO THE FACTS IN THE ASSESSEES APPEAL IN ITA NO. 111/COCH/2018, APPLYING THE SAME RATIO, WE DISMISS THE APPEAL OF THE ASSESSEE IN ITA NO.111/COCH/2018. 14. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH OCTOBER, 2018. SD/- SD/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 26 TH OCTOBER, 2018 GJ COPY TO: 1. M/S. NIRMITHI KENDRA, AYYANTHOLE, THRISSUR-680 003. 2. M/S. NIRMITHI KENDRA, NIRMITHI CAMPUS, BAZAR P.O., ALAPPUZHA-688 012 3. THE DEPUTY COMMISSIONER OF INCOME-TAX(EXEMPTION), TRICHUR. 4. THE INCOME TAX OFFICER(EXEMPTION) WARD, ALAPPUZHA. 5 THE COMMISSIONER OF INCOME-TAX(APPEALS), THRISSUR 6. THE COMMISSIONER OF INCOME-TAX(EXEMPTION), KOCHI. I.T.A. NO.45 /COCH/2017 & 111/COCH/2018 14 7. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOTTAYAM. 8. THE PR. COMMISSIONER OF INCOME-TAX, KOTTAYAM 9. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 10. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN