|CORAM:||A. T. Varkey (JM), Pramod Kumar (AM)|
|CATCH WORDS:||Charitable purpose|
|COUNSEL:||Rano Jain, Ved Jain|
|DATE:||January 16, 2015 (Date of pronouncement)|
|DATE:||January 19, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 2(15): Fees or consideration received for rendition of a service to business, trade or commerce will not attract the disability under first proviso to s. 2(15) if such service is subservient to the charitable cause and is not in the nature of business itself|
Though the assessee is not engaged in an activity in the nature of trade commerce or business, it is claimed by the AO that the assessee has rendered services “in relation to trade, commerce or business” for a consideration, and it is for this reason that the first proviso to Section 2(15) is attracted on the facts of this case. Undoubtedly once an assessee is found to be “rendering any services in relation to any trade, commerce or business, for a cess or a fee or any other consideration”, and irrespective of what he does to the income generated by such an activity, the assessee cannot be said to be pursuing charitable activities;
(ii) In GS1 Vs Director General of Income Tax (Exemptions) (2013) 360 ITR 138 the Delhi High Court has held that the proviso to second limb will not apply in the case of a rendition of a service per se, for a cess, fee or any other consideration, or to a trade, commerce or business, but that this clause can come into play for the purpose of excluding an assessee “who carries on business, trade or commerce to feed the charitable activities”. In other words, the scope of second limb, as held by High Court, extends only to such cases in which a business is carried out to feed the charitable activities. It would thus follow that even for invoking second limb of first proviso to Section 2(15), it is sine qua non that the assessee has extended services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee. It is thus clear that even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as such a service is subservient to the charitable cause and is not in the nature of business itself, the disability under second limb of first proviso to Section 2(15) will not come into play;
(iii) Similarly, in The Institute of Chartered Accountants of India Vs DGIT (Exemptions) [(2013) 358 ITR 91], the Delhi High Court has held that, “even though fees are charged by the petitioner institute for providing coaching classes and for holding interviews with respect to campus placement, the said activities cannot be stated to be rendering service in relation to any trade, commerce or business as such activities are undertaken by the petitioner institute in furtherance of its main object which as held earlier are not trade, commerce or business”. In this case also, the rendition of services by the assessee is viewed in conjunction with the overall objectives of the assesse and once it is seen that these services are not in the nature of trade, commerce or business per se, the mere charging of fees for services so rendered, which were held to subservient to the charitable objectives, is held to have no effect on the overall charitable objects of the assessee;
(iv) The contrary view in Andhra Pradesh State Seed Certification Agency Vs Chief Commissioner of Income Tax (2013) 356 ITR 360 that as long as the services are rendered to a business, trade or commerce, irrespective of the motives of the person rendering such services, the services so rendered vitiate the charitable character of the assessee rendering such services cannot be followed as it is of a non-jurisdictional court.
“in relation to trade, commerce or business” for the purpose of proviso to section 2(15) of the Act: There should be motive of business first and in the case of charitable organisation there is no motive of business the activities is carried out only with motive and to obtain its object could not be covered under the proviso to section 2(15) as held in Indian Chamber of Commerce v s ITO (ITAT Kolkata) and The Institute of Chartered Accountant of India Delhi HC.