ITO, (Exemptions)-4, Hyd, Hyderabad V. Society for Promotion of Audit Continuing Education (SPACE), Hyd, Hyderabad

ITA 530/HYD/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6025 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Charitable institution
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 142(1); 12A; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 530/HYD/2015 ASSESSMENT YEAR: 2010-11 INCOME-TAX OFFICER (EXEMPTIONS) 4, HYDERABAD. VS. SOCIETY FOR PROMOTION OF AUDIT CONTINUING EDUCATION (SPACE) PAN AAATS 0996 B (APPELLANT) (RESPONDENT) REVENUE BY : SMT. SUMAN MALIK ASSESSEE BY : NONE DATE OF HEARING : 06-03-2017 DATE OF PRONOUNCEMENT : 31-03-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS IS AN APPEAL OF THE REVENUE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX(A) - 9, HYDE RABAD, (IN SHORT CIT(A), DATED 13/02/2015 FOR AY 2010-11. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE IS A SOCIE TY UNDER THE A.P. (TELENGANA AREA) PUBLIC SOCIETIES REGISTRATION ACT, 1350 FASLI BEARING REGN. NO. 2950 OF 2000. THE ASSESSEE IS ALS O REGISTERED U/S 12A OF THE INCOME TAX ACT WITH EFFECT FROM 01/04/20 05. 2.1 THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2010-11 ON 14/10/2010 DECLARING NIL INCOME AFTER CLAIMING EXEM PTION U/S 11 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) AND S UBSEQUENTLY, THE CASE WAS CONVERTED INTO SCRUTINY. ACCORDINGLY, NOTI CES U/S 143(2) & 142(1) OF THE ACT WERE ISSUED. IN THE SCRUTINY PROC EEDINGS, AO 2 ITA NO. 530/H/15 SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCATION (SPACE) OBSERVED THAT ASSESSEE HAS PROMINENT AIMS AND OBJEC TIVES AS PER THE MEMORANDUM OF ASSOCIATION AS BELOW: I . TO TAKE OVER THE STATE RESOURCE CENTRE FOR ADULT EDUCATION, FROM ANDHRA MAHILA SABHA ON A MUTUALLY AGREED DATE AND ON MUTUALLY AGREED TERMS AND TO RUN IT WITH THE ASSIST ANCE OF THE GOVT. OF INDIA. II. TO PREPARE AND DISSEMINATE MATERIALS RELATED TO THE AIMS AND OBJECTS OF SPACE. III. TO UNDERTAKE PREPARATION OF TEACHING/LEARNING AND TRAINING MATERIALS KEEPING IN VIEW THE OBJECTIVES OF FUNCTIO NAL LITERACY, IN SPOKEN LANGUAGES, AS FAR AS POSSIBLE AND TO PROVIDE ACADEMIC AND TECHNICAL RESOURCES SUPPORT FOR THE TOTAL LITER ACY AND POST LITERACY CAMPAIGNS AND CONTINUING EDUCATION PROGRAM MES. IV. TO UNDERTAKE SUCH OTHER FUNCTIONS AS MAY BE LAI D DOWN BY THE EXECUTIVE COMMITTEE OF SOCIETY OR ENTRUSTED BY THE GOVERNMENT FOR FURTHERANCE OF ADULT CONTINUING EDUCATION PROGR AMMES. 2.2 THE AO OPINED THAT THE ABOVE AIMS AND OBJECTIVE S FALL UNDER THE LAST LIMB I.E. ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AS PER THE DEFINITION OF SECTION 2(15) OF T HE ACT. ON PERUSAL OF THE INCOME AND EXPENDITURE STATEMENT OF THE ASSESS EE, HE OBSERVED THAT THE ASSESSEE HAS SOLD BOOKS TO THE EXTENT OF R S. 4,09,22,892/- BESIDES OTHER RECEIPTS. HE WAS OF THE VIEW THAT THE SAID ACTIVITIES I.E. SALE OF BOOKS WOULD CONSTITUTE COMMERCIAL ACTIVITY WITHIN THE MEANING OF AMENDED PROVISIONS OF SECTION 2(15) OF THE ACT. AO ALSO EXTRACTED THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR END ED 31/03/2010, WHICH IS AS UNDER: EXPENDITURE AMOUNT IN RS. INCOME AMOUNT IN RS. PURCHASE OF BOOKS 3,68,15,166/- SALE OF BOOKS 4,09,22,892/- PACKING AND FORWARDING CHARGES 34,00,000/- BOOKS & PUBLICATION 4,97,906/- PROFIT 12,05,632/- 4,14,20,798 4,14,20,798 2.3 AO OPINED THAT THE PROVISIONS OF SECTION 2(15) OF THE ACT CLEARLY ENVISAGES THAT ADVANCEMENT OF ANY OTHER OBJECT OF G ENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE IF IT INV OLVES THE CARRYING ON OF 3 ITA NO. 530/H/15 SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCATION (SPACE) ANY ACTIVITY IN THE NATURE OF TRADE, OR BUSINESS OR COMMERCE IRRESPECTIVE OF THE NATURE OR APPLICATION OR RETENT ION OF THE INCOME FROM SUCH ACTIVITY. 2.4 THE AO OBSERVED THAT THE ASSESSEE SOCIETY IS IN VOLVED IN THE BUSINESS ACTIVITY I.E. SALE OF BOOKS/PURCHASE AND A GGREGATE VALUE OF ALL SUCH ACTIVITIES EXCEEDS RS. 10 LAKHS. HE FURTH ER OBSERVED THAT ASSESSEE PURCHASED THE BOOKS FROM M/S VNR BOOKS WOR LD AND SOLD THE SAME TO GOVT. OF A.P. HE WAS OF THE VIEW THAT PURCHASE OF BOOKS AND SALE OF THE SAME WOULD CLEARLY CONSTITUTE COMME RCIAL ACTIVITY, MORE SO, WHEN THERE IS PROFIT INVOLVED. HE FURTHER RECORDED THAT A CHARITABLE INSTITUTION, PROVIDES SERVICES FOR CHARI TABLE PURPOSES FREE OF COST AND FOR NO GAIN OR PROFIT. IN THIS CASE, SOCIE TY DELIVERED THE BOOKS TO ANGANWADIS FOR WHICH IT RECEIVED THE COST OF BOO KS ETC. FROM THE GOVT. OF AP. ACCORDINGLY, EXEMPTION OF INCOME CLAI MED U/S 11 BY THE ASSESSEE WAS DENIED AND BROUGHT TO TAX. 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), ASSESSEE HAS SUBMITTED THAT S IMILAR ISSUE ON IDENTICAL FACTS WAS DECIDED IN FAVOUR OF THE ASSESS EE BY THE CIT(A) IN EARLIER YEAR AY 2009-10. THE CIT(A) HAS FOLLOWED TH E SAID ORDER OF THE CIT(A) IN AY 2009-10 VIDE ITA NO. 35/CIT(E)/CIT (A)-9/14-15, DATED 13/02/2015 AND ALLOWED THE APPEAL OF THE ASSE SSEE. THE OBSERVATIONS OF THE CIT(A) IN AY 2009-10 ARE EXTRA CTED BELOW FOR THE SAKE OF CLARITY: 23. TO ANSWER THE SECOND QUESTION, WHETHER THE APPE LLANT WAS ENGAGED IN AN ACTIVITY IN THE NATURE OF TRADE, BUSI NESS OR COMMERCE, IT IS NECESSARY TO EXAMINE THE TERMS UNDE R WHICH THE APPELLANT CARRIED ON ITS ACTIVITIES. THE APPELLANT WAS, THEREFORE, DIRECTED TO FURNISH COPIES OF THE NECESSARY CORRESP ONDENCE AND DOCUMENTS AND THESE ARE BEING RELIED UPON FOR THE PURPOSE OF THIS APPEAL U/R 46A( 4). 4 ITA NO. 530/H/15 SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCATION (SPACE) 24. VIDE LETTER IN F. NO. 6-2/88-AE-I, DATED 15.4.1 988 OF THE JOINT EUCATIONAL ADVISER OF THE MINISTRY OF HRD, GO VERNMENT OF INDIA, THE ROLE AND ADMINISTRATIVE AND FINANCIAL PA TTERN OF THE SRCS WAS COMMUNICATED. THE LETTER, INTER ALIA, STAT ED AS FOLLOWS: '2 .... (IV) THE SRCS WILL BE PERMITTED TO CREATE A ROLLING FUND OUT OF THE SALES PROCEEDS OF THE BOOKS PUBLISHED BY THEM. THE PRICES OF THE BOOKS ARE TO BE FIXED IN CONSULTATION WITH THE STAT E GOVERNMENTS, SO AS TO ALLOW A MARGINAL PROFIT ONLY. APART FROM U TILIZING THIS MONEY FOR PUBLISHING AND PRODUCTION OF BOOKS, THE S RCS CAN ALSO MEET THE 5% SHARE OF THEIR CONTRIBUTION FROM THIS F UND. 3. THE EXPENDITURE OF SRCS WOULD CONTINUE TO BE MET BY THE CENTRAL GOVERNMENT, STATE GOVERNMENT AND THE SRC UN DER THE EXISTING ARRANGEMENT WHICH IS IN THE RATIO OF 80:15 :5 PER CENT RESPECTIVELY 25. IN ACCORDANCE WITH THE ABOVE ARRANGEMENT AND BY VIRTUE OF ITS STATUS AS THE ORGANIZATION RUNNING THE SRC, THE APPELLANT HAS BEEN CERTIFIED BY THE GOVERNMENT OF ANDHRA PRADESH AS THE AGENCY FOR SUPPLY OF PRE-SCHOOL KITS AND STUDY MATE RIAL FOR WHICH WORK ORDERS WERE PLACED FROM TIME TO TIME AT SPECIF IED RATES. THERE IS NO DOUBT THAT .THE APPELLANT MAKES SOME PR OFIT ON SUPPLY OF THESE BOOKS. HOWEVER, AS NOTED IN THE LET TER DATED 15.4.1988 OF THE JOINT EDUCATION ADVISER, GOVERNMEN T OF INDIA, THIS MODERATE PROFIT HAS BEEN BUILT INTO THE SYSTEM IC STRUCTURE OF THE APPELLANT'S MANDATE TO MEET ITS 5% CONTRIBUTION FOR SRCS'. WHAT IS RELEVANT IS THAT THE APPELLANT WAS MANDATED UNDER THE NATIONAL LITERACY MISSION TO UNDERTAKE THE TASK OF PREPARATION AND SUPPLY OF TEACHING MATERIAL AND OTHER AIDES. TH E FULFILMENT OF THIS MANDATE CANNOT BE TERMED AN ACTIVITY IN THE NA TURE OF TRADE, COMMERCE OR BUSINESS. 26. IN VIEW OF THE ABOVE, IT IS HELD THAT THE APPEL LANT DOES NOT FALL WITHIN THE PURVIEW OF THE PROVISO TO SEC.2(L5) AND IS CONSEQUENTLY, ELIGIBLE FOR EXEMPTION U/S 11. 5. AGGRIEVED WITH THE ABOVE ORDER, THE REVENUE IS I N APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO E XEMPTION U/S. 11 OF THE ACT FOR THE A.Y.2010-11. 5 ITA NO. 530/H/15 SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCATION (SPACE) 3. THE LD.CIT(A) OUGHT TO HAVE APPRECIATED THAT, AS PER THAT LETTER DATED 15.04.1998 OF THE JOINT EDUCATIONAL AD VISOR OF MINISTRY OF HRD, GOVERNMENT OF INDIA, THE SRCS WILL BE PERMITTED TO CREATE A ROLLING FUND OUT OF THE SALES PROCEEDS OF THE BOOKS PUBLISHED BY THEM, WHEREAS IN THE CASE OF THE ASSES SEE IT HAS NOT PUBLISHED ANY BOOKS, BUT AS PER ITS INCOME & EX PENDITURE ETC, HAS PURCHASED BOOKS AT A COST OF RS.3,68,15,16 6/- AND HAS MADE SALE OUT OF THE SAME AT A CONSIDERATION OF RS 4,09,22,892/- AND UNDER THAT CIRCUMSTANCES, SUCH ACTIVITY ON PART OF THE ASSESSEE BEING FULLY COVERED UNDER ADVANCEMENT OF A NY OBJECT OF GENERAL PUBLIC UTILITY, THE AMENDED PROVISO TO 5EC. 2(15) OF THE ACT, IS FULLY APPLICABLE TO THE CASE OF THE ASSESSE E AND HENCE, IT IS NOT ELIGIBLE FOR EXEMPTION U/S. 11 OF THE ACT. 4. IT MAY BE MENTIONED HERE THAT EVEN FOR THE A.Y. 2009-10, THE ORDER OF THE LD.CIT(A) DATED 13.02.2015 IN ITA NO.35/CIT(E)/CIT(A)-9/2014-15, REFERRED TO BY HER I N PARA 5 OF THE PRESENT ORDER, IS NOT ACCEPTABLE, BUT THE TAX E FFECT INVOLVED ARISING FROM THE SAME, BEING LESS THAN THE PRESCRIB ED MONETARY LIMIT OF RS. 10 LACS, THE DEPARTMENT HAS NOT FILED APPEAL AGAINST THE SAME BEFORE THE HON'BLE ITAT, HYDERABAD. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND S UCH ACTIVITY OF PURCHASE AND SALE OF BOOKS ON THE PART OF THE AS SESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2 010-11, BEING FULLY COVERED UNDER ADVANCEMENT OF ANY OBJECT OF GENERAL PUBLIC UTILITY, THE PROVISO TO SEC.2(15) OF THE ACT IS FULLY APPLICABLE TO THE CASE OF THE ASSESSEE AND FURTHER HAVING REGA RD TO THE PROVISIONS OF SEC.13(8) OF THE ACT, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S. 11 OF THE ACT FOR THE A.Y.2010-11. 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING OF THE APPEAL. 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. ON PERUSAL OF RECORD, WE FIND THAT THE ASSESSEE IS A SOCIETY CREATED TO TAKE OVER THE STATE RESOURCE CEN TRE FOR ADULT EDUCATION FROM ANDHRA MAHILA SABHA ON A MUTUALLY AG REED TERMS AND TO RUN IT WITH THE ASSISTANCE OF THE GOVT. OF INDI A. AS PER THE AIMS AND OBJECTS OF SPACE (ASSESSEE) AND AS PER THE GUID ANCE AND DIRECTION OF GOVT. OF AP, ASSESSEE IS TO PROCURE BO OKS AND DISTRIBUTE THE SAME TO ANGANWADIS, FOR WHICH, ASSESSEE RECEIVE D COST OF THE BOOKS FROM GOVT. OF AP, WHICH IS ALSO CONFIRMED BY THE AO IN HIS ORDER. NO DOUBT, THIS ACTIVITY WILL FALL UNDER 5 TH LIMB OF CHARITABLE 6 ITA NO. 530/H/15 SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCATION (SPACE) ACTIVITY U/S 2(15) OF THE ACT. I.E. ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. AO BY OBSERVING INCOME AND EXPENDITURE STATEMENT OF ASSESSEE, CAME TO AN UNDERSTANDING THA T ASSESSEE IS IN COMMERCIAL ACTIVITY CONSIDERING BUYING AND SELLING OF BOOKS. IN OUR CONSIDERED VIEW MERE BUYING AND SELLING MAY NOT BE CONSIDERED AS COMMERCIAL ACTIVITY WITH THE PRESENCE OF SOME PROFI T, WHICH MAY BE FOR THE PURPOSE MEETING CERTAIN INCIDENTAL EXPENDIT URE IN THE SOCIETY. IN THE GIVEN CASE, ASSESSEE HAS PURCHASED SOME BOOK S AND DISTRIBUTED THE SAME AS PER THE DIRECTIONS OF GOVT. OF AP TO ANGANWADIS WITH A MINIMUM PROFIT OF 5% WHICH ALSO F IXED IN CONSULTATION WITH THE STATE GOVT. THIS 5% MARGIN WI LL BE UTILIZED TO MEET THE EXPENDITURE IN STATE RESOURCE CENTRE (SRC) WHICH WAS TAKEN OVER BY THE ASSESSEE. AS PER THE INCOME AND E XPENDITURE STATEMENT EXTRACTED BY THE AO, PROFIT EARNED BY THE ASSESSEE IS ABOUT 3% WHICH MAY BE APPLIED BY THE SOCIETY FOR THE MAND ATE UNDER THE NATIONAL LITERACY MISSION TO UNDERTAKE THE TASK OF PROCUREMENT AND SUPPLY OF TEACHING MATERIAL. THEREFORE, ONE CANNOT JUMP INTO CONCLUSION MERELY BECAUSE THERE IS BUYING AND SELLI NG ACTIVITY. WHETHER IT IS IN THE NATURE OF COMMERCIAL ACTIVITY OR NOT HAS TO BE DETERMINED. IT CAN BE TERMED AS COMMERCIAL ACTIVITY WHEN IT IS CARRIED OUT WITH THE INTENTION OF MAKING ONLY PROFIT. WHEN THERE IS NO PRESENCE OF MOTIVE TO MAKE PROFIT, IT CANNOT BE CON SIDERED AS COMMERCIAL ACTIVITY. 6.1 IN THE GIVEN CASE, RATES AND PROFIT MARGIN IS D ETERMINED WITH THE CONSULTATION OF STATE GOVT. AND THE ASSESSEE HAS NO ROLE TO PLAY IN DETERMINING THE PROFIT MARGIN IN THE ABOVE TRANSACT ION. HENCE, IT CLEARLY SHOWS THAT PRESENCE OF PROFIT, WHICH ALSO F IXED BY THE STATE GOVT., DOES NOT MEAN THAT THE ASSESSEE IS CARRYING ON COMMERCIAL ACTIVITY. MOREOVER, WHATEVER PROFIT GENERATED BY TH E ASSESSEE ARE APPLIED FOR THE MANDATE UNDER NATIONAL LITERACY MIS SION OR TO RUN/MEET THE ADMINISTRATIVE EXPENSES OF THE SOCIETY . 7 ITA NO. 530/H/15 SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCATION (SPACE) 6.2 IN VIEW OF THE ABOVE OBSERVATIONS, IN OUR CONSI DERED VIEW, ASSESSEE IS NOT CARRYING ANY COMMERCIAL ACTIVITY AN D THE PROVISIONS OF SECTION 2(15) WILL NOT APPLY TO THE CASE OF THE ASS ESSEE. ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLOW EXEMPTION U/S 11 TO THE ASSESSEE AND DISMISS THE GR OUNDS RAISED BY THE REVENUE IN THIS REGARD. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 31 ST MARCH, 2017. KV COPY TO:- 1) ITO (EXEMPTIONS) 4, AAYAKAR BHAVAN, 2 ND FLOOR, BASHEERBAGH, HYDERABAD. 2) SOCIETY FOR PROMOTION OF ADULT CONTINUING EDUCAT ION (SPACE), ANDHRA MAHILA SABHA CAMPUS, OSMANIA UNIVERSITY ROAD, HYDERABAD 500 007 (TS). 3) CIT(A) - 9, HYDERABAD 4 CIT (EXEMPTIONS), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE