Income Tax Appellate Tribunal - Chennai
Fitness One Foundation, Chennai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
Bench 'B' Chennai
BEFORE U.B.S.BEDI, JUDICIAL MEMBER AND
SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER
.....
ITA No.8/Mds./11
M/s.F One Trust, The Income Tax Officer
31/A,Mandapam Road, (H.Qrs),(Exemptions),
Kilpauk Garden, Vs. Chennai.
Chennai 600 010.
PAN AAACW 0315 K
(Appellant) (Respondent)
ITA No.9/Mds./11
M/s.Fitness One The Income Tax Officer
Foundation, (H.Qrs),(Exemptions),
31/A,Mandapam Road, Vs. Chennai.
Kilpauk Garden,
Chennai 600 010.
PAN AAATF 2888 F
(Appellant) (Respondent)
Assessee by : Shri Vikram Vijayaraghavan
Department by : Shri P.B.Sekaran
ORDER
Per ABRAHAM P.GEORGE, ACCOUNTANT MEMBER:
Both the appeals of the assesses are directed against the orders dated 29.09.10 of the Director off Income Tax 2 Page of 16 ITA.8 & 9 /Mds/11 (Exemptions), Chennai denying them registration u/s.12AA of the Income Tax Act, 1961 (in short 'the Act' ). Since both the assesses are trusts, settlors of which are same, the appeals are disposed of through this consolidated order. Appeal No.ITA No.9/11 of Fitness One Foundation is taken up first for disposal.
2. Assessee had filed application for registration u/s.12AA of the Act on 30.03.2010. Assessee was required to give details and explanation of its charitable activities. After going through the information furnished by the assessee, Ld. DIT (exemptions) held as follows:-
"Shri N.Chidambaram, authorized representative appeared and filed reply. The settler in respect of the applicant trust is M/s.'Fitness One Group India Limited'. The settler also is in the field of running gyms and conducting health fitness programmes and the objects and activities of the trusts established also are similar to the activities of the settler company. There is always a possibility of the activities of the settler company getting mixed up with that of the trust and vice-versa. For example, a copy of letter from 'Avvai Kkappagam' where trust has done some activity has been filed by the applicant but the letter has been addressed to the Settlor company I have perused the addresses of the settler and the applicant trust. The settler M/s.Fitness One Group India Limited is showing the Registered office address at No.31/A,Mandapam Road,Kilpauk
3 Page of 16 ITA.8 & 9 /Mds/11 Garden, Chennai-10 which is same as the address of the applicant trust. Therefore, the trust can be used by the settler as offshoot for diverting its business. Hence, it will be difficult to register this trust as a charitable institution u/s.12AA."
3. Now before us Ld. AR strongly assailing the order of the DIT(E) submitted that the threshold conditions of registration u/s.12AA were satisfied by the assessee. According to him, DIT(E) need to look only into the objects of the trust and genuineness of its activities. Ld. AR submitted that the objects of the trusts were purely charitable falling within the definition of charity u/s.2(15) of the Act. Further according to him, assessee had filed detailed activity report for the period December, 2008 to April, 2010 before DIT. Relying on paper book page Nos.21 to 34, Ld. AR submitted that programmes were conducted by the assessee at various schools for Physiotherapy, Yoga and general fitness of the students therein and it had also done free fitness exercise training in such schools, all of which clearly showed the charitable nature of activities carried on by the assessee. Ld Counsel pointed out that assessee had also conducted essay writing competition for school children and conducted health and fitness sessions. As per the Ld. Counsel, the assessee had organized meetings to help destitute/orphans and also done various charitable activities with institutions like Rotary club, Shriram foundation, Madras Council of Social Service Society etc. Nature of work done by the assessee, as per Ld. AR was clear from paper book pages 38 to 46 and its intention 4 Page of 16 ITA.8 & 9 /Mds/11 was to help housewives keep in shape, optimize performance of general public and reducing the menace of obesity among public. Ld. Counsel then further brought to our attention the letters of appreciation received from Shriram foundation (page No.47), Nethrodaya (page No.48), District Rotract Council (page No.49), Chennai Corporation AIDS Prevention And Control Society (page No.50 & 51), Dr.R.Subalakshmi (page No.52),Help Centre for the Handicapped (Page 53 &
54) and Avvvai Kappagam (page No.55), acknowledging the services done by the assessee. Referring to the Trust Deed of Fitness One Foundation placed at page 1 to 11 of paper book, Ld. Counsel submitted that the objects of the trust were clearly charitable in nature, to promote fitness and wellness awareness in the community and conducting fitness programmes for meeting special needs for people. According to him, denial of registration under Section 12AA was uncalled for, since the reasons cited by the DIT(E) that activities of the assessee would get mixed up with that of settlor was unfounded.
4. Per contra Ld. DR strongly supporting the order of the DIT(E), submitted that Fitness One Foundation was a commercial entity doing physical training and promoting physical fitness for fees. According to him, the web site of Fitness One Foundation, which is available in public domain, clearly showed that for membership they were charging Rs.16,986.20. Ld. DR placed on record a copy of print out of the web site of the assessee and stressed that assessee was giving training on Belly Dancing,Cardio 5 Page of 16 ITA.8 & 9 /Mds/11 Kickboxing,Aerobics,Steam room services, Massage facility, aero boxing etc. , and these according to him, would not in any way be charitable activities. According to him, Fitness One Foundation was settled as a Trust by a company, which was purely doing commercial business of gym related activities and it was only a ploy adopted by such company for getting exemption from taxation. According to him, an object of general public utility could not be so extended that any activity of commercial nature just because it created or helped better shaping of the society, would become charity.
5. In reply, Ld. AR relying on the decision of Delhi Bench of this Tribunal in the case of Shri Krishna Education & Welfare Trust vs. Commissioner of Income Tax (2009) 27 SOT 331 argued that the scope of powers of Commissioner of Income Tax, when dealing with an application for registration, was very limited. According to him, the Commissioner of Income Tax could only make enquiries to satisfy himself about the genuineness of the activities and the charitable nature of objects of the trust. Application of income need not be looked into at the time of registration u/s.12AA of the Act. Therefore, according to him, the trust deserved registration u/s.12AA of the Act and this was denied to it unjustly.
6. We have perused the order of the DIT(E) and heard rival contentions carefully. It is not disputed that the settlor of the assessee trust was one M/s.Fitness One India Ltd and the said company was a commercial venture. Ld. AR on a query from the Bench did accept that said company was not 6 Page of 16 ITA.8 & 9 /Mds/11 enjoying any Sec.11 & 12 exemptions. The objects of the assessee trust as given at page 2-3 of its trust deed run as under:-
1. Fitness & Wellness awareness in the community.
2. Out reach programme on nutrients and wellness.
3. Building community infrastructure.
4. Fitness program on school children's and senior citizens
5. Fitness program for special needs population.
6. Vocational training and placement for under privileged in fitness domain.
7. Women improvement through sports and fitness.
8. For advancement of any other /or objects that are legally charitable and of general public utility.
As per the procedure for registration prescribed u/s.12AA of the Act, the DIT(E)/Commissioner of Income Tax can look into two aspects at the time of such registration, which are satisfying himself about the objects of the trust and satisfying himself about the genuineness of its activities. The question here primarily is whether the objects as above stated could make out a case that the purpose of the Trust fell within last limb of the definition of charitable purpose given u/s.2(15) of the Act, i.e. "advancement of any other object of general public utility". Without doubt, assessee's object was not relief of the poor, education, medical relief, or preservation of environment or preservation of monuments. Every activity where some benefit is received by a section of the public or the public as a 7 Page of 16 ITA.8 & 9 /Mds/11 whole can not be treated as 'advancement of a object of general public utility'. It is for this reason that Finance Act, 2008 substituted sub section (15) of section 2 whereby a proviso was added thereto for excluding from purview of general public utility, activities involving trade, commerce or business for a fee or any other consideration. Here it is clearly established from the print out of the web site of the assessee trust, produced by the Ld. DR, that it was charging a substantial membership fee of Rs.19,200/-for enrolment to its services. Assessee in the course of its activities, whereby it derives fees from its services, might have been rendering some public work in the nature of free training to students of various schools, but such a rendering of charity would not by itself make the assessee a charitable trust. Almost every God fearing person, be it a business-man or a professional or a salary earning employee will be doing some charity as a part of their religious belief or obligation to the society. This would not by itself make the whole of their income earning activity a charitable one. Objects of the assessee as mentioned at para -6 above, are not ones which would exclusively result in charitable activities or in other words, each one of them could be more used for generating revenue on commercial basis. As already mentioned by us, assessee was charging hefty fees for its services. The settlor company was engaged in similar physical training of various types on commercial basis. Assessee has indeed given a brief of its so called charitable activities running to 25 pages. But such listed activities are not in anyway in consonance with the accounts filed by it for financial years 2008-09 & 2009-10. For financial year 2008- 8 Page of 16 ITA.8 & 9 /Mds/11 09, the only income were donations of Rs.6,000/- against which the total expenditure was Rs.13,414.75 and for financial year 2009-10 there was no income but expenditure of Rs.11,583.95. The excess expenditure might have been met out of the capital fund of Rs.1 lakh with it. We are thus at a loss to understand how the assessee would carry on all the activities mentioned by it in its paper book Nos. 21 to 37, expending such negligible amounts. Thus the report of activities was itself not substantiated. Circumstances are such that neither of the two conditions required for giving registration u/s.12AA were not satisfied. The objects of the trust were not purely charitable and genuineness of its activities was not substantiated, rather it was proved by its own accounts, to be far off from reality. As for the reliance placed by the Ld. Counsel of the assessee on the decision of Delhi Bench of the Tribunal in Shri Krishna Education & Welfare Trust Vs. Commissioner of Income Tax (supra), there the objects of the trust were in consonance with public policy and CIT had denied registration for a reason that source of contribution of the settlor was not verifiable. Commissioner of Income Tax had also noted there that assessee did not have any infrastructure facilities for carrying on its educational activities. It was held by the Delhi Bench that these aspects were not relevant while deciding upon the registration u/s.12AA of the Act, and powers of the Commissioner of Income Tax was only to look into the objects and genuineness of the activities. In our opinion, this case would not have any relevance, since assessee could not satisfactorily demonstrate its charitable activities or objects. Other decisions cited by the Ld. AR, has 9 Page of 16 ITA.8 & 9 /Mds/11 laid down the parameters beyond which Commissioner of Income Tax should not travel while adjudicating on the grant of registration u/s.12A of the Act, But in none of the cases, it has been stated that even when the activities are not genuine and objects are not genuinely charitable, registration had to be granted. As for the reliance placed by the Ld. AR on the decision of Commissioner of Income Tax Vs. R.M.S. Trust 326 ITR 310 (Mad.) Hon'ble jurisdictional High Court was dealing with registration procedure as existed prior to insertion of section 12AA of the Act by Finance Act, 1996 with effect from 01.04.97. Therefore, the said case also would not have relevance, since by the insertion of Sec.12AA, a specific procedure has been laid down as to how an application for the registration u/s.12A of the Act was to be dealt with by the Commissioner of Income Tax. For these reasons, we are of the opinion that Ld. DIT(E) was justified in denying assessee registration u/s.12AA of the Act.
7. Appeal of the assessee is dismissed.
8. Now, we take up the appeal of assessee, F One Trust in ITA No.8/Mds/11. Here the denial of registration u/s.12AA was done by the DIT(E) citing the following reaons:-
"Shri N. Chidambara, authorized representative appeared and filed reply. The applicant trust has filed a comparative statement showing the details of charges received by the trust for various courses conducted. Comparing the charges collected by other 10 Page of 16 ITA.8 & 9 /Mds/11 fitness centres, the trust claims that charges received by it is less. The fact remains that the appellant trust is working on commercial principles. Just because the charges is little less when compared to other fitness centres does not make the activities of the Institution charitable. Giving some discount on charging of fees at concessional rate compared to other institutions does not make the institution non business. In fact, it is a well known fact that during the starting period the business concerns charges less fee to promote its business. Therefore, it prima facie appears to be that the activity of the trust is aiming towards conduct of business and not charitable.
As the objects and activities are held not in conformity with definition of charitable objects u/s.2(15), the application filed for registration u/s.12AA is hereby rejected and the registration is not granted. Approval u/s.80G is also not granted and the application filed is hereby rejected."
9. Before us, the Ld. AR assailing the order of DIT(E) submitted that the objects of the assessee's trust were clearly charitable, since it was for general public utility. According to him, DIT(E) traveled beyond the powers vested u/s.12AA of the Act while disposing of the application for registration. Assessee was not working with any commercial intention but on the other hand, had charged substantially lower fees when compared to other fitness centres. Referring to page -59 of the paper book filed, Ld. AR submitted that fees charged by 11 Page of 16 ITA.8 & 9 /Mds/11 assessee trust barely met its expenditure and the activities were primarily of charitable nature. According to him, genuineness of the objects and genuineness of the activities could not have been doubted and Ld. DIT(E) was in error in not granting registration sought for. Reliance was placed on the same decisions as relied on in the case of Fitness One Foundation(supra).
10. Per contra, Ld. DR strongly supporting the order of DIT(E) submitted that the accounts furnished by the assessee trust before the DIT(E) clearly showed huge investment in fixed assets running to 1.5 crores. Placing a copy of such audited accounts filed by the assessee before DIT(E), Ld. DR submitted that for raising funds for acquiring such assets , assessee had shown huge amounts as due to Fitness One India Ltd, which was the settlor trust. Therefore, according to him, the settlor company was only doing business through the assessee trust and this was a ploy to enjoy exemption for the commercial activities of the settlor company. According to him definition of charitable purpose as it stood now, clearly took the assessee out of the ambit of charitable trust and assessee could not claim registration u/s.12AA nor claim exemption u/s.11 & 12 of the Act.
11. We have perused the order of DIT(E) and heard the rival contentions. It is clearly noted and not disputed that assessee was charging fees for various services rendered by it. Only claim of the assessee was that it was charging lesser fees 12 Page of 16 ITA.8 & 9 /Mds/11 than charged by others for similar activities. Page-59 of Paper book of assessee is reproduced hereunder for brevity:-
Name of the course Duration Fees of Charges Charged by FOne quoted by others/notional Trust's others for cost involved Academy similar programs and in the absence cost involved Personal Training 6 days 11,530/- BFY Academy 18,000/-
Speciality Certificate Chennai Gym Instructor 6 days 9324/- BFY Academy 28,000/- Course Chennai Certificate in Fitness 10 days 17,045/- BFY Academy 28,000/- Management Chennai Comprehensive 8 days 3000/- Notional cost 15,000/- Fastrac Course for involved Ttainers Fastrac Course for 2 days 1000/- Notional cost 2000/- Front Office involved Executives Livelihood Support 10 days 4500/- Notional cost 28,000/- Program for Tsunami involved affected youth under the auspices of TNSCB Workshops for ½ day/2 100 to Notional cost 500/- general public days 300/- involved Additional details:
1. Course fee includes course study material and refreshments.
2. It is submitted from above that FOne trust is collecting fees that is lower than that quoted by others for similar courses and/or lower than the costs involved. Hence subsidized to a significant extent.
3. It is also stated that a nominal fee is collected as it our experience that involvement and responsibility of participants is more where a financial commitment (payment/fee) is involved.
4. However the fees collected do not meet out the costs. Fone trust hopes to function with the support of the author of the trust. Fitness One Group Ltd. as well as support of like minded individuals and organizations.
5. The objective is to create awareness and spread the message that fitness management is important for a healthy life.
Now if we look at the definition of the charitable purpose it reads as under with effect from 01.04.2009.
"Sec.2(15): "Charitable purpose" includes relief of the poor, education, medical relief,[ preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of
13 Page of 16 ITA.8 & 9 /Mds/11 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, it it involves the carrying on of any activity in the nature of trade, commerce or business or ay 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.] [Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is [ten lakh rupees] or less in the previous year;]"
What was received by the assessee from its settlor company and shown under current liabilities came to about 1.86 crores. These in all probability were nothing but fees received on account of utilization of the fixed assets of the assessee trust, worth about 1.5 crores. We cannot say that in such circumstances, assessee was involved in an activity, which even if considered partly for advancing an object of general public utility was charitable in nature. Assessee is also caught by the proviso to Sec.2(15) of the Act. Even otherwise, we can not say that the objects of the assessee given at paper book page 15-16 are purely of a charitable nature and purely involving advancement of an object of general public utility. The said objects are reproduced hereunder:-
14 Page of 16 ITA.8 & 9 /Mds/11 "(a) To promote the activity of imparting training in various disciplines of Fitness Management and allied activities in any way possible and to do all such acts, deeds or things as may be necessary, desirable, expedient for the promotion of the said activity, including setting up of academic institutions, etc., without discrimination as to religion, race, caste, colour or creed. No part of the corpus or income of the trust property shall under any circumstances be given to any communal or sectarian object or association or on any communal or sectarian basis.
(b) To enable the trustees, to fulfill the above objects they will be entitled to found scholarships or give prizes or donations or make grants in any form for charitable purposes."
12. Ld. AR has filed before us a Balance sheet of F One Trust of 2009 wherein it is certified that the said Balance sheet was given by the assessee to its authorized representative. The said balance sheet placed at page-12 show no fixed assets whatever as on 31.03.09 and except for current asset of Rs.2,17,562.60, there is nothing in the asset side of the balance sheet. Against this the Balance sheet filed before us by the ld. DR, which has been certified to have been produced before Ld. DIT(E), the assets come to about 1.49 crores. This by itself show that the assessee is not coming with clean hands. To expect such an assessee to do charity or to believe its assertions, we find it difficult. Assessee could not show that its objects were not commercial nor could it 15 Page of 16 ITA.8 & 9 /Mds/11 show its activities as charitable. We are of the opinion that none of the cases cited by the Ld. AR would help the assessee. For these and other reasons which we have mentioned at para-6 above in the case of Fitness One Foundation, we are of the opinion the Ld. DIT(E) was justified in denying the registration. Appeal of the assessee is dismissed.
13. To summarise the result, both the appeals are dismissed.
Order pronounced on 12th August, 2011.
Sd/- Sd/-
(U.B.S.BEDI) (ABRAHAM P. GEORGE)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Chennai,
Dated the 12th August, 2011.
K S Sundaram
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file
16 Page of 16
ITA.8 & 9 /Mds/11
Date Initials
1. Draft dictated on
2. Draft placed before authority
3. Draft placed before the
Second Member
4. Draft discussed/approved by
Second Member
5. Approved Draft comes to P.S.
6. Keep for pronouncement on
7. File sent to the Bench Clerk
8. Date on which file goes to the
9. Date of dispatch of order