G.S. Pannu, Accountant Member - The captioned appeal filed by the assessee pertaining to assessment year 2010-11 is directed against an order passed by CIT (A)-1, Mumbai dated 28/07/2014, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short 'the Act') dated 05/03/2013.
2. In this appeal, assessee has raised the following Grounds of appeal:—
"GROUNDS OF APPEAL:
The grounds of appeal set out below are without prejudice to each other:
| 1 |
(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of amount accumulated u/s. 11(2) of the Income Tax Act, 1961 (the Act) of Rs. 94,38,84,008/- and Rs. 154,61,77,037/- for Assessment Year 2007-08 and 2008-09, respectively which is wrong and contrary to the facts of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(b) the learned Commissioner of Income Tax (Appeals) erred in dismissing this ground of appeal as related to applicability of section 11 for the year without appreciating that this ground of appeal is independent and not at all related to income of current year in any manner and the reasons given by him for doing so are wrong and contrary to the facts of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(c) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in dismissing this ground of appeal without considering the detailed submissions of the appellant which is wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(d) the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of amount accumulated u/s. 11(2) of the Act of Rs. 94,38,84,008/- and Rs. 154,61,77,037/- for Assessment Year 2007-08 and 2008-09, respectively without appreciating the fact that the said amount if not utilized for the purpose for which they were accumulated till the expiry of period allowed u/s. 11(3) of the Act would be taxable in the previous year immediately following the expiry of that period and hence the addition in this year is totally wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(e) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant trust has considered the amount accumulated under section 11 (2) of the Act in Assessment Year 2007-08 and 2008-09 of Rs. 94,38,84,008/- and Rs. 154,61,77,037/-respectively, against the expenditure incurred on objects/purposes during the assessment year 2013-14 and hence the addition of the said amount in this year amounts to double taxation of the same amount. |
|
(f) On the facts, and in the circumstances of the case and in law the ld. CIT (A) failed to appreciate that DIT (E) has also passed an order u/s. 263 of the Act for A.Y.2009-10 directing the learned Assessing officer to frame assessment afresh after considering the amount accumulated and set apart in A.Y. 2007-08 and 2008-09 as income of the trust for A.Y. 2009-10 which shows that addition of this amount cannot be made or sustained in this year. |
2 |
(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming addition of Rs. 166,41,00,000/- being the contribution received from Settlers, namely Government of India (GOI) and Small Industries Development Bank of India (SIDBI) towards the Corpus in terms of the trust deed and the reasons assigned for doing so are wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(b) the Learned Commissioner of Income Tax (Appeals) erred in dismissing this ground of appeal as related to applicability of section 11 for the year without appreciating that this ground of appeal is independent and not at all related to income of current year in any manner and the reasons given by him for doing are wrong and contrary to the facts of the case, provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(c) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) has erred in dismissing this ground of appeal without considering the detailed submissions of the appellant which is wrong and contrary to the provisions of the Income Tax Act, 1961 and Rules made thereunder. |
|
(d) The learned Commissioner of Income Tax (Appeals) failed to appreciate that the contribution received from GOI and SIDBI, the settlers is not donation or voluntary contribution but is an obligation being initial agreed contribution for corpus of the trust as per the Trust Dee executed by them. |
|
(e) On the facts and in the circumstances of the case and in law, the learned authorities below failed to appreciate that if the trust is held to be not for charitable purpose within the meaning of section 2(15) of the Act and is not eligible for benefits u/s. 11 to 13 of the Act, then no addition of the contributions can be made by invoking the deeming provisions of section 12(I)of the Act. |
|
(f) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) failed to appreciate that all receipts of the appellant and in particular receipt of capital nature cannot be deemed to be income and covered u/s. 2(24) of the Act. |
3. |
On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in holding at para 5.16 of the order that the claims of deductions contested in Ground No. 1& 2 of appeal are not allowable since section 11 is found to be inapplicable during the year without appreciating that the appellant has not claimed any deductions but those amounts have been added by the learned Assessing Officer over and above the total income of the year offered by the appellant in the return of Income. |
4. |
On the facts and in the circumstance of the case and in law the Id. CIT (A) erred in giving contradictory decisions in respect of different grounds of appeal in as much as he has held that the sections 11,12 and 13 of the Act are not applicable during the year but has confirmed the additions to total income by taking recourse to sections 11(3) and 12(1) of the Act and thereby confirming additions of amounts accumulated in earlier years and contributions to the corpus of the trust in terms of trust deed. |
5 |
(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of deduction of a sum of Rs. 53,69,84,940/-, being 15% of the income derived by the trust, under section 11(1)(a) of the Act, by holding that the activities carried out by appellant are not covered within the definition of "Charitable Purpose" as defined u/s. 2(15) of the Income Tax Act, 1961 which is wrong and contrary to the facts of the case, the provisions of the Income Tax Act, 1961, and Rules made thereunder. |
|
(b) On the facts and in the circumstances of the case and in law, the authorities below failed to appreciate - |
(i) |
that the objects of the Trust are covered within the meaning of charitable purpose and the Trust was granted registration u/s. 12A of the Act. The order of cancellation of the registration u/s. l2A has been set aside by the Hon'ble Income Tax Appellate Tribunal. |
(ii) |
that the object of the Trust is for the benefit of under privileged class of people and also falls within the meaning of 'relief to the poor' referred to in section 2(15) of the Act. |
(iii) |
that CBDT has vide circular No. 11/2008 dated 19.12.2008 clarified that newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. |
(iv) |
that the appellant Trust has no profit motive and to fall within the proviso to section 2(15) of the Act, rendering of service to trade, commerce or business must be such that it is in the course of carrying on business and for has a profit motive. |
(v) |
that the services rendered by the appellant Trust are purely incidental or subservient to the main object of the Trust which is a "charitable purpose". |
(vi) |
that the fees received by the Trust is only to recover the administrative operational cost and not to earn any profit/income or as a business activity. |
|
(c) Without prejudice to the above, the authorities below failed to appreciate that the main income of the trust for the year is the interest on the investment of funds/property of the Trust to which deduction u/s. 11 and 12 of the Act cannot be denied and the deduction u/s. 11 and 12 ought to have been granted in respect of the interest income." |
3. In this appeal, a perusal of the above stated Grounds of appeal reveal that the entire controversy revolves around the stand of the income tax authorities in denying the claim of exemption made by the assessee-trust under sections 11 & 12 of the Act. Before we proceed to deal with the specific Grounds of appeal raised before us, it would be appropriate to briefly touch upon the manner and the purpose for which assessee-trust has been formed and also the history of the past assessments in the case of the assessee. For the said purpose, the following discussions is relevant.
4. The appellant before us is a Trust, which has been settled on 27/07/2000 by the President of India acting through the Ministry of Small Industries & ARI (hereafter referred to as Government of India) and Small Industries Development Bank of India(herein after referred to as SIDBI). In terms of the trust-deed, the settlors i.e. Government of India and SIDBI noted that the Small Scale Industries were facing difficulties in getting credit from primary lending institutions viz. Banks, State Finance Corporation, State Industrial Development Corporation and Regional Rural Banks(RRB) for want of collateral securities and/or third party guarantees. The Government of India decided to introduce a Credit Guarantee Fund Scheme for the small industries, in order to provide effective credit guarantee for SSI loans; for guaranteeing the loans and advances extended without collateral and/or third party guarantees to small industries by the Scheduled Commercial Banks and others. With these objectives the settlors i.e. Government of India and SIDBI decided to create a Trust and provide for the necessary funds. As per the trust-deed, the initial as well as any further contributions to the corpus of the Trust are to be made by the Government of India and SIDBI in the ratio of 4:1. It is prescribed in the trust-deed that the Government of India was liable to make up the deficit, if any, incurred in the overall operation of the scheme by providing the necessary budgetary support to the Trust. It is also prescribed in the trust-deed that the entire income arising out of corpus fund shall be spent towards fulfilling the objectives of the Trust and even savings effected in any year were to be transferred to the corpus fund to be spent towards fulfilling the objectives of the Trust. The trust-deed also prescribes the manner in which the scheme is to be implemented and it also provides for a Board of Trustees, whereby the Chairman & Managing Director of SIDBI is to be its Ex-officio Chairman and other members being drawn from the officials of the Government of India. The Management and administrative affairs of the Trust are under the overall supervision and superintendence of the Board of Trustees. The objectives and provisions of the Trust, which have been enumerated in the trust-deed read as under:—
"7.1 The objects and purposes of the Trust are:-
| (a) |
To Guarantee the loans and advances upto Rs. 10 lakh (term loan and/or working capital assistance), sanctioned and disbursed by the lending institutions without any collateral security and/or third party guarantees to the new or existing SSI manufacturing units including information technology (IT) and software industries or such other industry(ies) as may be decided by the settlers from time to time; and levy guarantee fee/annual service fee/other charges on the lending institutions as may be decided by the Trust from time to time. |
(b) |
To undertake securitisation of the guaranteed loans and to do all other acts or things as may be necessary therefore, either directly or otherwise, in such manner as may be decided by the Board of Trustees; |
(c) |
To appoint staff, to acquire, hold and dispose of property, to meet all expenses necessary for the proper and efficient management of the Trust, and to do all other acts or things as may be necessary or conducive to the attainment of the objectives; |
(d) |
To receive grants, donations, contributions from national and international donors/agencies. |
(e) |
To do such other acts and things as may be incidental to, or consequential to the objectives hereinabove provided." |
The operational detailing of the scheme has also been annexed as a part of the trust-deed. In nutshell, the scheme seeks to provide guarantee for the credit facilities aggregating upto Rupees Ten lacs sanctioned and disbursed by the lending institutions to the new or existing Small Scale Industrial manufacturing units, including IT and Software Industries, without any collateral security and/or third party guarantee.
4.1 The Trust was registered under section 12A of the Act with the Director of Income Tax (Exemption) [in short 'DIT (E)] on18/10/2001. Upto the assessment year 2006-07 the income of the assessee Trust was exempt in terms of section 10(23EB) of the Act. From assessment year 2007-08 onwards, assessee Trust claimed exemption under sections 11 & 12 of the Act. For assessment year 2007-08, assessee Trust filed return of income claiming exemption under sections 11 & 12 of the Act, which was also accepted by the Assessing Officer in an assessment finalized under section 143(3)(ii) of the Act dated 24/12/2009 and the total income was assessed at 'Nil'. Pertinently, in coming to such assessment, the Assessing Officer allowed the claim of the assessee for accumulation of income under section 11(2)(a) of the Act for Rs. 94,34,84,008/-. Similarly, in assessment year 2008-09 also assessee's claim for exemption under sections 11 & 12 of the Act was accepted by the Assessing Officer and vide an order dated 30/12/2010 passed under section 143(3) of the Act, the total income was assessed at 'Nil'. In this year too, while determining the income at 'Nil', the Assessing Officer allowed the claim of the assessee of accumulation under section 11(2)(a) of the Act to the extent of Rs. 154,61,77,037/-. In assessment year 2009-10, the Assessing Officer finalized an assessment under section143(3) of the Act dated 28/12/2011 determining the total income at Rs. 203,10,78,500/-, after denying the exemption under sections 11 & 12 of the Act on the premise that the registration granted to the assessee under section 12A of the Act earlier on 18/10/2001 was withdrawn vide an order passed under section 12AA(3) of the Act on 07/12/2011 by the DIT (E), Mumbai.
4.2 Now, we may come to the assessment year under consideration, wherein assessee originally filed a return of income on 30/09/2010 declaring total income of Rs. 357,98,99,601/- without availing exemption under sections 11 & 12 of the Act. However, in the course of the assessment proceedings before the Assessing Officer, assessee Trust filed a revised computation of total income claiming the statutorily permissible accumulation of 15% under section 11(1)(a) of the Act amounting to Rs. 53,69,84,940/-, thereby scaling down its total income to Rs. 304,29,14,661/-. In the assessment finalized by the Assessing Officer the total income has been assessed at Rs. 773,40,60,646/-. The difference between the returned and the assessed income can be understood as follows. Firstly, the Assessing Officer denied the claim of the assessee for exemption under sections 11 & 12 of the Act and noted that so far as the receipts of income by way of interest on investment, guarantee fee, annual service fee, miscellaneous receipts, pension interest income and recoveries by MLI's on claim paid are concerned, the same are from activities in the nature of trade, commerce or business and, therefore, hit by the proviso to section 2(15) of the Act. Secondly, the Assessing Officer has observed that the registration granted to the assessee under section 12A of the Act stood withdrawn w.e.f. assessment year 2009-10 vide order dated 07/12/2011 of the DIT (E), Mumbai. Thirdly, even the contributions made by the settlors to the corpus fund of the Trust amounting to Rs. 166,41,00,000/- were treated as taxable receipts, as according to Assessing Officer the absence of registration under section 12A of the Act did not entitle the assessee for the exemptions provided in the regime of sections 11 to13 of the Act. Further, the Assessing Officer noted the accumulation made by the assessee in assessment years 2007-08 and 2008-09 and held that in view of the cancellation of registration under section 12A of the Act, the benefit of accumulation was no longer available to the assessee, and he has accordingly brought to tax such sums of Rs. 94,38,84,008/- and Rs. 154,61,84,037/- respectively. Thus, the assessment of total income at Rs. 773,40,60,646/-.
5. The aforesaid assessment was carried in appeal before the CIT (A) by the assessee. The assessee Trust assailed the order of the Assessing Officer on various legal and factual aspects. One of the aspects noted by the CIT (A) is that the registration cancelled by the DIT (E) under section 12AA(3) of the Act has since been restored by the Tribunal vide its order dated 28/05/2014 and to that extent he has corrected the position, but has ultimately upheld the assessment done by the Assessing Officer. In sub-and-substance, the CIT (A) has affirmed the ultimate stand of the Assessing Officer on two grounds. Firstly, according to the CIT (A), the activities of the assessee are confined to serve the interests of the businesses of the Small Scale Industrial Undertakings and Micro Enterprises, which cannot be construed to be an activity falling within the purview of section 2(15) of the Act. Therefore, according to the CIT (A) assessee is "not engaged in carrying out charitable activities/purposes under any of the clauses of section 2(15) of I.T. Act, 1961, as per the state of affairs and activities during the year, Section 11 is not applicable for computation of income of the appellant during the year".
Secondly, as per CIT (A), even if the activities of the assessee Trust are considered for advancement of any other object of general public utility, the same are hit by the proviso to section 2(15) of the Act and, therefore, it could not be said that assessee was engaged in carrying out any charitable activities in terms of section 2(15) of the Act.
5.1 In this background, rival counsels have made their submissions. In so far as the stage of assessment is concerned, it is quite clear that sum and substance of the stand of the Assessing Officer was the withdrawal of registration by the DIT (E) under section 12AA(3) of the Act. Ostensibly, the said reason no longer holds good as the Tribunal vide its order dated 28/05/2014 has restored the registration, a fact which has also been considered by the CIT (A). Regarding the stand of the CIT (A) that the activities of the assessee per-se do not fall within the scope of section 2(15) of the Act, Ld. Representative for the assessee pointed out that in view of the subsistence of the registration under section 12A of the Act, the CIT (A) could not have come to such a conclusion. It is pointed out that grant of registration under section 12A of the Act by the DIT (E) is proof enough that the objects of the assessee are within the meaning of the expression 'charitable purpose' contained in section 2(15) of the Act. In support, reliance has been placed on the following judgments:
| (i) |
Hiralal Bhagwati v. CIT [2000] 246 ITR 188 (Guj.) |
(ii) |
Sonepat Hindu Educational v. CIT [2005] 278 ITR 262/147 Taxman 1 (Punj. & Har.) |
(iii) |
Madhya Pradesh Madhyam v. CIT [2002] 256 ITR 277/125 Taxman 382 (MP.) |
5.2 On this aspect of the matter, the Ld. CIT-DR has merely reiterated the stand of the CIT (A), while not joining issues so far as the ratio laid down in the above judgments relied upon by the appellant assessee is concerned.
5.3 At the time of hearing, it was specifically put to the parties as to whether the registration granted under section 12A of the Act contains reference to any particular limb of section 2(15) of the Act on the basis of which the registration has been granted. Both the parties converged to say that the registration accorded by the DIT (E) under section 12AA of the Act does not contain reference to any specific limb of section 2(15) under which assessee is covered. Notably, section 2(15) of the Act provides an inclusive definition of 'charitable purpose' to include relief to the poor, education, medical relief, preservation of environment and preservation of monuments or places or objects of artistic or historic interest, and the advancement of other object of general public utility. Be that as it may, there is no denying the fact that as of now the registration granted to the assessee under section 12A of the Act by DIT (E) on 18/10/2001, continues to hold the field. It is a well settled proposition that the registration of a charitable trust accorded under section 12A of the Act is done by the DIT (E) only after being satisfied with regard to the objects of the Trust and the genuineness of its activities. As noted by the Hon'ble Gujarat High Court in the case of Hira Lal Bhagwati (supra), the process of grant of registration under section 12A of the Act is not idle or empty formality inasmuch as the provision of section12A of the Act obligate the Commissioner to examine that the applicant before him is "really a charitable trust or institution eligible for registration" The Hon'ble Punjab & Haryana High Court in the case of Sonepat Hindu Educational (supra) observed that registration of an institution under section. 12A is "sufficient proof" of the institution having been established for charitable purposes. Therefore, in view of the aforesaid undisputed judicial view about the effect of registration under section 12A, in our considered opinion, it was not open for the CIT (A) to have held that assessee is an institution, which is not established for charitable purposes. We may hasten to clarify here that we are not for the present dealing with the import of the proviso to section 2(15) of the Act, with which we shall deal separately in the later part of this order. Presently, we are only trying to examine as to whether it was competent for the CIT (A) to go behind the registration granted under section 12A of the Act to say that assessee was not existing for any charitable purposes. In fact, the Ld. Representative for the assessee has rightly relied upon the judgment of the Madhya Pradesh High Court in the case of Madhya Pradesh Madhyam (supra), wherein distinction between the proceedings for registration and the assessment proceedings has been appreciated. As per the Hon'ble High Court, the income-tax authorities are bound by the registration and once an institution has been registered as charitable, the assessing authority cannot go behind registration to say that the institution does not exist for charitable purposes, as understood by section 2(15) of the Act. To remove any misgiving on the above premise, we may clarify here that in the assessment proceedings, it would be open for assessing authority to examine as to whether or not any particular income or receipt is eligible for the benefit of section 11 or 12 of the Act, but what we are only trying to say is that during the subsistence of registration under section 12A of the Act, it is not competent for the assessing authority to revisit the nature of the objects of the assessee Trust and say that the same does not fall within the meaning of 'charitable purpose' defined in section 2(15) of the Act. Therefore, in view of our aforesaid discussion, we are enable to approve the stand of the CIT (A) that assessee is an institution existing without any charitable purpose.
5.4 The second objection of the CIT (A) is based on the proviso to section 2(15) of the Act as it was amended by the Finance Act, 2008 with effect from 01/04/2009. The said proviso reads as under:—
"Provided that the advancement of any other object of general "public utility shall not be a charitable purpose, if it involves the carrying on 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, irrespective of the nature of use or application, or retention, of the income from such activity."
We may briefly cull out the effect of the proviso and the argument set up by the Revenue thereof. Ostensibly, the expression, charitable purpose has been defined in section 2(15) of the Act to include certain categories of activities and one of it is 'advancement of any other object of general public utility'. The aforesaid proviso to section 2(15) seeks to carve out an exception to say that the object of 'advancement of any other object of general public utility' would no longer be considered as a charitable purpose to the extent it involves the carrying on 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, irrespective of the nature of the use or application, or retention, of the income from such activity. On the strength of the said proviso, the CIT (A) noted that the objects of the assessee are to protect "business interest" of small scale industries and micro enterprise and, therefore, assessee's activities are not charitable in nature. Before us also, the Ld. CIT-DR has taken similar arguments and pointed out that the assessee Trust is providing guarantees and/or counter guarantees for credit facilities enjoyed by small scale industries from various lending institutions against charging of fee and other charges. Ld. CIT-DR also contended that even if the activities are to be taken as charitable, but said nature is vitiated by the fact that it was collecting charges for providing services to small scale industries and micro enterprises and it is hit by the proviso to section 2(15) of the Act.
5.5 Per contra, the Ld. Representative for the assessee vehemently pointed out that the implication of the proviso to section 2(15) of the Act has been wrongly understood by the income-tax authorities. It is pointed out that the activity and the objects of the assessee to guarantee loans and advances disbursed by the lending institution without any collateral securities to small scale industries and micro enterprises is to help such enterprises, which do not have sufficient financial strength to obtain loans. Ld. Representative for the assessee emphasized that none of the objects are being carried out on commercial basis or with a profit motive so as to fall within the scope of the proviso to section 2(15) of the Act. In this context, Ld. Representative for the assessee has relied upon the following judgments and in particular it is submitted that the same have been rendered in the context of the legal position prevailing after the insertion of the proviso to section 2(15) of the Act by Finance Act, 2008 with effect from 01/04/2009:—
| (i) |
PHD Chamber of Commerce & Industry v. DIT (E) [2013] 357 ITR 296/[2012] 28 taxmann.com 161/[2013] 212 Taxman 194 (Delhi). |
(ii) |
Institute of Chartered Accountants of India v. Director General of Income-tax [2013] 358 ITR 91/35 taxmann.com 140/217 Taxman 152 (Delhi) |
(iii) |
GS1 India v. Director General of Income-tax [2014] 360 ITR 138/[2013] 38 taxmann.com 364/219 Taxman 205 (Delhi) |
(iv) |
India Trade Promotion Organization v. Director General of Income-tax [2015] 371 ITR 333/53 taxmann.com 404/229 Taxman 347 (Delhi) |
5.6 We have carefully considered the rival submissions. Before we proceed to address the controversy relating to invoking of the proviso to section 2(15) of the Act, we may briefly recapitulate the fact-situation. As noted earlier, the main object and purpose of the assessee Trust is to give guarantee for loans and advances disbursed by lending institutions to the small scale industries and micro enterprises upto a specified limit. In other words, the object and purpose of the Trust is to enable small and micro enterprises, who do not have adequate fund-raising abilities, to raise funds for their businesses. The objects are being pursued by providing guarantees or counter guarantees for the loans and other credit facilities extended exclusively to micro enterprises and small scale industries.
5.7 In the above background, we may now examine the applicability of the proviso to section 2(15) of the Act. The proviso is applicable to the object of charitable purpose, which is in the category of "advancement of any other object of general public utility". The proviso seeks to cover an object which involves the carrying on of any activity in the nature of trade, commerce or business; and, also rendering service in relation to any trade, commerce or business. In the case of the Institute of Chartered Accountants of India & Another (supra), the claim for exemption under section 11 of the Act was sought to be denied on the strength of the proviso to section 2(15) of the Act. The case of the Revenue was that the Institute of Chartered Accountants of India which was established to regulate the profession of Chartered Accountants in India was imparting education by, inter-alia, conducting coaching classes against a charge or fee and, therefore, it was contended by the Revenue that the first proviso to section 2(15) of the Act ousted the assessee from the purview of charitable purposes. The Hon'ble High Court considered the expression, 'trade, commerce or business' occurring in the first proviso to section 2(15) of the Act and observed that it must be interpreted restrictively so as not to exclude entities, where the dominant object is charitable. The Hon'ble High Court held that the 'purpose and the dominant object' for which an institution carries on its activities is material to determine whether the activities are in the nature of business or not. The Hon'ble High Court noted that Institute of Chartered Accountants of India was established to regulate the profession of Chartered Accountants in India and that it did not carry on trade, commerce or business. As per the Hon'ble High Court, imparting education in the field of accountancy and conducting coaching classes were activities in furtherance of the main object for which the Institute was established and carrying out such activities for a fee were in relation to its main object and cannot be construed to be in the nature of trade, commerce or business so as to fall in the scope of the proviso to section 2(15) of the Act.
5.8 Similarly, in the case of GS1 India (supra), the Hon'ble Delhi High Court, again considered the import of the proviso to section 2(15) of the Act. As per the Hon'ble High Court, the expression 'trade, commerce or business' in section 2(15) of the Act would mean an activity, which is undertaken with a view to make or earn profits. In other words, it was emphasized by the Hon'ble High Court that existence or otherwise of profit motive would be determinative and critical to discern as to whether or not an activity is trade, commerce or business. In this context, it has been explained that the quantum of fee charged, the economic status of the beneficiaries who pay commercial value of benefits in comparison to the fee, the purpose and object behind the fee, etc. are several factors which are relevant to "decide the seminal question, is it business?". It has been noted that charitable activities require operation/running expenses as well as capital expenses to be able to sustain itself in the long run. The Hon'ble Court explained that the proviso to section 2(15) cannot be understood to mean that a charitable institution with the object of advancement of general public utility is to be wholly, substantially or in part funded only by way of voluntary contributions.
5.9 Similarly, the Hon'ble Delhi High Court in the case of India Trade Promotion Organization (supra) was dealing with a Writ Petition seeking quashing of the first proviso to section 2(15) of the Act. The assessee before the Hon'ble High Court was engaged in the activities relating to the promotion of Indian Trade and therefore, the Revenue contended that the activities fell within the purview of "advancement of any other object of general public utility" and because it was earning income by way of renting of space during Trade Fairs and Exhibitions, interest, sale of tickets and income from food and beverage outlets in Pragati Maidan, etc. it was hit by the proviso to section 2(15) of the Act. The stand of the assessee was that its activities did not fall within the ambit of trade, commerce or business and further that it was also not engaged in rendering of any service in relation to trade, commerce or business so as to fall within the purview of section 2(15) of the Act. Though the Hon'ble High Court has passed a detailed judgment upholding the constitutional validity of the proviso, but what is of essence for our present purpose is the manner in which Hon'ble High Court has read down the proviso. It has been explained that in deciding whether an activity is in the nature of 'trade, commerce or business', for the purpose of the proviso to section 2(15) of the Act, it has to be examined as to whether there is an element of profit making or not. Similarly, it has been held that while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the existence or otherwise of an element of profit making cannot be ignored.
5.10 In view of the legal position explained in the aforesaid judgments, it can be safely deduced that in the context of the application of the proviso to section 2(15) of the Act, what is critical is to examine as to whether the assessee Trust has been established for charitable purpose or not; and, the fact that it earns some income, by itself, would not be fatal and conclusive to determine that the assessee Trust is not established for charitable purpose. In other words, the existence or otherwise of the profit motive in the activities carried out by the assessee Trust would be crucial to determine the applicability of the proviso to section 2(15) of the Act; may it be to examine whether its activities are in the nature of trade, commerce or business or whether it is rendering any service in relation to any trade, commerce or business, as prescribed in the proviso to section 2(15) of the Act.
5.11 In this background, now we may go back to the facts of the present case. In the instant case, the object and purpose of the assessee Trust is to enable the small scale industries and micro enterprises to pursue their income generation activities. The said object is sought to be achieved by providing guarantees or counter guarantees to the lending institutions who disburse loans or provide other credit facilities to the small scale industries and micro enterprises. We may again emphasize that the object and purpose of the assessee Trust is to help the small scale industries and micro enterprises by ensuring that they get ability to obtain loans from lending institutions. No doubt, there is an element of fee or charges levied by the assessee Trust, but the point is, is there a profit motive which would enable such activity to be characterized as a trade, commerce or business. In the orders of the authorities below as well as before us, there is no charge made by the Revenue that the quantum or object of fee charged by the assessee Trust betrays any profit motive. In fact, the income-tax authorities do not dispute the fact that the purpose and object behind the assessee Trust is not to carry on trade, commerce or business, but the only point made is that certain fee/charges have been levied for activities rendered to the beneficiaries, and therefore, it should be seen as 'trade, commerce or business'. As we have seen earlier, mere action of charging fee for services, by itself, would not justify invoking of the proviso to section 2(15) of the Act unless it is established that the purpose and object is profit motive. Considering the entirety of circumstances we are unable to find any credible reasoning taken by the Revenue to say that the purpose and object of the assessee Trust falls within the meaning of expression 'trade, commerce or business' used in the proviso to section 2(15) of the Act. In fact, as we had noted earlier, the assessee Trust has been settled on 27/07/2000 by the Government of India and SIDBI. The trust deed brings out the objects and purpose for which the assessee Trust has been set up, namely, to mitigate the difficulties faced by the small scale industries and micro enterprises in availing credit facilities from various lending institutions. It is also to be noted that the object and purpose of the Trust is focussed on small scale industries and micro enterprises and is not available to entrepreneurs at large. Apart there-from, it is also prescribed in the scheme operationalized by the Trust that the benefits are to be made available only to credit facilities aggregating upto Rs. 10.00 lacs sanctioned and disbursed by the lending institutions. Therefore, considering the focused area of the Trust, it could not be inferred that there is any profit motive so as to view the activities to be 'trade, commerce or business' as understood for the purposes of proviso to section 2(15) of the Act. Therefore, in our considered opinion, on facts, it is not possible to infer that assessee Trust is carrying on any regular 'trade, commerce or business' and on the contrary it is an entity which is essentially existing for charitable purposes but conducting some activities for consideration or fee. In this background, the proviso to section 2(15) of the Act cannot be invoked to exclude assessee Trust from the purview of section 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business, as inferred by us following the legal position explained by the Hon'ble Delhi High Court in the cases referred herein above.
5.12 In conclusion, we therefore, set-aside the order of the CIT (A) and direct the Assessing Officer to allow the claim of the assessee for exemption under sections 11 & 12 of the Act.
6. Before parting, we may note that the appellant has made an alternate plea that its activities fall within the scope of 'relief of poor' as envisaged in section 2(15) of the Act, and in this context reliance was also placed on the decision of the Delhi Tribunal in the case of Disha India Micro Credit in IT Appeal No. 1374/Mum/2010 dated 28th January, 2011. The case before the Delhi Tribunal pertained to a lending institution who had provided loans to micro enterprises, which in-turn were guaranteed by the assessee-Trust before us. The Tribunal upheld the plea of the assessee therein seeking registration under section 12A of the Act. Since assessee has already succeeded on its claim for the benefits of sections 11 & 12 of the Act in the earlier paras, the said alternate plea is not being addressed as it is rendered academic.
7. The only other issues remaining are with respect to the action of the Assessing Officer in treating the contribution made by settlers towards corpus as taxable receipts and adding the accumulation made by the assessee in earlier assessment years 2007-08 and 2008-09. The Assessing Officer assessed the aforesaid amounts only for the reason that he was denying the benefits of sections 11 & 12 of the Act. Since we have upheld the claim of the assessee for the benefits of sections 11 & 12 of the Act, on the said issue also assessee succeeds and the Assessing Officer is directed to recompute the income accordingly in the light of our instant decision.
8. In the result, the appeal of the assessee is allowed, as above.