Young Women's Christian Association of Madras, CHENNAI V. JDIT (OSD), CHENNAI

ITA 823/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4689 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-10-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 30-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGIR I IRS
• Assessee Lawyers: PUSHYA SITARAMAN
• Keywords: Business income; Charitable institution
• Section: 143(3); 80G; 12AA; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO. 823(MDS)/2013 ASSESSMENT YEAR : 2009-10 M/S YOUNG WOMENS CHRISTIAN ASSOCIATION OF MADRAS, 1086, POONAMALLE HIGH ROAD, CHENNAI - 600 084. PAN : AAATT 1238 P V. THE JOINT DIRECTOR OF INCOME TAX (OSD) (EXEMPTION)-II, CHENNAI - 600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. PUSHYA SIT ARAMAN, SR. ADVOCATE RESPONDENT BY : SHRI T.N. BETGIRI, IR S, JCIT DATE OF HEARING : 29 TH OCTOBER, 2013 DATE OF PRONOUNCEMENT : 30 TH OCTOBER, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2009-10. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-XI I AT CHENNAI, DATED 28.1.2013 AND ARISES OUT OF THE ASSESSMENT CO MPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE, YOUNG WOMENS CHRISTIAN ASSOCIATIO N (YWCA), IS A SOCIETY REGISTERED UNDER THE PROVISION S OF SOCIETIES 2 I.T.A. NO. 823/MDS/13 REGISTRATION ACT, 1860. THE ASSESSEE IS HAVING REG ISTRATION UNDER SECTION 12AA OF THE INCOME-TAX ACT, 1961. BY THAT WAY, THE ASSESSEE IS A CHARITABLE INSTITUTION. 3. MAJOR PART OF THE INCOME OF THE ASSESSEE ARISES OUT OF INTEREST ON DEPOSITS, SUBSCRIPTIONS AND DONATIONS. EQUALLY DOMINANT PART OF INCOME IS FROM RUNNING OF A WORKING WOMENS HOSTEL (WWH) AND AN INTERNATIONAL GUEST HOUSE (IGH) IN MAD RAS. 4. ON THE ACTIVITY SIDE, THE ASSESSEE IS SPENDING I TS REVENUE ON DIFFERENT PROGRAMMES IN HELPING OUT DIFFERENTLY ABL ED PEOPLE IN THE SOCIETY. THE ASSESSEE IS RUNNING DESTITUTE HOMES, ORPHANAGES AND FACILITIES FOR HANDICAPPED WOMEN AND CHILDREN AND C ARE HOMES FOR SENIOR CITIZENS, ETC. ACCORDING TO THE ASSESSEE, T HE ACTIVITIES SUCH AS RUNNING ORPHANAGES, OLD AGE HOMES, CENTRES FOR R EHABILITATION OF MENTALLY ILL WOMEN, DAY CARE OF ELDERLY, ASSISTANCE TO DESTITUTE WOMEN, RURAL DEVELOPMENT PROJECTS FOR RELIEF TO DIS ADVANTAGED WOMEN AND CHILDREN, VOCATIONAL TRAINING TO GIRLS FR OM SLUMS, ETC. WOULD CLEARLY FALL WITHIN THE SCOPE OF RELIEF OF T HE POOR. THE ASSESSEE ALSO RUNS A FREE NURSERY SCHOOL FOR POOR C HILDREN AND A COMMUNITY COLLEGE FOR SCHOOL DROP OUTS AND POOR STU DENTS REGISTERED WITH INDIRA GANDHI NATIONAL OPEN UNIVERS ITY. 3 I.T.A. NO. 823/MDS/13 5. THE ASSESSEE ALSO STATES THAT THE RUNNING OF WWH AND IGH ARE MADE ON BUSINESS LINE AND THE SURPLUS ARISING O UT OF RUNNING THOSE INSTITUTIONS ARE ALSO USED FOR ITS CHARITABLE ACTIVITIES. 6. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER FOUND THAT THE MAJOR RECEIPTS OF THE ASSESS EE WERE BY WAY OF BUSINESS RECEIPTS FROM IGH AND WWH. THE ASSESSING OFFICER FELT THAT THEREFORE, THE PROVISO ADDED TO SECTION 2(15) WOULD APPLY TO THE ASSESSEE. THIS PROPOSAL WAS MADE BEFORE THE ASSESS EE. 7. THE ASSESSEE EXPLAINED THAT THE INCOME OF THE AS SESSEE IS MAINLY GENERATED FROM EXPLOITING PROPERTIES OWNED B Y YWCA. IF AT ALL ANY INCIDENTAL SERVICES GENERATED INCOME BY WAY OF PROVIDING FOOD AND SHELTER SERVICES, THESE ACTIVITIES WOULD S QUARELY FALL WITHIN THE PROVISIONS OF SECTION 11(4A). AFTER HEARING TH E ASSESSEE IN DETAIL, THE ASSESSING OFFICER HELD THAT THE ASSESSE E WAS AN INSTITUTION CARRYING ON ADVANCEMENT OF ANY OTHER O BJECT OF GENERAL PUBLIC UTILITY AND THEREFORE, INCOME ARISING OUT O F THE CARRYING ON OF BUSINESS OF WWH AND IGH WOULD NOT BE ENTITLED FOR E XEMPTION UNDER SECTION 11. ACCORDINGLY, HE EXCLUDED THAT PA RT OF INCOME ARISING OUT OF IGH AND WWH FROM THE RELIEF PACK AVA ILABLE UNDER SECTION 11. HE GRANTED RELIEF TO THE REMAINING INC OME. THIS 4 I.T.A. NO. 823/MDS/13 ASSESSMENT ORDER HAS BEEN CONFIRMED IN FIRST APPEAL . THEREFORE, THE SECOND APPEAL WAS FILED BY THE ASSESSEE BEFORE US. 8. THE DETAILED GROUNDS RAISED BY THE ASSESSEE IN T HE PRESENT APPEAL READ AS BELOW:- 2. THE CIT(A) ERRED IN TREATING THE ACTIVITIES OF THE APPELLANT AS NON CHARITABLE, AND ASSESSING THE SAME AS AOP, FALLING TO SEE THAT THE ACTIVITIES OF THE APPELLANT ARE SUBSTANTIALLY I N THE FIELDS OF EDUCATION, MEDICAL RELIEF OR RELIEF T O THE POOR. THE CIT(A) HAS ALSO ERRONEOUSLY CLAIMED THAT THE APPELLANTS ACTIVITIES ARE IN THE NATURE OF GENERAL PUBLIC UTILITY. 3. THE CIT(A) FAILED TO SEE THAT THE OBJECTS AS NARRATED IN THE MEMORANDUM OF THE SOCIETY PREDATE THE INCOME TAX ACT, AND THE CHARITABLE ACTIVITIES HAVE BEEN CARRIED ON SINCE 1905, AND A WELL-ESTABLISHED OBLIGATI8ON HAS COME TO REST UPON THE APPELLANT TO ENGAGED IN EDUCATION, MEDICAL RELIEF AND RELIEF TO THE POOR. 4. THE CIT(A) HAS DISREGARDED THE FACT THAT REGISTRATION UNDER SECTION 12A(A) OF THE ACT, HAS BEEN GRANTED TO THE APPELLANT IN 1974 ON THE BASIS OF THE OBJECTS AND ACTIVITIES OF THE SOCIETY, AND SINCE THE OBJECTS HAVE NOT BEEN AMENDED THEREAFTER IT IS NOT OPEN TO THE ASSESSING OFFICER, OR THE CIT(A) TO TREAT THE OBJECTS AS NON CHARITABLE. DIRECTOR OF INCOME TAX (EXEMPTION) HAS NEVER SUGGESTED TO AMEND THE OBJECTS WHILE GRANTING CONTINUATION OF 80G APPROVAL WHICH WAS DONE ONCE IN EVERY THREE YEARS. 5. THE CIT(A) HAS PRESUMED THAT THE SOURCE OF REVENUES FOR AN ORGANIZATION ARE SYNONYMOUS WITH ITS ACTIVITIES, FAILING TO SEE THAT 5 I.T.A. NO. 823/MDS/13 IT IS THE NATURE OF EXPENDITURE WHICH DETERMINES WHETHER THE ASSOCIATION IS A CHARITY OR NOT. IN THE APPELLANTS CASE, EVEN IF 85% OF REVENUES ARE EARNED FROM BUSINESS, THE EXPENDITURE IS ALL ON CHARITABLE ACTIVITIES. 6. THE CIT(A) SHOULD HAVE REALIZED THAT THE NON-REVENUE GENERATING ACTIVITIES OF THE APPELLANT UPHOLD THE SPIRIT AND SUBSTANCE OF THE OBJECTIVES FRAMED IN ITS ARTICLES OF ASSOCIATION, AND HAVE CONTINUED FOR OVER A CENTURY. 7. THE CIT(A), HAS, ARBITRARILY AND SELECTIVELY, CONSIDERED ISOLATED ACTIVITIES OF THE APPELLANT, SUCH AS TYPING INSTITUTE, OR TAILORING CLASSES, WITHOUT VIEWING THESE ACTIVITIES IN THE LARGER CONTEXT OF THE FACT THAT THESE ACTIVITIES PROVIDED RELIEF TO POOR, DESTITUTE WOMEN; OR PAYING ATTENTION TO ANY OF THE OTHER ACTIVITIES PERTAINING TO EDUCATION, RELIEF OF THE POOR, AND MEDICAL RELIEF. 8. THE CIT(A) HAS NOT CONSIDERED THE PLEA OF THE APPELLANT, THAT IN THE EVENT THAT THE WORKING WOMENS HOSTEL AND INTERNATIONAL GUEST HOUSE ARE TO BE TREATED AS COMMERCIAL ESTABLISHMENTS, RUN ON THE PRINCIPLES OF PROFIT, THE FACT THAT IT IS INCIDENTAL AND ANCILLARY TO THE OBJECTS OF THE APPELLANT AND SEPARATE ACCOUNTS ARE MAINTAINED FOR THE SAME AS REQUIRED UNDER SECTION 11(4A) SHOULD BE NOTED, AND THAT THE INCOME FROM THIS BUSINESS WHICH IS PERMITTED U/S. 11(4A) IS WHOLLY USED TO FINANCE THE CHARITABLE ACTIVITIES ONLY. 9. WE HEARD SMT. PUSHYA SITARAMAN, THE LEARNED SENI OR ADVOCATE ALONG WITH MS. J. SREE VIDYA, ADVOCATE, AP PEARING FOR THE ASSESSEE AND SHRI T.N. BETGIRI, THE LEARNED JOINT C OMMISSIONER OF INCOME TAX, APPEARING FOR THE REVENUE. WE HEARD TH EM IN DETAIL 6 I.T.A. NO. 823/MDS/13 AND HAD AN EXTENSIVE DISCUSSION IN THE OPEN COURT, AT THE TIME OF HEARING, ON THE SCOPE OF SECTION 2(15), ESPECIALLY, IN THE LIGHT OF PROVISO ADDED THERETO AND THE IMPACT OF SECTION 11( 4A) OF THE INCOME-TAX ACT, 1961. 10. THE LEARNED SENIOR COUNSEL EXPLAINED THE SCOPE OF SECTION 2(15) CHARITABLE PURPOSE. CHARITABLE PURPOSE I NCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF, ETC. ACCORDIN G TO THE LEARNED SENIOR COUNSEL, THE ACTIVITIES CARRIED ON BY THE AS SESSEE FALL UNDER THE CATEGORY RELIEF OF THE POOR, EDUCATION, ME DICAL RELIEF. SHE FURTHER EXPLAINED THAT THE RIDER PROVIDED IN THE PR OVISO THAT ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CHARITABLE PURPOSE, IF IT INVOLVES THE CARRYIN G ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, WILL NOT APPLY TO THE ACTIVITIES CARRIED ON BY THE ASSESSEE. THE SAID RE STRICTION IS APPLICABLE ONLY TO THAT ACTIVITY WHICH FALLS UNDER THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. SHE, THEREFORE, EXPLAINED THAT RUNNING OF THE BUSINESS OF WWH AND IGH WILL NO T FETTER THE CLAIM OF THE ASSESSEE FOR RELIEF UNDER SECTION 11. THE ASSESSEES CASE SHOULD BE HIT BY THE PROVISO ONLY IF THE ASSES SEE IS CARRYING ON THE ACTIVITIES OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. THE ACTIVITIES CARRIED ON BY THE ASSESSE E ARE NOT 7 I.T.A. NO. 823/MDS/13 ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY; THE ACTIVITIES ARE SPECIFIC ACTIVITIES COVERING RELIEF OF THE POOR, EDUCATION AND MEDICAL RELIEF. SHE THEREFORE EXPLAINED THAT P ROVISO TO SECTION 2(15) WILL NOT APPLY TO THE ASSESSEE. 11. SHE ALSO EXPLAINED THAT SECTION 11(4A) IS STILL ALIVE AND ACTIVE IN THE STATUTE BOOK. THE SAID SUB-SECTION P ROVIDES THAT A CHARITABLE INSTITUTION MAY CARRY ON BUSINESS, WHICH IS INCIDENTAL OF CARRYING ON OF ITS MAIN OBJECTIVES AND IN SUCH CASE S, THERE IS NO EMBARGO AGAINST THE ASSESSEE FOR CLAIMING RELIEF AV AILABLE UNDER SECTION 11. SHE EXPLAINED THAT RUNNING OF IGH AND WWH ARE INCIDENTAL TO THE MAIN ACTIVITIES CARRIED ON BY THE ASSESSEE AND THEREFORE, BY VIRTUE OF SECTION 11(4A) ALSO, THE AS SESSEE IS ENTITLED FOR THE BENEFIT OF RELIEF UNDER SECTION 11 FOR THE ENTIRE INCOME GENERATED IN THE HANDS OF THE ASSESSEE IN THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 12. WE CONSIDERED THE CASE IN DETAIL. GENERALLY SP EAKING, THE ACTIVITIES CARRIED ON BY THE ASSESSEE SUCH AS RUNNI NG ORPHANAGES, OLD AGE HOMES, REHABILITATION CENTRES, DAY CARE CEN TRES FOR ELDERLY, VOCATIONAL TRAINING TO GIRLS FROM SLUMS, ETC. CANNO T BE CONSIDERED AS ACTIVITIES OF MEDICAL RELIEF OR EDUCATION OR RELIEF OF THE POOR. IT IS TRUE THAT THE ACTIVITIES CARRIED ON BY THE ASSESSEE TAKE CARE OF THE POOR 8 I.T.A. NO. 823/MDS/13 PEOPLE ALSO. BUT THOSE ACTIVITIES CANNOT BE CLASSIF IED UNDER ANY OF THE SPECIFIC ACTIVITIES OF RELIEF OF THE POOR; EDUC ATION OR MEDICAL RELIEF. THE CORRECT WAY TO EXPRESS THE NATURE OF T HE ACTIVITIES CARRIED ON BY THE ASSESSEE IS TO SAY THAT THE ASSESSEE IS C ARRYING ON ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. WHEN THAT IS THE CASE, THE ASSESSEE IS HIT BY THE PROVIS O GIVEN UNDER SECTION 2(15). THE PROVISO READS THAT ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT BE A CH ARITABLE PURPOSE, IF IT INVOLVES 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 FOR CONSIDERATION, IRRE SPECTIVE OF THE APPLICATION OF THE MONEY. THEREFORE, WE FIND THAT THE CASE OF THE ASSESSEE IS HIT BY PROVISO TO SECTION 2(15) AND THE ASSESSEE IS NOT ENTITLED FOR THE BENEFIT OF SECTION 11 FOR THAT PAR T OF INCOME GENERATED IN THE HANDS OF THE ASSESSEE FROM RUNNING ITS INTERNATIONAL GUEST HOUSE AND WORKING WOMENS HOSTE L. 13. ALTERNATIVELY, WE HAVE TO LOOK INTO SECTION 11( 4A). SUB- SECTION (4A) PROVIDES THAT EXEMPTION SHALL NOT APPL Y IN RELATION TO ANY INCOME OF A TRUST OR AN INSTITUTION, BEING PROF ITS AND GAINS OF BUSINESS, UNLESS THE BUSINESS IS INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE ASSESSEE OR AS THE CASE MAY BE, I NSTITUTION, AND 9 I.T.A. NO. 823/MDS/13 SEPARATE BOOKS OF ACCOUNT ARE MAINTAINED BY SUCH TR UST OR INSTITUTION IN RESPECT OF SUCH BUSINESS. 14. IN THE PRESENT CASE, THERE IS NO DISPUTE ON THE FACT THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF RUNNING AN INTERNATIONAL GUEST HOUSE (IGH) AND WORKING WOMENS HOSTEL (WWH). ASSESSEE IS MAINTAINING SEPARATE ACCOUNTS FOR THE A BOVE BUSINESS ACTIVITIES. BUT, THE CRUCIAL QUESTION IS WHETHER R UNNING OF IGH AND WWH IS A BUSINESS INCIDENTAL TO THE ATTAINMENT OF T HE OBJECTIVES OF THE TRUST OR NOT. BY ANY STRETCH OF IMAGINATION, I T IS NOT POSSIBLE TO HOLD THAT THE BUSINESS OF RUNNING IGH AND WWH ARE I NCIDENTAL TO THE ABOVE STATED OBJECTIVES OF THE ASSESSEE-TRUST. INCIDENTAL MEANS OFFSHOOT OF THE MAIN ACTIVITIES; INHERENT BY- PRODUCT OF PRINCIPAL ACTIVITIES. ACTIVITIES TO COMPLIMENT AND SUPPORT THE MAIN OBJECTIVES ARE NOT IN THE NATURE OF INCIDENTAL TO T HE BUSINESS. THEY ARE SUPPORTING ACTIVITIES, AT THE MAXIMUM. THE GEN ESIS OF INCIDENTAL ACTIVITIES MUST BE FROM THE PRINCIPAL ACTIVITIES TH EMSELVES. THERE CANNOT BE ONE SOURCE FOR THE PRINCIPAL ACTIVITIES A ND ANOTHER SOURCE FOR INCIDENTAL ACTIVITIES. 15. IN THE PRESENT CASE, EVEN IF THE ACTIVITIES OF THE ASSESSEE ARE STATED TO BE RELIEF OF THE POOR, MEDICAL RELIEF AND EDUCATION, IT IS NOT AT ALL POSSIBLE TO HOLD THAT RUNNING OF THE BUSINES S IN THE FORM OF IGH 10 I.T.A. NO. 823/MDS/13 AND WWH ARE BUSINESS INCIDENTAL TO THE CARRYING ON OF MAIN OBJECTIVE OF THE ASSESSEE-TRUST. THEREFORE, THE AS SESSEE IS NOT PROTECTED BY THE PROVISION STATED IN SECTION 11(4A) , EITHER. 16. IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF T HE CASE, WE FIND THAT THE ORDERS OF THE LOWER AUTHORITIES ARE J UST AND PROPER AND SUSTAINABLE IN LAW. 17. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH OF OCTOBER, 2013 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (DR. O .K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 30 TH OCTOBER, 2013. KRI. COPY TO: 1. APPELLANT 2. RESPONDENT 3. DIT(EXEMPT IONS), CHENNAI 4. CIT(A)-XII , CHENNAI-34 5. DR 6. GF.