Kerala High Court
Nirmithi Kendra vs The Deputy Commissioner Of Income ... on 7 September, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR.JUSTICE VIJU ABRAHAM
TUESDAY, THE 7TH DAY OF SEPTEMBER 2021 / 16TH BHADRA, 1943
ITA NO. 73 OF 2019
AGAINST THE ORDER IN ITA 45/Coch/2017 OF I.T.A.TRIBUNAL,COCHIN
BENCH, ERNAKULAM
APPELLANT/APPELLANT:
M/S NIRMITHI KENDRA
AYYANTHOLE, THRISSUR-68003,REPRESENTED BY ITS EXECUTIVE
SECRETARY AND PROJECT MANAGER SRI BOSCO M.M.
BY ADVS.
ANIL D. NAIR
SRI.SREEJITH R.NAIR
SMT. ARYA ANIL
SRI.ACHYUT K PADMARAJ
SHRI.GOKULRAJ L.
RESPONDENT/RESPONDENT:
THE DEPUTY COMMISSIONER OF INCOME TAX(EXEMPTIONS)
CENTRAL REVENUE BUILDING I.S PRESS ROAD, KOCHI-682 018
OTHER PRESENT:
SC CHRISTOPHER ABRAHAM
THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON
07.09.2021, ALONG WITH ITA.121/2019, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
ITA Nos.73& 121 of 2019 2
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR.JUSTICE VIJU ABRAHAM
TUESDAY, THE 7TH DAY OF SEPTEMBER 2021 / 16TH BHADRA, 1943
ITA NO. 121 OF 2019
AGAINST THE ORDER IN ITA 111/Coch/2018 OF I.T.A.TRIBUNAL,COCHIN
BENCH, ERNAKULAM
APPELLANT/APPELLANT:
M/s NIRMITHI KENDRA
NIRMITHI CAMPUS, BAZAR P.O., ALAPPUZHA, REPRESENTED BY
ITS PROJECT ENGINEER, MR.GOPAKUMAR.
BY ADVS.
ANIL D. NAIR
SRI.R.SREEJITH
SMT. ARYA ANIL
SRI.ACHYUT K PADMARAJ
SHRI.GOKULRAJ L.
RESPONDENT/RESPONDENT:
THE DEPUTY COMMISSIONER OF INCOME TAX (EXEMPTION)
WARD, ALAPPUZHA-688 001.
THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON
07.09.2021, ALONG WITH ITA.73/2019, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
ITA Nos.73& 121 of 2019 3
JUDGMENT
ITA Nos.73 & 121 of 2019
S.V.Bhatti, J.
Heard the learned Advocates Mr.Anil D.Nair and Mr.Christopher
Abraham for the parties.
2. M/s Nirmithi Kendra/Assessee is the appellant in both the
appeals. The Deputy Commissioner of Income Tax/Revenue is the
respondent in the appeals.
3. The appeals are filed aggrieved by the following orders.
Sl. Assessment Date of Appeal before CIT and date Appeal before IT Appeal in
No. year Assessment of disposal ITAT and date of High Court
Order order
1 2013-14 22.2.2016 ITA No.478/15-16 dated ITA No. ITA No.73 of
25.11.2016 45/Coch/2017 2019
dated
26.10.2018
2 2009-10 15.12.2011 ITA No.A-20/CIT(A)/KTM/ ITA No. ITA No.121
2011-12 dated 20.3.2018 111/Coch/2018 of 2019
dated
26.10.2018
4. The common question of law raised in the appeals arise
under Section 2(15) read with Section 12A of Income Tax Act (for
short "the Act"). The assessee is the registered Society under
Travancore Cochin Literary Scientific and Charitable Society vide
Reg.No. A-354/88 dated 26.9.1988. The assessee was registered
under Section 12A of the Act with CIT, Thiruvananthapuram vide
Registration dated 23.4.2002. The assessee, for the assessment year
2009-2010, on 15.3.2010 filed the income tax returns. The assessee
returns nil income after claiming Rs.9,74,882/- as applied for
charitable purpose. The assessment was taken up for scrutiny under
Section 143(3) of the Act. The Assessing Officer through the
assessment proceedings proposed to examine the claim of assessee
under Section 12(5) read with Section 12A of the Act. In view of the
proposed verification of the status of assessee for claiming
exemption, the assessee was put on notice and in response thereto
the assessee stated that the assessee is registered as a charitable
society; the District Collector is the Chairman of the assessee
Society; the other revenue officials such as RDO etc. either hold
functional posts or the members of the society. According to
assessee, the assessee is more or less like a Government
organization and not carrying on business for earning profits. The
surplus realized is ploughed back for furthering the objects of the
trust. The claim made by the assessee was brought under the first
limb of section 2(15) of the Act. Under the principle of mutuality,
the surplus returned to the persons forming such association is not
chargeable to tax. The Assessing Officer, upon examination of the
byelaws, books of account and the objects of the society rejected the
claim of assessee as rendering charitable purpose and exempt from
payment of income tax. The Assessing Officer clearly noted that the
fact that a few Government officers are associated with the
assessee/society even assumed to be correct, such society as such
would not become a Government organisation. The assessee's
identity is traceable to registration obtained under Travancore
Cochin Literary Scientific and Charitable Societies Act. One of the
objects of the assessee is to take up construction work of any nature
to establish a chain of retail outlets. In the subject financial year, the
assessee has completed 34 building projects amounting to
Rs.2,17,64,238/-, advance amount against work-in-progress for and
on behalf of various Government projects. Incidentally, the assessee
has sold RCC doors and windows amounting to Rs.4,98,128/-. The
assessee has to fulfil its primary object ie. Construction work only.
The construction work is an activity of trade, commerce or business
for consideration. By declaring income of Rs.9,74,882/-, the doctrine
of mutuality is unavailable to the assessee under Section 11(1)(a) of
the Act. Finally, it is recorded that the case on hand comes within
the ambit of 4th limb of Section 2(15) of the Act and the said
provision read together with the proviso, there is no escape from the
conclusion that the assessee cannot claim the status under Section
12A of the Act and the activity carried on by the assessee does not
come within the meaning of charitable purpose warranting
exemption from income tax. The findings recorded by the Assessing
Officer are confirmed by the learned CIT (Appeals) and the Tribunal
through orders Annexure B & C. We find it convenient to refer to
the conclusion recorded by the Tribunal.
"As per the provisions of Section 2(15) of the Incom
Tax Act, 1961, the advancement of any other object of
general public utility shall not be a charitable purpos,
if it involves the carrying on of any activity in the
nature of trade, commerce or business or any activity
or running services in relation to any trade, commerce
or business, for a cess or feee 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 Rs.25 lakhs or less
in the previous year. Thus, provision of sec.2(15) are
abundantly clear and does not require any
interpretation.
The activities carried on by the present assessee
cannot be considered as activities of medical relief or
education or relief to the poor. The correct way to
express the nature of activities carried on by the
assessee is to say that the assessee is carrying on
"advancement of any other object of general public
utility". When that is the case, the assessee is hit by
the proviso to Sec.2(15) of the I.T.Act. The proviso
reads that "advancement of any other object of general
public utility" shall not be a charitable purpose, if its
involving carrying on any activity in the nature of
trade, commerce or business, or any activity of
rendering any service relating to any trade, commerce
or business, for a cess or fee or any other
consideration, irrespective of the application of
money. Therefore, we find that the case of the
assessee is hit by the proviso to section 2(15) of the
I.T.Act and the assessee is not entitled for the benefit
of section 11 of the Act on the income generated from
such activities"
..... By any stretch of imagination, it is not
possible to hold that the business carried on by the
assessee is incidental to the objects mentioned in the
Memorandum of Association. On the other hand, it is
a pre-dominant activity carried on by the assessee. In
other words, "incidental" is an offshoot of the "main
activities", inherent bye-prodct of the predominant
activities. The activities complementing the main
activities are not in the nature of incidental to the
business. It is incidental if it is supporting the
activities to the main activities. In the present case,
the activities carried on by the assessee is itself
principal activities and not incidental activities.
Hence, it is not possible to hold that the construction
activities carried out by the assessee is not protected
by the provisions of section 11(4A) of the Act. In
view of this, we do not find any merit in the argument
of the Ld.AR. Thus, this ground of appeal of the
assessee is dismissed."
5. Finally, the Tribunal considered whether the activities
carried on by the assessee were incidental to the attainment of
the objects of the trust. Appreciating the circumstances of the
case and the circumstances in the reported judgment in ACIT v
Thanthi Trust (2001) 247 ITR 785. the said contention of the
assessee was also rejected. The Tribunal thrugh Annexure-C
dismissed the appeal of the assessee. Hence the appeal.
6. The assessee raises the following substantial questions
of law:
i. In the facts and circumstances of the case ought not
the Tribunal have held that the assessee is entitled for the
benefit of exemption and that proviso to section 2(15) does
not apply to the appellant.
ii. In the facts and circumstances of the case ought not
the Tribunal have held that in view of the certificate under
Sec.12A would continue in force, the authority below ought
not have denied benefit of exemption."
7. Mr.Anil D.Nair argues that the activities of the assessee from
the manner in which the circumstances are accepted by the
authorities under the Act, would come under the expression viz.
the advancement of any other object of general public utility in
Section 2(15) which deals with charitable purposes. The argument
proceeds that the definition is inclusive and from the consitution of
society and the persons managing the society, nature of activities
undertaken by the assessee, the assessee is entitled to exemption
under Section 12A read with section 2(15). He laid much emphasis
on the words in proviso to section 2(15) i.e. any activity of
rendering any service in relation to the trade, commerce or
business and such circumstance is absent in the case on hand and
therefore the proviso is not applicable to assessee. He is not
disputing the well established proposition of law and the
presumption available in fact that all the issues are dependent on
the specific circumstances the authorities or this Court would be
considering and there is no direct precedent on the point in
support of the case of the assessee. For persuasive value, he
refers to the judgments reported in Commissioner of Income-tax-I,
Lucknow v Lucknow Development Authority, Gomti Nagar 1,
Director of Income-tax (Exemption) v Sabarmati Ashram Gaushala
Trust2, India Trade Promotion Organization v Director General of
Income-tax (Exemptions)3, Ahmedabad Urban Development
Authority v Assistant Commissioner of Income-Tax
(Exemptions)4and Commissioner of Income-Tax-I, Jodhpur v Jodhpur
Development Authority5. He relies on Circular No.11/2008 dated
19.12.2008 issued by CBDT.
8. Mr.Christopher Abraham in reply argues that the
circumstances stated by the assessee are objectively considered by
all the three authorities, and have as a matter of fact, found that
the assessee acts as a middle man or agency between the
Government/M.P.'s, MLA's on one hand and on another hand acts
as Principal to the contractor for getting the Government works
executed from the funds allotted by the Government in this behalf.
1 [2013] 38 taxmann.com 246(Allahabad)
2 [2014] 362 ITR 539 (Guj)
3 [2015] 371 ITR 333 (Delhi)
4 [2017] 396 ITR 323(Guj.)
5 [2017] 79 taxmann.com 361 (Rajasthan)
Basically what the assessee undertakes is preparation of estimates,
providing services to the execution of Government works by 3 rd
party agency/contractors. The said activity is provided by the
assessee on receipt of 2.5% fee by way of Commission on the total
cost of project. This is a pure and simple business activity, amount
is received from the Government, paid to the contractor for the
executed work and there is nothing like general public utility which
is sine quo non for extending the meaning of Section 2(15) of the
Act. By referring to the activity particularly undertaken by the
assessee through its contractor, is stepped up as charitable
purpose, then any and every contractor is doing the same work for
general public and they would stand on the same footing as the
assessee and in such an event Section 2(15) of the Act receives not
the plain and literal meaning available from the language, but
imaginative meaning which may result in defeating the inclusive
definition. By referring to the CBDT Circular, he argues that CBDT
Circular is voachsafing the approach of the authorities under the
Act to ensure evasion of tax, he prays for dismissing the appeal.
9. At the outset of our consideration, we preface paragraphs 3,
3.1 & 3.2 in the circular relied on by Adv.Anil D.Nair.
"3. The newly inserted proviso to section 2(15) will
apply only to entities whose purpose is
'advancement of any other object of general public
utility, i.e. The forth limb of the definition of
charitable purpose' contained in section 2(15).
Hence, such entities will not be eligible for exemption
under section 11 or under section 10(23C) of the Act,
if they carry on commercial activities. Whether such
an entity is carrying on an activity in the nature of
trade, commerce or business is a question of fact
which will be decided based on the nature, scope,
extent and frequency of the activity.
3.1 There are industry and trade associations who
claim exemption from tax u/s 11 on the ground that
their objects are for charitable purpose as these are
covered under 'any other object of general public
utility'. Under the principle of mutuality, if trading
takes place between persons who are associated
together and contribute to a common fund for the
financing of some venture or object and in this
respect have no dealings or relations with any
outside body, then any surplus returned to the
persons forming such association is not chargeable to
tax. In such cases, there must be complete identity
between the contributors and the participants.
Therefore, where industry or trade associations claim
both to be charitable institutions as well as mutual
organizations and their activities are restricted to
contributions from and participation of only their
members, these would not fall under the purview of
the proviso to section 2(15) owing to the principle of
mutuality. However, if such organizations have
dealings with non-members, their claim to be
charitable organizations would now be governed by
the additional conditions stipulated in the proviso to
section 2(15).
3.2. In the final analysis, however, whether the
assessee has for its object 'the advancement of any
other object of general public utility' is a question of
fact. If such assessee is engaged in any activity in the
nature of trade, commerce of business or renders
any service in relation to trade, commerce or
business, it would not be entitled to claim that its
object is charitable purpose. In such a case, the
object of 'general public utility' will be only a mask or
a device to hide the true purpose which is trade,
commerce or business or the rendering of any
service in relation to trade, commerce or business.
Each case would, therefore, be decided on its own
facts and no generalization is possible. Assessees,
who claim that their object is 'charitable purpose'
within the meaning of Section 2(15), would be well
advised to eschew any activity which is in the nature
of trade, commerce or business or the rendering of
any service in relation to any trade, commerce or
business."
10. The consideration of CBDT Circular, by straight and simple
understanding, answers most of the submissions canvassed by the
assessee. Let us examine the circumstances of the case viz. the
registration under the Societies Registration Act may not be the
exclusive or only criteria for attracting Section 2(15) i.e. the
defiition of charitable purpose r/w Section 12A of the Act. The
assessee must satisfy the conditions stipulated in the definition.
The assessee tries to bring its case within the ambit of 4 th limb of
section 2(15) of the Act and attempts to wriggle out from the effect
of proviso which deals with services in relation to trade, commerce
or business. The contention, in our considered view, is completely
untenable. The assessee receives amount from the Government,
executes construction work for the benefit of the Government
through contractors. The assessee receives fee by way of
commission from the Government. The purpose of construction of
building for Government cannot be accepted as an activity coming
within the meaning of advancement of any other object of general
public utility. In our view the reason being the construction activity
by itself does not advance any other object of general public utility.
The general public utility from such construction is derived as fact
with the facilities constructed by the assessee are put to utility. The
activity undertaken by the assessee on one hand and on another
hand with the ultimate purpose or user of buildings constructed by
the Government shall not be mistaken with one another. The
assessee is interpreting proviso by excluding one of the important
limbs, viz. involves the carrying on of any activity in the nature of
trade, commerce or business. The decision of the authorities are
independently considered and by taking note of CBDT Circular and
above reasoning, we are of the view that the substantial question
raised could be answered in favour of the revenue and against the
assessee. Appeal fails and dismissed.
ITA No.121 of 2019
By following the reasons stated in ITA No.73 of 2019 questions
are answered in favour of revenue and against the assessee.
Appeal dismissed. No order as to costs.
Sd/- S.V.BHATTI
JUDGE
sd/- VIJU ABRAHAM
JUDGE
css/
APPENDIX OF ITA 121/2019
PETITIONER ANNEXURE
ANNEXURE -A TRUE COPY OF THE ASSESSMENT ORDER DATED
15.12.2011 FOR THE YEAR 2009-2010 ISSUED TO
THE APPELLANT.
ANNEXURE -B TRUE COPY OF THE OTRDER OF THE COMMISSIONER
OF INCOME TAX (APPEALS), FOR THE YEAR 2009-
2010 ISSUED TO THE APPELLANT.
ANNEXURE -C TRUE COPY OF THE ORDER OF THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH AT
26.10.2018.
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED
15.12.2011 FOR THE YEAR 2009-10 ISSUED TO THE
APPELLANT.
ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF
INCOME TAX(APPEALS) FOR THE YEAR 2009-10
ISSUED TO THE APPELLANT.
ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH DATED
26.10.2018.
APPENDIX OF ITA 73/2019
PETITIONER ANNEXURE
ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER DATED
22.2.2016 FOR THE YEAR 2013-14 ISSUED TO THE
APPELLANT.
ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF
INCOME TAX (APPEALS) FOR THE YEAR 2013-14
ISSUED TO THE APPELLANT
ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX
APPELLATE TRIBUNAL, COCHIN BENCH DATED
26.10.2018
