Whether, on the facts and in the circumstances of the case, and having regard to the amendment made to Section 2(15) of the Income Tax Act, vide Finance Act, 2008, with effect from 01.04.2009 and the provisions of the proviso inserted below that Section, clarifying the circumstances under which carrying on of activity falling under advancement of any other object of general public utility, would not be for charitable purpose, which is squarely applicable to the case of the assessee for assessment year 2011- 12, the Tribunal is correct in law in holding that the assessee would be eligible for exemption under Section 11 of the Income Tax Act, 1961, for the assessment year? = In view of the discussion above, the question of law is answered in favour of the assessee and against the revenue. 22. After taking note of the amendment to Section 11(6) in paragraph 33, the Madras High Court also took note of the Circular bearing No.1 of 2015, dated 21.01.2015 and came to the conclusion that the provisions of Section 11 (6) inserted w.e.f., 01.04.2015 would operate only prospectively w.e.f., the assessment year 2015-16. Insofar as the cases that arose prior to the amendment are concerned, almost all High Courts have taken the same view. The position may be different after the amendment. But in the case on hand, the same relates to a period prior to amendment. Therefore, we do not wish to admit the appeals on the third substantial question of law, merely for waiting for the outcome of the decision of the Supreme Court. We respectfully agree with the views expressed by the other High Courts and answer the third question of law in favour of the assessee.

HONBLE SRI JUSTICE V.RAMASUBRAMANIAN AND HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI                      

I.T.T.A.Nos.71 of  2017

09-10-2017

The Principal Commissioner of Income Tax (Exemptions), Hyderabad... Appellant(in both the appeals)


Institute for Development and Research in Banking Technology, Castle Hills, Road No.1, Masab Tank, Hyderabad.. Respondent(i

Counsel for the appellant: Mr. J.V. Prasad Sr. S.C for I.T

Counsel for Respondent  : Mr. K. Vasanth Kumar


<GIST:

>HEAD NOTE:  

?Cases referred


HONBLE SRI JUSTICE V. RAMASUBRAMANIAN          
AND
HONBLE SRI JUSTICE ABHINAND KUMAR SHAVILI        

I.T.T.A.Nos.71 & 391 of  2017


COMMON JUDGMENT: (Per VRS,J)      

      Both these appeals are by the Revenue under Section 260A of the
Income Tax Act, 1961. In I.T.T.A.No.391 of 2017, the following questions
of law arise for consideration:
1.      Whether, on the facts and in the circumstances of the
case, and having regard to the amendment made to
Section 2(15) of the Income Tax Act, vide Finance
Act, 2008, with effect from 01.04.2009 and the
provisions of the proviso inserted below that Section,
clarifying the circumstances under which carrying on
of activity falling under advancement of any other
object of general public utility, would not be for
charitable purpose, which is squarely applicable to
the case of the assessee for assessment year 2011-
12, the Tribunal is correct in law in holding that the
assessee would be eligible for exemption under
Section 11 of the Income Tax Act, 1961, for the
assessment year?

2.       Whether, on the facts and in the circumstances of
the case, and having regard to the provisions of
newly inserted Section 13(8) of the Income Tax Act,
1961, inserted vide Finance Act, 2012, with
retrospective effect from 01.04.2009, which squarely
applies to the facts of the case of the assessee,
whether, the Tribunal is correct in law in holding that
the assessee is eligible for exemption under Section
11 of the Income Tax Act, 1961 for this assessment
year? and

3.      Whether, in the facts and the circumstances of the
case, when the income generating such assets was
already treated as application of income and given
exemption, thus leading to double deduction which is
impermissible in law?

      2. In I.T.T.A.No.71 of 2017, only the first two questions of law as
arising in I.T.T.A.No.391 of 2017 arise. Since the assessee is the same in
both cases and the appeals arise in respect of the assessment years
2010-11 and 2011-12, both the appeals were taken up together for
disposal.
      3. Heard Mr. J.V. Prasad, learned Senior Standing Counsel
appearing for the Revenue and Mr. K. Vasanth Kumar, learned counsel
appearing for the respondent.
      4. Admittedly the assessee is an autonomous institution established
by the Reserve Bank of India, way back in the year 1996. The assessee
was granted registration under Section 12AA with effect from
01.04.2004. But the registration was cancelled subsequently by the
Director of Income Tax (Exemptions), by an order dated 30.11.2011. The
Tribunal set aside the said order by a judgment dated 20.06.2012 passed
in I.T.A.No.147/HYD/2012. The said order of the Tribunal became the
subject matter of an appeal before this Court in I.T.T.A.No.168 of 2015.
By a judgment dated 04.11.2015 this Court answered the question of law
in favour of the assessee and dismissed the appeal I.T.T.A.No.168 of 2015
filed by the Revenue questioning the order of the Tribunal setting aside
the cancellation of registration.
      5. For the purpose of completion of narration, it should also be
brought on record that for the assessment years 2003-04 up to the year
2009-10, the assessing officer denied exemption, but the assessee
succeeded before this Court.
      6. But insofar as assessment years 2010-11 and 2011-12 are
concerned, the assessing officer took umbrage under the proviso to
Section 2(15) inserted under the Finance Act 2/2009, dated 01.04.2009,
to distinguish the decisions in favaour of the assessee with regard to the
assessment years 2003-04 to 2009-10. This is how the questions of law
that we have framed above have arisen for our consideration. As a
consequence the whole dispute now revolves around the interpretation to
the proviso to Section 2(15). Incidentally, one more issue with regard to
depreciation with reference to Section 11 has also been raised.
      7. As we have pointed out earlier, the assessee is a society
registered at the instance of the Reserve Bank of India for the purpose of
assisting the banks and financial institutions, for the improvement of their
performance. The assessee is also offering an M.Tech course and Ph.D
degrees in banking.
      8. Though the assessee claimed that the object for which it was
established would come within the purview of education, the Tribunal
did not accept it. However, the Tribunal held that the assessee would
come within the purview of the definition of the expression charitable
purpose, as an institution established for the advancement of an object
of general public utility. Though Mr. K. Vasanth Kumar, learned counsel for
the assessee attempted to argue on the basis of the finding recorded by
this Curt in I.T.T.A.No.168 of 2015 that the assessee should be
considered as an institution established for the purpose of education, we
do not think that we can now go into the question in view of the fact that
the Revenue alone is on appeal against the finding recorded by the
Tribunal.
      9. Before proceeding further, we should point out one fundamental
difference between the institutions, which would automatically fall within
the purview of the expression charitable purpose under Section 2(15)
and institutions which are established for the advancement of any other
object of general public utility. Section 2(15) as it stands today after the
last amendment under Finance Act, 2015, w.e.f., 01.04.2016 reads as
follows:
Section 2 (15): charitable purpose includes relief of the
poor, education, yoga medical relief, preservation of
environment including water-sheds, forests and wildlife and
preservation of monuments or places or objects of artistic
or historic interest, and the advancement of any other
object of general public utility:
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, unless
(i)     such activity is undertaken in the course of actual
carrying out of such advancement of any other  object
of general public utility; and
(ii)    the aggregate receipts from such activity or activities
during the previous year, do not exceed twenty per cent
of the total receipts, of the trust or institution
undertaking such activity or activities, of that previous
year;

      10. While institutions that are engaged in the relief to the poor,
education, yoga, medical relief, preservation of environment and
preservation of monuments or places or objects of artistic or historic
interest are categorized under one type under Section 2(15); the
institutions established for the advancement of any other object of
general public utility, are treated under Section 2 (15) as a separate
category. This is very clear from the proviso to Section 2(15). There were
two provisos inserted under Finance Act, 2010, w.e.f., 01.04.2009. The
said provisos read as follows:
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:
Provided further that the  first proviso shall not apply if
the aggregate value of the receipts from the activities
referred to therein is twenty-five lakh rupees or less in the
previous year;

      11. Without going into the intricacies, it can be pointed out in
general that the inclusion of an institution for the advancement of any
other object of general public utility within the definition of the
expression charitable purpose was actually conditional. The condition
was that such an institution should not be involved in the carrying on of
any activity in the nature of trade, commerce or business. In other words,
if an institution, established for the advancement of any other object of
general public utility, which would otherwise come within the purview of
Section 2(15), is involved in the carrying on of any activity in the nature
of trade, commerce or business, such an institution will come within
Section 2(15) only if two conditions laid down in the clauses are satisfied.
      12. Now that the Tribunal has categorized the assessee not as an
institution advancing the cause of education, but as an institution
established for the advancement of any other object of general public
utility, the first question that was required to be addressed by the
Tribunal was as to whether the assessee was involved in the carrying on
of any activity in the nature of trade, commerce or business. Now let us
see how this question was addressed to by the Tribunal.
      13. In paragraph 11 of its order, the Tribunal analyzed the two
provisos that were originally incorporated under Section 2(15) under the
Finance Act, 2008. After doing so, the Tribunal referred to (1) a Circular
of the CBDT bearing No.11/2008, dated 19.12.2008; and (2) the speech
of the Minister of Finance on 29.02.2008, made during the debate in the
Lok Sabha on the Finance Bill, 2008.
      14. Thus after referring to the plain language of the statutory
provisions and after referring to the manner in which the provision was
sought to be incorporated by the executive, the Tribunal came to the
conclusion in paragraph 15 of its order that the assessee was not engaged
in carrying on any activity in the nature of trade, commerce or business.
As a matter of fact, the Tribunal referred to the decision of the Delhi High
Court in Institute of Chartered Accountants of India v. Director
General of Income Tax (Exemptions) , before coming to the
conclusion that the assessee was not carrying on an activity in the nature
of any trade, commerce or business. The Tribunal also pointed out that
the charging of a fee by the assessee was not with profit motive and that
therefore, merely because the assessee derived income they cannot be
held to be carrying on an activity in the nature of trade, commerce or
business.
      15. The relevant findings of the Income Tax Appellate Tribunal in
this regard can be usefully extracted as follows:
The circumstances under which the services rendered by the
appellant society to the Banks make clear that there is no
profit motive in such activities because these activities were
entrusted to the appellant society by the Reserve Bank of
India as a part of its supervisory role over the Banks in
India. In our considered opinion, viewed from any angle, the
objects, either main or ancillary, are not in the nature of
business or trade or commerce. The banks merely used the
expertise of appellant society in the banking operations. The
question of the profit motive in undertaking such activities
can not be imagined keeping in view the circumstances
under which the appellant society is operated. The objects
of the appellant society are totally charitable in nature and
do not carry on any activity in the nature of trade,
commerce or business. Therefore, the proviso to Section
2(15) of the Act cannot be applied to the Appellant society
as clarified by the Circular No.11 of 2008 issued by the
CBDT. It is worthwhile to mention here that the Honble
Finance Minister had also clarified, during the course of the
debate in the Parliament, that the proviso to Section 2(15)
of the Act is not intended to apply to genuine charitable
organizations. It was further clarified by the Honble Finance
Minister that the Chambers of Commerce and similar
organizations rendering services to their members would not
be affected by introduction of this proviso. It is fairly settled
law now that reference can be made to the speech made by
the Honble Finance Minister at the time fo piloting the bill in
the Parliament in order to ascertain the true meaning of the
words and the language employed in the Statute.

      16. In the light of the categorical finding recorded by the Tribunal,
we are of the considered view that though the assessee has been found
by the Tribunal to be an institution established for the advancement of
any other object of general public utility, the assessee does not fall under
the category of such an institution, which is carrying on an activity in the
nature of trade, commerce or business so as to attract the proviso to
Section 2 (15) at all. Hence, the first question of law arising in both cases
has to be answered against the appellant/Revenue.
      17. Strong reliance is placed by the learned Senior Standing
Counsel upon the decision of this Court in Andhra Pradesh State Seed
Certification Agency v. Chief Commissioner of Income Tax . In
the said case, the certification of seeds by the assessee was held to be in
the nature of trade, Commerce or business as the assessee facilitated
trade, commerce or business in the certified seeds.
      18. But the distinction between the assessee in the said case and
the assessee in the present case is that in the former the certification was
done for the benefit of the private individuals and the private institutions.
But in this case, the assessee was created by the Reserve Bank of India for
the improvement of the performance of the banks and financial sector of
the country, ultimately to have a bearing upon the economy of the
country. Therefore, the said decision does not go to the rescue of the
revenue.
      19. Once the first question of law is answered against the
appellant/Revenue, the second question of law revolving around Section
13(8) may not arise at all. Section 13(8) revolves around the quantum as
stipulated in clause (i) and (ii) of the Proviso to Section 2 (15). If the
proviso has no application, the invocation of those two clauses would not
apply. Hence, the second question of law does not arise for consideration
in the light of our answer to the first question of law.
      20. Insofar as the third question of law is concerned, it is admitted
by Mr. J.V. Prasad, learned Senior Standing Counsel for Revenue that
several High Courts have taken the view favouring the assessee and that
all Special Leave Petitions arising out of the judgments of those Courts
are now pending before the Supreme Court, after the grant of leave. The
learned Standing Counsel also submitted that even this Court is seized of
several appeals, where the third question of law is under consideration.
      21. There are two issues. The first is that Section 11(6) was
amended w.e.f., 01.04.2015 under Finance (No.2) Act, 2014. The
amendment was taken note of by a Bench of the Madras High Court in a
decision recently rendered in Director of Income Tax (Exemption) v.
Medical Trust of the Seventh Day Adventists . Paragraphs 24 to 27
of the said judgment reads as follows:
24. Truth to tell, this Court in the matter of Calavala Cunnan
Charities, has decided the question now under consideration
in favour of the assessee and we could well have decided
this Batch of appeals simply on the strength of the aforesaid
decision. We are however persuaded to proceed further with
the discussion since a conflicting view has been expressed
by the Kerala High Court in the case of Lissie Medical
Institutions (supra). Though the attention of the Division
Bench of the Kerala High court was drawn to the decision in
Rao Bahadur Calavala Cunnan Chetty Charities (supra) and
several decisions along similar lines, the court was
persuaded to take a contrary view preferring to follow the
rationale of the judgment of the Supreme Court in the case
of Escorts (supra).
25. As noted by us earlier, the judgment of the Supreme
Court in escorts turns on an entirely different position of law
and would not impact the issue being discussed in the
present case.
26. We are supported in our view by a plethora of decisions
of various High Courts - the Bombay High Court in the case
of CIT v. Munisuvrat Jain (1994 Tax Law Reporter 1084) and
DIT (Exem) Vs. Framjee Cawasjee Institute (109 CTR 463);
Karnataka High Court in CIT Vs. Society of the Sisters of
St.Anne (146 ITR 28); Madhyapradesh High Court in CIT Vs.
Raipur Pallottine Society (180 ITR 579); Gujarath High Court
in CIT Vs. Sheth Manilal rachhnoddas Vishram Bhavan Trust
198 ITR 598; Punjab and Haryana High court in CIT Vs.
Market Committee Pipli (330 ITR 16) and CIT Vs. Tiny Tots
Education Society (330 ITR 21); Madhyapradesh High Court
in CIT Vs. Devi Sakuntala Tharal Charitable Foundation (358
ITR 452) and the Calcutta High Court in CIT Vs. Silluguri
Regulated Market Committee (366 ITR 51). In addition, the
Delhi High Court in DIT Vs. Vishwa Jagriti Mission 262 CTR
558 and the Karnnataka High Court in DIT (Exem) Vs Al-
Ameen Charitable Fund Trust (2016) 67 taxmann.com 160  
have accepted the claim of the assessee distinguishing both
the judgment of the Supreme Court in Escorts as well as that
of the Kerala High Court.
27. In view of the discussion above, the question of law is
answered in favour of the assessee and against the
revenue.

      22. After taking note of the amendment to Section 11(6) in
paragraph 33, the Madras High Court also took note of the Circular
bearing No.1 of 2015, dated 21.01.2015 and came to the conclusion that
the provisions of Section 11 (6) inserted w.e.f., 01.04.2015 would
operate only prospectively w.e.f., the assessment year 2015-16. Insofar
as the cases that arose prior to the amendment are concerned, almost all
High Courts have taken the same view. The position may be different
after the amendment. But in the case on hand, the same relates to a
period prior to amendment. Therefore, we do not wish to admit the
appeals on the third substantial question of law, merely for waiting for
the outcome of the decision of the Supreme Court. We respectfully agree
with the views expressed by the other High Courts and answer the third
question of law in favour of the assessee.
      23. Accordingly the appeals are dismissed. As a sequel,
miscellaneous petitions pending in these appeals, if any, shall stand
closed. There shall be no order as to costs.
______________________  
V. RAMASUBRAMANIAN , J.    
_________________________  
ABHINAND KUMAR SHAVILI, J.    
9th October, 2017