Income Tax Appellate Tribunal - Delhi
Ito (E), Delhi vs All Indian Fine Arts & Crafts Society, ... on 19 June, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHE 'F', NEW DELHI
Before Sh. H. S. Sidhu, Judicial Member
And
Sh. R. K. Panda, Accountant Member
ITA No. 1806/Del/2016 : Asstt. Year: 2011-12
Income Tax Officer(E), Vs All India Fine Arts & Crafts
Trust Ward-1(1), Society, 1, Rafi Marg,
Delhi New Delhi-110001
(APPELLANT) (RESPONDENT)
PAN No. AAATA7840E
Assessee by : Sh. Rajan Malik, Adv.
Revenue by : Sh. Surendra Pal, Sr. DR
Date of Hearing :29.05.2019 Date of Pronouncement : 19.06.2019
ORDER
Per R. K. Panda, Accountant Member:
Thi s appeal filed by the Revenue i s di rected agai nst the orde r dated 12.01.2016 of l d. C ommi ssi oner of Income Tax (Appeal s), New Del hi rel ating to assessment year 2011-12.
2. The onl y effecti ve ground rai sed by the Revenue reads as under:
"1. On the facts and in the circum stances of the case and in law, the Ld. CIT(A) ha s erred in ignoring the fact that the activities of the assessee does not fall under the definition of charita ble purpose as defined in Section 2(15) of the Income Tax Act, 1961."
3. Facts of the case, i n bri ef, are that the assessee i s a soci ety and fil ed i ts return of i ncome on 28.09 .2011 decl ari ng total income of Rs.1,30,00,000/-. The assessee i s regi stere d under the Soci eti es Regi strati on Act, 1860 . The Assessi ng 2 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society Offi cer duri ng the course of assessment proceedi ngs obse rved that the ai ms and objects of the assessee soci ety are as under:
"(a) To foster and Develop fine a nd applied arts in India and to promote appreciat ion by means of publications, lectures, conferences, demonstrati on, exhibition;
(b) To organize and establish a national art gallery in New Delhi;
(c) To organize a rt exhibitions an d societies in India and abroad;
(d) To act a s the Central Organi zations of Arts and Crafts in India;
(e) To do all such law full things as are incidental or conducive to the attainment of above objects an d any other objects of art s a nd literature not mentioned above."
4. The Assessi ng Offi cer asked the assessee to expl ai n as to why the benefit u/s 11 & 12 of the Act i n respect of the i ncome shoul d be all owed i n view of the amended Secti on 2(15) of the Act i ntroduced w.e.f. 01.04.2009 i .e. rel evant to assessment year 2011-12 under consi derati on, si nce i ts acti viti es fall i n the category of "advancement of object of gene ral publi c utility" and its income i ncl udi ng rental i ncome i s i n the nature of busi ness, trade or commerce a nd the same i ncome exceeds Rs.10,00,000/-. Rejecti ng the various expl anati on given by the assessee and rel yi ng on the amended provi si ons of Secti on 2(15) of the Act and CBDT C i rcul ar No. 11/2008 date d 19.12.2008, the Assessi ng Offi cer hel d that the activi ti es of the assessee soci ety is not for chari tabl e purpose and therefore, the i ncome of the assessee i s taxabl e. He noted that 3 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society the assessee duri ng the year under consi derati on has deri ved i ncome under the foll owi ng heads:
"a. Rental Income 4,80,00,000/-
b. Interest Income 2,10,45,261/-
c. Income from Gallery Maintenance 5,11,400/-
d. Misc. Income 3,01,587/-
Total 6,98,58,248/-"
5. Rel ying on vari ous deci si ons, the Assessi ng Offi cer deni ed the benefi t of exempti on u/s 11 of the Act and determi ned the total i ncome of the assessee at Rs.4,73,15,960/-. Whi l e computi ng income so dete rmi ned, he further di sall owed the depreci ati on cl ai med by the assessee on the ground that the cost of assets had al ready bee n treated a s appl i cati on of i ncome while assessi ng the income of the assessee u/s 11 & 12 of the Act. Therefore, the depreci ati on cannot be all owed agai n whi ch will amount to doubl e deducti on of the same.
6. In appeal , the l d. Commi ssi oner of Income Tax (Appeal s) all owed the cl ai m of benefi t u/s 11 of the Act. So far as the amount of Rs.8 ,12,987/- bei ng the i ncome from gal l eri es and mi scell aneous i ncome i s concerned, he hel d the same to be the acti vi ties of the assessee trust by observi ng as under:
"In view of the discussions made above an d argument advanced by the ARs a s well as ca se laws cited by them, in view of the facts present in the case, I am inclined to agree with their proposition that as held in va rious cases, their overall objective/dominant pu rposes is n ot to do business or earn income.
Further, in any case since the re ceipts are only to the extent of Rs.8,12,987/- (barri ng the fixed rental income of Rs.4,80,00 ,000/- and interest earned of Rs.2,10,45,261/-, which ca nnot be said from/towa rds "involving any activity in the nature of 4 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society trade, comme rce or business at all, vis-a-vis the objects f or which the society has been established"). Further, since I have also dealt separately under ground no.3 that the fixed rental income earned by the assessee cannot be considere d activities in the nature of trade, commerce or business, I hold that the appellant cannot be consi dered t o be a non- charitable organisati on/society be cause of the saving provided under second proviso t o section 2(15) of the Income Tax Act. Therefore, the AO is directed to consider only Rs.8,12,987/- tow ards its activities though I am of the considered v iew that even this amount should not be const rued as receipts involving any activity in the nature of trade , commerce or business due t o the overall objective of the society not to earn income or to do business."
7. So far as the rental i ncome of Rs.4,80,00,000/- is concerned, the l d. Commi ssi oner of Income Tax (Appeal s) di rected the Assessi ng Offi cer to a ll ow benefi t of Secti ons 11 & 12 of the Act as cl aimed by the assessee. The l d. Commi ssi oner of Income Tax (Appeal s) further hel d that the case of the a ssessee fal l s under the second provi so to Secti on 2(15) of the Act i .e. total recei pts bei ng l ess than Rs.10,00,000/-, the assessee i s full y enti tl ed to all the benefits u/s 11 & 12 of the Act.
8. Aggri eved wi th such order of the l d. Commi ssi oner of Income Tax (Appeal s), the Reve nue i s i n appeal before the Tri bunal .
8.1 The l d. Departmental Representative heavil y reli ed on the orde r of the Assessi ng Offi cer.
9. The l d. Counsel for the assesse e, on the other hand, pl aced reli ance on the assessment orde rs for vari ous 5 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society assessment years and submi tted that i n earli er years, the rental i ncome have al ways been taken as i ncome from the property hel d under the soci ety and all owed appli cati on of rent therefrom to the objects of the soci ety. Referri ng to the copy of the memorandum of the assessee soci ety, he submi tted that the soci ety i s authori zed to l et out the property and doi ng all l awful acti vi ti es for the furtherance of the object of the soci ety. He submi tted that the Revenue i n the past has never consi dered such rental i ncome as busi ness i ncome. Referri ng to the order of the Tri bunal in assessee's own case for assessment years 2009-10 and 2010-11, he submi tted that under i denti cal ci rcumstances the exempti on deni ed by the Assessi ng Offi cer and uphel d by the l d. Commi ssi oner of Income Tax ( Appeal s) was al lowed by the Tri bunal . He accordi ngl y submitted that thi s bei ng a covered matter i n favour of the assessee, the ground rai sed by the Revenue shoul d be di smi ssed.
10. We have consi dered the ri val arguments made by both the si des and perused the orders of the authori ti es bel ow. We have al so perused the paper book fil ed on behal f of the assessee. We fi nd the Assessi ng Offi cer appl ying the amended provi si on to Secti on 2(15) of the Act and CBDT Ci rcul ar No. 11/2008 deni ed the exempti on cl ai med u/s 11 of the Act to the assessee on the ground that the a cti viti es of the assessee trust are not cha ri tabl e. Accordi ng to the Assessi ng Offi cer, the acti vi ties of renti ng out the property has n o nexus wi th the prom oti on of Fi ne Arts & Crafts objecti ve and the recei pts therefrom a re not gi ven as a qui d pro qu o for the busi ness of Fi ne Art & Crafts or renderi ng any servi ces. Accordi ng to the 6 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society Assessi ng Offi cer, the rent bei ng recei ved by the soci ety i s subject to TDS i s a pure rent. Further, the rent from the property has never been consi dered or l inked wi th the mai n acti vi ties of the assessee i .e. promoti on of Fi ne Arts & C rafts under the fi rst provi so to Secti on 2(15) of the Act. We fi nd that the l d. Commi ssi oner of Income Tax (Appeal s) all owed the cl ai m of exempti on u/s 11 & 12 of the Act for whi ch the Revenue i s i n appeal before the T ri bunal . We fi nd for the past assessment years, the rental i ncome was al ways taken as i ncome from property hel d under soci ety and all owed appl i cati on of rent therefrom to the objects of the soci ety. A perusal of the memorandum of a ssoci ati on of the soci ety inter alia shows the foll owi ng objects:
"(j) To purchase or acquire on lea se, or in exchange, or on hire, or otherwise , any real or personal property, and any rights or privil eges necessary or convenient for the purposes of the Society.
(l) To sell, improve, manage and develop all or any part of the property of the Society.
(m) To do all such lawful things a s are incidental or conducive to the attainment of the above objects and any other objects of Arts and literature n ot mentioned above."
11. We further fi nd the Revenue has al ways accepted the rental i ncome from the property hel d under soci ety and never consi dered the same as busi ness income.
12. We fi nd i denti cal i ssue had come u p before the Tri bunal in assessee's own case for assessment years 2009-10 and 2010-
11. We fi nd the Tri bunal vi de ITA Nos. 1448/Del /2015 & 1449/Del /2013, order dated 14.02.2019 whil e all owi ng the 7 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society benefit of exempti on u/s 11 & 1 2 of the Act t o the assessee soci ety has observed as under:
"5.0 We have heard the rival submissi ons and have also pe rused the material on re cord. We a gree with the averment of the Ld. Authori sed Repre sentative that the assessee's case is favourably covered for the assessee by the ratio of the judgment of the Hon'ble Delhi High Court in the case of India Trade Prom otion Organisation vs. DGIT (E) (supra), wherein vide judgment dated 22.01.2015, the Hon'ble Delhi High Cou rt, whi le upholding the constitutional validity of proviso t o Section 2(15) of the Act, has laid down the strict and literal interpretation of the proviso to Section 2(15) of the Act. The Hon'ble Delhi High Court has held that mere receipt of fee or charge will not mean that the assessee is involved in any trade, commerce or business. In the case of India Trade Promotion Organisation, the Ld. DGIT (E) ha d passed an order stating that though the assesse e was engaged in "the advancement of any other object of general public utility", as pe r s. 2(15) of the Act, its obje ct could not be rega rded a s "charita ble purposes" due to the new proviso to s. 2(15) and further that it was not eligi ble for exemption u /s 10(23C)(iv). It was held by the Ld. DG IT (E) that as the asse ssee had huge surpluses in banks, it h ad given its space for rent du ring Tra de Fairs and Exhibitions, it had received income by way of sale of tickets and income from food and beverage outlets in Pragati Maidan, etc, the assessee was rende ring service to a large number of traders and industrial ists in relation to trade, commerce and business a nd was, therefore, hit by the expanded list of activities contained in the proviso to Section 2(15). It was further observed by the Ld. DGIT (E) that the service of allotting space and other amenities like wate r, electricity and security, etc. to the trade rs to conduct their exhibitions fell within the ambit of any a ctivity of rendering any service in relation to trade, commerce or business. The assessee filed a writ petition before the Hon'ble Delhi High Cou rt clai ming that the First Proviso to section 2(15), as amended by the Finance 8 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society Act, 2008, was arbitra ry and unreasonable and violative of Article 14 of the Constitution of India. The Hon'ble Delhi High Court held in the favour of the assessee. The relevant observations of the Hon'ble High Court are as under:
(i) It is a ppa rent that merely because a fee or some othe r consideration is colle cted or received by an institution, it would not lose its character of having been established for a ch aritable pu rpose.
It is also important to note a s to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce , then any such incidental or ancillary activity would also not fall within the categories of tra de, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the object of prom oting trade and commerce not for itself, but for the nation - both within India and outside India. Clearly, this is a charitable purpose , which has a s its motive the advancement of an object of general public utility to which the exception carved out in the first proviso to Section 2(15) of the sa id Act w ould not apply;
(ii) If a literal interpretation were to be given to the said proviso, then it w ould risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). It is well settled that the courts should always endeavour to uphold the Constitutional validity of a provisi on, and in doing so, the provision in questi on may have to be rea d down;
(iii) Section 2(15) is only a definition clause. The expression "cha ritable pu rpose " appea ring in Section 2 (15) of the sai d Act has to be seen in the context of Secti on 10(23C) (iv). When the expression "Cha ritable Purpose", as defined in Section 2(15) of the Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretati on 9 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society sought to be given to the expre ssion "cha ritable purpose" by the revenue.
In conclusion, we may say that the expression "charitable purpose" , as defined in Section 2(15) cannot be const rued literally and in absolute terms.
It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clea r that if the literal interpretation is given to the proviso to Section 2(15) of the said Act , then the proviso w ould be at risk of running fowl of the principle of equality enshri ned in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the same would have to be read down and i nterpreted in the context of Secti on 10(23C)(iv) because, in our view, the context requires such an interpretation. The corre ct interpretati on of the proviso t o Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, th e dominant and the prime objective has to be seen. If the dominant and prime obje ctive of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relati on to any trade, commerce or business, then it would not be entitled to claim its object t o be a 'cha ritable purpose'. On the flip side, where an institution is not driven prima rily by a desi re or motive to ea rn profits, but to do charity through the advancement of an object of general public utility, it cannot but 10 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society be rega rded as an institution established for charitable purposes.
Thus, while we uphold the Constitutional validity of the proviso to Section 2(15) of th e said Act , it has to be read down in the manner indicated by us."
5.1 Thus, the Hon'ble Delhi High Court has held that merely because a fee or some other consideration is collected or received by an
institution, it would n ot loose its character of having been established for a ch aritable purpose . Undisputedly, in the present case the dominant activity of the assessee society is not business trade or commerce but its a ctivities are for the promoti on of art, craft and culture for the Indian artists in India. The Assessing Officer has himself reproduced the main objectives of the assessee society as per the Memorandum of Association in his assessment orde r an d they a re: (i) f osteri ng and developing fine and applied a rts in India to promote appreci ation by means of publications, lectures, Conferences, Dem onstrati on, E xhibition etc.;(ii) organi zing and e stablishing a nati onal art gallery in New Delhi; (iii) organizing a rt exhibitions and societies in India and abroad; (iv) acting as Central Organi zation of Arts and C rafts in India etc. It is also undisputed that the assessee society has carried out activities in the form of annual art exhibitions, camps for senior and junior artists, providing maintenance to aged artists etc. It is also not the department's case that any part of surplus w as diverted from the society and applied for any personal benefit of any member or office bearer of the society. Therefore, it can be safely concluded that the dominant activity of the assessee society is not business, trade or commerce and, a ccordingly, any incidental or an cillary activity like hiring out of art gallery or selling paintings would not also fall within the categories of trade, commerce or business.
5.2 We also note that the Hon'ble Delhi High Court in the case of India Trade Promoti on 11 ITA No. 1806/Del/2016 All Indian Fine Arts & Crafts Society Organisation vs. DGIT (Exemption ) (supra) has also duly considered Circula r No. 11 of 2008 issued by the CBDT and has observed th at the proviso to Section 2(15) of the Act, which was inserted by Finance Act, 2008, was directe d to prevent the unholy practice of pure t rade , commerce and business entities from masking t heir activities and port raying them in the garb of an activity in the object of a general public utility but was not designed to hit at those institutions, which had the advancement of the objects of ge neral public utility at their hearts and were charity institutions.
5.3 Therefore, after duly conside ring the objects of the assessee society, the settled legal position with respect to interpretation of proviso of Section 2(15) of the Act and respectfully following the rati o of the judgment of the Hon 'ble Delhi High Court in the case of Indi a Tra de Prom otion Organisation vs. DGIT (Exemption) (supra) we a re unable to concur with the observations and findings of both the lower authorities and while setting aside the orders of the Ld. CIT (Appeals), we dire ct the AO to allow the assessee the benefit of exemption u/s 11 & 12 of the Act for assessment year 2009-10.
6.0 Since the issue in assessment year 2010-11 is identical, therefore, for the same reasoning as given by us in assessee's appeal f or assessment year 2009-10 while allowing the a sse ssee's appe al, we allow assessee's appeal f or assessment year 2010-11 also. In this year also the order of the Ld. CIT (Appeals) is set aside and the AO is directed to allow the assessee the benefit of exemption u/s 11 & 12 of the Act to the assessee."
13. In vi ew of the deci si on of the Tribunal in assessee's own case ci ted (supra), we do not fi nd any i nfi rmi ty in the order of the l d. Commi ssi oner of Income Tax (Appeal s) all owing the cl ai m of exempti on u/s 11 & 12 of the Act of the assessee. We accordi ngl y uphol d the same. The ground rai sed by the Revenue i s accordi ngly di smi ssed.
12 ITA No. 1806/Del/2016All Indian Fine Arts & Crafts Society
14. In the resul t, the appeal of the Revenue i s di smi ssed. (Orde r Pronounced i n the Open Court on 19/06/2019) Sd/- Sd/-
(H. S. Sidhu) (R. K. Panda)
Judicial Member Accountant Member
Dated: 19/06/2019
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR