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Judgment
PER MAHAVIR SINGH, VP :
These 02 appeals are filed by the same assessee against the respective orders of the Ld. NFAC/CIT(A), Delhi, [hereinafter referred to as ‘ld. CIT (A)] for the Assessment Years 2016-17 & 2017-18 respectively.
The only issue in these appeals of the assessee is as regards order of the CIT(A) confirming the action of the AO in disallowing the claim of exemption made by the Assessee u/s. 11 of the Act by holding that assessee is not engaged in charitable activities as provided u/s 2(15) of the Act. The facts for both the years are identical and issue is exactly similar, hence, we take up the facts from the assessment year 2016-17 in ITA No. 5237/Del/2025.
The brief facts are that the assessee is a society registered u/s. 12A of the Act vide order dated 30.9.1988 passed by the CIT(E), Delhi. Assessee has claimed exemption u/s. 11 of the Act. The aims and objects of the assessee is to unite the four regional associations functioning in the country, viz. Hotel & Restaurant association at Delhi, Mumbai and Calcutta and South India Hotels and restaurants associations at Madras, and such other hotels and restaurants and affiliated associations and establishments in the country which are interested in encouraging, promoting and protecting by lawful means the interest of hotels and restaurants industry and raising the standards and the reputation of the industry both at home and abroad. AO noted from income and expenditure account that assessee has received (i) annual subscription from members of Rs. 2,55,61,000/-, (ii) conventions and seminars receipts amounting to Rs. 27,92,000/-, (iii) receipt on account of royalty amounting to Rs. 9,28,3000/- and (iv) fee on account of entrance fees amounting to Rs. 15,73,000/-. There is no dispute between the department and the assessee that assessee’s activities are undertaken in the course of actual carrying out of such advancement of any other object of General Public Utility (GPU). But according to AO, assessee’s receipts are in the nature of commercial receipts, in view of the amended proviso to section 2(15) of the Act. He also noted that aggregate receipt from such activities during the previous year exceeds @20% of the total receipts during the year under consideration and accordingly, the assessee is clearly hit the proviso of section 2(15) of the Act and the receipts are 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. Therefore, the assessee is not entitled for the benefit of the proviso of section 2(15) of the Act by virtue of section 13(8) of the Act and therefore, the AO disallowed the claim of deduction excluding application of income and thereby surplus of Rs. 3,31,71,000/- and assessed as income of the assessee. Aggrieved, assessee preferred appeal before the CIT(A). As pointed out by the Ld. Counsel for the assessee that Ld. CIT(A) has given a finding only in one para at page no. 56 of his impugned order and dismissed the appeal as not maintainable by observing as under:-
“….Considering all these finer facts of case/ discrepancies as observed / reasoned by AO in the assessment order of AY 2016-17, appellant mere contentions as advanced to hold the order of AO as involving erroneous consideration by AO as an applicable AOP for assessing the income admitted a not attracted by the provisions u/s. 11 and 12 of the I.T. Act for claiming exemption etc, is to be treated as not maintainable and thereby appellant various contentions / GOA as advanced to hold the order of AO of AY 2016-17 is to be treated as not maintainable as reasoned and analyzed by AO in the assessment order. In the result, appellant appeal as filed against assessment order of AY 2016-17 is to be treated as dismissed. Accordingly, all grounds of appeal of appellant involving appeals against assessment order u/s. 143(3) for AY 2016-17 and 2017-18 dated 31.12.2018 and 28.12.2019 respectively stands dismissed as not maintainable on merits of the case as reasoned and discussed in detail supra. In the result, appellant appeals against these two assessment orders of AO as applicable to AY 2016-17 and 2017-18 and as appealed stands dismissed as not maintainable….”
Before us, ld. Counsel for the assessee first of all admitted that assessee is a GPU and is engaged as educational institute running an institute of hospitality management. But she argued that assessee is not engaged in any trade, commerce or business or in rendering of service in relation to any trade, commerce or business for a cess or fee or any other consideration. Ld. Counsel for the assessee stated that once the assessee is not engaged in any trade, commerce or business, it is entitled to claim exemption u/s. 11 of the Act. Ld. Counsel for the assessee argued that revenue has accepted this position even in assessment years 2018-19 and 2012-13 wherein during scrutiny assessment orders passed u/s. 143(3) there is no variation made and for the sake of convenience also, the position is accepted by the revenue and the same should be followed in the present assessment year. She filed the copy of assessment orders for AY 2018-19 and 2012-13 which is available in assessee’s paper book at page no. 71-73 and 99-100 respectively.
On the other hand, Ld. Sr. DR heavily relied upon the assessment order and the order of the CIT(A). He argued that assessee is clearly engaged in trade, commerce or business as is clear from the facts that assessee’s total receipts is to the extent Rs. 3,92,09,000/- is out of annual subscription from members, conventions and seminars, royalty and entrance fees.
We have heard the rival submissions and gone through the facts and circumstances of the case. Admittedly, assessee-society is registered u/s. 12A of the Act and claimed exemption u/s. 11 of the Act. The assessee was founded in 1955 with initiative of the four Regional Associations: Hotel & Restaurant Association of Eastern India (HRAEI), Hotel and Restaurant Association of Northern India (HRANI), South India Hotels and Restaurants Association (SIHRA), Hotel & Restaurant Association (Western India) – HRAWI. These Regional Associations are the organization members and the arms of the Federation in the four regions. It also has direct membership of hotels and restaurants who are called individual members, and all other entities associated with the hotel and restaurant industry in India. These are called Associate Members and include state /city hotel and restaurant associations, corporate hotel companies, travel agents, tour operators, hospitality education institutions, suppliers to the industry, consultants and others. There is no adjudication by the CIT(A) or the AO that whether assessee is doing charitable activity or not. The finding recorded by the AO is not supported by any evidence that it is engaged in trade, commerce or business. There is no finding by the CIT(A) either way and there is no speaking order on this issue, as we have already reproduced the relevant finding of the CIT(A) in para no. 3 of this order, as aforesaid. In this context, the Hon’ble Supreme Court in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority [2022] 449 ITR 1 (SC) has clearly laid down certain tests how the GPU’s to be tested u/s. 2(15) of the Act, which reads as under:-
“…IV. Summation of conclusions
In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of “charitable purpose” (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act.
A. General test under Section 2(15)
A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration (“cess, or fee, or any other consideration”);
A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that
(i)the activities of trade, commerce or business are connected (“actual carrying out…” inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and
(ii)the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016);
A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be “trade, commerce, or business” or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of “cess, or fee, or any other consideration” towards “trade, commerce or business”. In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.
A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions.
In terms of the above, the orders of the authorities below are set aside and matter is restored back to the file of the AO with the directions to follow the guidelines as laid down by the Hon’ble Supreme Court of India in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority (Supra) and decide the issue in dispute afresh, after giving adequate opportunity of being heard to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
As regards other remaining appeal for assessment year 2017-18 is concerned, our aforesaid decision taken in assessment year 2016-17, will apply mutatis mutandis to this appeal also. Accordingly, the appeal for assessment year 2017-18 is also allowed for statistical purposes on the similar lines, as aforesaid.
In the result, both the appeals of the assessee are allowed for statistical purposes.