Income Tax Appellate Tribunal - Hyderabad
Kalinga Cultural Trust,, Hyderabad vs Department Of Income Tax on 3 July, 2015
THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA Nos. 33 & 339/Hyd/2015
Assessment Years: 2009-10 & 2010-11
Income-tax Officer (Exemptions) vs. Kalinga Cultural Trust,
- II, Hyderabad. Hyderabad.
PAN - AATK 3517 C
(Appellant) (Respondent)
Revenue by : Shri B. Rajaram
Assessee by : Shri C.S. Subramanyam &
Shri V. Sivakumar
Date of hearing 25-06-2015
Date of pronouncement 03-07-2015
O RDE R
PER SAKTIJIT DEY, J.M.:
These two appeals by the department are against separate orders of ld. CIT(A), Hyderabad pertaining to AYs 2009-10 and 2010-
11. ITA No. 33/Hyd/2015 for AY 2009-10
2. Department has raised five grounds. Ground Nos. 1 & 5 being general in nature, do not require any specific adjudication.
3. In Ground Nos. 2 & 3, department has challenged the decision of ld. CIT(A) in upholding assessee's claim of exemption u/s 11 of the Act. Briefly the fact relating to the issue in dispute are, assessee a society registered under the AP Societies Registration Act, was also granted registration u/s 12A of the Act, under the Income-tax Act, 1961 as a charitable institution with effect from 23/11/1995. As it 2 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
appears, assessee society was also filing its returns claiming exemption u/s 11 of the Act, which has been allowed by the department over the years. For the AY under consideration, assessee filed its return of income on 29/09/2009 declaring 'nil' income after claiming exemption u/s 11 of the Act. During the assessment proceeding, it was noticed from information available on record by AO that assessee is constructing a Jagannadha Temple making huge investment and up to the end of PY 2008-09, it has invested an amount of Rs. 2,29,50,378. He further noticed that out of the total income of Rs. 1,54,72,028, for the year under consideration assessee trust has invested an amount of Rs. 76,67,283 in construction of the temple. AO observed that as per its bye-law, primary object of assessee society is to provide facility for cultural meetings, events and activities of people from Odisha. One more activity which was included in the aims and objects after amendment is to promote and propagate Jagannadha dharma/culture and philosophy. He further noticed that object of the trust has to render support and to provide subsidized free accommodation for temporary period to people hailing from Odisha. However, he found that apart from the investment made in construction of Jagannadha Temple, other expenses of the society include pooja expenses, maintenance of hall and cultural programmes etc. whereas the main source of income of the trust is rental income, income from souvenir and donations. AO observed, the activities/programmes carried out during the FY revealed that the trust is engaged mainly in construction of temple of lord Jagannadh and letting out of kalyan mandapams. On the basis of aforesaid facts, AO formed an opinion that the activities of assessee society are not in accordance with the aims and objects of the society as assessee is predominantly engaged in construction of temple, which is not amongst its objects. He, therefore, called upon assessee to show cause as to why the claim of exemption u/s11 shall not be denied. In response to the query raised by AO, it was submitted by assessee as under:
3ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
"i) Lord Jagannath is a symbol of Odisha culture and heritage. Culture and heritage are interlinked and interwined with the religious sentiments of the people. Both cannot be separated from each other.
ii) In order to promote Odisha Culture among the residents of Hyderabad and Andhra Pradesh, for which the society was established, there was an immediate need to bring in a symbol of Odisha Culture to Hyderabad.
The Jagannath Temple, which is a replica of the Lord Jagannath Temple of Puri, Orissa is a symbol of Odisha Culture.
iii) The main aim of the assessee is not to promote religion but to promote Odisha Culture and construction and operation of the Temple cannot be isolated activities to promote Odisha culture.
iv) Although the construction and maintenance of the Jagannath Temple was not included in the objects of the Trust, the object of the society was amended.
v) The society continues to enjoy the benefit of the registration u/s12A."
Further relying upon a number of judicial precedents, it was submitted before AO that philosophy of Jagannadha dharma is an integral part of odisha culture and heritage. Hence, construction and maintenance of Jagannadha Temple is inseparable from odisha culture and heritage. AO, however, was not convinced with the explanation of assessee. He opined that construction of Jagannadha Temple not being in consonance with the aims and objects of the society cannot be considered as charitable activity. Further, he observed that assessee is also having income from letting out of function hall, sale of souvenir etc, which are purely commercial activity, therefore, in view of proviso to section 2(15) of the Act, assessee's activity cannot be considered to be for charitable purpose. Accordingly, he concluded that assessee is not entitled for exemption u/s 11 of the Act. AO, ultimately, passed assessment order by determining the total income of assessee at Rs. 51,66,893 by making various additions and disallowances. Being aggrieved of the assessment order, so passed, assessee preferred appeal before ld. CIT(A).
4ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
4. In course of hearing of appeal before ld. CIT(A), it was submitted by assessee that construction of Jagannadha Temple being a part of odisha culture cannot be construed to be an activity different from its aims and objects. Assessee strongly contesting the finding of AO that construction of temple is not charitable activity, relied upon a decision of the Hon'ble AP High Court in case of CIT Vs. Social Services Centre, 250 ITR 39 wherein construction of church was held to be a charitable activity. It was submitted by assessee that religion and charity always come together in this country and once exemption is granted for charitable activity, religious activities are also included. Assessee submitted that all charitable organizations may not carry religious activities, but, all religions profess charity as essential part of their philosophy. As religion and charity are always co-existing, AO cannot deny exemption u/s 11 of the Act by holding that application of money was for a religious activity of constructing a temple. As far as allegation of AO that assessee is earning from commercial activity, it was submitted by assessee that maintenance and letting out of function hall, sale of souvenir etc are ancillary and incidental to the main objects of assessee, hence, cannot be considered to be commercial activities. He submitted that receipts from such activities is utilized for construction of temple, which is a charitable activity.
5. Ld. CIT(A) after considering the submissions of assessee in the context of facts and materials on record found that in assessee's own case for preceding AYs, ld. CIT(A) has decided the issue in favour of assessee by holding that assessee being engaged in temple construction activity is entitled for exemption u/s 11, which was also confirmed by ITAT, Hyderabad Bench. She observed that there is no doubt that assessee was engaged in construction of Jagannadha Temple for the last three years and for this purpose assessee has raised monies through donations, by renting out hall etc. However, it 5 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
was observed by ld. CIT(A) that in view of the principle laid down by Hon'ble AP High Court in case of CIT Vs. Social Services Centre (supra) and the decision of ITAT in assessee's own case, the activity of assessee in constructing a temple falls under charitable activity. Accordingly, she held that exemption u/s 11 cannot be denied to assessee. She observed, even after amendment to section 2(15) w.e.f. 01/04/09, the primary purpose of renting out hall being for raising funds for the construction and maintenance of temple, which is a charitable activity, exemption u/s 11 cannot be denied. Accordingly, she allowed assessee's claim of exemption u/s 11 of the Act. Being aggrieved, department is before us.
6. Ld. DR mainly relying upon the reasoning of the AO submitted that after insertion of proviso to section 2(15) of the Act, any activity of commercial nature resulting in income to assessee would deprive the society or trust from being considered to have been established for charitable purpose, hence, no exemption u/s 11 can be allowed.
7. Ld. AR, on the other hand, apart from making oral submissions filed a detailed and exhaustive written submission, the sum and substance of which is assessee being involved in charitable activity, exemption cannot be denied to it merely because some income is generated to assessee from letting out of function hall or sale of souvenir. It was submitted that such activity of letting out function hall or sale of souvenir being incidental and ancillary to the primary object of society, which is charitable in nature and moreover the income generated from such activity being utilized for the charitable object, proviso to section 2(15) will not apply. Ld. AR submitted, in case of assessee, the Tribunal that in the preceding AYs having already held construction of Jagannadha Temple as a charitable activity and further the income generated from letting out of function hall is not a commercial activity, the issue stand settled in favour of assessee. He, therefore, submitted that there is no justifiable reason to interfere with 6 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
the order of ld. CIT(A). As far as souvenir sale is concerned, ld. AR submitted, souvenir sale cannot be considered to be of commercial nature as it is an act of voluntary contribution by persons, who buy souvenir.
8. We have considered the submissions of the parties and perused the material on record as well as the orders of revenue authorities. As could be seen from the assessment order, AO has denied exemption u/s 11 to assessee primarily on two reasons, firstly, because assessee is constructing Jagannadha Temple, which, according to AO, is neither in accordance with the aims and objects nor a charitable activity. The second reason is, after introduction of proviso to section 2(15) of the Act, assessee looses its character of trust having been established for charitable purpose as it has earned income by engaging in commercial activities. As far as allegation of AO that construction of temple by assessee is neither in accordance with aims and objects of assessee nor charitable activity is concerned, it has to be rejected at the threshold in view of the decision of the coordinate bench in assssee's own case in AYs 2006- 07, 2007-08 and 2008-09 in ITA Nos. 894 & 895/Hyd/13 and 1067/Hyd/12, dated 06/06/14 wherein the coordinate bench agreed with the ld. CIT(A) that construction of Jagannadha Temple is not only in furtherance of the aims and objects of assessee society but, is also a charitable activity. In view of the aforesaid, we do not find any merit in the submissions of the ld. DR that construction of Jagannadha Temple is not a charitable activity. As far as the second reason for denying exemption u/s 11 is concerned, it is the allegation of AO that as assessee was involved in commercial activity by generating income by letting out function hall, selling souvenir, etc, it is not eligible for exemption in view of the proviso to section 2(15) of the Act, we are of the view that the same requires deeper analysis. However, before deciding the issue, it is necessary to observe that there cannot be any dispute to the fact that assessee's objects are 7 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
charitable in nature, as ld. DIT(E) has granted registration to assessee u/s 12A of the Act since the year 1995 and which is continue till date.
8.1. Further, there is nothing on record to suggest that in the intervening period there is any substantial change in the aims and objects of assessee. Therefore, keeping in view the aforesaid facts, it has to be decided whether the introduction of fist proviso to section 2(15) by the Finance Act, 2008 w.e.f. 01/04/09 would automatically disentitle the assessee from being considered as having been established for charitable purpose and thereby depriving it from claiming exemption u/s 11 of the Act. A plain reading of section 2(15) of the Act, also makes it clear that the proviso applies only to the last limb of 'charitable purpose' i.e. advancement of any other object of general public utility'. The intention of the legislature in introducing the proviso to section 2(15) as could be gathered from the speech of the Hon'ble Finance Minister on the floor of Parliament, explanatory notes, departmental circulars, is to deny exemption to trusts or institutions who in the garb of charity are purely engaged in commercial or business activities and whose main intention is to earn profit. The proviso is never meant to deprive genuine trusts and institutions whose main object is charity but in process of achieving the main object they undertake some income generating activity which is ancillary and incidental to the main object. Further, income generated from such activity is also utilized for achieving the main charitable object. The true import and effect of proviso to section 2(15) of the Act came up for scrutiny before a number of High Courts. The unanimous view of judiciary in this regard is, proviso to section 2(15) has to be applied keeping in mind the dominant object/purpose of the trusts or institutions. Therefore, it has to be seen whether the dominant object of the trust is of charitable nature in carrying out the object of general public utility or main intention of the assessee is to earn profit. Further, definition of 'charitable purpose' as defined u/s 8 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
2(15) of the Act cannot be read in vacuum, but, has to be read along with the exemption provisions. That being the case, a literal interpretation to the proviso to section 2(15) cannot be given if the objects of the exemption provisions are to be given full effect. The Hon'ble Delhi High Court in case of Indian Trade Promotion Organisation Vs. director General of Income-tax (E), 371 ITR 333 while interpreting the effect of proviso to section 2(15) of the Act, after analyzing a number of decisions of the Hon'ble Supreme Court as well as different high courts observed that the only thing which is required to be examined is whether the trust or institution has been established for charitable purposes. The fact that it derives income does not in any way detract from the position that it is not an institution established for charitable purposes. The Hon'ble High Court observed that merely because assessee derives rental income, income out of sale of tickets and sale of publications and income out of leasing out food and beverages outlets in the exhibition grounds does not, in any way, affect the nature of trust as a charitable institution, if, it otherwise qualifies for such a character. It was further observed by the Hon'ble High Court that if a meaning is given to the expression 'charitable purpose' so as to suggest that in case of an institution having an object of advancement of general public utility if derives income it would be falling within the exception carved out in the first proviso to section 2(15) of the Act, then, there would be no institution whatsoever which would qualify for exemption and the exemption provision would be rendered redundant. The Hon'ble Delih high Court referred to its own decision in case of Institute of Chartered Accountants of India and another Vs. Director General of Income-tax (E), 358 ITR 91 wherein while interpreting expressions 'trade, commerce and business', as find place in the first proviso to section 2(15), the court held that merely because fees or some other consideration is collected or received by an institution, it would not lose its character of having been established for charitable purpose. The Court observed, in this context, the dominant activity of the 9 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
institution has to be looked into. If the dominant activity of the institution is not business, trade or commerce, then, any such incidental or ancillary activity would also not fall within the categories of trade or commerce or business. The driving force of the trust or institution should not be a desire to earn profit, but, utilize the same for achieving the charitable objects for which it is established. The Hon'be High Court laying down the principle as to how the proviso to section 2(15) should be construed, held as under:
"58. In conclusion, we may say that the expression II charitable purpose", as defined in section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to section 2(15) of the said Act then the proviso would be at risk of running fowl of the principle of equality enshrined in article 14 of the Constitution of India. In order to save the Constitutional validity of the proviso, the same would have to be read down and interpreted in the context of section 10(23C)(iv) because, in our view, the context requires such an interpretation. The correct interpretation of the proviso to section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and the prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a "charitable purpose". On the flip side, where an institution is not driven primarily by a desire or motive to earn profits but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes."
8.2 If we apply the aforesaid principles to the facts of the present case, it is to be seen that as held by the coordinate bench in assessee's own case in the preceding AYs, assessee is pursuing charitable activity in accordance with its aims and objects while constructing the Jagannadha Temple. In fact, the AO himself in assessment order has admitted that income/fund of assessee is 10 ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
utilized in construction of the temple. Further, the coordinate bench in the said order held, by letting out function hall assessee is not involved in commercial activity so as to disentitle it from claiming exemption u/s 11. Therefore, considered in the aforesaid perspective, there being no dispute to the fact that dominant object of assessee is charitable in nature, proviso to section 2(15) cannot be applied to deny exemption to assessee u/s 11 of the Act. In our view, AO without examining the issue in proper perspective has abruptly concluded that assessee is not entitled to exemption u/s 11 of the Act only because proviso to section 2(15) was introduced w.e.f. 01/04/09. In our view, proviso to section 2(15) of the Act will not apply automatically to every trust or institution irrespective of the fact, whether the dominant object of the trust or institution is charitable purpose or earning profit. When in the present case assessee is registered as charitable institution and there is no change in the aims and objects of assessee in the impugned AY and the activities of assessee over the years remains the same, the proviso to section 2(15) cannot be applied to assessee to deny exemption u/s 11 of the Act. In view of the aforesaid, we do not find any merit in the submissions of the ld. DR so as to disturb the finding of the ld. CIT(A) on this issue. Accordingly, we uphold the order of ld. CIT(A) by dismissing the grounds raised.
9. In ground No. 3, department has challenged the decision of ld. CIT(A) in deleting the disallowance made by AO u/s 40(a)(ia) of the Act. Since income of assessee has to be computed u/s 11 of the Act, no disallowance can be made u/s 40(a)(ia) by applying commercial principles. Thus, this ground of the department is also dismissed.
11ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
10. In the result, appeal of the department is dismissed.
ITA No. 339/Hyd/2015 for AY 2010-1111. The facts and the grounds raised in this appeal are materially identical to that of ITA No. 33/Hyd/15, following the conclusions drawn in the respective grounds, the same are dismissed.
12. In the result this appeal of the department is dismissed.
13. To sum up, both the appeals of the department are dismissed.
Pronounced in the open court on 3 rd July, 2015.
Sd/- Sd/-
(B. RAMAKOTAIAH) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated: 3 rd July, 2015
kv
Copy to:-
1) ITO (Exemptions)-II, 3 rd Floor, Ayakar Bhavan, Basheerbagh, Hyderabad.
2) Kalinga Cultural Trust, Plot No. 1269, Road No. 12, Banjara Hills, Hyderabad. - 500 034
3) CIT(A), Hyderabad
4) DIT (E), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
12ITA Nos. 33 & 339/Hyd/2015 Kalinga Cultural Trust, Hyd.
Description Date Intls 1. Draft dictated on Sr.P.S. 2. Draft placed befor e auth or Sr.P.S Draft pr opose d & placed bef ore the secon d AM 3 Mem ber 4 Draft discussed/appr oved b y second Mem ber VP 5 Appro ved Draft com es to the Sr.P.S./PS Sr.P.S. 6. Kept for pro nou ncem ent on Sr.P S. 7. File sent to the Bench Clerk Sr.P.S. 8 Date on which file go es to the Head Cle rk 9 Date of Dispatch of or der