M/s The Institute and Electronics Engineers Inc, Hyderabad V. DIT (Exemptions), Hyderabad

ITA 639/HYD/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4818 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R LAKSHMAN
• Assessee Lawyers: A V RAGHURAM
• Keywords: Charitable institution; Opportunity of being heard
• Section: 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 639/HYD/2013 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC., A PPELLANT HYDERABAD. (PAN AABAT 4111 D) VS. DIRECTOR OF INCOME-TAX (E), RESPONDE NT HYDERABAD . APPELLANT BY : SHRI A.V. RAGHURAM RESPONDENT BY : SHRI R. LAKSHMAN DATE OF HEARING : 13/08/2013 DATE OF PRONOUNCEMENT : 23/08/2013 ORDER PER CHANDRA POOJARI, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRE CTED AGAINST THE ORDER PASSED BY THE DIT(E), HYDERABAD DATED 22/03/2 013. 2. BRIEFLY THE FACTS, AS NOTED BY THE DIT(E) ARE THAT T HE ABOVE INSTITUTION HAS EARLIER FILED AN APPLICATION IN FOR M NO.10A ON 13/04/2011 S EEKING REGISTRATION U/S.12AA OF THE INCOME TAX ACT, 1961 ('THE ACT' IN SHORT). HOWEVER, AFTER POIN TING OUT THAT THE 'ACTIVITIES CONDUCTED BY THE ASSESSEE ARE BASIC ALLY AIMED AT IMPROVING THE KNOWLEDGE AND COMPETENCE OF ITS ME MBERS AND THAT THE SOCIETY IS NOT ENGAGED IN ANY CHARITAB LE ACTIVITY AND FURTHER POINTING OUT THAT, IT IS ALSO HIT BY TH E AMENDED PROVISIONS OF SECTION 2(15) OF THE ACT, THE SAID AP PLICATION WAS 2 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. REJECTED BY THE THEN DIRECTOR OF INCOME TAX(EXEMPTI ONS), VIDE HIS ORDER IN F NO.DIT(E)/HYD/12A/25(04)/1L-12 DATED 31.10.2011. 3. BEING AGGRIEVED BY THE SAID ORDER OF THE DIT(E) , THE ASSESSEE HAS FILED AN APPEAL BEFORE THE' HONBLE IN COME TAX APPELLATE TRIBUNAL (ITAT IN SHORT), HYDERABAD. AFTE R CONSIDERING THE ASSESSEE'S SUBMISSIONS, THE HON'BLE ITAT, WHILE STATING THAT THE DIT(E) HAS NOT MADE ANY ENQU IRY ABOUT THE OBJECTS AND GENUINENESS OF THE SOCIETY, VIDE TH EIR ORDER IN ITA NO.1967/HYD/2011 DATED 24.08.2012, HAVE SET-ASI DE THE SAID ORDER OF THE DIT(E) AND REMITTED SUCH MATTER B ACK TO THE FILE OF THE DIT(E), HYDERABAD, FOR DECIDING THE SAM E AFRESH, AFTER EXAMINING THE DOCUMENTS AND GIVING OPPORTUNIT Y TO THE ASSESSEE. THE RELEVANT OBSERVATIONS MADE BY THE HON 'BLE TRIBUNAL, IN THIS REGARD, IN PARA-5 AT PAGE 3 OF TH EIR SAID ORDER, ARE REPRODUCED AS UNDER: 'AS IT APPEARS THE DIT(E) HAS NOT MADE ANY ENQUIRY TO SATISFY HIMSELF ABOUT THE OBJECT AND GENUINENESS OF THE TRUST. WE THEREFORE SET ASIDE THE ORDER PASSED BY THE 'DIT(E) WITH A DIRECTION TO RE-EXAMINE THE ISSUE AF RESH AFTER CONSIDERING THE DOCUMENTS PRODUCED BEFORE HIM BY THE ASSESSEE AND AFTER MAKING SUCH ENQUIRY AS MAY B E DEEMED NECESSARY. THE ASSESSEE SHALL BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PROCEE DING IS , COMPLETED'. 4. FOLLOWING THE SAID ORDER OF THE HON'BLE ITAT, PR OCEEDINGS WERE TAKEN AFRESH BY DIT(E) FOR DECIDING THE SAID MATTER. IN RESPONSE TO NOTICE DATED 25.02.2013, ISSUED TO THE ASSESSEE BY DIT(E), THE ASSESSEE APPEARED AND FILED WRITTEN SUBMISSION OTHER DETAILS DURING THE PROCEEDINGS BEFORE THE DIT (E) AS UNDER: 3 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. 5. THE ASSESSEE-SOCIETY HAS THREE OBJECTS. SUCH OB JECTS, AS MENTIONED UNDER THE HEAD 'OBJECTIVES' IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE-SOCIETY ARE REPRODUCED AS UNDER: '1. ADVANCEMENT OF THE THEORY AND PRACTICE OF IEEE DESIGNATED FIELDS ELECTRICAL AND ELECTRONICS ENGINE ERING AND THE MAINTENANCE OF HIS PROFESSIONAL STANDARDS A MONG ITS MEMBERS 2. HOLDING TECHNICAL AND PROFESSIONAL LECTURES, SE MINARS, CONFERENCE DISCUSSIONS AND SUCH PROGRAMMES AS ARE NECESSARY FOR EXCHANGE KNOWLEDGE AND CONTINUING EDUCATION AND THEREBY TO CONTRIBUTE AND PROMOTE LONG- TERM PROFESSIONAL DEVELOPMENT OF MEMBERS 3. TO ENDEAVOR TO PROMOTE UNDERSTANDING OF THE INFLUENCE OF TECHNOLOGY AND WORK FOR WELFARE OF PUBLIC AT LARGE BY ORGANIZING SPECIAL TECHNICAL PROGRAMMES. ' 6. FROM THE AFOREMENTIONED OBJECTS, IT MAY BE NOTIC ED THAT THOUGH IN THE OBJECT CLAUSE-3, THERE IS REFERE NCE TO MAKE ENDEAVOUR TO PROMOTE UNDERSTANDING OF THE INFLUENCE OF TECHNOLOGY FOR WELFARE OF PUBLIC AT LARGE BY ORGANISING TECHNICAL PROGRAMS, VARIOUS ACTIVITIES TO BE DONE A S PER THE FIRST TWO OBJECTS, ARE PRIMARILY MEANT FOR THE BENE FIT OF ONLY THE MEMBERS OF THE SOCIETY. FURTHER, AS MAY BE NOTICED, THERE IS NO REFERENCE TO GENERATING ANY INCOME FROM SUCH ACTIVITIES AS REFERRED TO IN THOSE OBJECTS. HOWEVER, AS SEEN F ROM THE COPIES OF ACCOUNTS OF THE ASSESSEE SOCIETY, FURNISH ED FOR DIFFERENT ACCOUNTING YEARS, IT HAS SHOWN INCOME UND ER THE HEAD 'PROGRAMME REVENUE' IN EACH SUCH YEAR. THIS IN COME COMPRISES RECEIPTS UNDER DIFFERENT HEADS AND CLARIF YING ABOUT THE NATURE OF SUCH PROGRAMME REVENUE, AND ALSO FILE D WRITTEN SUBMISSIONS AS UNDER: '2. PROGRAMME REVENUE: RECEIPTS FROM VARIOUS PROGRAMS CONDUCTED BY THE SECTION AND FOLLOWING CHAPTERS DUR ING 4 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. THE YEAR. THE PROGRAM DETAILS ARE AS FOLLOWS: 1. MTT/AP/EMC CHAPTER: MICROWAVE THEORY AND TECHNIQUES SOCIETY/ANTENNAS AND PROPAGATION/ ELECTROMAGNETIC COMPATIBILITY CHANTER. 2. PES/IAS/PELS CHAPTER: POWER ENGINEERING/INDUSTRY APPLICATION/POWER ELECTRONICS CHAPTER 3.SECTION ACTIVITIES 4. STUDENT SECTION CONGRESS 5. WIE: WOMEN IN ENGINEERING 6. GOLD AFFINITY GROUP : GRADUATES OF LAST DECADES 7. COM/SP CHAPTER: COMMUNICATION/SIGNAL PROCESSING CHAPTER. 7. ACCORDING TO THE DIT(E), THE TOTAL AMOUNT UNDER 'PROGRAMME REVENUE' FOR THE ACCOUNTING YEAR ENDED O N 31.03.2009, 31.03.2010 AND 31.03.2011 ARE SHOWN AT RS.21,53,995/-,RS.4,06,027/- AND RS.4,32,911, RESPE CTIVELY. FURTHER, WHILE CLARIFYING ABOUT FUNDS, IN THE CASE OF THE SOCIETY, UNDER ARTICLES OF ASSOCIATION, IT IS STATED THAT, THE FUNDS OF THE SOCIETY SHALL CONSIST OF MEMBERSHIP FE E, GRANTS AND DONATIONS FROM VARIOUS SOURCES. THUS, THERE IS NO REFERENCE TO ANY PROGRAMME REVENUE IN THAT CLARIFIC ATION GIVEN IN THE ARTICLES OF ASSOCIATION OF THE ASSESSEE-SOCIETY. HE OBSERVED THAT INCOME FROM PROGRAMME REVENUE DERIVED BY THE SOCIETY DURING EACH YEAR, IS NOT AS PER THE OBJECTS OF THE SOCIETY, HE ALSO MENTIONED THAT, UNDER SECTION 12AA(3) OF THE ACT, IT SAYS THAT REGISTRATION GRANTED TO A TRU ST OR INSTITUTION CAN BE WITHDRAWN, WHEN THE CIT FINDS TH AT THE ACTIVITIES OF THAT TRUST OR INSTITUTION ARE NOT GEN UINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF SUCH TRUST 5 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. OR ASSOCIATION. FROM THE SAME, THUS, IT FOLLOWS THA T WHEN A TRUST OR AN INSTITUTION CARRIES ON ACTIVITY WHICH I S NOT IN ACCORDANCE WITH ITS OBJECTS, THEN, IT WOULD NOT BE ELIGIBLE FOR REGISTRATION U/S 12AA OF THE ACT. 8. AFTER DISCUSSING THE CASE AS ABOVE, THE DIT(E) H ELD THAT SINCE IN THE INSTANT CASE, SUCH ACTIVITY OF DERIVIN G INCOME UNDER 'PROGRAMME REVENUE' ON THE PART OF THE ASSESS EE SOCIETY, IS NOT AS PER ITS OBJECTS, AS STATED IN TH E MEMORANDUM OF ASSOCIATION, IT CANNOT BE GRANTED REGISTRATION U/S 12AA OF THE ACT AND HENCE, REGISTR ATION SOUGHT U/S 12AA OF THE ACT IS REFUSED TO THE ABOVE SOCIETY. 9. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 10. THE ASSESSEE HAS RAISED AS MANY AS 9 GROUNDS OF APPEAL, THE SUM AND SUBSTANCE OF WHICH IS AGAINST THE ACTIO N OF THE DIT(E) IN REJECTING THE APPLICATION FILED BY THE AS SESSEE SEEKING REGISTRATION U/S 12AA OF THE IT ACT. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE FIRST QUESTION ARISING FOR OUR CONSIDE RATION IN THIS APPEAL RELATES TO THE SCOPE OF ENQUIRY BY THE DIT(E ) U/S. 12AA OF THE ACT. WE ARE IN AGREEMENT WITH THE DR THAT AFTE R INSERTION OF SECTION 12AA W.E.F. 1.4.1997, THE DIT(E) IS EMPOWER ED TO ENQUIRE ABOUT THE ACTIVITIES OF THE ASSESSEE BEFORE PASSING THE ORDER. THERE MAY BE CASES WHERE APPLICATION IS MADE AFTER THE COMMENCEMENT OF ACTIVITIES BY THE ASSESSEE TRUST. IN SUCH CASES THE DIT(E) IS JUSTIFIED TO ENQUIRE ABOUT THE ACTIVI TIES. HOWEVER, WHERE NO ACTIVITY IS COMMENCED, THE QUESTION OF MAK ING ANY ENQUIRY REGARDING ANY ACTIVITY BY THE DIT(E) WOULD NOT ARISE. THE NATURE OF ENQUIRY WOULD DEPEND ON THE FACTS OF EACH CASE. HENCE 6 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. THE CONTENTION OF THE AR THAT SCOPE OF THE DIT(E) I S LIMITED TO ASCERTAINING ONLY WHETHER THE OBJECTS ARE CHARITABL E OR NOT CANNOT BE ACCEPTED. 12. THE NEXT QUESTION FOR OUR CONSIDERATION IS WHET HER ON THE FACTS AND IN LAW, THE REGISTRATION U/S. 12AA OF THE ACT CAN BE REFUSED TO THE ASSESSEE. FOR THE PURPOSE OF SECTIO NS 11 AND 12, THE WORD 'CHARITABLE PURPOSE' HAS BEEN DEFINED IN S ECTION 2(15) OF THE ACT WHICH READS AS FOLLOWS: . 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, [PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OF ARTISTIC OR HISTORIC INTEREST,] AND T HE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY: 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 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 [TWENTY-FIVE LAKH RUPEES] OR LESS IN THE PREVIOUS YEAR;]' 13. SO, THE OBJECT OF THE ASSESSEE IS IN THE NATURE OF CHARITABLE ACTIVITIES. IT WAS HELD BY THE SUPREME COURT IN THE CASE OF SURAT ART SILK & CLOTH MFRS. ASSOCIATION (121 ITR 1) AS U NDER: 7 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. 'IT IS NOW WELL SETTLED AS A RESULT OF THE DECISION OF THIS COURT IN DHARMADEEPTI VS. CIT 1978 CTR (SC) 120 : (1978) 114 ITR 454 (SC), THAT THE WORDS 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT' QUALIFY OR GOVERN ONLY THE LAS T HEAD OF CHARITABLE PURPOSE AND NOT THE EARLIER THREE HEADS. WHERE, THEREFORE, THE PURPOSE OF A TRUST OR INSTITUTION IS RELIEF OF THE POOR, EDUCATI ON OR MEDICAL RELIEF, THE REQUIREMENT OF THE DEFINITIO N OF 'CHARITABLE PURPOSE' WOULD BE FULLY SATISFIED, EVEN IF AN ACTIVITY FOR PROFIT IS CARRIED ON IN THE COURSE OF THE ACTUAL CARRYING OUT OF THE PRIMARY PURPOSE OF THE TRUST OR INSTITUTION.' 14. AT THIS STAGE IT IS ALSO PERTINENT TO NOTE THAT THE CLAUSE 'NOT INVOLVING CARRYING ANY ACTIVITIES OF PROFIT' WERE OMITTED FROM THIS DEFINITION BY THE LEGISLATURE BY FINANCE ACT, 1983 W.E.F. 1 ST APRIL, 1983. THEREFORE, AFTER SUCH OMISSION, THE ELEMENT OF PROFIT CANNOT BE EXCLUDED FROM THE DEFINITION 'CHARITABLE PURPOSES'. U/S. 2(15) OF THE ACT. 15. THE ABOVE VIEW IS ALSO SUPPORTED BY THE LEGISLA TIVE INTENT DISCLOSED IN SECTION 10(22) WHEREIN IT HAS BEEN CLE ARLY PROVIDED THAT INCOME OF ANY ACTIVITIES CANNOT BE EXEMPTED UN CONDITIONALLY IF SUCH INSTITUTION ALSO EXISTS FOR DERIVING OF PRO FIT. ACCORDING TO THIS PROVISION, IF ANY ACTIVITY IS RUNNING ON COMME RCIAL BASIS THEN INCOME OF SUCH ACTIVITY CANNOT BE EXEMPTED FROM TAX ATION. HOWEVER, SUCH INSTITUTION CAN CLAIM EXEMPTION U/SS. 11 AND 12 AS ELEMENT OF PROFIT IS NOT EXCLUDED BY THE LEGISLATUR E. THE REASON IS OBVIOUS BECAUSE OF FINANCIAL AFFAIRS OF SUCH INS TITUTION ARE WELL CONTROLLED BY THE PROVISIONS OF SECTIONS 11 AND 13 OF THE ACT. SECTION 11 CLEARLY PROVIDES THAT IN ORDER TO CLAIM EXEMPTION SUCH INSTITUTION MUST APPLY 75% OF ITS INCOME FOR CHARIT ABLE PURPOSES. THE SURPLUS IF ANY HAS TO BE INVESTED IN SPECIFIED BONDS. FURTHER, EXEMPTION CAN BE DENIED IF THE PROVISIONS OF SECTIO N 13 ARE 8 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. VIOLATED. THEREFORE, IF THERE IS ANY VIOLATION OF EITHER SECTION 11 OR SECTION 13, THEN, THE PROFITS OF SUCH INSTITUTIO N WOULD BE TAXABLE. FURTHER THE FACT THAT, ONLY 75% OF THE IN COME IS TO BE APPLIED FOR CHARITABLE PURPOSES ITSELF SHOWS THAT E LEMENT OF PROFIT IS NOT EXCLUDED FROM THE DEFINITION OF CHARITABLE P URPOSE FOR THE PURPOSE OF SECTIONS 11 AND 12. BECAUSE SOME PROFIT HAS BEEN EARNED BY AN ASSESSEE TRUST REGISTRATION U/S. 12AA CANNOT BE DENIED SO LONG AS PROVISIONS OF SECTIONS 11, 12 AND 12AA ARE COMPLIED WITH. SO LONG AS IT IS ESTABLISHED THAT I NCOME OF THE ASSESSEE SOCIETY HAS BEEN APPLIED FOR THE PURPOSE O F CHARITABLE ACTIVITIES IN TERMS OF SECTION 11(2) AND THERE IS N O VIOLATION OF SECTION 13, THE ASSESSEE WOULD BE ENTITLED TO ENJOY THE BENEFIT OF REGISTRATION U/S. 12AA OF THE ACT. 16. BEING SO, WE FIND NO INFIRMITY IN THE ACTIVITIE S CARRIED OUT BY THE ASSESSEE AND ACCORDINGLY WE DIRECT THE DIT(E) T O GRANT THE REGISTRATION U/S 12AA OF THE ACT, TO THE ASSESSEE. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2013 SD/- SD/- (SAKTIJIT DEY) JUDICIAL MEMBER (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 23 RD AUGUST, 2013 KV 9 ITA NO. 639/HYD/13 M/S THE INSTITUTE & ELECTRONICS ENGINEERS INC. COPY TO:- 1) M/S THE INSTITUTE AND ELECTRONICS ENGINEERS INC, HYDERABAD, C/O, K. VASANTHAKUR, ADVOCATES, 610, BAB UKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001.. 2) DIT(E), 3 RD FLOOR ANNEXE, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 3) THE ADIT(E), HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HY DERABAD.