s. 11 & s.2(15) interpreted.

[rajul5234]

Tax appeal 713 / 2013. Dt. 13/6/14. AMA.

Guj. H.C. interpreted s. 11 read with amended s.2(15).

Important decision which has effect on exemptions of several  trusts post amendment of s.2(15)

R.K.Patel

[vsaiyar]

please post a copy or give citation.

[ravianddev]

The citation appears to be incorrect as on the Gujrat High Court's site, the Tax Appeal No 713/2013 is Gujrat VAT judgement.

[shobha nagrani]

Sir, it is 707/13. The judgement is reported here:

DIT (E) vs. Ahmedabad Management Association (Gujarat High Court)

http://itatonline.org/archives/index.php/dit-e-vs-ahmedabad-management-association-gujarat-high-court-proviso-to-s-215-which-denies-exemption-to-a-charitable-institution-carrying-on-commercial-activities-does-not-apply-to-institutions-car/

[ravianddev]

Thanks. Devendra A. Mehta

[pawansingla]

IT: Newly inserted proviso to section 2(15) will apply to entities whose purpose is advancement of any other object of general public utility but will not apply to entities engaged in activities in nature of relief to poor, education or medical relief

■■■

[2014] 47 taxmann.com 162 (Gujarat)

HIGH COURT OF GUJARAT

Director of Income-tax (Exemption)

v.

Ahmedabad Management Association*

M.R. SHAH AND R.P. DHOLARIA, JJ.
TAX APPEAL NO. 707 OF 2013†
JUNE  13, 2014

Section 2(15), read with section 11, of the Income-tax Act, 1961 - Charitable purpose - (Proviso to section 2(15)) - Assessment year 2009-10 - Whether newly inserted proviso to section 2(15) will apply to entities whose purpose is advancement of any other object of general public utility and, hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) if they carry on commercial activities but said proviso will not apply in respect of activities in nature of relief to poor, education or medical relief - Held, yes - Assessee-association undertook multifaceted activities comprising of conducting various continuing education diploma and Certificate Programmes, Management Development Programmes, Public Talks, Seminars, Workshops and Conferences - It claimed exemption under section 11 - Assessing Officer held that, considering nature of courses offered, their duration and resultant surplus, activity of assessee was not educational but fell within scope of newly inserted proviso to section 2(15) and denied exemption - Whether since activities of assessee would fall within realm of education which is 'charitable' as per section 2(15), assessee would be entitled to exemption under section 11 - Held, yes [Para 5.7] [In favour of assessee]

Circulars and Notifications : Circular No. 11/2008 dated 19-12-2008.

FACTS

■       The assessee, a public charitable trust, was dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas. It claimed exemption under section 11 on ground that it undertook multifaceted activities comprising of conducting various continuing education diploma and certificate programmes, management development programmes, public talks, seminars, workshops and conferences.
■       The Assessing Officer observed that considering the nature of courses, its durations and resultant surplus from each activity, the activity of the assessee is not educational in nature. The Assessing Officer held that activities of assessee fell within scope of amendment of 'advancement of any other object of general public utility and any other activity' of section 2(15) and, since the aggregate value of receipts were more than Rs. 10 lakhs, proviso to section 2(15) was applicable and the assessee was not entitled for exemption under section 11.
■       The Commissioner (Appeals) confirmed the said order.
■       The Tribunal had held that the activities of the assessee were in the field of education and, therefore, the assessee was eligible for exemption under section 11.
■       On further appeal:
HELD

■       It is required to be noted that all throughout for the previous years, right from the Assessment year 1995-96 till 2008-09 the revenue has considered the activities of the assessee as educational activity and has granted the benefit under section 11. [Para 5.2]
■       However, subsequently and with effect from assessment year 2008-09, proviso to section 2(15) has been added and section 2(15) has been amended by the Finance Act, 2008 by adding the proviso which states that the 'advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of (a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business for cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. The revenue has denied the exemption claimed by the assessee under section 11 mainly relying upon the amended section 2(15) by submitting that the case of the assessee would fall under the fourth limb of the definition of 'charitable purpose' i.e. 'advancement of any other object of general public utility' and, therefore, the assessee shall not be entitled to exemption from tax under section 11. [Para 5.3]
■       The activities of the assessee such as continuing education diploma and certificate programme; management development programme; public talks and seminars and workshops and conferences etc., is educational activities and/or is in the field of education. [Para 5.6]
■       So far as the amendment in section 2(15) amended vide Finance Act, 2008 and insertion of proviso to section 2(15) is concerned, as such the same has been explained vide Circular No. 11/2008 dated 19-12-2008. It is clarified that where industries or trade association claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of proviso to section 2(15) owing to the principles of mutuality. From Circular No. 11/2008 dated 19-12-2008 it appears that the newly inserted proviso to section 2(15) will apply to entities whose purpose is advancement of any other object of general public utility and hence such entities will not be eligible for exemption under section 11 or under section 10(23C) if they carry on commercial activities. Thus, on fair reading of section 2(15) the newly inserted proviso to section 2(15) will not apply in respect of relief to the poor; education or medical relief. Thus, where the purpose of a trust or institution is relief of the poor; education or medical relief, it will constitute 'charitable purpose' even if it incidentally involves the carrying on of the commercial activities. Thus, on fair reading of section 2(15) read with Circular No. 11/2008 dated 19-12-2008 it appears that if the case of the assessee does not fall within relief to the poor; education or medical relief and if it falls in advancement of any other object of general public utility and it is found that such activity of advancement of any other object of general public utility involves carrying on of (a) any activity in the nature of trade, commerce or business; or (b) 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, the same shall not be considered for 'charitable purpose' and shall not be entitled to exemption under section 11. [Para 5.7]
■       In the present case, the activities of the assessee would fall within the definition of 'charitable purpose' as per section 2(15) and, therefore, would be entitled to exemption under section 11. [Para 5.8]
CASE REVIEW

Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.) [Para 7] followed.

Ahmedabad Management Association v. Jt. DIT (Exemption) [2013] 35 taxmann.com 150 (Ahmedabad - Trib) (para 7) affirmed.

CASES REFERRED TO

Sole Trustee, Lok Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) (para 2.1), Gujarat State Co-operative Union v. CIT [1992] 195 ITR 279 (Guj.) (para 2.3), Saurashtra Education Foundation v. CIT [2005] 273 ITR 139/[2004] 141 Taxman 26 (Guj.) (para 3.1), State of Orissa v. Mamata Mohanty [2011] 3 SCC 436 (para 3.2), State of Tamil Nadu v. K. Shyam Sunder [2011] 8 SCC 737 (para 3.2) and CIT v. Sorabji Nusserwanji Parekh [1993] 201 ITR 939/66 Taxman 411 (Guj.) (para 4.6).

Mrs. Mauna M. Bhatt for the Appellant. Jigar M. Patel, Mukesh M. Patel and R.K. Patel for the Respondent.

JUDGMENT

M.R. Shah, J. - Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, 'D' Bench, Ahmedabad (hereinafter referred to as 'the tribunal') dated 22/03/2013 in ITA No. 159/Ahd/2013 for the Assessment Year 2009-10 by which the tribunal has allowed the said appeal preferred by the respondent-assessee holding that the activities of the assessee were in the filed of education and the assessee was eligible for exemption under Section 11(1) of the Income Tax Act (hereinafter referred to as 'the Act') and consequently quashed and set aside the order passed by the Assessing Officer confirmed by the Commissioner of Income Tax (Appeals) assessing the income of the assessee at Rs.1,42,11,129/- with the proposed following substantial question of law;

"Whether the Appellate Tribunal has substantially erred in holding that the activities of the assessee are in the field of education and that the assessee was eligible for exemption under Section 11(1) of the Act?"

2. The assessee-Ahmedabad Management Association is a Public Charitable Trust, which is dedicated to pursue the objects of continuing education, training and research on various facets of management and related areas for the past 50 years. Various activities of the assessee and its revenues are highlighted by the Assessing Officer in paragraph 5 of the Assessment Order;

"The summarized position of the Income & Expenditure of various of the assessee, as submitted by the assessee is as under;

   Nature of Educational Programme   Income (Rs.)   Expenditure (Rs.)
   Continuing Education Diploma & Certificate Programs   3,32,51,021   1,73,50,202
   Management Development Programs   65,73,962   55,18,482
   Public Talks & Seminars   0   11,59,959
   Workshops & Conferences   13,65,659   21,54,199
   Total as appearing in Income & Expenditure Account   4,11,90,642   2,61,82,842