Calcutta High Court
Creative Museum Designers vs Income Tax Officer on 10 February, 2022
ITAT NO. 19 OF 2021
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
RESERVED ON: 04.02.2022
DELIVERED ON: 10.02.2022
CORAM:
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA
ITAT/19/2021
(IA NO: GA/1/2021)
CREATIVE MUSEUM DESIGNERS
VERSUS
INCOME TAX OFFICER, EXEMPTIONS, WARD-1(1), KOLKATA
Appearance:-
Mr. Pratyush Jhunjhunwala
Mr. Uttam Sharma
.....For the Appellant.
Mr. Tilak Mitra
Mr. Radhamohan Roy
.....For the Respondent.
Page 1 of 19
ITAT NO. 19 OF 2021
JUDGMENT
(Judgment of the Court was delivered by T.S.SIVAGNANAM, J.)
1. This appeal by the assessee filed under Section 260 A of the Income Tax
Act, 1961 is directed against the consolidated order dated 14.08.2020 passed
by the Income Tax Appellate Tribunal, "B" Bench, Kolkata (Tribunal) in ITA
Nos. 1147-48/Kol/2018 and 1608/Kol/2019 for the assessment years 2013-
14 to 2015-16. The assessee has raised the following substantial questions of
law for consideration:-
(i) Whether the exemption under Section 11 of the Income Tax
Act, 1961 can be denied on the basis of the objectives of the
petitioner entity when it the same have been accepted as
charitable at the time of registration under Section 12A /
12AA of the Act?
(ii) Whether the activity of the petitioner of setting up of
museums, science parks, planetariums, interactive galleries,
exhibits and other forms of dissemination of knowledge
through informal means, at the behest of other public bodies
or entities, be regarded as commercial in nature and within
the periphery of the proviso to Section 2(15) of the Income
Tax Act, 1961?
(iii) Whether the Tribunal was justified in denying the exemption
under Section 11 of the Act and its findings that the objects
and the activities of the petitioner are commercial in nature
ITAT NO. 19 OF 2021
and/or are done with the intent of earning profits are
arbitrary, erroneous, contrary to law and perverse?
2. We have heard Mr. Pratyush Jhunjhunwala, Learned Senior Standing
Counsel and Mr. Uttar Sharma, Learned Junior Standing Counsel for the
appellant.
3. The assessee is a company registered under Section 25 of the Companies
Act, 1956 and has been established by the National Council of Science
Museum, Ministry of Culture, Government of India. The National Council of
Science Museums herein after referred to as the Council is an institution
formed by the Government of India for the purpose of dissemination of
knowledge of science and development of scientific temperament to the
general public of the country and to ensure development of the society and
the country as well. In order to effectively carry on its objects, the council
established the assessee company under Section 25 of the Companies Act
1956 whose very nature was charitable and its purpose is dissemination of
knowledge to the Indian society. The assessee is engaged in design and
development of knowledge centers like science museums, planetariums, and
other knowledge dissemination centers. It is stated that thorough research
works in the field of physics, chemistry, sociology, history, finance and other
related areas of study are being continuously done by the assessee and
based on the research, knowledge centers are created and developed in the
country. The assessee would state that there is no other agency which can
execute such projects with the level of expertise and dedication as done by
them. In the later part of this judgment, we shall refer to the main objects of
the assessee as could be culled out from the memorandum of association of
ITAT NO. 19 OF 2021
the assesee. The assessee has listed out the various turnkey projects done
by them throughout the country and as to how they have state of art
infrastructure which educates the general public on various subjects. It is
further stated that the assessee is a non-profit company and has been
established by the Government of India for developing, promoting education
and general public welfare, and any surplus generated by the assessee while
establishing these projects, would be ploughed back into the assessee for
the purpose of developing its expertise. The assessee applied for registration
under Section 12AA of the Act which was granted after the Commissioner
was satisfied that the assessee fulfils the conditions required to be complied
with for being entitled to registration under Section 12AA of the Act. The
assessee also has been granted registration under Section 80 G (5) (vi) of the
Act.
4. The Reserve Bank of India (RBI) with a view to establish a museum and
financial literacy center in Kolkata for explaining the development of
monetary system and exhibit its collection of arte facts issued a tender
notification calling upon various agencies throughout the world to participate
in the tender. It is stated that there were several participants from the
European and American countries but the assessee was the only Government
agency working in India which had participated in the tender. The
Appropriate authority of the RBI upon being satisfied that the assessee was
the best organisation which could be entrusted with the task, awarded the
tender to the assessee vide letter dated 08.06.2012. The assessee would state
that the RBI museums and financial literacy center, was completed by the
assessee with the state of art facilities interactive galleries, trained
ITAT NO. 19 OF 2021
professional and was handed over to the Reserve Bank of India on
17.09.2018. On similar lines, Surat Municipal Corporation had awarded the
task of establishing five galleries on textiles, astronomy, space, polar science
and children learning activities, to educate the general public about the
history of development of textiles, study of astronomy through the ages,
understanding space travel, understanding Earth's poles and children's
interactive gallery. The assessee is stated to have completed the project and
the same has been handed over to the Surat Municipal Corporation and
thrown open to the public.
5. The assessee filed its return of income for the assessment years under
consideration, A.Y. 2013-2014, 2014-2015, and 2015-2016 declaring its
income to be nil as the assessee had claimed exemption from income tax, on
the surplus which had been generated from the aforementioned activities.
The assessments were selected for scrutiny and by orders dated 03.03.2016,
23.12.2016, and 29.11.2017 were completed holding that the surplus
generated by the assessee was on account of an activity which was
commercial in nature and that the petitioner was performing charitable
activity only in the form of general public utility and the surplus was
accordingly disallowed under Section 13 (8) read with Proviso to Section 2(15)
of the Act. Aggrieved by such order, the assessee preferred appeal before the
Commissioner of Income Tax Appeal, (15) Kolkata CIT(A). By two separate
orders dated 28.03.2018 and 14.05.2019 the appeals were dismissed.
Aggrieved by the same, the assessee preferred appeal before the tribunal
which was dismissed by the impugned order.
ITAT NO. 19 OF 2021
6. Mr. Pratyush Jhunjhunwala, Learned Counsel appearing for the
appellant assessee submitted that the order passed by the assessing officer
as affirmed by CIT(A) and the tribunal are perverse, erroneous and arbitrary.
It is submitted that the tribunal failed to consider that the activities of the
assessee would be charitable within the meaning of Section 2(15) of the Act
and would be regarded as an educational activity as well as activities in the
nature of general public utility. Further, the tribunal ought to have noted that
the assessee having been registered under Section 12AA of the Act, its
objectives are to be necessarily accepted as charitable in nature and the same
cannot be regarded as a commercial activity or activities done with an
intention to earn profit. Further it is submitted that the assessee is not
carrying on any activity with a view to earn profit but it is involved in the
development of museums, science centers, planetariums, science parks etc.
which are undoubtedly centers of dissemination of knowledge and the
assessee has to develop the necessary expertise for establishing these
knowledge centers and substantial, technical and highly skilled work is
involved, deployment of modern machinery and equipment etc. It is
submitted that the object behind the projects implemented by the assessee is
to take forward the vision of the Central Government in promoting education
and learning among the public in an informal and easy manner. It is
submitted that the tribunal had taken note of a letter sent by RBI dated
08.06.2012 in which it was stated that they have some concerns about the
terms and conditions mentioned in the financial bill. It is submitted that the
tribunal thoroughly misread the contents of the letter and the circumstances
under which the RBI had addressed the assessee and the letter pertains to
ITAT NO. 19 OF 2021
the terms of engagement of the assessee in the said project and it has nothing
to do regarding dissemination of knowledge. It is further submitted that the
tribunal and the authorities committed serious error in stating that the
assessee is a contractor functioning in lieu of money and they are an agent
engaged in commercial activity of construction of a museum for RBI. It is
submitted that the tribunal failed to note that the dissemination of knowledge
was being done by the assessee and RBI jointly as well as with the other
organisations with whom the assessee has worked and completed projects
and the tribunal thoroughly misunderstood the scope of the projects
developed by the assessee. It is further submitted that the assessee is
registered under Section 25 of the Companies Act and therefore all its
activities are deemed to be non-profit and unless and until the activities are
so, the company cannot be registered under Section 25 of the Companies Act.
In support of his contentions the Learned Counsel placed reliance on the
decisions in Thanthi Trust Versus Director of Income Tax (Exemptions) 1 and
Investor Financial Education Academy Versus Income Tax Officer (Exemptions)
- 4, Chennai2.
7. Mr. Tilak Mitra, Learned Senior Standing Counsel assisted by Mr.
Radhamohan Roy, Learned Junior Standing Counsel sought to sustain the
order passed by the tribunal by contending that the tribunal has examined
the objects of the assessee company and it is clear that the activities done by
them are commercial in nature and so far as the work done for RBI and
assessee was selected to execute a project on a turnkey basis and after the
[2020] 121 taxmann.com 119 (Madras)
[2020] 121 taxmann.com 281 (Madras) / [2021] 276 Taxman 57 (Madras)
ITAT NO. 19 OF 2021
project is completed, the assessee has to move out which will clearly show
that they are in the nature of a contractor who has completed the work on
payment of the requisite sums of money. Further it is submitted that the
tribunal noted that the price bid proposed by the assessee shows some profit
element which would indicate that the project was intended for making profit,
it is commercial activity and not for any public utility directly. It is further
submitted that the tribunal rightly held that though the assessee is registered
under Section 12A of the Act as a charitable institution, the work done by the
assessee in the assessment years under consideration are not charitable in
nature particularly when no formal and systematic educational function has
been discharged by the assessee and what was done by the assessee is a
commercial project. Therefore, it is submitted that the tribunal rightly refused
to interfere with the order passed by the CIT(A) who had affirmed the view
taken by the assessing officer.
8. We have elaborately heard the learned counsels for the parties and
carefully perused the materials placed on record.
9. Before we venture into the factual matrix, we need to take note of certain
undisputed facts. The assessee is a company registered under Section 25 of
the Companies Act. By virtue of the license granted under Section 25 by the
Registrar of Companies, West Bengal dated 27.10.2011, it has been proved to
the satisfaction of the Registrar of Companies that the assessee has been
established for promoting objects of the nature specified in Section 25(1) (a) of
the Companies Act and that it intends to apply its profit, if any, or other
income in promoting its objects and to prohibit the payment of any dividend
to its members. The licence granted under Section 25 has eight conditions
ITAT NO. 19 OF 2021
attached to it of which one would state that the incumbent property of the
assessee, whensoever derived shall be applied solely for promotion of the
objects as set forth in its memorandum of association and no portion thereof
shall be paid or transferred directly or indirectly by way of dividend, bonus or
otherwise by way of profit, to persons who at any time are, or have been
members of the said company or to any of them or to any person claiming
through anyone or more of them. There are other conditions which will also
indicate that no remuneration or other benefits in money shall be given by
the company to its members. The memorandum of association of the assessee
company if perused shows the main objects to be pursued by the company.
By way of illustration we quote a few of the main objects:-
1. To take up in India or in any part of the world all kind of
museums/science centre projects on turn-key basis, including
conceptualization, design & development of exhibits, exhibition
galleries, construction of buildings, prototyping, manufacture,
assembly, repair and maintenance etc. and all other
museum/science centre related activities or descriptions
associated therewith and incidental thereto.
2. To set-up exhibition galleries, science centre/museum facility for
other museums/centers in India or in any part of the world.
3. To accept orders for fabrication, supply and installation of
museum/science centre exhibits/exhibitions educational
material from any museum/centre or institution having similar
objectives, whether in India or any part of the world and execute
the said orders.
ITAT NO. 19 OF 2021
4. To supply exhibit related technologies/components to any
institution in India or in any part of the world.
5. To promote activities related to providing consultancy on
development of science museums or centers, Parks/Mobile
Science Exhibitions/ Museum, science Education resource
centres/planetaria/exhibition galleries/science cities etc.
6. To develop modules and conduct training of science
museums/science centres/museums professional on museum
practice.
7. To undertake management of science museums/centres.
8. To conduct feasibility studies and prepare detailed project
reports for science centres/science cities science parks
museums.
9. To provide consultancy and conduct of non-formal science &
technology propagation related activities and talent hunting
activities.
10. All activities for attainment of the above objectivities.
11. To promote activities in relation to research development
and dealing in apparatus, equipment, instruments, materials,
spares, components and accessories required and directly
related to the purpose.
12. To set up facility for research and development, inspection
quality control, prototype development, tool room, qualification,
evaluation and other specialized service required and to
exploit/use or turn to profit any patents or copyrights generated
ITAT NO. 19 OF 2021
within the Company or acquired or purchased from any person
either in India or abroad.
13. To set up infrastructure and develop softwares and
communication packages for science communication and
education projects.
14. Implementation of non-formal science
education/program/activities and schemes.
15. To enter into collaboration with national and international
agencies for development of museums/science centers/science
activities.
16. To undertake establishment of network of
dealers/agencies/franchises etc. for advancement of business.
10. Apart from the above main objects, there are objects, incidental or
ancillary to the attainment of main objects. In the impugned order, the
tribunal has referred to the incidental objects and missed out the main
objects for which the assessee company had been established. This mistake
committed by the tribunal has had an impact on the proceedings before it.
Apart from the main objects, the incidental or ancillary objects, clause 5 of
the memorandum imposes an absolute prohibition on the company to apply
its income and property for any other purpose other than for promoting the
objects set forth in the memorandum. No portion of the income or property
can be paid or transferred directly or indirectly by way of dividend, bonus,
etc. The assessee had submitted an application before the Director of Income
Tax (Exemption) on the basis of the memorandum of association
incorporating the company under Section 25 of the Act and having being
ITAT NO. 19 OF 2021
satisfied with, the objects was granted registration under Section 12AA of the
Act by order dated 04.03.2013. The assessee has also obtained approval
under Section 80 G (5) (vi) of the Act vide order dated 04.03.2013. The
aforementioned registration and approval continue to remain valid as on date.
11. The RBI proposed to establish a museum and financial literary centers
in Kolkata for which purpose, tenders were called for. The assessee was one
among the participants in the tender and was successful and the work was
awarded to them in June, 2012. The assessee is very proud to say that they
are the only Government of India organisation, working in India, who would
be able to execute the project and were selected by RBI though there were
several other participants from Europe and America. It has not been disputed
that the assessee has completed the project in September, 2018. The
assessee was also entrusted with developing another project by the Surat
Municipal Corporation for developing various facilities with a view to educate
the public on various subjects like development of textiles industries,
astronomy, spaces travel etc. This project has also been completed by the
assessee. In the return of income filed for the assessment years under
consideration, the assessee claimed exemption from income tax on the
surplus which had been generated pursuant to the projects executed by them
during the years under consideration. The assessing officer, CIT(A) and the
tribunal branded the assessee as a contractor. In other words, they held that
the assessee had under taken the turn-key projects and completed the same
in lieu of money paid. Unfortunately, at the very inception, the assessing
officer had approached the matter in a wrong direction. This approach
percolated to the CIT(A) and also to the tribunal. We are of the considered
ITAT NO. 19 OF 2021
view that the orders passed by the authorities as well as the tribunal are not
tenable, an outcome thorough misreading of the nature of the activities done
by the assessee qua the objects behind its incorporation as a company under
Section 25 of the Companies Act, thus, calling for interference. We support
our conclusion with the following reasons:-
12. As mentioned above the tribunal failed to take note of the main objects
to be pursued by the company as mentioned in the memorandum of
association. In fact, it has not even referred to the main objects but
straightway proceeded to take note of the objects incidental or ancillary to the
main objects. It is elementary principle that anything incidental or ancillary
to the main object has to be read along with and in conjunction with the
main object and the incidental objects cannot be read in isolation. This
fundamental error committed by the tribunal has lead to a wrong decision by
it. That apart the tribunal did not take note of the objects of the company
which are not included in the main objects and the incidental or ancillary
objects. Had an effort been taken by the tribunal to examine the same it
would have been amply clear that the assessee company is a non-profit
organisation established for the purpose of undertaking works for all kinds of
museums/science centers etc. on turn-key basis which includes all activities
incidental and ancillary to it. We had faulted the approach of the assessing
officer. We say so because the assessing officer appears to have lost right of
an important fact as to how a museum or a science center is established. It is
a pity that the assessee has been reduced to the category of a contractor
working for money. A museum is not constructed but conceived and
developed. The object behind establishing a science center is undoubtedly in
ITAT NO. 19 OF 2021
public interest to educate the general public in an easy and attractive
manner. To develop in the young minds a love towards science, history,
astronomy and various subjects also to educate the general public who might
not have had formal education owing to circumstances beyond their control.
To conceptualise a museum is a serious matter. The first aspect would be as
to the objects sought to be achieved by establishing such a museum or a
science park. In the case on hand, the RBI proposed to establish a museum
and financial literary center in Kolkata to explain the development of the
monetary system and to exhibit its collection of "arte facts". Therefore, a
building contractor can hardly be said to be equipped to establish a museum
for a specified purpose. Therefore, technical expertise is required, research
has to be done and the project has to be conceived in such a manner, it
brings about the purpose for which the concept was evolved by RBI. The
same would be also for the project which was conceived by the Surat
Municipal Corporation. Therefore, to state that the assessee was only a
contractor is to belittle their status and the purpose for which they were
established by the Ministry of Culture, Government of India. The authorities
as well as the tribunal were of the view that it is the RBI which is engaged in
the educational activities and not the assessee. This finding is also erroneous
as the museum is conceptualised by the assessee and all necessary inputs
including training of personnel who are to man the museum or to function as
a curator are all the task assigned to the assessee. All these would clearly fall
within the objects of the assessee company. Thus, the message and
information which will be disseminated through the museum which will be in
the nature of a non-formal education is based upon the material which has
ITAT NO. 19 OF 2021
been evolved by the assessee and implemented for and on behalf of the
Reserve Bank of India.
13. The moot question would be as to who is the "keeper" of the museums
established by the assessee company. The tribunal opines it as the
RBI/Municipality. In our considered view this approach is thoroughly flawed.
The responsibility for museums is on the collection curator, a museum
curator or a "keeper" of the heritage of the institution. The curator is a
specialized person/organisation who has been entrusted with the onerous
duty of taking charge of the content and interpretation of the heritage value.
The role of the curator is a specialist work, they have the expertise to develop
as to how the archives could be interpreted through various events. Neither
RBI nor Surat Municipal Corporation had the expertise within them to
establish the museum. They took a policy decision to do the same, realizing
that it required the assistance of experts, awarded the work to the assessee.
Thus the role of the assessee in conceptuating, developing and establishing
the museum is that of a "museum curator" who develops interprets and
explains the significance of the collections for the study and education of the
public. Thus the assessing officer, CIT(A) and the tribunal erred in not
addressing the larger perspective of the matter. It needs to be emphasized
that museums play a very important and significant role in preserving culture
and heritage to be recorded and remembered regardless of its future.
Museums function as places for conservation research, education and
entertainment for the general public. Thus, indisputably a museum is a place
of informal and free choice education and learning. Museums offer
educational experience in diverse fields, to be cherished and enjoyed. To
ITAT NO. 19 OF 2021
reduce the appellant assessee, a "Master" curator to that of a contractor, is to
belittle their role in preserving heritage.
14. Therefore, the role of the assessee cannot be divested from the project
rather it is the project of the assessee which is being manned by the recipient
namely RBI and Surat Municipal Corporation. In our considered view this will
be the proper manner in which the work assigned to the assessee and
completed by them has to be interpreted. Hence, we have no hesitation to
hold that the assessee has disseminated knowledge in the process of
establishing the facilities for the RBI and the Surat Municipal Corporation.
The assessing officer, the CIT(A) and the tribunal did not examine as to the
effect of incorporation of the assessee as a company under Section 25 of the
Companies Act. This issue was considered in Investor Financial Education
Academy where also the assessee was registered under Section 25 of the
Companies Act. The question arose as to whether every company registered
under Section 25 would be automatically entitled for registration under
Section 12A of the Act. The Court noted that the Income Tax department has
been consistently granting registration to all companies registered under
Section 25 of the Act. The Court took note of the decision in ICAI Accounting
Research Foundation Versus Director General of Income Tax (Exemptions) 3
wherein it is pointed out that the fact that the assessee therein was a
company registered under Section 25 of the Act was ignored by the tribunal
as the status which has been granted by the Government of India itself is the
recognition of the fact that foundation is essentially established for the
purpose of education and/or for the advancement of any other project of
[2009] 183 Taxman 462 [2010] 321 ITR 73 (Delhi)
ITAT NO. 19 OF 2021
general public utility. The Court also considered as to whether when one limb
of the Government has granted a benefit whether another limb of the
Government can ignore the same. In this regard, it referred to the decision in
the case of M.V.S. Kathirvelu Nadar Versus Commissioner of Agriculture
Income Tax4 wherein it was held that the different limbs of the Government
should act in coordination. A word caution was also added that the Court is
not laying down a broad proposition that every company registered under
Section 25 of the Act would be automatically entitled for registration under
Section 12AA of the Act. But registration under Section 25 of the Companies
Act is undoubtedly a relevant factor to be noted while considering an
application for registration under Section 12AA of the Act as registration
under Section 25 of the Companies Act recognises the main objectives of the
company as a non-profit organisation. As noted above, this aspect of the
matter has not been dealt with by the tribunal which in our opinion ought to
have been and if taken into consideration the decision should lean in favour
of the assessee.
15. The next aspect is as to whether the assessee company was engaged in
educational activities. The tribunal would hold that it is only RBI which is
educating the public by establishing the museum and the assessee is only a
contractor. This aspect was dealt with in Thanthi Trust and after referring to
various decisions of the Hon'ble Supreme Court it was held that the word
"education" occurring in Section 2(15) of the Act has to be given a wider
meaning and not to restrict it to mean formal school education. In Alembic
[1968] 68 ITR 786
ITAT NO. 19 OF 2021
Chemical Works Company Limited Versus CIT 5 it was observed that it would
be unrealistic to ignore the rapid advances in research in antibiotic medical
microbiology and to attribute a degree of endurability and permanence to the
technical knowhow at any particular stage of in the fast-changing area of
medical science could be unrealistic. Thus, if the term "education" as
occurring of Section 215 (15) cannot be restricted to formal school or college
education then dissemination of knowledge through a museum or a science
park would undoubtedly fall within the meaning of "education" as occurring
in Section 2 (15) of the Act. One other aspect which appears to have weighed
in the minds of the tribunal is regards the surplus which has been generated
by the assessee upon fulfilling the projects. Merely, because a certain amount
has been generated as surplus cannot take away the activities of the assessee
as not being charitable for the purpose of imparting education or for general
public utility. As could be seen from the memorandum of association, the
incumbent profit of the assessee has to be utilised for the promotion of the
objects which have been set forth in the memorandum. No portion of the
income or property shall be paid or transferred directly or indirectly by way of
dividend, bonus etc. Therefore, the finding of the tribunal on this aspect is
also not tenable. Thus, when the assessee has not been established for the
purpose of earning profit and the income it generates has to be applied for
promoting the objects as spelt out in the memorandum and no portion of the
income can be directly or indirectly paid by way of dividend or bonus etc, it
has to be necessarily held that the assessee is a not for profit organisation
but public utility company and the activities of the company for which it has
[1989] 43 Taxman 312/177 ITR 377
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been established would undoubtedly show that the company by establishing
knowledge parks, engaged in imparting education and also undertakes
advancement of other aspects of general public utility to fall within the
definition of charitable purpose as defined under Section 2 (15) of the Act.
Thus, for all the above reasons we hold that the order passed by the tribunal
calls for interference.
16. In the result the appeal filed by the assessee is allowed and the
substantial questions of law are answered in favour of the assessee. No costs.
(T.S. SIVAGNANAM, J)
I agree.
(HIRANMAY BHATTACHARYYA, J)
(P.A- SACHIN)
