GEMMOLOGICAL INSTITUTE OF INDIA, MUMBAI V. ADDL DIT (E) RG -II, MUMBAI

ITA 5133/MUM/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8575 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 29-10-2015
• Court: TRIBUNAL

Judgement Text

1 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , BEFORE HONBLE SHRI SANDEEP GOSAIN, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5133/MUM/2015 ( / ASSESSMENT YEAR: 2011-12) GEMMOLOGICAL INSTITU T E OF INDIA 29, GURUKUL CHAMBERS, 187-189 MUMBADEVI ROAD MUMBAI-400 002. / VS. ADDL . DIRECTOR OF INCOME TAX [EXEMPTION] RANGE-II PIRAMAL CHAMBERS, LALBAUG MUMBAI-400 012. ./ ./PAN/GIR NO. AAATG-0077-F ( /APPELLANT ) : ( ! / RESPONDENT ) '# / APPELLANT BY : SHRI HIRO RAI- LD.AR !'# / RESPONDENT BY : CHAUDHARY ARUN KUMAR SINGH- LD. DR '# & / DATE OF HEARING : 03/07/2019 '# & / DATE OF PRONOUNCEMENT : 15/07/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1.1 SECTION 11 OF THE INCOME TAX ACT, 1961 [IN SHOR T ACT] PROVIDES FOR EXEMPTION OF INCOME DERIVED FROM PROPERTIES HELD UN DER A TRUST WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSES. THE EXPRESSION C HARITABLE PURPOSE AS 2 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 DEFINED U/S. 2(15) (AS IT STOOD DURING AY 2008-09) WOULD INCLUDE RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE FIRST PROVISO TO SEC 2( 15) AS INTRODUCED BY THE FINANCE ACT, 2008 W.E.F. 01/04/2009 PROVIDE THAT TH E LAST LIMB I.E. 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 R ENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. THE PROVISO HAS T WO LIMBS AND PROVIDE THAT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBL IC UTILITY SHALL NOT BE A CHARITABLE PURPOSE IF IT INVOLVES THE CARRYING ON O F: - (I) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE O R BUSINESS, OR ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COM MERCE OR BUSINESS, (II) IRRESPECTIVE OF THE NATURE OF USE OR APPLICATI ON, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY. THE FINANCE ACT, 2010 ADDED 2 ND PROVISO TO PROVIDE THAT 1 ST PROVISO SHALL NOT APPLY IF THE AGGREGATE VALUE OF THE RECEIPTS FR OM THE ACTIVITIES REFERRED TO THEREIN WAS BELOW RS.10 LACS IN THE PREVIOUS YEAR. THE HONBLE SUPREME COURT IN CIT V. GUJARAT MARITIME BOARD [2007 295 ITR 561] OBSERVED THAT THE EXPRESSION 'ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' IS OF THE WIDEST CONNOTATION. THIS EXPRESSION WOULD PRIMA FACIE INCLUDE ALL OBJECTS WHICH PROMOTE THE WELFARE OF THE GENERAL PUBLIC. 1.2 THE CBDT, VIDE CIRCULAR NO. 11 OF 2008 DATED 19 /12/2008, CLARIFIED THAT THE FIRST PROVISO WILL APPLY ONLY TO THOSE ENT ITIES WHOSE PURPOSE WAS 3 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THEREFORE, SUCH ENTITIES WOULD NOT BE ELIGIBLE TO CLAIM EXEMPT ION U/S 11 IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER THE ENTITY WAS CARRY ING ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS WOULD BE A QU ESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. PARA 3.1 OF THE SAID CIRCULAR RESTRICTED THE APPLICATION OF 1 ST PROVISO TO CHARITABLE INSTITUTION AND MUTUAL ORGANIZATIONS WHOSE ACTIVITIES WERE RESTRICTED TO CONTRIBUTIONS FROM AND PARTICIPATION OF ONLY THEIR MEMBERS. PARA 3.2 CLARIFIED THAT IF THE ASSESSEE HAVING ITS OBJECT AS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY ENGAGES IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT WOULD N OT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE IN NATURE. IN SUCH A CASE, THE OBJECT OF GENERAL PUBLIC UTILITY WILL BE ONLY A MASK OR A DEVICE TO H IDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. 1.3 SECTION 11(4A) PROVIDES THAT EXEMPTION PROVISIO NS AS CONTAINED IN SUB-SECTIONS (1),(2),(3),(3A) WOULD NOT APPLY TO PR OFITS & GAINS OF BUSINESS UNLESS THAT BUSINESS IS INCIDENTAL TO THE ATTAINMEN T OF THE OBJECTIVE OF THE TRUST AND SEPARATE BOOKS ARE MAINTAINED BY THE TRUS T IN RESPECT OF SUCH BUSINESS. HOWEVER, WITH THE INTRODUCTION OF FIRST P ROVISO TO SECTION 2(15), THE EXEMPTION PROVIDED WITH RESPECT TO A BUSINESS A CTIVITY INCIDENTAL TO THE OBJECTIVES OF THE TRUST WOULD NO LONGER BE AVAILABL E TO THOSE INSTITUTIONS CARRYING OUT THE OBJECT OF ADVANCEMENT OF ANY OTHE R OBJECT OF GENERAL PUBLIC 4 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 UTILITY SINCE THESE INSTITUTIONS HAVE BEEN BARRED TO CLAIM ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERING OF ANY SERVICES IN RELATION TO TRADE, COMMERCE OR BUSINESS, TO BE CHAR ITABLE IN NATURE. THIS BAR WOULD BE IRRESPECTIVE OF APPLICATION OF INCOME FROM SUCH COMMERCIAL ACTIVITY AND IT WOULD BE IMMATERIAL WHETHER THE INCOME FROM THE COMMERCIAL ACTIVITY IS UTILIZED OR PLOUGHED BACK TO SUCH ACTIVITY SERVI NG OBJECT OF PUBLIC UTILITY. 1.4 THE HONBLE DELHI HIGH COURT IN ASSESSEES WRIT PETITION NO. 1872 OF 2013 DATED 22/01/2015 TITLED AS INDIA TRADE PROMOTION ORGANIZATION VS. DGIT (EXEMPTION) & ORS. , WHILE UPHOLDING THE CONSTITUTIONAL VALIDITY OF TH E 1 ST PROVISO, HAS HELD THAT IN BOTH THE ACTIVITIES I.E. (I) ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR (II) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, DOMINA NT AND PRIME OBJECTIVE IS TO BE SEEN. IF THE DOMINANT OBJECTIVE WAS PROFI T MOTIVE, THE TRUST WOULD NOT BE ENTITLED TO CLAIM ITS OBJECTIVE TO BE CHARIT ABLE IN NATURE. ON THE OTHER HAND, IF THE 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 WOULD BE AN INSTITUTION ESTABLIS HED FOR CHARITABLE PURPOSES. THE REVENUES SPECIAL LEAVE PETITION [SLP] AGAINST THE SAME HAS ALREADY BEEN ADMITTED BY HONBLE SUPREME COURT REPORTED AT 84 TAXMANN.COM 283. 1.5 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD URBAN DEVELOPMENT AUTHORITY V/S ACIT [396 ITR 323 02/05/2 017] HAS OBSERVED THAT THE EXPRESSION TRADE, COMMERCE AND BUSINESS MU ST BE READ IN THE CONTEXT OF THE INTENT AND PURPOSE OF SECTION 2(15) OF THE ACT AND THE SAME 5 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 WAS NOT MEANT TO EXCLUDE ENTITIES WHICH ARE ESSENTI ALLY FOR CHARITABLE PURPOSES BUT CONDUCTING SOME ACTIVITIES FOR A CONSI DERATION OR A FEES. THE TEST WHICH HAS TO BE APPLIED IS WHETHER THE PREDOMI NANT OBJECTIVE OF THE ACTIVITY INVOLVED IN CARRYING OUT THE OBJECT OF GEN ERAL PUBLIC UTILITY WAS TO SUB-SERVE THE CHARITABLE PURPOSE OR TO EARN PROFIT. WHERE PROFIT MAKING IS THE PREDOMINANT OBJECT OF THE ACTIVITY, THE PURPOSE , THOUGH AN OBJECT OF GENERAL PUBLIC UTILITY WOULD CEASE TO BE A CHARITAB LE PURPOSE. BUT WHERE THE PREDOMINANT OBJECT OF THE ACTIVITY WAS TO CARRY OUT THE CHARITABLE PURPOSE AND NOT TO EARN PROFIT, IT WOULD NOT LOSE ITS CHARA CTER OF A CHARITABLE PURPOSE MERELY BECAUSE SOME PROFIT ARISES FROM THE ACTIVITY . 1.6 SIMILARLY, HONBLE ALLAHABAD HIGH COURT IN CIT V/S LUCKNOW DEVELOPMENT AUTHORITY 265 CTR 433 16/09/2013 HAS HELD THAT WHERE A TRUST IS CARRYING ON ITS ACTIVITIES FOR THE FULFILM ENT OF ITS AIMS AND OBJECTIVES WHICH ARE OF CHARITABLE IN NATURE WITH NO MOTIVE TO EARN PROFIT AND IN THE PROCESS, EARNS SOME PROFIT, THE SAME WOULD NOT BE H IT BY PROVISO TO SECTION 2(15). 1.7 THE HONBLE DELHI HIGH COURT IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V/S DGIT [358 ITR 91 04/07/201 3] OBSERVED THAT THE PURPOSE AND DOMINANT OBJECT FOR WHICH AN INSTITUTIO N CARRIED ON ITS ACTIVITIES IS MATERIAL TO DETERMINE WHETHER THE SAME IS BUSINE SS OR NOT. THE PURPORT OF THE FIRST PROVISO TO SECTION 2(15) WAS NOT TO EXCLU DE ENTITIES WHICH ARE ESSENTIALLY FOR CHARITABLE PURPOSE BUT ARE CONDUCTI NG SOME ACTIVITIES FOR A CONSIDERATION OR A FEE. THE OBJECTIVE TO INTRODUCE THE PROVISO WAS TO EXCLUDE ORGANIZATIONS WHICH WERE CARRYING ON REGULA R BUSINESS FROM THE 6 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 SCOPE OF CHARITABLE PURPOSE. THE EXPRESSION BUSINES S, TRADE OR COMMERCE WAS TO BE INTERPRETED RESTRICTIVELY AND WHERE THE D OMINANT OBJECTIVE WAS CHARITABLE ANY INCIDENTAL ACTIVITY FOR THE FURTHERA NCE OF THE SAID OBJECTIVE WOULD NOT FALL WITHIN THE EXPRESSION TRADE, BUSINES S OR COMMERCE. 1.8 SIMILAR IS THE VIEW OF HONBLE TELANGANA AND AN DHRA PRADESH HIGH COURT IN PR.CIT V/S INSTITUTE OF DEVELOPMENT AND RESEARCH IN BANKING TECHNOLOGY 400 ITR 66 09/10/2017. SIMILAR VIEW HAS BEEN TAKEN BY VARIOUS CO-ORDINATES BENCHES OF THE TRIBUNAL IN VAR IOUS DECISIONS. 2.1 IN THE BACKGROUND OF ABOVE LEGAL PROPOSITIONS, THE ASSESSEE BEFORE US, IS A TRUST REGISTERED U/S 12A SINCE 1973 AND CL AIMED DEDUCTION U/S 11 IN ITS RETURN OF INCOME REFLECTING DEFICIT OF RS.17.35 LACS. THE EXEMPTION U/S 11 WAS EARLIER DENIED TO THE ASSESSEE FOR AY 2008-0 9 WHEREIN A VIEW WAS TAKEN THAT THE ASSESSEE WAS NOT RUNNING A REGULAR E DUCATIONAL INSTITUTE. KEEPING IN VIEW THE SAME, LD. AO HELD THAT THE ASSE SSEE WAS NOT A REGULAR EDUCATIONAL INSTITUTE AND THEREFORE, NOT ENTITLED F OR EXEMPTION U/S 11. 2.2 ANOTHER REASON TO DENY THE EXEMPTION WAS 1 ST PROVISO TO SECTION 2(15). THE LD. AO, INVOKING 1 ST PROVISO TO SEC 2(15), OBSERVED THAT THE ASSESSEE WAS IN RECEIPT OF TESTING FEES OF RS.187.0 1 LACS DURING THE YEAR. THE ASSESSEE ELABORATED THE TESTING PROCEDURE CARRI ED OUT BY IT, THE PERUSAL OF WHICH REVEALED THAT IT OFFERED VALUATION, CERTIF ICATION AND TESTING OF DIAMOND, JEWELLERY AND GEMSTONES TO VARIOUS PERSONS INCLUDING RETAILERS, COMPANIES DEALING IN SUCH GOODS AND TO GENERAL PUBL IC. THE ASSESSEE MAINTAIN SEPARATE PREMISES FOR TESTING LAB AND FOR EDUCATIONAL ACTIVITIES. THE LD. AO FORMED AN OPINION THAT THE TESTING ACTIV ITY WAS INDEPENDENT OF 7 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 THE EDUCATIONAL FACILITY AND A SEPARATE BUSINESS AC TIVITY OF THE ASSESSEE. THEREFORE, THE RENDERING OF THESE SERVICES AGAINST FEES, IN THE OPINION OF LD. AO, WERE HIT BY THE 1 ST PROVISO TO SECTION 2(15) AND THE TESTING ACTIVITY COULD NOT BE TERMED AS CHARITABLE ACTIVITY. ANOTHER FACT NOTED BY LD. AO WAS THAT THAT THE ASSESSEE WAS NOT MAINTAINING ANY SEPARATE BOOKS FOR TESTING ACTIVITY AND THEREFORE, EVEN IF THE ASSESSEE WAS TO BE HELD AS EDUCATIONAL INSTITUTION, THE ABOVE INCOME WOULD STILL BE TAXED AS BUSINESS INCOME. ACCORDINGLY, DENYING EXEMPTION U/S 11, THE INCOME O F THE ASSESSEE WAS COMPUTED AT RS.54.06 LACS. 3.1 BEFORE LD. FIRST APPELLATE AUTHORITY, THE ATTE NTION WAS DRAWN TO THE FACT THAT THE REGISTRATION U/S 12A WAS GRANTED TO THE AS SESSEE WHICH WAS VALID AND CONTINUING. IT WAS SUBMITTED THAT THE ASSESSEE WAS CONDUCTING COURSES OF FORMAL EDUCATION / TRAINING WHICH HAS BEEN ACCEP TED TO BE A CHARITABLE ACTIVITY AS SUPPORTED BY THE DECISION OF THIS TRIBU NAL FOR AY 2008-09 WHEREIN IT WAS HELD THAT THE ASSESSEE WAS ENTITLED FOR THE BENEFIT OF EXEMPTION U/S 11. IN THE ALTERNATIVE, IT WAS SUBMIT TED THAT IF THE ACTIVITIES OF THE TRUST COULD NOT BE TERMED AS EDUCATIONAL, ITS O BJECTS WOULD CERTAINLY FALL WITHIN THE EXPRESSION ADVANCEMENT OF ANY OTHER OBJ ECT OF GENERAL PUBLIC UTILITY. IT WAS FURTHER PLEADED THAT THE TESTING A CTIVITY WAS MERELY INCIDENTAL TO THE RESEARCH AND DEVELOPMENT ACTIVITY WHICH WAS DOMINANT AND PRIMARY ACTIVITY ALONG WITH THE ACTIVITY OF RUNNING EDUCATI ONAL COURSES. IT WAS SUBMITTED THAT THE MAIN AIM OF THE ASSESSEE WAS TO HELP THE GEM AND JEWELLERY TRADE AND SPREAD SPECIFIC KNOWLEDGE ABOUT GEMSTONES. THE RESEARCH PROVIDE DATA WHICH WOULD BE USEFUL TO IDEN TIFY IMITATION STONES 8 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 FROM GENUINE ONES AND FOR THIS TESTING, THE ASSESSE E CHARGES A NOMINAL FEE WHICH WAS VERY LOW AS COMPARED TO CHARGES OF OTHER TESTING INSTITUTES. THIS FACILITY HELPS GENERAL PUBLIC AS THEY ARE NOT CHEAT ED INTO BUYING FAKE ONES. THE CHARGES FOR SERVICES BEING PROVIDED BY THE ASSE SSEE WERE PLACED ON RECORD. ANOTHER SUBMISSION MADE WAS THE FACT THAT T HE ORGANIZATION WAS NOT BEING RUN IN A COMMERCIAL OR BUSINESS-LIKE MANN ER SINCE THE TESTING FEES WAS FAR LOWER THAN CHARGED BY OTHER COMMERCIAL ORGANIZATIONS. AN ALTERNATIVE SUBMISSION WAS MADE IN SUPPORT OF THE F ACT THAT DONATIONS OF RS.31.11 LACS RECEIVED FROM VARIOUS DONORS WERE CAP ITAL IN NATURE AND WOULD NOT BE TAXABLE AS BUSINESS INCOME. IN THE FIN AL PLEA, THE ASSESSEE SUBMITTED THAT IT WAS TO BE TAXED AS SLAB RATES APP LICABLE TO AN ASSOCIATION OF PERSONS [AOP]. 3.2 THE LD. FIRST APPELLATE AUTHORITY OPINED THAT R EGISTRATION U/S 12A WOULD NOT IPSO FACTO ENTITLE THE ASSESSEE TO CLAIM EXEMPTION U/S 11 UNLE SS THE CONDITIONS STIPULATED BY SEC.11 WERE FULFILLED. THE LD. AO WAS DUTY BOUND TO LOOK INTO THE FACTS IN EACH YEAR SO AS TO EXAMIN E THAT WHETHER THE PRESCRIBED CONDITIONS TO CLAIM THE EXEMPTION WAS FU LFILLED BY THE ASSESSEE OR NOT. PROCEEDING FURTHER, IT WAS NOTED THAT THERE WERE HARDLY 10 STUDENTS IN ONE BATCH WHICH COULD NOT BE SAID TO BE ANY EDUC ATIONAL ACTIVITY IN THE STRUCTURED MANNER. THE COURSE FEES RECEIVED BY THE ASSESSEE WAS RS.37.15 LACS AS AGAINST TESTING FEES OF RS.187 LAC S WHICH WAS 6 TIMES THE COURSE FEES RECEIVED BY THE ASSESSEE DURING THE YEAR. THUS, THE DOMINANT ACTIVITY WAS ACTIVITY OF RENDERING OF SERV ICES IN RELATION TO THE BUSINESS, TRADE OR COMMERCE. THE LD. FIRST APPELLAT E AUTHORITY, AT PARA (VI) 9 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 OF HIS ORDER, ON SAMPLE BASIS, REBUTTED ASSESSEES CLAIM THAT IT WAS PROVIDING SERVICE AT A LOW COST TO THE GENERAL PUBL IC. PROCEEDING FURTHER, LD. FIRST APPELLATE AUTHORITY, OPINED THAT THE ASSESSEE WAS HIT BY 1 ST PROVISO TO SEC. 2(15) AS WELL AS BY THE PROVISIONS OF SEC.11(4 A). THE ALTERNATIVE CLAIM OF EXEMPTION U/S 11(1)(D) OR REDUCTION OF SPECIFIC DONATIONS FROM CAPITAL EXPENDITURE WAS NOT ADMITTED SINCE THE ASSESSEE DID NOT MAKE OUT A CASE FOR ADDITIONAL EVIDENCE IN TERMS OF RULE 46A. REGAR DING THE PLEA THAT THE NET INCOME WAS TO BE TAXED AS PER SLAB RATES AS APP LICABLE TO ASSOCIATION OF PERSONS [AOP], DIRECTIONS WERE ISSUED TO LD. AO TO DISPOSE-OFF ASSESSEES RECTIFICATION APPLICATION FILED U/S 154, IN THIS RE GARD. 3.3 AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BE FORE US WITH FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS] HAS ERRED IN UPHOLDING THE DENIAL OF EXEMPTION U/S 11 OF THE INCOME TAX ACT, 1961 ('ACT' ), AND IN CONFIRMING THAT THE FIRST PROVISO TO SECTION 2(15) WAS APPLICABLE TO THE APPELLANT. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ASSESSING OFFICER'S VIEW THAT THE ACTIVITIES OF YOUR APPELLAN T WERE NOT CHARITABLE IN NATURE DESPITE THE VALID AND SUBSISTING REGISTRATION U/S 12A GRANTED B Y THE COMMISSIONER OF INCOME TAX. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THAT THE ACTIVITIES CARRIED ON BY YOUR APPELLANT DID NOT FALL WITHIN TH E MEANING OF THE TERM 'EDUCATION' AS CONTEMPLATED IN SECTION 2(15) OF INCOME TAX ACT, 19 61, BUT AMOUNTED TO ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THAT THE TESTING ACTIVITY CARRIED ON BY THE APPELLANT IS IN THE NATU RE OF BUSINESS, WITH CONSEQUENT VIOLATION OF THE PROVISIONS OF SECTION 11(4A). 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE TESTING CHARGES LEVIED BY THE APPELLANT ARE NOT ON A COMMER CIAL BASIS, BEING LOWER AS COMPARED TO OTHER ORGANIZATIONS. 6. THE COMPARISON OF CHARGES MADE BY THE COMMISSION ER OF INCOME TAX (APPEALS) WAS ERRONEOUS, AND OF UNCOMPARABLE SIZES. 7. WITHOUT PREJUDICE TO THE FOREGOING, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING OF TAXING THE DONATIONS OF RS.31,11,00 0 RECEIVED SPECIFICALLY FOR ACQUISITION OF CAPITAL ASSETS, AS INCOME OF THE APPELLANT, AND IN NOT ALLOWING REDUCTION OF THIS AMOUNT FROM COST OF THE CAPITAL ASSETS ACQUIRED DURING THE YEAR UNDER APPEAL 10 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN REJECTING THE LETTERS RECEIVED FROM DONORS AS ADDITIONAL EVIDENCE, AND IN STATING THAT THESE WERE NOT SUBMITTED TO THE ASSESSING OFFICER. 9. THE LEARNED COMMISSIONER [APPEALS) ERRED I N NOT DECIDING THE GROUND OF APPEAL RAISED BY YOUR APPELLANT REGARDING THE RATE OF TAX LEVIED ON YOUR APPELLANT, AND IN MERELY DIRECTING THE ASSESSING OFFICER TO DISPOSE OF THE APPLICATION FOR RECTIFICA TION. RELIEF SOUGHT 10. YOUR APPELLANTS PRAY THAT THE ORDER OF TH E LEARNED ASSESSING OFFICER MAY BE MODIFIED BY: ALLOWING EXEMPTION U/S 11 OF THE ACT, AND ACCORDING LY ALLOWING ACCUMULATION OF 15% OF INCOME, AS WELL AS CLAIM OF CAPITAL EXPENDITURE INCURRED TO WARDS THE OBJECTS OF THE APPELLANT AS AN APPLICATION OF INCOME OR ALTERNATIVELY EXCLUDING DONATIONS RECEIVED FOR ACQUISITION OF R & D EQUIPMENT FROM INCOME, REDUCING IT FROM THE COST OF R & D EQUIPMENT AND LEVYING INCOME TAX ON THE INCOME AT THE SLAB RATES OF TAX APPLICABLE TO AN ASSOCIATION OF PERSONS. 4.1 WE HAVE CAREFULLY PERUSED THE ARGUMENTS ADVANCE D BY BOTH THE REPRESENTATIVES AND DELIBERATED ON JUDICIAL PRONOUN CEMENTS AS CITED BEFORE US. THE MATERIAL FACTS AS ENUMERATED IN PRECEDING P ARAGRAPHS ARE NOT IN DISPUTE. THE PLEA OF LD. AR PRIMARILY REVOLVES AROU ND THE FACT THE PROFIT MOTIVE WOULD BE AN ESSENTIAL INGREDIENT SO AS THE A DJUDGE THE APPLICABILITY OF 1 ST PROVISO TO SEC. 2(15). THE LD. DEPARTMENTAL REPRES ENTATIVE [DR], ON THE OTHER HAND, HAS PLACED RELIANCE ON THE STAND OF LOWER AUTHORITIES TO SUBMIT THAT THE ASSESSEE WAS HIT BY THE 1 ST PROVISO TO SECTION 2(15) AS WELL AS SECTION 11(4A) AS INVOKED BY LD. AO. 4.2 SO FAR AS THE DECISION OF TRIBUNAL FOR AY 2008- 09, ITA NO. 5781/MUM/2011 DATED 22/03/2013 IS CONCERNED, THE PE RUSAL OF THE SAME WOULD REVEAL THAT IN THAT YEAR, LD.AO HAD DISPUTED ASSESSEES CLAIM OF CARRYING OUT OF EDUCATIONAL ACTIVITIES AND DENIED T HE EXEMPTION U/S 11. BEFORE FIRST APPELLATE AUTHORITY, THE ASSESSEE CONT ENDED THAT IT WAS CONDUCTING SPECIALIZED COURSES FOR MANY YEARS AND T HE CLAIM OF EXEMPTION 11 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 WAS ACCEPTED BY REVENUE FOR SO MANY YEARS. UPON BEI NG SATISFIED, FIRST APPELLATE AUTHORITY CONCURRED WITH ASSESSEES CLAIM . AGGRIEVED, THE REVENUE PREFERRED FURTHER APPEAL BEFORE TRIBUNAL. T HE TRIBUNAL, OBSERVING THAT THE REGISTRATION U/S 12A WAS SUBSISTING AND TH EREFORE, THE ROLE OF LD. AO WAS LIMITED TO SEE WHETHER THE ASSESSEE FOLLOWED ITS OBJECTS AND THERE WERE NO STATUTORY VIOLATIONS, HELD THAT LD. AO COUL D NOT EXAMINE THE OBJECTS OF THE TRUST SO LONG AS THERE WAS VALID REGISTRATIO N U/S 12A. THEREFORE, THE SAID DECISION, IN OUR CONSIDERED OPINION, WOULD NOT HAVE MUCH RELEVANCE TO THE FACTS OF THIS YEAR SINCE THE ISSUE BEFORE US IS RELATED WITH DETERMINING THE NATURE AS WELL AS TREATMENT OF TESTING FEES REC EIVED BY THE ASSESSEE DURING THE YEAR. 4.3 UPON PERUSAL OF INCOME & EXPENDITURE ACCOUNT, A S PLACED ON RECORD, THE BROAD BREAK UP OF ASSESSEES RECEIPTS WOULD BE AS UNDER: - NO. NATURE OF RECEIPTS AMOUNT (RS.) 1. INTEREST INCOME 17.61 LACS 2. FEES FROM EDUCATIONAL ACTIVITIES 37.18 LACS 3. TESTING FEES 187.01 LACS 4. DONATIONS FOR PURCHASE OF EQUIPMENTS 11.11 LACS 5. MISC. INCOME 0.09 LACS TOTAL 252.98 LACS A PERUSAL OF THE SAME WOULD REVEAL THAT THE APPROX. 74% OF RECEIPTS ARE ON ACCOUNT OF TESTING FEES. THE ASSESSEE HAS EARNED SU RPLUS OF RS.34.06 LACS AS EVIDENT FROM INCOME & EXPENDITURE ACCOUNT, AS PL ACED ON RECORD. THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR] HAS PLEADED THAT SURPLUS ARISES OUT OF THE FACT THAT THE ASSESSEE RECEIVED I NTEREST INCOME AND DONATIONS DURING THE YEAR AND IF THE SAME ARE REMOV ED FROM GROSS RECEIPTS, 12 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 ONLY NOMINAL SURPLUS WOULD ACCRUE TO THE ASSESSEE. THE SAID FACT WOULD ESTABLISH THAT THE ACTIVITIES OF TESTING FEES WERE MERELY INCIDENTAL ACTIVITIES AND THE SAME WERE NOT CARRIED OUT WITH ANY PROFIT M OTIVE. ANOTHER FACT TO BE NOTED IS THAT THE ASSESSEES RECEIPTS FROM TESTING FEES HAVE INCREASED CONSIDERABLY OVER THE YEARS WHICH IS EVIDENT UPON P ERUSAL OF ORDERS OF LOWER AUTHORITIES. 4.4 SO FAR AS THE OBJECT OF THE ASSESSEE ARE CONCER NED, OUR ATTENTION HAS BEEN DRAWN TO THE FACT THAT THE TRUST WAS ESTABLISH ED FOR CHARITABLE PURPOSE OF EDUCATION AND FOR ENCOURAGING AND PROMOTING THEO RETICAL AND PRACTICAL EDUCATION IN GEMOLOGY AND SCIENTIFIC STUDY OF PRECI OUS STONES OF ALL TYPES AND THE ASSESSEE WAS ESTABLISHED TO IMPART EDUCATIO N. ANOTHER PLEA RAISED IS THAT THE ASSESSEE WAS ENGAGED IN CARRYING OUT RE SEARCH & DEVELOPMENT ACTIVITIES DURING THE YEAR AND AS A PART OF THE SAM E, CARRIED OUT TESTING ACTIVITIES WITH A VIEW TO ADDRESS THE PROBLEM OF IM ITATION BEING FACED BY THE GEM INDUSTRY AND THEREFORE, THE SAID ACTIVITIES WOU LD MERELY BE AN INCIDENTAL ACTIVITY CARRIED OUT IN FURTHERANCE TO A CHIEVE PRE-DOMINANT OBJECTIVE OF RESEARCH & DEVELOPMENT. 4.5 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS D ISCUSSED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE WOULD REQUIRE REAPPRECIATION BY LD. AO IN VIEW OF THE FACT THAT THE MAIN OBJECTS OF THE ASSESSEE TRUST AS WELL AS THE CONNECTION OF TESTING ACTIVITIES VIS--VIS M AIN OBJECTS, HAS NOT BEEN BROUGHT ON RECORD BY LOWER AUTHORITIES. THE PERUSAL OF ORDER FOR AY 2008-09 WOULD, PRIMA-FACIE, WOULD REVEAL THAT THE ASSESSEE WAS ENGAGED IN THE F IELD OF EDUCATION. IF THAT IS SO, SECTION 11(4A) WOULD B ECOME APPLICABLE TO THE 13 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 FACTS OF THE CASE, AS OBSERVED BY US IN PARA 1.3 IN THE INITIAL PART OF THE ORDER. IN SUCH A CASE, THE ONUS WOULD BE ON ASSESSE E TO ESTABLISH THAT THE TESTING ACTIVITIES WERE MERELY INCIDENTAL TO THE AT TAINMENT OF THE PRIME OBJECTIVE OF THE TRUST I.E. EDUCATION AND SEPARATE BOOKS WERE MAINTAINED BY THE ASSESSEE IN RESPECT OF SUCH BUSINESS. ON THE OT HER HAND, IF THE OBJECTS OF THE ASSESSEE ARE FOUND TO BE COVERED BY LAST LIM B I.E. ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, THE 1 ST PROVISO OF SECTION 2(15) WOULD SQUARELY APPLY TO THE CASE OF THE ASSESSEE SI NCE THE ASSESSEE IS PROVIDING SERVICE IN RELATION TO ANY TRADE, BUSINES S OR COMMERCE. IN THAT CASE, THE CASE HAS TO BE ADJUDICATED IN THE LIGHT O F THE BINDING JUDICIAL PRONOUNCEMENTS FROM THE POINT OF VIEW OF PROFIT MO TIVE AS CITED BY US IN THE OPENING PARAGRAPHS. NEEDLESS TO ADD THAT, IN TH E EVENT OF ACTIVITY OF TESTING FEES FOUND TO BE HAVING NO CONNECTION WIT H ASSESSEES PRIMARY OBJECTIVES, THE SAME WOULD BE A SEPARATE LINE OF BU SINESS ACTIVITY FOR THE ASSESSEE AND NO DEDUCTION WOULD BE AVAILABLE TO THE ASSESSEE U/S 11 ON ACCOUNT OF THIS ACTIVITY. WITH THESE DIRECTIONS & O BSERVATIONS, THE MATTER WOULD STAND REVERTED BACK TO THE FILE OF LD. AO FOR RE-ADJUDICATION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WHO IN TURN, IS DIRECTED TO SUBSTANTIATE HIS CLAIM, IN THI S REGARD. 4.6 THE ALTERNATIVE SUBMISSIONS I.E. DONATIONS RECE IVED FOR SPECIFIC PURPOSES AND APPLICATION OF CORRECT RATE OF TAX ETC . WOULD ALSO BE ADJUDICATED IN THE LIGHT OF THE AFORESAID ADJUDICAT ION, IF REQUIRED. THE ASSESSEE IS DIRECTED TO SUBSTANTIATE THE SAME. 5. IN RESULT, THE APPEAL STANDS ALLOWED FOR STATIST ICAL PURPOSES. 14 ITA NO.5133/MUM/2015 GEMMOLOGICAL INSTITUTE OF INDIA ASSESSMENT YEAR-2011-12 ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2019. SD/- SD/- (SANDEEP GOSAIN) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 15/07/2019 SR.PS:-JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. # ( ) / THE CIT(A) 4. # / CIT CONCERNED 5. $%!& ' , ' , / DR, ITAT, MUMBAI 6. %)*+ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.