Income Tax Appellate Tribunal - Delhi
Indian Youth Centre Trust, New Delhi vs Department Of Income Tax on 31 August, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: "C" NEW DELHI
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
AND
SHRI T.S.KAPOOR, ACCOUNTANT MEMBER
I.T.A .No.-5502/Del/2012
(ASSESSMENT YEAR-2009-10)
ADIT, vs
Indian Youth Centre,
TC-II, Vishwa Yuvak Kendra,
New Delhi. Circular Road, Chanakyapuri,
New Delhi.
PAN-AAATI0141C
(APPELLANT) (RESPONDENT)
Appellant by: Ms. Shamuna Sen, DR.
Respondent by: Sh. Ved Jain and Rano Jain, CA
ORDER
PER DIVA SINGH, JM
This is an appeal filed by the Revenue against the order dated 31.08.2012 of CIT(A)-XXI, New Delhi pertaining to 2009-10 assessment year on the following grounds :-
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the exemptions u/s 11 of the Income Tax Act, 1961, which was denied by the AO because assessee earned profits from commercial activities which is clear violation of section 11(1) and 11(1)(b) of the I.T.Act, 1961.
2. On the fact and in the circumstances of the case and in law, the LD.
CIT(A) has erred in allowing double deduction on account of capital expenditure on purchase of fixed assets in the earlier years and then depreciation on same assets in the F.Y.2008-09 as per the computation of income of the assessee.
3. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing."
2. The relevant facts of the case are that the assessee filed a return declaring NIL income after issuance of notice u/s 143(2) etc was subjected to scrutiny assessment. A perusal of the assessment order shows that the assessee is registered u/s 12A of the Income Tax Act, 1961 vide registration dated 2 I.T.A .No.-5502/Del/2012 15.05.1973. The Trust is also in receipt of order u/s 80G(5)(vi) vide DIT (Exemption) Delhi order dated 02.12.2009 applicable for the period commencing from 2010-11 assessment year to 2012-13 assessment year. The AO records that the objects of the society as per its Memorandum of Association(MOA) are to establish, maintain and conduct one or more National or International Youth Centres at suitable centres in India for the benefit of the foreign students and youth delegations as well as individuals visiting India. The society also sponsors programmes for interaction of youth leaders, young workers and students etc. 2.1. Being of the view that the assessee is neither in the field of education nor in the field of medical relief, the AO considering the main heads of income and the main heads of expenditure observed that the activities attracted Amendment in section 2(15) of the Income Tax Act applicable w.e.f 2009-10 assessment year onwards. As the main source of receipts were from hostel/canteen activities and bookings of the Auditorium and Conference Hall, the AO was of the view that these are of commercial nature and the expenses were co-relating to these sources of income only. The providing of facilities on hire on day-to-day basis to all types of customers by running hostel/canteen and giving Auditorium & Conference Hall on hire on commercial lines was considered to satisfy the requirements of running a business on commercial lines. The AO observed that main heads of income of the assessee were as under :-
S.No. Items Amount (in Rs.)
1. Hostel/Canteen Activities 28,776,064
2. Auditorium & Conference Hall 14,379,330
2.2. The main heads of expenditure noted by the AO were as under :-
S.No. Items Amount (in Rs.)
1. Employee/Staff Cost 7,676,857
2. Hostel/Canteen Activities 4,147,031
3. Training Courses & Seminars 7,183,175
4. Electricity & Water 1,442,410
5. Depreciation 3,056,716
3 I.T.A .No.-5502/Del/2012
2.3. Considering the legal position on rendering services in lieu of charges. The AO was of the view that the assessee satisfied all the features of business as its nature of activities include providing canteen services to persons using hostel etc, the profit motive is satisfied as the activity is not undertaken merely for a sport and pleasure and instead the persons using the facilities are charged by the assessee. Similarly another feature of business is that the transaction should be between two persons which was also satisfied. The frequency of transaction made it in the nature of business and it also had a twin activity as it was reciprocal showed that the receipts arising out of the activity which were in the nature of business or commerce attracted the first accordingly first proviso to section 2(15) as the assessee's receipts were more than Rs.10 lacs. 2.4. Considering the reply of the assessee that the facilities are restricted only to Members, the AO got this fact verified from the Inspector in O/o-ADIT(E), Trust Circle-II who was sent on 02.12.2011 to the premises of the assessee. The Report of the Inspector incorporated is extracted in para 5.0 of the assessment order.
2.5. Accordingly it was concluded that the Inspector's Report shows that all the facilities of the assessee were open to everyone and were not restricted to Members only. In view of this fact, the assessee was show-caused on the basis of the Inspector's report to explain as to why it was not hit by the Amendment in section 2(15) of the Income Tax Act and why exemption u/s 12A should not be denied to it. The reply of the assessee extracted by the AO is reproduced from para 5.2, 5.3, 5.4 & 5.5 which are extracted for ready-reference:-
"5.2. The Indian Youth Center Trust is mainly Intended to be multi purpose in character functioning as model youth centre for intellectual and recreational service to youth a coordinating agency for youth organisations; a centre for building up youth; leadership through a variety of programmes and a counseling programs and counseling bureau to advise on various problems confronting youth. The Trust Deed also envisages providing inter alia all or any of the facilities and conducts any of the activities as mentioned in the Trust Deed (already submitted).Further, Trust is also providing formal and informal education in J.J. Clusters for under privileged by way of adult 4 I.T.A .No.-5502/Del/2012 education and education to the dropout children and are also providing medical relief to the poor by engaging doctors and providing drugs, vocational education to the unemployed. These are being provided by the trust without charging any fee and or charges.
Therefore, the Canteen is being used only by the occupants of the Hostel but also by all those who came to attend the various conferences conducted in the various facilities created in the Youth Centre including the Auditorium. Naturally, the participants is that those who used the canteen have come there are those who have come to the youth Centre connected with the activities conducted.
Hence as a matter of courtesy the canteen staffs normally do not able for the identification. These are perhaps the reason that is why your officers when they visited the canteen were entertained without being questioned.
5.3. You would also appreciate that the Youth Center is not located in an area of any commercial activities (surrounded by govt. quarters, embassies i.e. Shantipath, Chanakyapuri Police Station and MP Flats) and therefore, is not intended to be run on a commercial activity basis.
It would not be out of place to mention that the Govt. of India has also issued a certificate (copy of the same has already been submitted) that the hostel run by the Kendra is intended for catering to the Youths, Scholars and Professors on temporary basis also if they visits Delhi- Youth Center for any conference / workshop etc. of the Trust.
5.4 As regards your observation that members for Hostel are admitted on arrival basis it may be stated that there is no incongruity in that since the Hostel is meant especially for the benefit of foreign students and youth delegates as well as Individuals visiting India are particularly Delhi from other parts of India to attend to the programmes /workshop.
5.5 In addition to the above we would also like to submit here that the total receipts of Canteen is Rs. 82.95 laces which include Rs. 61.19 laces against the workshop / seminar in which buffet lunch was served to participants and Rs.13.14 laces for the personnel stayed in the Hostels. Balance Rs.8.62 laces from others that includes from Staff/Staffs' Guest/Trust Guest (viz. Auditors, Lowers, Architect, Contractors etc) and those who had come to attend some function or other.
Therefore, it would not be possible to ascertain the amount of canteen collection from those persons who were not stayed in the hostel. In any case it is bound to be very negligible and within permissible limits of section 2(15) of the Income Tax Act. Further, it can be seen from the documents submitted that the trust serves buffet meals during the program/workshop conducted by Members Organizations and/or during own program and workshop but not for any other purposes. This can be reviewed form the related documents enclosed herewith for your kind perusal i.e. Bills of buffets served during workshop and seminars.
Further, we also like to submit that for the booking of the facilities (Buffet, Auditorium, Conference Hall etc.) of the Trust, officials of the trust designated for the said purposes (at the rank of Manager) are only authorized. Hence, as 5 I.T.A .No.-5502/Del/2012 regard the remarks made by our Canteen staff they had merely given the information in regard to tariff rate both for vegetarian and non vegetarian buffets arrangement. There is nothing wrong in what has been stated by them and no where they had committed that it will be served also for the purposes other than the objectives of the activities for which it was intended. They had merely answered a query. Therefore, it would be inappropriate to conclude that what they had stated involve commercial activities."
2.6. However the said submissions were not accepted by the AO who was of the view that no doubt the objects of the assessee are charitable but its activities are no longer charitable and are of commercial nature as there is no check for restricting the services to the Members only and the facilities are open for everyone. The statement that the canteen staff did not ask for identification out of courtesy was held to be incorrect.
2.6.1. Similarly the arguments that it was not located in the commercial area was also held to be not tenable. Cognizance was taken of the fact that it was one of the prime locations and the volume of receipts demonstrated that it was regularly visited by customers. The reliance placed on the Certificate issued by the Government in 1970s was held to be not relevant as the assessee had diverted its activities from its original to profit motive. The example of making the facilities of the Auditorium/Conference Hall available to Engineer India Ltd. on rent basis was considered to be an act of business as neither Engineer India Ltd. constituted the youths, scholar or professor visiting Delhi as it was only a corporate entity. 2.6.2. The AO also observed that the production of Membership list called for was only from 01.04.2008 to 31.03.2009 and could not be regarded as a Membership list. Similarly a perusal of the Revenue, summary of the hostel from 01.04.2008 to 31.03.2009 also mentioned various amounts of the fee ranging from Rs.50 to Rs.100 and also odd types of figures like Rs.1472 and Rs.2550/-. As such it was concluded that the assessee is just welcoming its customers and moreover did not mention any of the names found mentioned in Form No-26AS.
6 I.T.A .No.-5502/Del/20122.6.3. A further perusal of the same also showed that some of the transactions were with entities as was evident from Form No.-26AS, the same are reproduced for ready-reference from the assessment order:-
Form 26AS Entry Amount Paid (Rs.)
Amway India Enterprises Private Ltd. 33403
Engineers India Limited 143934
Rural Electrification Corporation Limited 221106
The Energy and Resources Institute 257792
Care India 57400
Name of Customer Date of Amount
Transaction Paid (Rs.)
C/o Vietnam Embassy 03.04.2008 3750
C/o Toshniwal Enterprises Controls Pvt. Ltd. 05.04.2008 29600
C/o World Expedition (India) Pvt. Ltd. 07.04.2008 21800
C/o Landmark Education India 26.04.2008 3650
C/o S I S India Ltd. 30.04.2008 14700
C/o IMT Faridabad 01.05.2008 3678
C/o electronic Media Pvt. Ltd. 11.05.2008 9750
C/o Trips Treks & Tours 27.06.2008 50100
C/o Project Concern International 08.07.2008 9100
C/o Proviti Consulting Private Limited 21.07.2008 14600
C/o Titan Energy Systems Ltd. 21.08.2008 3650
C/o Matrix Laboratories Limited 07.10.2008 3700
C/o SPC Management Services Pvt. Ltd. 05.11.2008 80850
C/o Microcosm Integrated Solutions (P) Ltd. 19.11.2008 273500
M/s Fair Trade Forum-India 24.11.2008 120690
C/o Asianet 13.03.2009 7300
2.7. Accordingly, it was concluded that transactions are with non-Members and the offering of buffet meals etc. in the Auditorium/Conference Hall/Hostel on rent on day-to-day basis was considered to be business activity. Accordingly, the submissions that the receipts are used for objectives of the assessee were held to be not tenable. Reliance was placed upon Jalandhar Development Authority vs. CIT, Indian Chamber of Commerce vs CIT 1975 CTR (SC) 271 and on Punjab Urban Planning and Development Authority order of the Chandigarh Bench of the Tribunal to hold that the assessee cannot be said to be engaged in any charitable activity as its activities fall within the purview of the trade, business or commerce. Reliance was also placed upon Small Medium Exporter vs 7 I.T.A .No.-5502/Del/2012 DIT(Exemption), Delhi Bench of the Tribunal and the judgement of the Hon'ble Apex Court in MCD vs Children Book Trust (1992) 3 SCC 390. Accordingly it was held that the assessee's claim that it was a charitable institution could not be accepted and a proposal for withdrawal of registration u/s 12AA had already been moved and the assessee was taxed at the rate applicable to AOP, and taxable income of the assessee was computed at Rs.1,74,89,655/-.
3. In appeal before the First Appellate Authority, the assessee filed various grounds which were subsequently revised. It is also seen that in the course of the appeal proceedings letter dated 06.07.2012 was received from the AO which is extracted hereunder from para 4 of the impugned order :-
"Assessment order in case of Indian Youth Centre Trust, PAN-AAAT10141C was made on 29.12.2011 and the case was hit by amendment in Sec.2(l5) of the IT Act on the basis that assessee is doing commercial activities which are common to all and is making mockery of the 'Membership' concept by offering membership to one and all on arrival basis.
In this regard, a new cutting in the Paper 'The Week' is enclosed with this letter wherein the subject assessee has made the advertisement about its various rooms and other facilities on 06.01.2012, only 8 days after passing of the assessment order for A.Y. 2009- 10. In this advertisement, assessee has highlighted its various facilities and also indicated that 'A membership fee of Rs.50/- per person for rooms and Rs 100/- for dormitories would be charged on the first day (valid for 28 days).
At another place of classified ads, it has indicated the exorbitant room charges and has stated that taxes applicable and membership fee extra. These above two advertisements clearly shows that how brazenly the assessee is making advertisement of its various facilities to lure the customers in the market and thus asking for exemption from the money earned on such commercial & business income. Assessee is making mockery of the membership concept and is clearly misusing the charitable provisions of the IT Act. This is clear violation of Sec. 11 of the IT act and assessee is not running its activities as per objectives of its Trust, accordingly, assessee does not deserve exemption.
A copy of the above advertisements (2 pages) is being forwarded to you for you consideration before deciding the appeal in this case."
3.1. Copy of the same was provided to the assessee who filed a detailed response thereto. The same is extracted from para 4.1 of the impugned order here under :-
"1. This has reference to the issue raised regarding news cutting in the paper 'The Week' on the basis of which it is being alleged that the appellant Trust is 8 I.T.A .No.-5502/Del/2012 doing commercial activities and as such it is hit by the proviso to Section 2(15) of the income Tax Act.
2. In this connection it is submitted that this newspaper cutting are the information published by the journal "This Week" giving information about the appellant Trust and it is meant for promoting the activities of Indian youth. In this connection we well invite your honour's attention to the object of the trust which stated in the Memorandum signed by the leaders, which include Shri Morarji Desai, Smt.1ndia Gandhi, Shri Ram Krishna Bajaj, etc. whereby the object are-
a) To establish, maintain and conduct one or more National or 1nternational Youth Centers at Suitable centers in India for promoting international understanding and cooperation and developing youth leadership.
b) Each such youth centre may be multi-purpose in character, functioning as a model youth centre for intellectual and recreational service to youth; a cooperating agency for youth organization; a centre for building up youth;
leadership through a variety of programs and a counseling bureau 0 advise on various problems confronting youth.
c) For the benefit of foreign students and youth delegates as well as individuals visiting India, the youth centre may provide hostel facilities, it may serve as an information centre and provide them with an opportunity for coming in close contact with their counterparts in India and for studying India's efforts to achieve progress through democratic methods.
d) The hotel facilities at the youth centre shall be available to students or other persons on payment of such charges as the trustees may decide from time to time.
e) The centre may also sponsor programs for bilateral exchange of youth leaders, young workers and students with a view to better national integration and international understanding and cooperation programs.
3. This information which has been published is towards that cause. In this connection we will invite your honour's attention to the information which is part of the newspaper cutting, the same reads as under:-
"The Indian Youth Centre trust set up on 10 August 1961, established Vishwa Yuvak Kendra (International Youth Centre) as a multipurpose youth centre. The project had the active support of Pandit Jawaharlal Nehru, India's first Prime Minister. The Kendra has grown to be a premier training institute for youth workers and has been recognized by a large number of agencies in India and abroad.
The Kendra functions as a model centre for building up youth leadership through a variety of constructive and educational programmes in Delhi and parts of rural India help of reputed resource persons; organizes national and international seminars and conferences on issues of contemporary importance, and has a well equipped library and documentation centre, besides excellent infrastructural facilities."
4. On going through the same it may be noticed that it is a dissemination of the information regarding the object and the activities of the trust and the facilities which have been created for the Indian youth. Accordingly to allege on this basis that the trust existing for commercial purpose is not justified as explained in our earlier submissions. The trust is carrying out these activities for the promotion of the Indian youth and none 0 the activities are commercial 9 I.T.A .No.-5502/Del/2012 in nature.
5. In this regard we have given a detailed analysis on the source of the income of the Trust and the application there of which clearly shows that the Trust is engaged only in activities as per the object and none of the activities being carried out by it is commercial in nature.
6. As regards the issue of membership fee we have to clarify that the Trust is meant for Indian youth and the membership is as per the trust Deed and is wide open to Indian youth. There is nothing wrong in prescribing a few because the Trust is interest in attracting more and more youth to become its member so that it can carry forward the movement of Indian youth for which it has been set up."
3.2. Apart from that the assessee made further written submissions on merits which is found reproduced in para 6 to para 6.6 of the impugned order. A perusal of the same shows that inviting attention to section 2(15) of the Income Tax Act, it was submitted that the definition of the charitable purpose is an inclusive definition which includes relief to poor, education, medical relief and advancement of any other object of general public utility; that the trust has been engaged in charitable activity all along and getting exemption; that there is no change of activity during the year; that the trust set up way back in the year 1961 with eminent persons who had the privilege of being the Prime Ministers of the country later on, as Trustees; that the object of the Trust was to establish, maintain and conduct national or international youth centres at suitable centres in India; that each youth centre is supposed to be multi-purpose in character; that as per its object the youth centre is to provide youth hostel and boarding house, auditorium for educational/cultural activities, sports centre, cafeteria; that in accordance with this object the trust has set up this Trust Centre at Chanakyapuri and using the same for the purpose of the objects of the Trust. It was submitted that a part of the youth centre has been let out and rentals are being received in respect of the same utilized for the objects of the trust and the receipts of cafeteria are also used for the youth hostel and utilized by it. It was submitted that the Assessing Officer has considered all these activities as commercial in nature ignoring the fact that income earned by way of interest, rentals and 10 I.T.A .No.-5502/Del/2012 cafeteria to support the conference/hostel activities cannot be considered commercial in nature as it is utilized for the objects of the trust. 3.3. Inviting attention to page 2 para 3 of the assessment order, it was submitted that the main heads of income were hostel/canteen activities and auditorium and conference hall and the AO has concluded that the same are commercial in nature without verifying the details of such income. It was submitted that once the details are seen, it would show that the hostel/canteen activities which is forming part of the balance sheet schedule comprises of 2 components namely "boarding and lodging" and "food and beverage", the same is as under :-
"(i) Boarding and lodging Rs.2,04,80,684
(ii) Food and beverage Rs.82,95,380"
3.4. Accordingly it was contended that the amount of Rs. 2 crore odd is solely on account of hostel facility which cannot be regarded as an activity of commercial nature. Similarly, the food and beverage collection is solely on account of cafeteria for the hostel and which is as per the objects of the trust. In regard to the income from auditorium and conference hall, it was submitted that these were sponsored by the corporates who had deducted tax at source before making the payment. It was submitted that the advancement of any other object of general public utility has not been made non-charitable, it continues to be charitable however in case the object is advanced while carrying on trade, commerce only then it can be considered to be not charitable. In the facts of the present case, the objects have not been disputed to be non-charitable. The activities are carried out to promote the cause of the youth. It was submitted that merely because the canteen staff in the cafeteria had not asked for identification, it does not mean that the cafeteria is open for each and everyone. A lapse on the part of the cafeteria attendants, it was argued does not mean that the activities have become non-charitable from charitable. The certificate issued in 1970 11 I.T.A .No.-5502/Del/2012 disregarded by the AO it was stated continues to be in operation and the belief of the AO that it was not relevant was assailed. The trust it was submitted had been set up for the cause of the youth and the hostel facilities are provided to the youth. It was submitted that the trust is entitled to generate its income from rent, interest by way of bonus, sponsorship etc. 3.5. Accordingly it was contended that the AO is not right in denying the exemption u/s 11(1)(a) of the Act by relying upon the section 2(15) of the Income Tax Act. It was submitted that the reliance placed on the decision in the case of Jalandhar Development Authority is incorrect. As the said authority it was submitted was engaged in selling land and making a profit thereon and there was no charitable activity within the meaning of section 2(15) of the Act. 3.6. Similarly, the reliance placed upon the judgement of the Hon'ble Apex Court in the case of Indian Chamber of Commerce was also assailed on the ground that there was a breach by which the profit generated by the Chamber could have been distributed to its members and that is why it was held to be a profit motive organized not eligible for exemption.
3.7. It was submitted that the position in the decision of Punjab Urban Planning and Development Authority was also same as the said authority was making income or earning income without applying the same. In the facts of the present case, it was submitted that the surplus generated by the assessee was deployed and used for charitable purposes and would be evident from the balance-sheet from the paper book.
3.8. The reliance placed upon the decision in the case of Small & Medium Exporters vs. DIT (Exemption) was stated to be misplaced as the object of the assessee therein was to help small exporters for which it was charging a fee and this was considered to be a commercial activity.
3.9. Similarly, the judgement of the Hon'ble Delhi High Court in MCD vs Children Book Trust, it was submitted was not applicable as the said decision 12 I.T.A .No.-5502/Del/2012 was rendered under the Municipal Corporation of Delhi Act and the issue was relating to house tax on the Children Book Trust. It was not a case under the Income Tax Act, 1961.
4. Considering the submissions, the CIT(A) referring to the objects of the trust founded in 1961 by the eminent personalities, Sh. Morarji Desai (Chairman), Smt. Indira Gandhi, Shri Naval H.Tata, Shri. Ravindra Varma, Shri Viren J.Shah and Shri Ram Krishna Bajaj (Managing Trustee) observed that the objects of the trust was to promote all round welfare of the Indian youth. He observed that the trust has been working in that direction only and is multi- purpose in character and functioning as a model Youth Centre in intellectual and recreational services to the youth. He also observed that the trust has a Youth centre along with a hostel for the youth and for the benefit of the hostel/ a canteen is also running where it is providing food to the youth staying in the hostel. The Conference Hall and Auditorium, it was observed was used for the purposes of organizing various programmes for the youth. He observed that in this manner it is raising, its revenue for meeting its obligation to carrying out its activities by way of renting out part of its premises and also earning interests on the deposits. It was further held by him that the funds generated have been deployed and used exclusively for the trust. The finding of the AO that the activities were commercial in nature were held to be incorrect as the activities were found to be in furtherance of the aims and cause of the objects of the welfare of the youth as such it was held that the view of the AO that it was not covered within the meaning of section 2(15) of the Act was found to be not correct. 4.1. The CIT(A) further elaborated the finding arrived at in para 6.2 by holding that the AO has not been able to appreciate the nature of the hostel and canteen activities and the AO had also not appreciated that the receipt on account of the auditorium and Conference Hall of Rs. 1.43 crore odd included the sum of Rs.1.02 crore odd on account of the rental and the balance amount represented 13 I.T.A .No.-5502/Del/2012 the receipt on account of conferences organized in the auditorium. He held that all these activities were part of the objects of the trust and for the cause of the youth only. Considering the finding of the AO that the assessee had received money from corporate houses, he held that the receipts were in the nature of sponsorship fees received for organizing conference in the Auditorium as such could not be considered to be a commercial activity. Examining the allegations of the AO as per Inspector's Report that the food by the canteen was provided to everyone and there was no control on an outsider having food, the CIT(A) was of the view that merely because somebody here and there obtained a service because of the lack of control will not mean that the trust has become commercial and as such lost its charitable character. The objects and the activities continued to be charitable despite the stray instance and cannot be the ground for holding that the trust is not charitable. Similarly, the instances of sponsorship for which tax had been deducted by various corporates as per Form No.-26AS, it was held will not make the trust non-charitable. The reliance placed upon the decisions by the AO which were assailed by the assessee and argued to be distinguishable after discussion were found to be rightly objected to by the assessee. Addressing the advertisement in the newspaper objected to by the AO, the CIT(A) accepted the explanation of the assessee and held that there was nothing wrong in attracting more and more youths to become its members by way of advertisements. 4.2. Accordingly he held that the AO was not justified in denying the exemption claimed by the assessee under section 11 of the Act and directed the AO to allow exemption as claimed by the assessee under section 11. The CIT(A) further went on to examine the aspect of mutuality which was held to be academic in nature in view of the finding given on merit.
5. Aggrieved by this, the Revenue is in appeal before the Tribunal. 5.1. The Ld. Sr. DR, Ms. Shamuna Sen placed heavily reliance on the assessment order so as to contend that the activities of the trust are not in 14 I.T.A .No.-5502/Del/2012 consonance with the requirements of the Act. It was her submission relying upon the Inspector's Report that canteen facilities were available to everyone and was being run as a commercial activity. It was her submission that the AO has considered after confronting it to the assessee which demonstrated that any and everyone could enter the premises and have the meal and pay for the same without any effort to check whether the customer was a resident of the hostel or not. It was submitted that there was no control to ensure that outsiders do not utlize the services of the canteen/cafeteria. Accordingly the general and vague answer of the assessee have rightly been rejected by the AO who has held that the hostel/canteen facility were utilized by the assessee and run on commercial lines. Inviting attention to Section 2(15) of the Income Tax Act, it was her submission that the activities which were in the nature of trade, commerce, business as per the proviso cannot termed to be coming under the umbrella of "other charitable activities" as envisaged by the statute and the claim of the assessee has rightly been rejected by the AO. The AO it was her submission has identified the features which distinguish an activity which is in the nature of trade and business and all the requirements are fulfilled by the assessee. The judgements relied upon by the AO it was her submission have been distinguished on frivolous reasons by the assessee. Inviting attention to the list of sponsors as were available in the 26AS information available to the department vis-à-vis the list given by the assessee, it was her submission that there were a lot of discrepancies. It was also her submission that membership list given by the assessee pertaining to specific period i.e 01.04.2008 to 31.03.2009 and could not be said to be a membership list per se. The charges levied to different people for the so-called membership fee, it was her submission also varied and infact had odd figures. It was also her argument that the corporate entities who have made payments to the assessee for utilizing auditorium and conference hall cannot be said to be rendering any service to the youth and all these facts have been brought 15 I.T.A .No.-5502/Del/2012 on record by the AO. Inviting attention to the manner in which the assessee's bills are raised, it was her argument no details are recorded. Specific attention was invited to page 78, it was her submission that it merely mentions the name as C/o NAWO and merely mentioning tariff therein does not prove anything. Inviting attention to page 443 which contains the Revenue summary, it was her submission that the same is merely a list and in the face of the Inspector's Report appearing on page 489 which was heavily relied upon by the Revenue. It was argued that it clearly brings out the fact that the facilities are open to the anyone and everyone and is running on commercial lines. For ready-reference, the said Report is reproduced hreunder :-
"I was sent by ADIT(E), TC-II, New Delhi, for enquiry in case of India Youth Centre Trust, Circular Road, Chanakya Puri, New Delhi on 02.12.2011.
After reaching Vishwa Yuvak Kendra (India Youth Centre Trust), We went to Dining Hall alongwith Sr. TA Sh. Omvir Singh and TA Sh. Arun Kumar, for taking Lunch. We were offered Buffet as well as Item- wise Lunch option and we opted for item-wise Lunch and took food items costing Rs. 957/-(approx.). Various other persons were also taking Lunch on payment basis and there was no check in the Centre for outsiders taking food at the Dining Hall.
After taking this Lunch we enquired about a get-together arrangement from the persons invoicing bills Mr. Rakesh Chopra and Mr. Vipin and told him that we want a Buffet arrangement of around 25 persons and asked him to give the costing details. He stated that Rs.300/- per plate cost will be there for Vegetarian food plate, Rs. 350/- for including Chicken in vegetarian food, Rs.400/- for including Mutton in vegetarian food and for Rs.500/- everything included. On enquiring about Hall charges, they stated that no charges will be there for Hall and it is included in food. They told that we should inform two days prior to them for making theses arrangements personally or over phone.
After enquiry we left the place.
Sd/-
Sushma Rani Inspector Trust Circle-II, New Delhi Witness
1. Omvir Singh, Sr. TA
2. Arun Kumar, TA 16 I.T.A .No.-5502/Del/2012 5.2. Ld. AR on the other hand heavily relying upon the impugned order contended that the CIT(A) has met each and every argument/objections of the AO with cogent reasoning. It was his submission that the AO on the other hand has failed to appreciate that the activities of the trust were towards the aims and objects of the trust alone. It was also his contention that undue emphasis has been laid upon the Inspector's Report by the AO as apart from that this which has been explained there are only suspicious which it was submitted cannot take the place of evidence. It was argued where the inmates of the hostel necessarily utilize the facility for short duration the hostel inmates frequently change in such a scenario it is practically impossible for anyone to ensure control to the extent that no stray incident of "outsider" eating occurs. It was argued that the assessee cannot be penalized to do the impossible based on suspicious. The very fact that the hostel is not situated in a commercial hub and is situated in a diplomatic area ensures that stray outsiders do not come unless they are residing in the hostel or attending seminars or conferences held towards the aims of the trust. Addressing the background of the trust the facts leading the creators of the trust whose aims and objects have continuously been considered to be charitable in nature as they aim to address, harness, channel and focus the energies of the youth aiming and preparing the youth to perform productive, gainful and responsible roles in the environment has all along been accepted and it cannot be doubted to be a non- charitable merely because the canteen staff in good faith allowed the Inspector and her team of two tax advisors to have a meal. The queries answered in good faith by the canteen staff also do not make trust to be operating on commercial lines. It was his submission that auditorium and seminar halls are made routinely available to Government Education Bodies etc. and NGOs having the same aims and objects as the assessee and stringent documentations is maintained by the assessee trust which he would address which has been before the AO and the CIT(A). Accordingly mere oral queries casually answered by canteen staff who 17 I.T.A .No.-5502/Del/2012 definitely were not making the booking does not lead to any conclusion against the assessee's trust. It was his submission that the assessee trust started with a very humble corpus of Rs. 1000/- towards its laudable aim. The hostel facilities it was submitted are utilized by various students either from different parts of the country or the world and provides a platform where the youth can be exposed to conferences and activities in the auditorium which co-incide with the aims and objects of the assessee trust. It was submitted that as and when the same are not required by the assessee towards the same, they are available on rent to the corporate entities etc. and the receipts so generated are fully utilized only to meet the objects of the trust. The canteen/cafeteria facility is exclusively for the benefit of the students staying in the hostel facilities and considering the fact that the hostel cannot be in continuous use of more than 28 days the amounts vary. Looking at the sheer number of students who utilize the facilities it was submitted makes it impossible to monitor whether the person utilizing the facilities is actually a resident of the hostel or an outsider and if any stray person has utilized these facilities hoodwinking the serving staff than the assessee trust cannot penalized. Inviting attention to paper book page no-27 which contains the copy of the trust deed whose objects are enshrined at page 31, the said deed it was submitted underwent a change in regard to its name by way of a supplementary deed of trust copy placed at page 23-35 of the paper book. Addressing the same it was submitted that the name of the assessee trust was changed from "World Assembly of youth India" to "India Youth Centre". The objects continued to remain the same. Inviting attention to page 30 it was submitted that the trust was having a corpus of Rs.1000/- as the trust's funds and inviting attention to page 619-814 it was submitted that this contains a copy of list of the Organizations/NGOs, Members and the documents which have been submitted or collected showing their eligibility of membership and before the hostel facility or seminar halls/auditorium is allowed to be used evidence 18 I.T.A .No.-5502/Del/2012 demonstrating the organization/trust etc. who is utilizing the services are always taken and they have been shown to the AO all along who chose to talk only of Inspector's Report. A sample copy of membership and enrollment form with pre-prescribed eligibility criteria, it was submitted was made available to the AO, attention was invited to page 517-590. Inviting attention to the paper book it was submitted copy of ledger of canteen sale and its break-up showing amount of sale made to members/member organizations and sales made to "others". The "others" included Directors and management staff, Auditors, Inspectors, Lawyers etc. The same is appearing at pages 607-618. All these documents it was submitted were filed before the AO vide letter dated 19.12.2011. 5.2.1. As an illustration from the list of membership of NGO's etc, attention was invited to page 650 which would show that the "Membership Registration Form"
has been filled by "Samvedna Foundation" giving its contact, address, telephone no, the source of its funds (herein Government) mentioning, the no. of staff visiting and the State from where they belong (herein Gujarat). The "aims and the objects" of the organizations are mentioned in the Column indicated therein for 'Samvedna Foundation' is as under :-
"To improve life standard of women at poor section through making them skillful and self reliant."
The information required to be mentioned under the "target group" is as under :-
"Women and child"
The Column requiring information on "thrust area" is given as under :-
"We are running vocational training, classes for poor section women in rural area"
5.2.2. It was submitted that the said information is accompanied by the copy of the Memorandum of Association, registration certificate, audited statement of the accounts of the said trust which are appearing in the following pages. 5.2.3. Similarly at page 667 it was submitted it will be seen that the name of the organization is given as "Shree Channappaswamy Vidyapeeth" and after 19 I.T.A .No.-5502/Del/2012 recording of the relevant information of address, telephone no., no. of staff (here in being 217); source of funds herein donation, membership and State Government of Karnataka. In the information required under the heading "aims and objects" are described "as per the laws" copy Karnataka State. The target group is identified as under :-
"Targget Group (e.g. children/Women/Youth etc.)-Schools, colleges, Technical Colleges students, SHG Groups, Hostel etc."
The thrust area is "the State of Karnataka". The project undertaken is "State Government Grant Project, Aded School Grant, Watershed Grant, Zilla Panchayat Grant etc."
5.2.4. Herein also, it was submitted that the relevant documents are attached namely copy of Registration Certificate, copy of the trust deed, Annual Report, Audited statement of account, Memorandum of Association, etc. are attached along with this. Accordingly it was his submission that the suspicion raised by the Sr. DR by referring to the fact that there is no name recorded in the bill is incorrect and each and every bill will show that not only the name but even the Copy of the Trust Deed or Registration etc. of the organization required to be furnished and is available on record and an abbreviation of the NGO recorded does not mean that the documentation is wanting. It was his submission that the documents were available before the AO, he does not care to look at them and operates on suspicion and even today the paper book is available on record which has been considered by the CIT(A) and the Sr. DR does not assail at the same and merely relies on the AO's version based on the Inspector's Report without faulting the assessee in the stringent documentation maintained by the assessee trust. All these documents it was submitted are furnished and submitted before making its facilities to the N.G.Os etc who have the same aims and objects as the assessee trust. Inviting attention to page 9 of the assessment order para 5.5 it was his submission that some of these facts have been recorded by the AO himself in 20 I.T.A .No.-5502/Del/2012 his order but for reasons best known to him, he chooses to rely on Inspector's Reports. For ready-reference arguments of the assessee as recorded by the AO and relied upon by the assessee are reproduced from the assessment order hereunder:-
"5.5 In addition to the above we would also like to submit here that the total receipts of Canteen is Rs. 82.95 laces which include Rs. 61.19 laces against the workshop / seminar in which buffet lunch was served to participants and Rs.13.14 laces for the personnel stayed in the Hostels. Balance Rs.8.62 laces from others that includes from Staff/Staffs' Guest/Trust Guest (viz. Auditors, Lowers, Architect, Contractors etc) and those who had come to attend some function or other.
Therefore, it would not be possible to ascertain the amount of canteen collection from those persons who were not stayed in the hostel. In any case it is bound to be very negligible and within permissible limits of section 2(15) of the Income Tax Act. Further, it can be seen from the documents submitted that the trust serves buffet meals during the program / workshop conducted by Members Organizations and/or during own program and workshop but not for any other purposes. This can be reviewed form the related documents enclosed herewith for your kind perusal i.e. Bills of buffets served during workshop and seminars. Further, we also like to submit that for the booking of the facilities (Buffet, Auditorium, Conference Hall etc.) of the Trust, officials of the trust designated for the said purposes (at the rank of Manager) are only authorized. Hence, as regard the remarks made by our Canteen staff they had merely given the information in regard to tariff rate both for vegetarian and non vegetarian buffets arrangement. There is nothing wrong in what has been stated by them and no where they had committed that it will be served also for the purposes other than the objectives of the activities for which it was intended. They had merely answered a query. Therefore, it would be inappropriate to conclude that what they had stated involve commercial activities."
5.2.5. Addressing pages 4-6 of the impugned order which contains the objections which the AO made before the CIT(A) which have been reproduced in the order, attention was invited to copy of the advertisement placed at page 845 of the paper book. Referring to the same it was pointed out that it merely points out the fact that Vishwa Yuvak Kendra i.e Indian Youth Centre was situated at the address given and was described as centrally located Kendra hostel had 38 well-furnished 21 I.T.A .No.-5502/Del/2012 AC room and 2 dormitories (20-bedded each), which are let out to member NGOs/ other members when not used for kendra programmes and it also advertises the fact that new dormitory building with 120 beds for which booking has commenced is also available. The said advertisement, it was submitted apart from giving the location, photographs of the rooms and dormitories also spells out that it was set up on 10.08.1961 as multi-purpose youth centre having the active support of India's first Prime Minister; had grown to be a premier training institute for youth workers and has been recognized by a large number of agencies in India and abroad. It also advertises the fact that it functions as a model centre for building up youth leadership through a variety of construction and educational programmes in Delhi and parts of rural India with the help of reputed resource persons, organizes national and international seminars and conferences on issues of contemporary importance and has a well-equipped library and documentation centre besides excellent infrastructural facilities. It also advertises that there is a cafeteria offering food, catering to hostel residents and non-resident guests attending conference, seminars and training courses and air-conditioned auditorium and seminar halls etc. Referring to the same, it was his submission that what is wrong with such an advertisement if the assessee is trying to attract attention of NGOs and other such groups who are interested in promoting and creating leadership programme for the youth in order to harness their energy and intellectual capacity. The fact that the assessee's trust provides them a place for boarding, lodging and conference facilities which are towards the aims and objects of the trust cannot be held to be contrary to the objects of the trust by merely advertising this fact. It was submitted that the advertisement of the availability and existence of the trust does not make the activity commercial in nature. Attention was also invited to page 74 which is issued by the Transport Bhawan, Parliament Street, Department of Tourism certifying that the Kendra hostel is not a hotel and it is a non-commercial hostel constructed to cater to the 22 I.T.A .No.-5502/Del/2012 needs of youths, scholars and professors on temporary visit to New Delhi. It was submitted that it is a concern for the Department of Tourism to consider whether a particular premises is running as hostel and they have certified that it is not run as a hotel. Inviting attention to page 22 of the paper book, it was submitted the 80G(v) registration is available to the assessee in the year under consideration and the said certificate is dated 02.12.2009. Accordingly it was his prayer that the impugned order deserves to be upheld.
6. We have heard the rival submissions and perused the material available on record. The documents relied upon before us in the paper book and the case laws referred to and the orders of the authorities have been taken into consideration. The objects of the trust available at pages 31 & 32 read as under :-
"4.(a) To establish, maintain and conduct one or more National or international Youth Centre at suitable centres in India for practicing international understanding and cooperation and developing youth leadership;
(b) Each such Youth Centre may be multi-purpose in character functioning as a model youth centre for intellectual and recreational services to youth; a co-ordinating agency for youth organizations a centre for building up youth leadership through a variety of programmes;
and a counseling bureau to advise on various problems confronting youth;
(c) For the benefit of foreign students and youth delegations ias well as individuals visiting India, the Youth Centre may provide hostel facilities, it may serve as an information centre, and provide them with opportunity for .........................................
(d) The hostel facilities at the Youth Centre shall be available to students or other persons on payment of such charges as the Trustee may decide from time to time.
(e) The centre for also sponsor programmes for bilateral ...........of youth leaders, young workers and students with a view to better National Integration and international understanding and co-operation.
(f) The Trustee may join, contribute to or .....financially or otherwise, any other institutions with similar objects to carry out or implement any of the objects of this Trust."
6.1. The Inspector's Report reproduced in the earlier part of this order in para 5.1 has also been taken into consideration. It is seen that the AO has been guided 23 I.T.A .No.-5502/Del/2012 by the fact that the assessee is charging fees for hostel facilities and has also in its income shown receipts from canteen facilities over and above receipts from hiring of conference hall/auditorium etc. Apart from that he has also been guided by the fact that the Inspector accompanied by tax advisors was allowed to utilize the canteen facilities without any effort or the part of the serving personnel to ensure that only inmates of the hostel were being served. The explanation of the assessee that its hostel facilities are utilized by NGOs and Government schools, Education Departments etc. who stay/attend for a few days as students, professors, scholars etc attending seminars, conferences and then move on thereby making it difficult for canteen staff to ascertain whether the persons are staying in the hostel or not has not been accepted. The chances of stray incidents where unconnected person may avail of services has not been accepted as sufficient compliance. The argument that canteen staff may not be in a position to identify whether the person availing the services is staying in the hostel or is merely attending conference or is a rank outsider has not been accepted. On account of this lack of full control by the canteen staff on their facilities being used as is evidenced by Inspector's Report, the Revenue would want to argue that the assessee trust through its canteen facilities is functioning on commercial lines. Similarly the Revenue has also assailed the impugned order on the ground that information as per the 26 AS is that certain corporate entities have utilized the facilities thereby leading to the presumption that the hostel and canteen facilities are being used on commercial lines. On the other hand, on behalf of the assessee, the contention has been that the assessee maintains very strict checks for making available its hostel facilities. Various pages in the paper book referred to show that the assessee requires the filling of Membership Form which requires the specific and relevant information of the organization making a booking. If it is a Trust/NGO etc., the copy of the Deed of Registration, financial statements, sources of fund, the purpose of the stay, the aims and objects the thrust area, the 24 I.T.A .No.-5502/Del/2012 target group etc. are required to be mentioned. It has also been stated that the facilities are available to outsiders only when they are not being utilized by the assessee trust or NGO's etc. having identical aim and then too the receipts thereof are utilized for the objects of the trust as in response to the Sr. DR's objections based on paper book page -78. Ld. AR has pointed out that Bill No-26949 has been issued for NAWO giving customer No-12306 dated 07.09.2008. The specific organization had booked 15 rooms for 17 persons belonging to NAWO and the period of booking was 07.09.2008 to 10.09.2008. Details of this are available on the list at page 465 Sl. No-631 given again to the AO. Note mentioned at the bottom of the Bill has been pointed out showing that membership fee is valid only for 28 days and the Ld. AR has said that as per the Rules the hostel cannot be used for more than 28 days by the person/organization as evidently hostel inmates are not admitted for an academic year as is normally done in hostel of colleges etc. where students are studying for graduation and post-graduation courses. The hostel of the trust is only for students, scholars, professors attending seminars/conferences which aim to build leadership qualities in the youth; educate, inform, encourage and empower them by knowledge etc. by programmes/conference held by NGOs or by foreign visiting organizations whose aims are identical. Consequently at the time of admission it is seen that hostel facilities are made available only after the assessee trust is satisfied that the aims and objects of the charitable trust organizations are also for promotion of youth activities evidenced by relevant financial statement, certifications of registration narrating the purpose of visit etc and only then hostel facilities are made available for a maximum period of only 28 days which results at times where odd figures may be worked out depending on facilities used. We may reproduce for ready-reference from page 78 of paper book, the Note printed at the bottom of the Bill demonstrating the duration:-
25 I.T.A .No.-5502/Del/2012NAWO "Note:-This membership fee is valid for the next 28 days from the date of checkin 07 Sep 2008 and upto date 04 Oct 2008 for rooms only. Please retain copy of this bill to avoid the repayment of membership fees. This membership fees is valid for Room(s) only and cannot be adjusted against the other services.
6.2. A perusal of pages 79, 80 & 81 also demonstrate that specific no for rooms have been book by specified organizations on specified dates namely M/s Positive Women Network; Socio Legal Information Centre; and Indo-Global Social Service Society respectively and all these bills have a similar narration with regard to the membership fee that it is only for 28 days starting from the date of checkin which necessarily differs for each one of them. For ready- reference, we reproduce from pages 79-81 of the paper book as under :-
M/s Positive Women Network Note:-This membership fees is valid for the next 28 days from the date of checkin 01-Oct-2008 and Upto 28-Oct-2008 for rooms only. Please retain copy of this bill to avoid the repayment of membership fees. This membership fees is valid for Room(s0 only and cannot be adjusted against the other services.
Socio Legal Information Centre Note:-This membership fees is valid for the next 28 days from the date of checkin 26-Jun-2008 and Upto Date 23-Jul-2008 for rooms only. Please retain copy of this bill to avoid the repayment of membership fees. This membership fees is valid for Room(s) only and cannot be adjusted against the other services.
Indo-Global Social Service Society Note:-This membership fees is valid for the next 28 days from the date of checkin 31-Jun-2008 and Upto Date 27-Aug-2008 for rooms only. Please retain copy of this bill to avoid the repayment of membership fees. This membership fees is valid for Room(s) only and cannot be adjusted against the other services."
6.3. It is also seen on a perusal of documents placed at pages 517 - 814 which are the documents made available to the AO alongwith accompanying letter dated 19.12.2011, copy of which is also placed at pages 510-516. It is seen that the assessee at the time of booking its hostel rooms is strictly adhering to maintaining, recording and keeping the documentation evidencing the aims and 26 I.T.A .No.-5502/Del/2012 objects of the organization the purpose of visiting the target group and thrust area qua the visit or programme contemplated. A perusal of the sample form of enrolment placed at page 517 and Membership Form at page 518 has been demonstrated to show that it is strictly adhered to in strict and specific compliance. Reference may also be made to page 63 of the paper book addressed to the ADIT(E) dated 08.08.2011 referring to the position for 2009-10 wherein column-8, it is said that the assessee trust has not given any donation and neither any donation has been received. Similarly in regard to the contribution to the corpus column-9 indicates that the assessee's trust has not received any contribution to corpus during the year. A perusal of page 815-816 addressed again to the ADIT(E) dated 29.12.2011 indicate that the accumulated Fund has been utilized in the time limit as prescribed in the Income Tax Act for the purpose of construction of the Annex Building of trust and renovation of old building. The details of this surplus for the five years and its utilization as per page 816 indicated as under :-
Asst. Total Accumulation u/s 11(1) up to
Years Surplus/(Deficit) u/s 11(2) 15%
2004-05 16,83,695 Not required 16,83,695
2005-06 (54,52,886) Not required 0
2006-07 (50,03,098) Not required 0
2007-08 86,88,124 80,00,000 6,88,124
2008-09 1,85,47,381 1,25,00,000 60,47,381
2009-10 Case is under Process
The above accumulation is started utilization from 2009-10 onwards for the construction of Building & renovation of old Building of the 2009-10 approx. Rs. 2.20 crores was utilized for said purposes.
6.4. We have also taken into consideration, the objections posed by the AO to the advertisement which was placed by the assessee in order to invite attention of the NGOs etc. to utilize the hostel facilities and auditorium and seminar facilities in order to promote leadership activities for the youth of the country and find ourselves in harmony with the findings of the CIT(A) as it does not lead to the conclusion that the activities are in the nature of commercial activity. Merely 27 I.T.A .No.-5502/Del/2012 advertising the fact that facility of hostel, seminar halls, auditorium etc. can be used by organizations interested in having leadership programs for the benefit of youth does not make the activity a commercial activity. We have also taken into consideration the arguments advanced by the assessee before us in support of the impugned order which are found supported by the explanation dtd. 19.12.2011 afforded by the assessee before the AO, copies placed at pages 510-516 of the paper book in response to show cause notice dated 19.12.2011 wherein apart from relying upon the letters dated 8.8.2011, 8.9.2011.13.10.2011, 20.11.2011, 28.11.2011, 5.12.2011 and 12.12.2011 the assessee as an illustration has made reference to a certificate course conducted by the trust for the duration 01st December to 23rd December 2011 which was held for unemployed youth and participants who were stated to be from different parts of India as well as from abroad including girl participants. It is found explained on behalf of the assessee that sometimes the guardians of the girl participants come to the centre to meet them and canteen staff had been instructed not to stop them from taking snacks and lunch if they so want, keeping in mind the fact that the location of the trust was not close to the commercial areas where the guardians of these girls visiting them could have gone. The mere affording of such a courtesy does not lead to the conclusion that the trust was operating on commercial lines. In the courtesy so afforded if the lady Inspector accompanied by two tax advisors were allowed to have lunch/snacks without requiring them to show any identification in no way detracts from the merits of the case. On a consideration of the facts. Evidences, material and arguments advanced by the parties before the Bench, we do not find any infirmity arrived at by the CIT(A) in the impugned order which warrants our interference. We have taken into consideration the decisions relied upon by the AO and find no fault in the conclusion of the CIT(A) who has held the judgement of Jalandhar Development Authority to be inapplicable on facts as the said authority was engaged in selling land after development could not prove its 28 I.T.A .No.-5502/Del/2012 objects to be charitable. Similar was the position for Punjab Urban Planning & Development Authority who was found to be functioning on commercial lines.
In the case of Indian Chamber of Commerce, the surplus was available for distribution which is not a fact in the present case. The judgement rendered in the case of MCD vs. Children Book Trust was also not applicable as it was rendered interpreting Municipal Corporation of Delhi Act for the purposes of house tax.
6.5. Accordingly on account of the arguments detailed reasoning on facts and law discussed at length in the earlier part of this order, we find no good reason to interfere with the finding arrived at in the impugned order. Being satisfied by the reasoning and finding of the CIT(A), Ground No-1 of the Revenue is rejected. 6.6. The facts qua the second issue agitated by the Revenue are found discussed at page 11 of the assessment order by virtue of which depreciation for the assets purchased during the relevant financial year only were allowed. Aggrieved by this, the assessee went in appeal before the CIT(A) before whom the assessee vide written submissions dated 09.08.2012 made the following submissions which are extracted from para 8.1 of the impugned order and read as under :-
"4.0 Disallowance of depreciation is wrong The Assessing Officer while computing the income has added the depreciation of Rs.30.56.176/- and has allowed a claim of depreciation of Rs.l5.43.808 - only in respect of the fixed assets acquired during the year. The Assessing Officer accordingly has disallowed depreciation in respect of the assets acquired in earlier years on the ground that those assets have been claimed as application of income in earlier years. This is legally untenable. As per the provisions of Section 11(1)(a) income to the extent which is applied for charitable purpose is exempt. The application here includes capital as well as revenue expenditure. This does not mean that the depreciation on the capital assets acquired stands allowed. It is a provision which enable a trust to apply its surplus for the purpose of its object as well as capital expenditure. This does not restrict that the next year the computation of the income should not he done applying normal commercial principles. Accordingly while computing income of year under consideration a normal commercial principle will be applicable and it will include depreciation on the assets uses during the year. In the present case it cannot he said that the asset which have been acquired in the earlier year were not used during the year. This issue is squarely covered by the judgment of the Delhi Tribunal in case of ACIT vs. 29 I.T.A .No.-5502/Del/2012 Tiny Tots Educational Society ITA NO. 3182/Del/2008. The above judgment also is confirmed by the Punjab and Haryana High Court in the case of ACIT Vs. Tiny Tots Education Society 330 ITR 21. Similar view has also been taken in the case of DIT vs. Vishwa Jagriti Mission ITA No. 140/2012. Accordingly the Assessing Officer was not justified in not allowing depreciation in respect of the assets acquired in the earlier years as claimed at Rs.30,56,716/-."
6.7. Considering the same, the CIT(A) relying upon the decision of the Tribunal rendered in the case of ACIT Vs. Tiny Tots Education Society 330 ITR 21 (Punjab & Haryana)and the decision of the Delhi High Court in the case of DIT vs Vishwa Jagriti Mission reported at 2012-TIOL-271-HC-DEL-IT allowed the appeal of the assessee.
6.8. Aggrieved by which the Revenue is in appeal before the Tribunal. The Ld. DR placed reliance on the assessment order however no contrary decision or judgement of the Jurisdictional High Court or the Hon'ble Apex Court was relied upon in support of the ground raised. The Ld. AR on the other hand relied upon the decision of the Jurisdictional High Court and the Hon'ble Punjab & Haryana High Court which have been followed by the CIT(A) so as to contend that the ground deserves to be rejected..
7. We have heard the rival submissions and perused the material available on record. It is seen that no distinction on facts has been made on behalf of the Revenue nor any contrary decision in support of the claim either of the Jurisdictional High Court or the Hon'ble Apex Court has been referred to for our consideration. It is seen that the issue was decided by the CIT(A) in the following manner :-
"8.2. I have considered the submission made by the appellant and I have perused the record. On going through the same, I have noticed that the issue of depreciation is covered by the judgment of Delhi Tribunal in the case of ACIT vs. Tiny Tots Education Society ITA No. 3182/Del/2008 which has also been confirmed by the Punjab and Haryana High Court in the case of CIT vs. Tiny Tots Education Society 330 ITR 21. The contention of the Assessing Officer that depreciation on assets purchased in earlier years cannot be allowed because those assets have been claimed as application of income in earlier years is not correct. As per the provisions of section 11(1)(a) income of the charitable trust to the extent it is applied towards charitable purpose is considered to be exempt. Accordingly, for the purpose of computation of income, it is mandatory to 30 I.T.A .No.-5502/Del/2012 compute the same applying the ordinary principle of computation of income. This will include depreciation of the assets used in earning such income. After having determined such income, the application thereof has to be seen. The provision of section 11(1)(a) allows deduction of such income towards revenue as well as capital expenditure both. So if the income is used for purchasing of assets that is an application of income, not allowance of the depreciation. If in the subsequent years asset is used to generate income, the income has to be computed after allowing depreciation on the assets so used. The Assessing Officer is not justified in not allowing depreciation because these assets have been claimed as application of income in earlier years.
8.3 Application of income and depreciation are two different aspects. This view has been upheld by Hon'ble Delhi High Court in the case or DIT vs. Vishwa Jagriti Mission reported at 2012-TlOL-271-HC-DEL-IT, wherein, Hon 'ble Delhi High Court has observed as under:-
"There is no dispute that the assessee has been granted registration under Section 12AA vide order dated 11th September, 2009 and, therefore, it was entitled to exemption of its income under Section 11. The only question is whether the income of/he assessee should be computed on commercial principles and in doing so whether depreciation on fixed assets utilized for the charitable purposes should he allowed. On this issue. there seems to be a consensus of judicial thinking as is seen from the authorities relied upon by the CIT(Appeals) as well as the Tribunal. In ClT vs. The Society of the Sisters of St. Anme (Supra), an identical question arose before the Karnataka High Court. There the society was running a school in Bangalore and was allowed exemption under Section11. The question arose as to how the income available for application to charitable and religious purposes should be computed. Jagannatha Setty, J speaking for the Division Bench of' the Court held that income derived from property held under trust cannot be the "total income" as defined in Section 2(45) of the Act and that the word "income"
is a wider term than the expression "profits and gains of business or profession". Reference was made to the nature of depreciation and it was pointed out that depreciation was nothing but decrease in the value of property through wear, deterioration or obsolescence. It was observed that depreciation, if not allowed as a necessary deduction for computing the income of charitable institutions, then there is no way to preserve the corpus of the trust for deriving the income. The circularNo.5-P (LXX-6) of 1968, dated July 19,1968 was reproduced in the judgment in which the Board has taken the view that the income of the trust should be understood in its commercial sense. The circular is as under:-
"Where the trust derives income from house property, interest on securities. capital gains, or other sources, the word 'income' should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purpose of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax u/s. 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent. of the latter, if the trust is to get the full benefit of the exemption u/s. 11(1). "31 I.T.A .No.-5502/Del/2012
12. A similar view was earlier expressed by the Andhra Pradesh High Court in Commissioner of Income-tax. v. Nizam's Suppl. Religious Endowment Trust (1981) 127 ITR 378 and by the Madras High Court in Commissioner of Income- Tax vs Rao Bahadur Calavala Cunnan Chetty Charities (1982) 135 ITR 485. The Madhya Pradesh High Court in CIT vs. Raipur Pallottine Society (supra) has held, following the judgement of the Karnataka High Court cited above, that in computing the income of a charitable institution/trust, depreciation of assets owned by the trust/institution is a necessary deduction on commercial principles. The Gujarat High Court, after referring to the judgements of the Karnataka, Maharashtra and Madhya Pradesh High Courts cited above, also came to the same conclusion and held that the amount of depreciation debited to the accounts of the charitable institution has to be deducted to arrive at the income available for application to charitable and religious purposes."
7.1. In the afore-mentioned facts where there is no infirmity pointed out by the Revenue nor any contrary decision has been referred to for our consideration we find no merit in the departmental ground. Being satisfied with the reasoning and finding of the CIT(A), the ground is dismissed.
8. In the result, the appeal of the Department is dismissed.
The order was pronounced in the open Court on 23rd of August 2013.
Sd/- Sd/-
(T.S.KAPOOR) (DIVA SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 23/08/2013
*Amit Kumar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI