IT APPEAL NOS. 5583 (DELHI) OF 2011 & 5891 (DELHI) OF 2012

G.D. AGRAWAL, VICE-PRESIDENT 
AND I.C. SUDHIR, JUDICIAL MEMBER

Rajnesh Aggarwal, CA for the Appellant. 
M.B. Reddy, CIT (DR) for the Respondent.

ORDER

I.C. Sudhir, Judicial Member - In these appeals, the assessee has questioned non-approval of continuance of exemption under section 80G(5)(vi) of the Income-tax Act, 1961 and denial of exemption available under section 11 of the Income-tax Act, 1961 on several grounds.

2. We have heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.

3. The facts in brief are that the assessee appellant is a society registered under the Societies Registration Act, 1861 as well as under section 12AA of the Income-tax Act, 1961. The assessee claimed that the services rendered by it fall in the category of relief of the poor, education and medical relief. The assessee was also granted approval under section 80G(5)(vi) of the Act vide order dated 29.5.2008 w.e.f. 01.04.2008. The Learned CIT(Appeals) did not agree with the assessee and upheld the action of the Assessing Officer that activities of the assessee falls in the 6th Limb of Section 2(15) of the Income-tax Act, 1961 which is advancement of general public utility. He held that the Assessing Officer was justified in holding that the assessee involves carrying on activities in the nature of running services in relation to trade, commerce or business as applicable in providing consultancy workshop training program, conducting research on behalf of other agency, hence, it does not deserve any relief. The Learned CIT(Appeals) has thus dismissed the first appeal which has been questioned before us in ITA No. 5891/Del/2012.

4. In ITA No. 5583/Del/2011, the assessee has questioned rejection of request of the assessee for continuation of approval granted under section 80G(5)(vi) of the Act by the learned DIT(E).

5. In support of the grounds raised in the appeals, the learned AR submitted that the assessee society is registered under the Society Registration Act, 1861 vide order dated 14.8.1997 and also under section 12A of the Income-tax Act, 1961 vide order dated 10.3.1999 passed by the DIT(E). He submitted that the registration granted under sec. 12A of the Act is still valid. The society has been getting approval under sec. 80G regularly which was being renewed from time to time. The last renewal was made by DIT(E) vide his order dated 25.09.2008 valid for the period 01.04.2008 till 31.3.2011. The registration continues to remain valid till date in view of the amendment in the Act and as per clarification vide CBDT Circular dated 27.10.2010 according to which existing approval under section 80G(50(vi), validity of which is expiring on or after Ist October 2009 shall be deemed to have been extended in perpetuity unless specifically withdrawn by DIT (E).

6. The learned AR submitted further that the assessee institution for participatory services is a registered development support organization which works towards democratization of development process and institutions all over developing world. It is involved in for technical support, training, research and reserves material related to participatory development since its inception. The activities of the society are charitable and covered under sec. 2(15) of the Act. He pointed out that the Revenue has been allowing the benefit of exemption under sec. 11/12 of the Act to the assessee regularly till assessment year 2008-09.

7. The learned AR submitted that during the course of assessment proceedings, the assessee submitted that the activities carried out by it are charitable in nature and specifically valid in the category of relief of the poor, medical and education and it is engaged in charitable activities fully complying with the conditions stipulated in sections 11/12 of the Income-tax Act, 1961. The assessee in order to support its contention further submitted before the Assessing Officer with reference to documentary evidences that its activities were connected with the adjustment of the specific charitable purposes falling in the first three limbs, namely, relief of the poor, medical and education. The assessee also stated that its activities could not be construed to be limited to the object of general public utility as defined in section 2(15) of the Act and with its activities cannot be treated as engaged in trade, commerce or business and these were fully complying with the provisions of sec. 2(15) of the Act. It was submitted before the authorities below that the assessee is carrying on all its activities for non-government organizations (NGOs) who are engaged only in charitable activities like UNICEF, Helppage India, ILO, Save the Children, Care India, the leprosy mission (TLM) and CRY etc.

8. The learned AR further submitted that the main reasoning of the Assessing Officer for denying the exemption under sec. 11/12 to the assessee and treating it in the 6th limb of the charitable activity, namely, 'the advancement of general public utility" is that the assessee is engaged in providing with consultancy services for fees and thus hit by the first proviso to sec. 2(15) of the Act and hence it looses its charitable character. In this connection, the learned AR referred the provisions laid down in sec. 2(15) before amendment and after amendment. He reiterated that all the activities of the assessee clearly fall in the first three limbs of charitable purposes as defined in sec. 2(15) of the Act, namely, relief of the poor, education, medical relief. In this regard, he referred page Nos. 60 to 68 of the paper book as well as copy of arrangement between the assessee and NGOs who have engaged the assessee describing the activities of the assessee. These evidences show the grants/donations/fees etc. received from various parties, its nature as per the agreement and its actual uses for relief of poor, for education/medical etc. From these documents, it will be seen that the assessee has been rendering charitable activities to destitute, orphans or the handicapped, disadvantageous women or children. The learned AR also referred CBDT circular No. 11/2008 dated 10/09.12.2008 making the position clear regarding proviso to sec. 2(15) of the Act. The learned AR submitted further that the activities carried on by the assessee have all along been accepted in the case of the assessee itself by the Revenue over the years. The Assessing Officer has denied the benefit of sec. 11/12 to the assessee without application of mind while applying amended provisions of sec. 2(15) of the Act w.e.f. assessment year 2009-10 ignoring the fact that the assessee activities are covered in the first three limbs as already admitted by the department in the past many years. In this regard, he referred assessment orders framed under sec. 143(3) of the Act for the assessment years 2006-07 to 2008-09.

9. The learned AR submitted that the charitable activities of the assessee are in no way hit by the amendment by the first proviso to sec. 2(15) of the Act for the following reasons:

10. The learned AR submitted further that most of the NGOs are related to WHO/UNO etc. and did not have any expertise of connecting/collecting the poor and needy principles like destitute orphans, sex workers, drug addicts in which the assessee society has gained experience over a period of time and has capacity to collect these particular clauses of principles and motivated them to get out of it. Therefore, the allegations of the Assessing Officer that the assessee is providing consultancy services for fees is unfounded and illegal. In this regard, he placed reliance on the decision of Delhi Bench of the ITAT in the case of Asstt. CIT v. Centre for Development Studiesengaged in capacity applying to the managerial level of masses - IT Appeal No. 4145/Del/2004- order dated 20.10.2010.

11. The learned AR submitted further that there is no change in the activities of the assessee which all along has been covered under first three limbs of charitable activities as can be seen from the assessment order passed under sec. 143(3) of the Act in the case of the assessee for the assessment years 2006-07, 2007-08 and 2008-09.

12. The learned AR submitted that the assessee is not charging any fee to any beneficiary and the beneficiary are poor community to whom the assessee is giving medical facilities, collecting and training drug addicted persons etc. 100% of assessee's receipts are for services rendered to societies/institution like Care India, UNICEF, Save the children, leprosy mission, CRY, Help page etc. whether in India or abroad which are engaged in charitable activities and as per their charter they are to involve only those institution/societies which are not in trade, commerce or business and are doing real work in providing relief to the poor, education, medical relief etc. The aforesaid societies/institutions are closely monitoring the activities of the assessee trust as to whether the assessee is rendering services in the nature of charity or not as it can be seen from the copy of the agreements with them made available in the paper book. Thus, without there being any change in the facts and circumstances of the case during the year under consideration, the Assessing Officer has simply jumped in coming to the conclusion that assessee's case falls under the 6th limb of charitable purposes, namely, advancement of any other object of general public utility and treated the assessee as an AOP. Without prejudice to the above submissions, the learned AR submitted that even for the sake of arguments, going by the findings of the Assessing Officer that the assessee is covered in the advancement of any other object of general public utility, still the activities of the assessee cannot be taken out of charitable purposes, as the assessee is neither involved in the carrying on any activity in the nature of trade, commerce or business nor in any activity of rendering any service in relation to any trade, commerce or business, for a less or fee. Further, in terms of 2nd proviso to section 2(15), the first proviso shall not apply if the aggregate value of the receipt from the activity referred to therein is Rs. 25 lacs or less in the previous year.

13. He submitted that it is an established position of law that an activity cannot be considered as in the nature of business or profession unless there is primary motive of making profits. The learned AR further submitted that it is evident from the chart enclosed at page Nos. 62 to 68 of the paper book that 22.46% (Rs. 26,68,336 ) of the receipt of Rs. 1,18,79,293 (total receipts - interest ) relates to education, 23.4% (Rs. 27,60,180) relates to relief of poor and 54.30% (Rs. 64,50,777) relates to medical relief. He referred page Nos. 69 to 89 of the paper book and placed reliance on the following decisions in support:

14. The Learned DR on the other hand placed reliance on the order impugned. He pointed out that the appellant was denying only consultancy job and was rendering services but other societies/institution by charging fee. In earlier year up to 2008-09, the claim of the assessee regarding exemption under sec. 11 of the Act was being accepted but during the year the claimed exemption was withdrawn due to change in law by way of insertion beyond of proviso to sec. 2(15) of the Act. Since the assessee is providing services with profit motive as it has been discussed by the authorities below, it falls in 6th Limb of the provisions. He submitted that the activities of the assessee are general public utility not for the benefit of the poor.

15. In rejoinder, the learned AR submitted that the ultimate beneficiary is definitely poor people. He drew our attention to the object clauses of the assessee made available at page nos. 1 and 2 of the paper book filed on 13.11.2014. The leaned AR submitted that of course the assessee is working for different societies/institutions engaged charitable works but it implements and executes their charitable object by organizing the camps etc. for the beneficiaries without charging anything from beneficiaries. The different societies/institutions pay to the assessee for organizing such camps and benefit, if any, to the assessee in terms of money is only incidental thereto. He reiterated that assessee is not working for any other concern otherwise the societies/institutions having charitable objects.

16. Having gone through the activities of the assessee made available at page Nos. 101, 113, 130, 141, 151, 156 etc. of the paper book filed on behalf of the assessee about the activities of the assessee, we find that for Care India, the task involves on the part of the assessee is planning and conducting capacity building program for state lead and implementing partners, field visits and facilitation of reflection process of the organization development etc. mainly in respect of HIV and Sex Workers. At page Nos. 8 & 9 of the annual report relevant activities and photograph study for community mobilization have been provided. For the Leprosy Mission Trust India (TLM) the role of the assessee is to focus its approach to work with people and communities effected leprosy and disability and to address poverty and industries through enhanced quality people centered intervention. One of the points to be ensured by the assessee is the key area, where capacity is lacking at the field level and also to make field visits to projects where needed. The assessee was to visit selected project locations in Delhi to explore alternative to the existing structure and system. Field work will be organized to sensitized the usages of the participatory approaches, requirement of paradiagram shift from technical to community centric approaches. Semi-structured interviews will be held with the Leprosy Effected, Disability, Socially Excluded People to know about their aspirational and attitudinal behavior which they are looking for. The assessee will also hold discussion with officials of leprosy mission. Page No. 10/A of the annual reports contains the relevant activities and page 19C contains photograph depicting the plans. For the Plan International ( a child rights organization working to elevate child poverty) the objective is to understand the CC based microplanning through classrooms and field based training evolves a process and identity mythology for a participatory needs assessment to develop line centered community level microplan and field work etc., page Nos. 18/19A of the annual report contains the relevant activities and photographs depicting therein online high and micro level planning for UNICEF, the task of the assessee involve fixing understanding the living condition of the tribal people and dynamics of their social exclusion (page No. 16 of the annual report contains the relevant activities and photographs depicting the immersional lending program). For international labour office (ILO), the task of the assessee is to carry out rapid assessment on the vulnerability of workers to bondages/labour exploitation in Tamilnadu by organizing separate works job/consultation meetings with employer, NGOs and government etc. Also to find out specific issues of women workers such as Child Care including sexual harassment/violence etc. Page No. 12 of the annual report contains the relevant activities and photographs depicting the living and working condition of workers.

17. For Pellastakaa Laspset-Radda Banen(save the children, contract Finland), the assessee was entrusted to undertake the study on qualitative base line in eight village of southern Rajasthan for formulating an educational model for promoting and protecting the rights of children of indigenous community through a right based approach in the area of root causes of violation of rights of children, nature and impact of such violation etc.

18. We find that during the year, the assessee undertook 25 such projects, the details of which were submitted before the authorities below but the Learned CIT(Appeals) or the Assessing Officer did not determine the nature of the activities for the very purpose of the objects. The Assessing Officer was of the view that the assessee involves in carrying on the activities in the nature of rendering services in relation to trade, commerce or business as assessee is providing consultancy, workshop, training program, conducting research on behalf of other agencies. Thus, we find that the above view of the Assessing Officer was based upon the fact that assessee is providing consultancy, workshop and training program etc. We are of the view that the activities of the assessee can in no way be covered in trade, commerce etc. as it is not charging any fee from the beneficiaries who are poor communities. It is also worth noting that the NGOs who have engaged the assessee are itself charitable institutions like WHO, UNICEF etc. and they ensure that the grant etc. given to the assessee are fully utilized only for the purpose of charitable activities and not for any business. The assessee did not have any receipt in excess of expenditure during the year. The books of account clearly show that no amount of current receipt or out of unutilized receipt of the past has been treated as profit in the sense it would be treated, had it been a business and that no amount has ever been given to any member of the board of the society or any member of the assessee society except the reimbursement of expenses incurred in connection with the board's meeting. It is also not the case of the department that any part of profit or gain shown as receipt over expenditure has been transferred to any member of the society. Thus, the activity of the assessee society is certainly not for making profit and it is certainly not in the nature of any trade, business or commerce, so as to be headed by the first proviso to sec. 2(15) of the Act even if it is treated as advancement of any general public utility. Similar are the facts in the case ofSociety for Essential Health Action & Training (supra). In that case also, the assessee had received an amount of Rs. 42 lacs from SAS for research conducting on implementation of various medicine related to children invocation. This research was part of the research activities which were to be carried out by SAS, but SAS could not carry out. This research was carried out by the assessee society in pursuance of a written arrangement with SAS. As per the arrangement/agreement, the assessee provided techno-medical research support and compilation of DATA in a project called "ROTA VIROS" . In consideration thereafter, SAS agreed to pay the assessee a lump sum amount of Rs. 50 lacs. It was termed as service fee. The Assessing Officer construed the above said agreement to be a commercial agreement. The services provided by the assessee to SAS were taken as being of commercial nature. The Assessing Officer held that the proviso to sec. 2(15) of the Act is applicable to "any other object of general public utility and not to charitable organization engaged in providing either relief to the poor or medical relief or education and that since the activities of the assessee did not fall under either relief to the poor or medical relief or education, it could be safely presumed that they fall under the category of general public utility", that for such activities, the assessee was receiving contractual income, irrespective of whether it resulted in profit or loss and that as such, the assessee had violation of the provisions of section 2(15) of the Act, that since the assessee did not fall within the scope "charitable purpose", as defined in sec. 2(15) of the Act, the benefit of sec. 11/12 of the Act was being disallowed to the assessee for the year under consideration. The Assessing Officer also sent a proposal for withdrawal of registration to the assessee under sec. 12AA of the Act to the DIT(E), separately. The grievance of the revenue before the ITAT was that the Learned CIT(Appeals) has erroneously held the activities of the assessee society to be falling under "advancement of any other object of general public utility" as defined therein. The ITAT held that the aims and objects of the assessee society, as per its Memorandum of Association includes medical research and informal education and communication activities of health and nutritional issue for urban slum and rural communities. The ITAT thus held that the activities in question is undisputedly the activity of research i.e. Techno Medical Research Support for research and compilation of DATA on account of "ROTA VIRUS" to SAS. Therefore, the activity carried on by the assessee cannot be said to be beyond its main aims and objects. It also remains irrefutable that the assessee society continues to enjoy registration under sec. 12A of the Act, as a charitable trust, confirming that the charitable purposes for which the assessee society was established remains unchanged. The activities of assessee during the year was in pursuance of such purposes thereafter following the ratio laid down by the Co-ordinate Bench of the ITAT in the case of Harnam Singh Harbans Kaur v. DIT (Exemption) [2012] 49 SOT 387/17 taxmann.com 103, Delhi, the ITAT upheld the action of the Learned CIT(Appeals). As per the cited decisions, charitable institution registered under sec. 12A of the Act and carrying the activities in the nature of charity, cannot be held to be engaged in the activity of advancement of any other object of general public utility.

19. Similar view has been expressed by the Hyderabad Bench of the ITAT in the case of GVK EMRI (UP) (supra). Similar are facts in the case of assessee as most of the NGOs related to WHO/UNO etc. do not have any experience of connecting/collecting the poor and needy people like destitute orphans, sex workers, drug addicts in which assessee society has gained experience over a period of time and has capacity to collect these particulars classes of people and motivate them to get out of it. Besides, there is no change in the activity of the assessee which all along has been covered under the first three limbs of charitable activities laid down under sec. 2(15) of the Act as in the assessment years for 2006-07, 207-08 and 2008-09 in the assessment framed under sec. 143(3), the activities of the assessee trust have been treated as charitable in nature and within the meaning of sec. 2(15) of the Act. As discussed above, the activities of the assessee firstly cannot be treated as advancement of any other object of general public utility nor it can be said that the activity of the assessee involves the carrying of any activity 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. Respectfully following the above referred decisions on identical issues on almost similar facts as of the present assessee before us, we hold that the activities as discussed hereinabove of the present assessee cannot be held to be engaged in the activity of advancement of any other object of general public utility. The activities carried on by the assessee cannot be said to be beyond its main aims and objects and it is also an undisputed fact that the assessee society continued to enjoy registration under sec. 12A of the Act as a charitable trust and that the charitable purpose for which the assessee society was established remained unchanged. Under the circumstances, we while setting aside the first appellate order as well as order of the learned DIT(E) direct the Assessing Officer to allow the assessee the claimed exemption under sec. 11(12) of the Act and the ld. DIT(E) is directed to allow the application of the assessee for continuance of the approval granted under sec. 80G(5)(vi) of the Income-tax Act, 1961. The grounds of the appeals are thus allowed in favour of the assessee.

20. In the result, the appeals are allowed.