Gujarat High Court
Commissioner Of Income ... vs Imc Society Of Iti ... on 18 July, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
O/TAXAP/569/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 569 of 2016
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COMMISSIONER OF INCOME TAX(EXEMPTIONS)....Appellant(s)
Versus
IMC SOCIETY OF ITI VADIA....Opponent(s)
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Appearance:
MRS MAUNA M BHATT and MR.MUNJAL M BHATT,
ADVOCATES for the Appellant
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 18/07/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) The revenue is in appeal against the judgment of the Income Tax Appellate Tribunal raising the following substantial question of law for our consideration:
"Whether the Appellate Tribunal is justified in allowing registration to the assessee disregarding the fact that the assessee trust is not a charitable organisation, as the trust is engaged purely in commercial activities, hit by proviso to section 2(15) of the Act ?"
2. The respondent assessee is a society and had applied for registration under section 12AA of the Income Tax Act, 11961. The Commissioner of Income Tax noted the main objects of the society but came to the conclusion that the Page 1 of 4 HC-NIC Page 1 of 4 Created On Wed Jul 20 02:19:14 IST 2016 O/TAXAP/569/2016 ORDER objects of the society are not of charitable nature but are purely of commercial nature. He therefore, refused application for registration. The respondent therefore, approached the Tribunal. The Tribunal by the impugned judgment allowed the appeal primarily on the ground that objects of the assessee were for the advancement of objects and general public utility and that the question of applicability of the proviso to section 2 to section 15 of the Income Tax Act, 1961("the Act" for short) would arise at the time of granting exemption under section 11 of the Act.
3. Learned counsel Mr. Bhatt for the appellant submitted that the Tribunal committed a serious error in overruling the decision of the Commissioner who had given cogent reasons for holding that objects of the assessee were not for general public utility but were purely in the nature of commercial activities.
4. From the record, however, we notice that the institute was created with an object of improving quality of training leading to better employibility of trainees and upgradation of industrial training institute. The institute though had to receive funds under certain circumstances, would operate on no loss no profit basis, however, would try to be financially self sufficient for which purpose revenue would be generated through certain sources.
5. If after consideration of such objects, the Tribunal held that the institute was engaged in the object of general public utility, we do not see any error in such view. Section 2(15) of the Act reads as under:
Page 2 of 4HC-NIC Page 2 of 4 Created On Wed Jul 20 02:19:14 IST 2016 O/TAXAP/569/2016 ORDER "2(15) "Charitable purpose"includes relief of the poor, education(yoga) medical relief, (preservation of environment (including water sheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest) and the advancement of any other "object of general public utility:
(Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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 aces or fee or any other consideration, irrespective of the nature of use or application or retention, of the income from such activity, unless-
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;]]."
6. The term "charitable purpose" thus includes advancement of any other object of general public utility. Proviso to section 2(15) however provides that such purpose will not be charitable purpose if it involves carrying on any activity of nature of trade or business or any activity rendering any service in relation to the said commercial business, for a cess or fees or any other consideration irrespective of the nature of use or application, or retention of the income from such activity. This sub-section however carries a further proviso which provides that the proviso will not apply to aggregate value of receipts from the activities referred to thereunder is 25 per cent or less in the previous year. In other words, so long as the aggregate value is less Page 3 of 4 HC-NIC Page 3 of 4 Created On Wed Jul 20 02:19:14 IST 2016 O/TAXAP/569/2016 ORDER than 25 per cent, the exclusion clause contained in the first proviso would not activate. Surely, at the time of application for registration, when the applicant institute has not even commenced its activities, it would not be possible to apply this proviso and the question of their applicability would arise at a later stage while actually granting exemption.
7. Under such circumstances, tax appeal is dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 4 of 4 HC-NIC Page 4 of 4 Created On Wed Jul 20 02:19:14 IST 2016