ITO (E), NEW DELHI V. M/S. ANDHRA PRADESH TECHNOLOGY DEVELOPMENT & PROMOTION CENTRE, NEW DELHI

ITA 2406/DEL/2016

AI Insights

The case involves an appeal by the Income Tax Officer against the order of the Commissioner of Income Tax (Appeals), which had allowed the appeal of the Andhra Pradesh Technology Development & Promotion Centre for the Assessment Year 2010-11. The primary issue was whether the activities of the respondent organization, which included commercial activities like providing consultancy services in various fields, qualified as charitable activities under the Income Tax Act. The ITAT referenced a previous decision involving the same assessee for a different assessment year, where similar issues were set aside to the file of the CIT (Exemptions) with directions. The ITAT decided to follow the precedent set in the earlier case, remanding the matter back to the AO for a detailed examination of the nature of the assessee's activities in relation to their charitable objectives.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23580 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Other Referred Cases: ACIT (Exemptions) vs. Ahmedabad Urban Development Authority, Thanthi Trust, Surat Art Silk
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR DHANESTA
• Assessee Lawyers: RUPALI SINGH
• Keywords: Set aside; Business income; Tax effect; Earning of tax free income; Charitable institution
• Section: 143(3); 12AA; 12A; 10; 10(23C)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘B’: NEW DELHI BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.2406/Del/2016 (ASSESSMENT YEAR 2010-11) Income Tax Officer (E), Trust Ward-1(1), New Delhi. Vs. Andhra Pradesh Technology Development & Promotion Centre, 23-26, Institutional Area, Lodhi Road, New Delhi-110003. PAN: AAATA5160B (Appellant) (Respondent) Assessee by Ms. Rupali Singh, Adv. Department by Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing 24/03/2025 Date of Pronouncement 24/03/2025 O R D E R PER MANISH AGARWAL, AM: This appeal is filed by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-36, New Delhi [in short “Ld. CIT(A)], vide order u/s 250(6) of the Income Tax Act, 1961 (in short “The Act”) dated 15.02.2016 in appeal No. 149/2015- 16/65 for the Assessment Year 2010-11. 2. The Revenue has raised the following grounds of appeal:- “1. On the facts and in the circumstances of the case and in law, Ld. CIT(A) has erred in law in allowing the appeal of the assessee by ignoring the fact that it has not been able to establish that the activities w.r.t. intellectual property rights has been for the alleviation 2 ITA No.2406/Del/2016 of property and benefited any particular class of people though any concrete evidence. 2. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.” 3. At the outset, the Ld. AR submits that in the case of assessee itself for Assessment Year 2009-10, this issue has been decided by this Co-ordinate Bench of ITAT, Delhi wherein the issue was set aside to the file ld. CIT(Exemption) with certain directions. Therefore, prayed that the said order may be placed be followed as the facts are identical. 4. Per contra, the Ld. Sr. DR does not object to the request of the assessee. 5. After considering the facts, we find that in the instant case, in para no.5 of the appellate order. Ld. CIT(A) observed that while allowing the appeal of the assessee, the Ld. CIT(A) observed that in its own case in Assessment Years 2009-10 and 2011-12. It was held that assessee is not involved in commercial and business activities of the assessee and rather in the nature “Relief of the poor”. Hence, proviso to section 2(15) do not applicable to it. We are further gone through the order of the Co-ordinate Bench of Tribunal in the assessee’s own case for Assessment Year 2009-10 in ITA No.4025/Del/2012 wherein the Co-ordinate Bench of Tribunal has set aside the issue to the file of the AO by making following observations:- “19. We have heard the rival submissions and have perused the relevant material on record. We have heard the rival contentions and perused the material available on record. Admittedly, the assessee is a registered society u/s 12A of the Act and is involved in commercial activities like providing consultancy service to its client in the field of Bamboo management; Waste management by providing technical and infrastructural guidance to clients like 3 ITA No.2406/Del/2016 municipalities to set up Municipal Solid Waste Management Plants and Intellectual Property Rights activities by providing services for protection of all forms of intellectual Property Rights (IPR) and assists parties with filing, prosecution and registration of patents, trade- marks, designs and copy rights. 20. Admittedly, the society maintains separate books for its commercial activity as required u/s.11(4A) of the Act. We find that the assessee has asserted that its commercial activities are undertaken to fund its rural activities which aim to provide help and guidance to the villagers where funds mobilization for small artisans is always in deficit as Govt. grants are never adequate to meet the expenditure. Admittedly, till 31 March 2009, Financial support to the tune of Rs.11,45,430/- has been provided out of commercial activity to meet commitment for its rural activity. We find that the AO has considered the intellectual property right activity as purely business activity and not incidental to the attainment of the objectives of the society. 21. We note that the issue of charitable activities and its taxation has been adjudicated by the Hon’ble Supreme Court in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority, (2022) 449ITR1(SC), wherein the Hon’ble Supreme Court has laid down certain principles, and particularly about the GPU. The Hon’ble Supreme Court has considered this issue at paragraphs 166 to 173, as under: “166. What then is the interpretation of the expression \"incidental\" profits, from \"business\" being \"incidental to the attainment of the objectives of the GPU charity (which occurs in Section 11(4A))? As stated earlier, the interpretation of that expression in Thanthi Trust (supra) was in the context of a per se charity, l.e., where the trust's object was education.However,the restrictive or negative terms enjoining GPU charities from carrying on profitable activity had been deleted in 1983 (w.e.f. 01.04.1984). In Surat Art Silk (supra), the court had articulated the determinative test for defining whether a Trust was a GPU charity if its predominant object was to carry out a charitable purpose and that if that was the case, the fact that it earned profit would not per se deprive it of tax exemption. This decision was interpreted in the context of Section 11(4A) by this court in Thanthi Trust, to hold that business can be incidental to attainment of the trust's objects. 167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the 4 ITA No.2406/Del/2016 amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity's object. Thus, the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under Section 2(15) through its proviso directs and thereby marks a departure from the previous law, is - firstly that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly and the equally important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit of ₹10,00,000 (w.e.f. 01.04.2009),₹25,00,000 (w.e.f. 01.04.2012), and 20% (w.e.f. 01.04.2016) of the total receipts. Lastly, the \"ploughing\" back of business income to \"feed\" charity is an irrelevant factor again emphasizing the prohibition from engaging in trade, commerce or business. 168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to \"income being profits and gains of business\" with a further reference to its being incidental to the objects of the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or income derived from incidental activities. The proper way of reading reference to the term \"incidental\" in Section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to Section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (i) to proviso to Section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of Section 11(4A). Further, the obligation under Section 11(4A) to maintain separate 5 ITA No.2406/Del/2016 books of account in respect of such receipts is to ensure that the quantitative limit imposed by sub-clause (ii) to Section 2(15) can be computed and ascertained in an objective manner. 169. The conclusion recorded above is also supported by the language of seventh proviso to Section 10(23C). Whereas Section 2(15) is the definition clause, Section 10 lists out what is not income. Section 10(23C) - by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of Section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso - much like Section 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes Section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. 170. Classically, the idea of charity was tied up with eleemosynary 143. However, \"charitable purpose\" - and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, the idea of providing services or goods at no consideration, cost or nominal consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render Services to the public with the condition that they would not charge \"more than is actually needed for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, - may be a little surplus is left over at the end of the year - the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit\". 171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under 6 ITA No.2406/Del/2016 the Act. If one keeps this in mind, what Section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental), or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to. 172. Yet another manner of looking at the definition together with Sections 10(23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted - if the quantum of such profits do not exceed 20% of its overall receipts. 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business or service in relation to them. In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15).” 22. In similar circumstances as in the present case, the Hon’ble Supreme Court, further, from paragraphs 247 to 252, has considered issue, as under: 7 ITA No.2406/Del/2016 “247. The revenue appeals a decision of the Allahabad High Court affirming the order of the ITAT which had directed the CIT to grant registration under Section 12AA of the Income Tax Act. 248. The assessee is a registered society which was formed with the object of establishing and running a health club, Arogya Kendra; its object included organization of emergency relief centre, etc. Other objects, included promotion of moral values, eradication of child labour, dowry, etc. The assessee had entered into arrangements with the state agencies to supply mid-day meals to students of primary schools in different villages through contracts entered into with the Basic Shiksha Adhikari, District Meerut. It is a matter of record that the materials for preparation of mid-day meal was supplied by the government. The assessee society claimed that it only obtains nominal charges for preparation of mid-day meals. The assessee's claim for registration was rejected on the ground that it was involved in commercial activity. Upon appeal, the ITAT agreed with the assessee that supply of mid-day meals did not constitute business or commerce and that it promoted the objects of general public utility. 249. The revenue in its appeal contends that the assessee's only activity for the relevant year was supply of mid-day meals to primary schools. This was not relatable to any object of the society. The assessee's contention is that the state ordinarily would have carried on the activity of supply of mid-day meals. Yet, nevertheless it outsourced its activity to an outside agency like the assessee which performed it for nominal charges. 250. This court is of the opinion that there is no clarity with respect to whether the activity of supplying mid-day meals falls within the objects clause of the assessee society. The order of the ITAT as well as the High Court disclosed that the assessee's objects involved maintenance of health clubs, Arogya Kendra, promotion of moral values and provision of emergency relief. These do not however include the activity which it actually performed, i.e.. entering into contracts for supply of mid-day meals and the activity of cooking and supply of mid- day meals. In the absence of fuller material, it would not be possible for the court to assess the activity with which the assessee was engaged, and determine whether it could be said to legitimately fall within the description of GPU. 8 ITA No.2406/Del/2016 251. The first consideration would be whether the activity concerned was or is in any manner covered by the objects clause. Secondly, the revenue authorities should also consider the express terms of the contract or contracts entered into by the assessee with the State or its agencies. If on the basis of such contracts, the accounts disclose that the amounts paid are nominal mark-up over and above the cost incurred towards supplying the services, the activity may fall within the description of one advancing the general public utility. If on the other hand, there is a significant mark-up over the actual cost of service, the next step would be ascertain whether the quantitative limit in the proviso to Section 2(15) is adhered to. It is only in the event of the trust actually carrying on an activity in the course of achieving one of its objects, and earning income which should not exceed the quantitative limit prescribed at the relevant time, that it can be said to be driven by charitable purpose. 252. This court, in the normal circumstances, having regard to the above discussion, would have remitted the matter for consideration. However, it is apparent from the records that the tax effect is less than Rs.10 lakhs. It is apparent that the receipt from the activities in the present case did not exceed the quantitative limit of Rs. 10 lakhs prescribed at the relevant time. In the circumstances, the impugned order of the High Court does not call for interference.” Finally, while summarizing the conclusions, the Hon’ble Supreme Court, in paragraphs 253(A3) and (A4), held as under: “A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost basis or nominally above cost, cannot be considered to be \"trade, commerce, or business\" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of \"cess, or fee, or any other consideration\" towards \"trade, commerce or business\". In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. 9 ITA No.2406/Del/2016 A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has now been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.e.f. 01.04.2009), reaffirm the interpretation and bring uniformity across the statutory provisions.” 23. In light of the principles laid down in the judgement of Ahmedabad Urban Development Authority (supra), we have to determine the nature of activities of the assessee society. We find that the aims and objects do not include the “relief to poor” as its objective and the submissions of the assessee do not quantitatively nor qualitatively demonstrate that it is engaged in charitable activities which may fall under the 1st limb of section 2(15). We also find that the assesseeis also engaged in commercial activities such as Bamboo management; waste management and Intellectual Property Rights activities where it provides technical consultancy service which falls under the 4th limb of section 2(15).We note that neither the AO nor the CIT(A), in the present case, has considered the activities of the assessee in the light of conditions as elaborated by the Hon’ble Supreme Court above, whether aim/object of the trust or GPU is charitable or not? To consider the principle laid down by Hon’ble Supreme Court in the above case, we set aside the order of CIT(A) and that of the AO, and, remand the matter back to the file of the AO with the following direction: i) The AO will give finding with reference to the financial accounts whether the activities of the assessee such as bamboo plantation, waste management and IPR falls within the objects clauses of the assessee’s society and, in turn, they are charitable activity or general public utility (GPU) ? Needless to say that the assessee society shall furnish evidence to support its claim that its activities fall within the 1st limb of the section 2(15). ii) Whether, in the assessee’s case, in achieving its objective under the GPU activity, if the charity involves itself in activities that entail charging amounts only at cost or marginal mark up over cost or derive some profit, the prohibition against carrying on business or service is not attracted, if the aggregate value of such receipts did not exceed Rs.10,00,000/. This needs reconsideration. 24. In terms of the above, the matter is restored back to the file of the AO, and the appeal of the Revenue is allowed for statistical purposes.” 10 ITA No.2406/Del/2016 6. Admittedly the facts of the instant appeal are identical to the facts of assessee’s case for Asst. Year 2009-10 wherein the Co-ordinate Bench in ITA No.4025/Del/2012 has set aside the issue to the file of AO with certain directions contained in para No.23 of its order. Therefore, by following the said judgment and the observations which are mutatis mutandis applied to the present facts of the case, the matter is restored back to the file of the AO. The appeal of the Revenue is allowed for statistical purposes. 7. In the result, the appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in the open Court on 24.03.2025. Sd/- Sd/- (MAHAVIR SINGH) (MANISH AGARWAL) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 26.03.2025 PK/Ps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "