Income Tax Appellate Tribunal - Ahmedabad
The Dit(Exemptions), Cir-1,, ... vs Gujarat Industrial Security Force ... on 13 March, 2020
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'बी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" B" BENCH, AHMEDABAD
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER And
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T .A. No.257/Ahd/2018
( नधा रण वष / Assessment Year : 2009-10)
The DCIT (Exempti ons) Gujarat Industrial Security
बनाम/
Circle-1 Force Socei ty
Vs.
Ahmedabad Nr.New Mental Hospital
Meghaninagar
Ahmedabad - 380 016
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAAAG 0372 L
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri Vidhyut Trivedi, Sr.DR
यथ क ओर से/Respondent by : Shri Tushar Hemani,
Shri P.B. Parmar, ARs
सन
ु वाई क तार ख /D at e o f H e ar i ng 11/03/2020
घोषणा क तार ख /D at e of P ro n o u nc em e nt 13/03/2020
आदे श / O R D E R
PER SHRI SANDEEP GOSAIN, JUDICIAL MEMBER :
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-9/10113/ITAT/17 dated 27/11/2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 23/12/2011 relevant to Assessment Year (AY) 2009-10.
ITA No.257/Ahd/2018DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -2-
2. The Revenue has raised the following solitary ground of appeal:-
1. The Ld.CIT(A) has erred in law and on facts in allowing the benefit exemptions u/s.11 without considering the fact that the assessee is involved in widespread commercial activities in nature of business and the activity of the assessee is covered under first and second proviso to sec.2(15) of the Act.
3. The brief facts of the case are that the assessee-trust filed its return of income on 30/09/2009 declaring income at Rs.NIL. The case was selected for scrutiny and after serving statutory notice and seeking reply of the assessee, order of assessment u/s.143(3) of the Act was passed on 23/12/2011 thereby making disallowances/additions.
4. Aggrieved by the order of the AO, assessee preferred appeal before Ld.CIT(A), who after considering the case of both the parties, partly allowed the appeal of the assessee.
5. Aggrieved by the order of the ld.CIT(A), now the Revenue is in appeal before us on the ground mentioned hereinabove.
6. The solitary ground raised by the Revenue relates to challenging the order of the Ld.CIT(A) in allowing the benefit of exemption u/s.11 of the Act to the assessee.
7. The Ld.DR appearing on behalf of the Revenue, submitted before us that assessee was involved in widespread commercial activities in the nature ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -3- of business and the activity of the assessee is covered under first and second proviso to section 2(15) of the Act. The Ld.DR also relied upon the order of Assessing Officer, wherein Assessing Officer after considering the reply of the assessee had specifically held that deduction u/s.11 of the Act claimed by the assessee is denied considering the fact that assessee does not fulfil the conditions of proviso 2 of Section 2(15) of the Act and thus the assessee is treated as AOP and, therefore, its income was brought to taxation as per normal provisions of the Act and also held that since registration of the society was cancelled by DIT(Exemption), Ahmedabad vide order No.DIT(E)/12AA/114/2009-10 dated 22/01/2010, therefore the ground of denial of deduction u/s.11 of the Act also gets strengthen.
8. The Ld.AR, on the contrary, relied upon the order of the Ld.CIT(A) and reiterated the same arguments as were raised by him before CIT(A) which are contained in para-5 of the order of Ld.CIT(A) and the same is reproduced below:
"5. The grounds of appeal raised by the appellant are taken together for adjudication. The appellant during the appellate proceedings submitted its written submission, which is as under :-
"2. FACTS OF THE CASE- AND SUBMISSIONS TO THE GROUNDS OF APPEAL EXPLANATIONS IN SUPPORT OF THE GROUNDS OF APPEAL AND ABOVE REFERRED ASSESSMENT ORDER:
PARA 2.4.2 and 2.5 OF THE ASSESSMENT ORDER ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -4- >The Ld. A.O erred in law has stated that "The activities of GISFS providing the security services to various organisation and charging it at a premium is considered as business and not element of charity"
>The Ld. AO erred in law by disallowing exemption under section 11 by stating that the purpose of the assessee is not charitable as defined u/s 2(15) after the amendment made in Finance Act 2008.
Mav It Please Your Honours Section 2(15) of the Income Tax Act, 1961 ('Act') defines "charitable purpose" to include the following:-
(i) Relief of the poor
(ii) Education
(iii) Medical relief, and
(iv) The advancement of any other object of general public utility.
• The Finance Act, 2008 w.e.f. 1-4-2009 has amended the definition of 'charitable purpose under section 2(15).
The newly inserted proviso to section 2(15) will apply ONLY to entities whose PURPOSE IS 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' i.e. the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 of the Act IF THEY CARRY ON COMMERCIAL ACTIVITIES.
Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.
• The amended definition of 'charitable purpose' would not alter position of GISFS. No doubt, proviso to this definition clarifies that advancement of any other object of general public utility will not be treated as charitable purpose only if it involves the carrying on of any activity in the nature of trade, commerce or business. However, here it is really not appreciated that the Ld. A.O has ignored the genuine charitable objects of GISFS i.e. to train security guards, to provide employment opportunities; to provide awareness of the security without any personal profit motive at the instance of the Government/semi government/local bodies and considered activities of GISFS as trade, commerce, or business. The essential character of the GISFS as mentioned above cannot be converted into the one which carries on trade, ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -5- commerce or business or activity of rendering any service in relation to trade, commerce or business.
In brief, the proviso applies ONLY IF -
1) An institution is engaged in advancement of any other object of general public utility AND
2) It is involved in carrying on any activity in the nature of trade commerce or business or any activity of rendering any service in relation any trade, commerce or business.
As the Ld AO has raised the question that "Is the activity of the GISFS in the nature of trade, commerce or business?"
It is question of fact and can be answered based on the nature, Scope, extent and frequency of the activity.
If we relate the same with the assessee, it can be frame as follows:
• NATURE:
GISFS is a society registered under the societies Registration Act, 1860 and it is also registered as Public Charitable Trust under the Bombay Public Charitable Trust Act, 1950.
• SCOPE:
Scope includes:
1)To provide comprehensive security and safety services covering all aspects of protection to life and properties to industries and industrial undertakings in Gujarat.
2)To provide employment and career opportunities to unemployed youths of rural an d urban areas of Gujarat state.
3) To recruit ex-army and ex-officers from police department to supervise the guards posted at various places
4) To organize training, guidance and information camps for the security guards to be engaged by the society.ITA No.257/Ahd/2018
DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -6-
5) The society has no profit motive. Surplus, if any, remains"with the society is used only for the object of the society.
• EXTENT and FREQUENCY:
GISFS carries its charitable activity in all over Gujarat which includes Government/Semi Government entities with clear intention to provide security, employment and awareness of the security to the youths of rural and urban areas of state. Thus, the society without any profit motive adhered to its prime objective and not any trade, commerce or business purposes.
Further, the society is not charging any element of profit. The society is 100% self dependant Government society. The society is charging only bare minimum expenses which are required to maintain society's long term objective and aims. Every rupee earned by the society is spent for the purpose and object of the society which are charitable in nature.
As there is no specific definition of the "trade and commerce" provided in the Income tax Act 1961, we derived the definition of "trade and commerce "as per ordinary parlance. This reads as follows-
• In ordinary parlance, trade and commerce carry with the idea of purchase and sale with a view to make profit. If a person buys goods with a view to sell them for profit, it is an ordinary case of trade. If the transactions are on a large scale, it is called commerce.
Definition of business as per Section 2(13) of I.T Act, 1961 reads as follows:-
Business"40 includes any trade "40, commerce or manufacture or any adventure40 or concern in the nature of trade"40, commerce or manufacture.
• Looking to the aim, objective and activities of the G/SFS, the activities or adventure cannot be said in nature of the trade or commerce or manufacturing hence it could not fall in the definition of the business. It is sponsored and created by Govt, of Gujarat without any intension to make profit.
• The proviso to section 2(15) does not mean that in case an assessee receives any payment for anything done for trade; commerce or business, it will be hit by the said proviso. In accordance with the CBDT Circular, the proviso applies only where the object of general public activity is a mask or device to hide the true purpose of trade, business or commerce or rendering of any service in relation thereto. It does ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -7- not apply to cases where the services rendered are purely incidental to or subservient to the main objective of general public utility'.
• The GISFS also submitted that regulatory function being carried out by the society was only incidental to the main object which is to provide employment to the unemployed youths of rural and urban areas of Gujarat state, which is certainly an object of general public utility and, therefore, qualifies to be termed as 'charitable activity' for the purposes of Section 2 (15).
• Moreover, G/SFS is providing all his activity to Government /semi govt entities and not to any non government body. This shows the clear intention of the assessee to provide security,' employment and awareness of the security to the youths of rural and urban areas of Gujarat state.
• As stated, G/SFS has pure charitable purpose within the meaning of the section 2 (15) of the Income tax Act 1961 and it satisfied all the requirement of Section 11 for the exemption.
• Sir, we would like to state that the society has not received any grand from the government. The society has no profit motive at all. It is giving employment opportunities to more than 2400 security guards, who are providing security services all over the Gujarat state. They charge service charges as reimbursement of the expenses payable to security personnel and................ purpose of the object and goal of the society.
2nd POINT OF THE PARA 2.5. PARA 2.6 OF THE ASSESSMENT ORDER( 2nd POINT) AND > The Ld. AO further stated in the assessment order that the other ground of denial of the deduction u/s 11 is that the registration of the assessee society has been cancelled by the DIT (Exemption), Ahmedabad vide order No. IT (E)/12AA/1.14/2009-10 dated 22.01.2010.
Mav It Please Your Honours • As already submitted with A.O, the assessee had preferred an appeal with H'ble ITAT. Outcome of the said appeal is pronounced in FAVOUR of the assessee on 30- 12-2011. There is no question of cancellation of registration as the activities of the society are 'genuine' and it is being carried out in accordance with the object of the society. In this regard, we can take reference of the landmark judgement of case "Himachal Pradesh environment protection & pollution control board Vs CIT [2010]".
ITA No.257/Ahd/2018DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -8- • As the outcome of the appeal is pronounced on 30-12-2011 i.e. immediately after the assessment order, GISFS had submitted the order passed by H'ble ITAT and request to pass revised order to A.O on 02/01/2012.
• The Ld. A.O erred into law by neither informing the assessee about his objection towards the reply filed by the assessee on 02-01-2012 nor calling for any further clarification on the reply filed by assessee debited count of the assessee with Rs 73,13,230/-.
As described above, propositions from the judicial ruling Of Himachal Pradesh Environment Protection & Pollution Control Board Vs CIT[2010] A registration granted under section 12AA can only be withdrawn when the commissioner is satisfied that
(a) the activities of the trust or the institutions are not 'genuine'; Or
(b) the activities of the assessee are not being carried out in accordance with the object of the institution There cannot be any other legally sustainable reasons for cancelling or withdrawing the registration granted under Section 12AA.
As discussed in above submission, the society fulfils all conditions of the section 11 under the Income Tax Act 1961 and hence exemption u/s 11 cannot be disallowed.
Being the aggrieved by this order of the Assessing officer, the assessee is praying herewith to delete the additions as made by the LD Assessing officer as discussed in above submission.
The appellant reserves the right to add, alter and amend or withdraw any of the grounds at the time of hearing of appeal."
9. We have heard the Learned Representatives for both the parties. We have also perused the material placed on record as well as the orders passed by the revenue authorities. Before we decide this issue on merits, it is necessary to evaluate the orders passed by the Ld.CIT(A) while dealing with this ground. The Ld.CIT(A) has dealt with this issue in paras-2 to 5 of his ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10 -9- order, however, the operative portion contained in para-5.1 of his order is reproduced hereunder:
"5.1. I have carefully considered the rival contention, facts of the case as well as the observation of the A.O. It is observed that the A.O has invoked provisions of proviso to sec.2(15) r.w.s. 13(8) of the Act and has considered the activities of the appellant society being in the nature of trade, commerce or business. The A.O has assessed the income of the appellant as an AOP and as per the provisions of sec,28 to 44 of the Act. At para 2.1.1 the A.O has mentioned the objects of the appellant. As per the objects the main object is to provide employment opportunities to the unemployed youth of rural and urban areas of Gujarat as well as to provide a well trained and disciplined security force to different Government and semi Government organizations. The A.O has also mentioned that the registration granted to the appellant was cancelled by DIT(Exemption) on 22/1/2010. However, Hon'ble ITAT Ahmedabad vide their order in ITA No. 902/AHD/2010 dated 30/12/2011 had directed DIT(Exemption) to restore the registration of the appellant. Accordingly, on 12/12/2013 the DIT(Exemption) had restored the order of registration granted u/s.12AA dated 9/11/2005. Therefore, the appellant is considered as an exempt entity as it has the registration u/s.12AA available with it for the concerned assessment year. According to the A.O the appellant has been providing security services to various organizations and thus it is involved in the activities that are commercial or business like in character.
During the appellate proceedings the appellant has mentioned that it has been set up by the Government regulation of State Government of Gujarat The society itself has no profit motive. The appellant is not free to decide the rate at which it would be offering the services to various organizations. As per the circular dated 11/12/2003 issued by Industry and Mine Development, Govt. Of Gujarat, the State Government offices, semi-govt. Offices, Govt. Hospitals, Boards, Nigams etc. can hire the services of the appellant without bringing any tenders and as per the rates fixed for the society. The rates are fixed by the governing body of the appellant which has the representation of the State Govt. of Gujarat. The appellant has also submitted that it is not advertising or marketing or participating in the tendering or bidding for the work orders in order to earn profit from its activities. It is the Govt. regulation which has directed it to offer its services to various State Govt. Bodies. The rates that are fixed by the governing body of the society are based on the Minimum Wages Act for the skilled and semi-skilled employee. Further the appellant has also submitted the order of CESTAT West Zonal Branch, Ahmedabad dated 30/4/2010 wherein the CESTAT has held that no service tax is allowable as the appellant is not a commercial concern. The final decision in the case before CESTAT is yet to come. Considering all these facts, I am of the considered opinion that the ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10
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appellant society is not undertaking any activities that are in the nature of trade, commerce or business. It is essentially an organization promoted by the Govt. Of Gujarat for providing employment opportunities to the unemployed youths in rural and urban areas of Gujarat and providing services to different government/semi- govt. Organizations, boards, corporations etc based on the Gujarat Govt. Office order without participating in the tendering or bidding process. Therefore, the proviso to sec.2(15) r.w.s. 13(8) will not be applicable to the appellant and the appellant is eligible for all the benefits u/s.11 & 12 of the Act. Therefore, the grounds of appeal of the appellant are hereby allowed."
9.1. Having gone through the facts of the present case and after hearing the parties at length, we find that while passing the order of assessment, the Assessing Officer categorically held that registration of assessee has already been cancelled vide order dated 22/01/2010 but from the records, we observed that the said registration u/s.12AA was restored by the Hon'ble Bench of ITAT on 30/12/2011 in ITA No.902/Ahd/2010. Even otherwise, as per the facts of the present case, we notice that the assessee has been set up by the Government Regulation of State Government of Gujarat and the Society itself has no profit motive. The assessee is not free to decide the rate at which it would be offering the services of security to various organizations. As per Circular dated 11/12/2003 issued by the Industry and Mine Development, Government of Gujarat, the State Government offices, semi- government offices, government hospitals, boards, nigams, etc. can hire the services of the assessee without bringing any tenders and as per the rates fixed for the society. The rates are fixed by the governing body of the assessee which is being represented by the Government of Gujarat. Assessee has specifically stated that it was not advertising or marketing or participating in the tendering or bidding for the work orders in order to earn profit from its activities and it is the Government Regulation which has ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10
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directed it to offer its services to various State Government Bodies and the rates are fixed by the governing body of the society are based on the Minimum Wages Act for the skilled and semi-skilled employee. We have also taken into consideration the specific facts that CESTAT, Ahmedabad vide order dated 30/04/2010, wherein it was held that no service tax is allowable in the case of assessee as the assessee is not "commercial concern". Although, the final decision in the case before the CESTAT is yet to come but considering the facts that firstly, the surplus which across to the assessee is utilized for organizing training, guidance and informational camps for the security guards employed by the society, establishing, developing and maintaining support centers for maintenance and supply of information regarding security services, administrative, management and maintenance activities of the society. We are of the view that the emphasis can only be on the "pre-dominant object" of the concern trust and if "pre-dominant object" is charitable in nature with no "profit motive", then in that eventuality the activities of the assessee trust cannot treated as trade, commerce, merely on account of the fact that there are some surplus with the assessee. In this respect, we find support from the following decisions:
1. Ahmedabad Urban Development Authority vs. ACIT - 396 ITR 323 (Guj.),
2. CIT vs. Gujarat Industrial Development Corporation - (2017) 83 taxmann.com 366 (Guj.),
3. Sabarmati Ashram Gaushala Trust vs. ADIT 362 ITR 539 (Guj.),
4. DCIT vs. Gandhinagar urban Development Authority - ITA 2438-2440/Ahd/2017, wherein it has also been specifically held that the emphasis must be on the "pre-dominant object" of the concern trust and if the said "pre-dominant ITA No.257/Ahd/2018 DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10
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object" are available in nature with no "profit motive", then the activities of the trust cannot be treated as trade, commerce or business merely on account of the fact that there are some surplus. In our view, the application of the surplus is a main criteria for deciding the nature of the activities and from the records nothing was pointed out before us that the application of the surplus was in the nature of any commercial, trading or business activities.
9.2. Even before us, no new facts or circumstances have been placed on record in order to controvert the findings of the Ld.CIT(A) while deciding the said case. Therefore, we find no reason to interfere into or to deviate from such findings of the authorities below and we uphold the findings of the Ld.CIT(A) and reject the ground raised by the Revenue.
10. In the result, Revenue's appeal stands dismissed.
Order pronounced in the Court on 13-03-2020 at Ahmedabad
Sd/- Sd/-
( AMARJIT SINGH) ( SANDEEP GOSAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 13/ 03 /2020
ट .सी.नायर, व.%न.स./T.C. NAIR, Sr. PS
ITA No.257/Ahd/2018
DCIT (E) vs. Gujarat Industrial Security Force Society Asst.Year - 2009-10
- 13 -
आदे श क त!ल"प अ#े"षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं'धत आयकर आयु)त / Concerned CIT
4. आयकर आय) ु त(अपील) / The CIT(A)-9, Ahmedabad
5. *वभागीय %त%न'ध, आयकर अपील य अ'धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड0 फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या*पत %त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 11.3.20 (dictation-pad 15-pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member ..12.3.20
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......13.3.20
7. Date on which the file goes to the Bench Clerk.....................13.3.20
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................