Income Tax Appellate Tribunal - Mumbai
Indo-American Society vs Asstt. Dit (Exemption) on 10 May, 2004
Equivalent citations: [2005]96ITD61(MUM)
JUDGMENT
M.K. Chateirvedi, VP ITA No. 833/Mum/2000: This appeal by the assessee is directed against the order of CIT(A)-XVIII, Mumbai, and relates to the assessment year 1996-97.
2. The following two grounds taken in this appeal are reproduced here as under :
"1. That the learned Income Tax Officer as well as CIT(A) erred in law as well as the facts of the case in computing the total income of your petitioners at Rs. 27,83,662 by denying exemption under section 11 and in holding that your petitioners are conducting courses which have no connection with the objects of the society.
2. That without prejudice to the aforesaid ground of appeal the assessing officer as well as the CIT(A) ought to have appreciated that the provisions of section 11(4A) of the Income Tax Act, 1961, are (sic) applicable to your petitioners and are entitled to the benefit of the relief provided by the said provisions."
3. We have heard the rival submissions in the light of material placed before us and precedents relied upon. The assessee is an AOP. As per the memorandum of association, the assessee-society was constituted for the dissemination of knowledge and education and the promotion of understanding between the people of India and the people of the United States of America. Its aims and objectives includes, inter alia, the true appreciation of the ways of life, cultures and languages of the peoples of these countries and the promotion of enduring goodwill', friendship and co-operation in all spheres of life, thought and activity between the peoples of these countries.
4. In furtherance of the aforesaid aims and objectives, the society may undertake among others, the following activities in particular "(a) the establishment of information exchange centre;
(b) the organization of lectures, talks, symposia, forums, discussions, conventions, conferences, seminars and classes for the consideration of issues affecting the relations between India and the United States of America;
(c) the organization and conduct of classes and conversation groups in English;
(d) the establishment of public libraries, study and research centres specially devoted to American life, language, literature and culture;
(e) the establishment of fellowship and the promotion of facilities for the exchange of leaders of thought, professors and students;
(f) the publication of bulletins, books, pamphlets and periodical literature;
(g) the organization of exhibitions, social gatherings and cultural programmes on various phases of art, literature, culture, philosophy, crafts, agriculture and industry;
(h) the holding of receptions, press conferences, etc.;
(i) the organization of delegations from one country to the other;
(j) the arrangement of suitable recreational facilities and social contacts between the peoples of India and the United States of America."
5. The society comprises of different classes of membership. The details of the same are as under :
"Classes of membership and their entrance and subscription Patrons Rs.
(a) Individuals 5,000
(b) Corporate 10,000 Life members:
Individuals only 2,500 Ordinary members 200 per annum Entrance fee 200 one-time Corporate members 1,500 per annum Entrance fee 500 one-time Student members 50 per annum Family members 25 per annum"
6. Assessing Officer considered the 36th annual report of the society for the financial year 1995-96. It revealed from the perusal of the same that the assessee incurred expenditure to welcome Shri Palkhivala and American guests and other dignitaries in John F. Kennedy Memorial. This activity was found to be covered by the objects. It was noticed that the main source of income was from running educational programmes. In the opinion of the assessing officer, these programmes did not bear any nexus with the objects of the society. It was observed in the order that by learning the art of selling, export business, interior decoration, photography, jewellery designing, etc. no person can understand the culture and the language of the American people. It was found that the courses were conducted purely in professional manner with high charges at five-star hotels. From this it was concluded that only elite class can attend these courses. As such, it was held that the object of the society is not falling within the ambit of 'general public utility' class. It was also noticed that for a number of courses the assessee charged a percentage for earning large profits, which was spent for receiving, entertaining American ambassadors, councilors and other such people. The income from educational programmes amounted to in the vicinity of Rs. 78 lakhs.
7. The other sources of income comprised of Rs. 20 lakhs from sponsorship and interest income. This has got no link with the objects or the activities of the society. On this factual backdrop the assessing officer held that the object of the assessee society cannot be construed to be the object of general public utility; as such the benefit claimed under section 11 of the Income Tax Act, 1961, was denied. Further, in regard to the various courses conducted by the assessee-society, it was held to be business activity. The case was examined on the touchstone of section 11(4A) of the Act and the benefit claimed under section 11 was denied.
8. The following academic programmes were carried out by the assessee society during the relevant assessment year 'I Management seminars
1. Managerial empowerment
2. Making strategies work and implementing strategies
3. Scientific personnel selection
4. Role of secretaries
5. Art of negotiation
6. Functions of a manager
7. Effective salesmanship
8. Managing for results and project management
9. Exports
10. Seminar on management, marketing, information technology, finance and HRD for top-level executives II. Class-room programmes
1. Advance English conversation
2. Public speaking
3. Personality development
4. Photography
5. Jewellery designing
6. Diamond assortment
7. Computerized coaching for GRE, GMAT and SAT tests for admission to US universities III. Cultural activities
1. Programmes for expatriate families new to India on Indian art, culture, classical music, dance, etc."
9. The expression "charity" or "charitable purposes" do not admit of rigid definition. In order to understand what these expressions legally convey, one can merely enumerate its various aspects and characteristics as they have been recognised by the laws of a particular country. "Charity" denotes instincts of piety and benevolence, dictated by desire to do good. In the case of Commr. for Special Purposes of IT v. John Frederick Pemsel (1891) 3 Tax Cases 53 (HL), Lord Macnaghten laid down that charitable purposes could be put under the four heads, viz., for the relief of poverty; for the advancement of education; for the advancement of religion; and for other purposes beneficial to the community not falling under any of the preceding heads. In re White v. White (1893) 2 Ch.41 (CA) broadened the base and laid down in general terms "any mode of promoting the welfare of mankind" would be a charitable object. As per the prescription of section 2(15) of the Act, "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. Even if an object or purpose may not be regarded as charitable in its popular signification as not tending to give relief to the poor or for advancement of education or medical relief, it would still be included in the expression "charitable purpose" if it advances an object of general public utility. The law recognises no purpose as charitable unless it is of a public character. That is to say, a purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community. The sense in which the word "education" has been used in section 2(15) is the systematic instruction, schooling or training given to the young in preparation for the work of life. It also connotes the whole course of scholastic instruction which a person has received. Education, in order to be charitable, must relate to the public. In the case of Ecumenical Christian Centre v. CIT (1983) 139 ITR 226 (Kar), it was held that the promotion of search for truth and diffusion of useful knowledge, promotion of conferences and discussions, the foundation and maintenance of conference centres and reading rooms and publication of journals and books for general use among the members and others are objects directly relating to education. In Royal Choral Society v. IRC (1944) 12 ITR (Supp) 13 (CA), the court of appeal held that cultivation and improvement of public taste in music and other fine arts is education and thus falls within the category of charitable purposes. In such cases, it must be determined on the facts whether the presence of the element of entertainment or pleasure is an inevitable concomitant of a charitable or educational purpose, or whether it is the real fundamental purpose and education is merely a by-product. In the former case, the purpose would be charitable, in the latter case not. In the present case, we find that the dominant object was to impart education. As such, in our opinion, the management of seminars and class-room programmes as conducted by the assessee-society could clearly be construed to be for educational purposes.
10. Adverting now to the concept of general public utility, we find that "general" means pertaining to a whole class; "public" means the body of people at large; and the word "utility" signifies usefulness. Therefore, the advancement of any object of benefit to the public or a section of the public as distinguished from an individual or a group of individuals,. would be of charitable purpose. The expression "any other object of general public utility" is of the widest connotation. It prima facie includes all objects which promote the welfare of the general public. An object of public utility need not be an object in which the whole of the public is interested. It is sufficient if a well-defined section of the public benefits by the object. In other words, the expression "object of general public utility", however, is not restricted to objects beneficial to the whole mankind. An object beneficial to the people of India and USA is an object of general public utility. To serve a charitable purpose, it is not sine qua non that the object should be to benefit the whole of mankind or even all persons living in a particular country or province. It is sufficient if the intention is to benefit a section of the public as distinguished from specified individuals. The section of the community sought to be benefited must undoubtedly be sufficiently defined and identifiable. It is nowhere laid down that to enable the benefit of section 11 of the Act, education must be provided to the poor person only. Therefore, the objection of the revenue that the educational programmes conducted by the society are within the reach of elite class is of no consequence. Relief to the poor cannot be construed conjointly with education. Education also comes within the ambit of charitable purpose. In England, the term "charity" was defined in the statute of Elizabeth (strictly in the fashion, style and language as used in the original statute) as : "relief of aged, impotent and poor people." As per literal interpretation of the statute, in order to avail the benefit of charity one must qualify all the conditions laid down, i.e., he should be aged, impotent and poor. But this interpretation is far from pragmatism. The words aged, impotent and poor ought not to be construed conjunctively, so as to deny benefit separately to aged people, impotent people and poor people. This aspect was considered in the case of Re Robinson, Davis v. Robinson (1950) 2 All ER 148. It was held in the said case -that the words, "aged, impotent and poor" in the statute of Elizabeth should be read disjunctively so that aged people need not also be poor to come within the ambit, purview and scope of the statute. Likewise, to enable the benefit of section 11 it is not sine qua non that education should only be imparted to the poor class and not to the elite class.
11. We have perused the objects of the assessee-society as given in the memorandum of association along with the activities undertaken by the society to achieve the objects. Just because the assessee-society is charging fee for conducting the courses, the assessee cannot be put within the ken of section 11(4A) of the Act. The Finance Act, 1983, has inserted sub-section (4A) in section 11 to provide that benefit of charity will not be available in relation to profits and gains of business. "Business" is a word of wide import. It denotes continuous and systematic exercise of an occupation or profession with the object of making income or profit. There is absolutely nothing in the impugned order to suggest that the assessee-society conducted the educational programmes with a view to earn profit. The society was formed for the public good. The society charged the fees to meet the cost of educational programmes. Wherever surplus resulted, it was utilized for the promotion of the objects of the society. The educational programmes were conducted in conformity with the objectives. There is absolutely nothing to indicate that such programmes were conducted not with the desire to do good but to earn profit. We are satisfied that the profit element is missing. Fees were charged to meet the cost. As such, it cannot be construed to be the business of the assessee-society. Once this finding is arrived, the conclusion is irresistible that the case of the assessee is not coming within the ambit of sub-section (4A) of section 11 of the Act. Accordingly, the benefit of section 11(1) of the Act cannot be denied to the assessee. We direct the assessing officer to allow exemption under section 11 of the Act to the assessee-society.
12. In the result, appeal of the assessee stands allowed.
13. ITA No. 697/Mum/2001 : In view of our decision in ITA No. 833/Mum/2000, we allow the appeal of the assessee.
14. In the result, appeal of the assessee stands allowed.