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India International Centre,40, Max Muller Marg, Lodhi Estate, New Delhi. Vs. Asstt. Director of Income-tax,(E), Inv. Cir.(1), New Delhi.
May, 13th 2015
            IN THE INCOME TAX APPELLATE TRIBUNAL
                  DELHI BENCH "C" NEW DELHI
        BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
                              AND
                SHRI C.M. GARG: JUDICIAL MEMBER

                          ITA no. 3124/Del/2014
                          A.Y. 2009-10
India International Centre,          Vs. Asstt. Director of
40, Max Muller Marg,                        Income-tax,(E), Inv. Cir.(1),
Lodhi Estate, New Delhi.                    New Delhi.
PAN: AAATI 0660 C

( Appellant )                         ( Respondent )

Appellant       by :     Shri Pradeep D0000000000000000000000000000inodia
FCA &
                         Shri R.K. Kapoor CA
Respondent by      :     Shri R.I.S. Gill CIT(DR)

            Date of hearing    :      10-03-2015
            Date of order      :      11-05-2015.

                                   ORDER


PER S.V. MEHROTRA, A.M:-


      This appeal, by the assessee, is directed against the order dated 31-03-2014

u/s 263of the Income-tax Act, 1961,       passed by the Director of Income-tax

(Exemptions), New Delhi, relating to A.Y. 2009-10.
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                                                                 India International Centre

2.    Brief facts of the case are that the assessee had filed its return of income on

29-9-2009 declaring Nil income for AY 2009-10. The AO completed the

assessment u/s 143(3) after examining the details and explanations and the books

of accounts at Nil income. Subsequently, ld. Director of Income-tax (Exemptions)

("DIT(E)" in short), examined the records and noticed that as per income and

expenditure account, total income of the assessee had been shown at Rs. 2640.96

lakhs. Out of this, Rs. 783.18 lakh had been considered for computation of income

for charitable activity u/s 10(23C)(iv) and remaining amount had been claimed

exempt on the principle of mutuality. Ld. DIT(E) examined the accumulation chart

and income and expenditure account and concluded that major activities of the

assessee revolved around accommodation and catering facilities and these

activities were not on no-profit/loss basis, since there was continuous surplus being

reflected in the account for many previous years. He further observed that the

second objective, as per memorandum of association viz. "to undertake, organize

and facilitate study courses, conferences, seminars, lectures and research in matters

relating to different cultural patterns of the world", was not charitable in itself but

becomes charitable only when it is read with first objective viz. "to promote

understanding and amity between the different communities of the world by

undertaking or promoting the study of their past and present cultures, by
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disseminating or exchanging knowledge thereof, and by providing such other

facilities as would lead to their universal appreciation". He pointed out that in the

first category there were general citizen of the world whereas beneficiaries in the

second category were exclusive selected members of the society and their few

invited guests. She, therefore, concluded that the trust could not be called as

serving the general public. She further observed that since the trust itself was

applying the principle of mutuality in respect of admission fee, subscription,

income from hostel rooms, food and beverage, sale and expenses thereof, it could

be concluded that nature of the trust was to serve its members to their benefits.

2.1.   Ld. DIT(E) further examined the bye laws of the society and concluded that

they did not fulfill the criteria to come under the principle of mutuality. She,

accordingly, issued a notice u/s 263 on 11-3-2014, which was further amended by

notice dated 28-3-2014, requiring the assessee to show cause as to why the order

passed by the AO may not be treated as erroneous and prejudicial to the interests of

revenue and accordingly be set aside.

2.2.   The assessee filed detailed replies vide its letter dated 24-3-2014, 29-3-2014

and 31-3-2014, which have been reproduced extensively in para 2 of ld. DIT(E)'s

order. After considering the asessee's reply, the ld. DIT(E), after detailed

discussion, held that AO failed to examine the application of section 2(15) read
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with third proviso to section 143(3) and also read with section 13(8) of the Income-

tax Act, 1961. She further observed as under:

       "This is a clear case of non application of mind and non
       application of law. The asstt. order by mere reading of it is
       erroneous as it has treated the whole of income of the assessee
       as exempt with reference to section 11,12 and 13 though the
       assessee had submitted report in form no. 10BB only with
       respect of part income of Rs. 7,90,08,192/- The assessee's claim
       of exemption with respect to balance income has thus not been
       examined at all. Further, in view of the discussion as above,
       assessee's claim of exemption either u/s 10(23C)(iv), u/s 11 or
       under the principle of mutuality do not appear to be tenable.
       Therefore, entire surplus of Rs. 290.70 lacs to be exempt was to
       be brought to tax, which the AO has failed to do. Thus, the
       order is both erroneous and prejudicial to the interest of
       revenue."

2.3.   The main reasons for arriving at the aforementioned conclusion were
as under:
       (a)   The assessee society in its audit report in form no. 10BB had
       shown only part of its income and expenditure attributable to activities
       in terms of section 10(23C)(iv), whereas the total income/expenditure/
       surplus etc. as per the Income & Expenditure a/c of the assessee for
       the current assessment year were Rs. 2640.96 lacs/ 2348.19 lacs/ Rs.
       292.17 lacs respectively. In its return filed in ITR 7, the assessee had
       shown only income of Rs. 7,90,08,192/- from other sources and
       claimed the same to be exempt u/s 10(23C)(iv). Both the return of
       income as well as the form no. 10BB were silent on balance income.
       (b)   The exemption u/s 10(23C)(iv) was subject to fulfillment of
       conditions laid down in the order notifying the assessee u/s
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                                                                ITA 3124/Del/2014
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10(23C)(iv). The assessee's activities included providing of services
i.e. accommodation, food & beverages etc., for payment of charges,
which comes within the mischief of proviso 1 & 2 to section 2(15)
read with third proviso to section 143(3).
(c)    She also pointed out that as per Income & Expenditure A/c of
the assessee, the surplus generated in assessee's case was Rs. 292.17
lacs as against Rs. 230.08 lacs in the preceding year. Therefore, the
assessee's claim that the activities were not on commercial line, was
not tenable.
(d)    As regards the assessere's claim that income was not taxable
income, being derived from mutual concern, she observed that
assessee had claimed that partly income was covered by the
provisions of section 10(23C)(iv) read with sec. 2(15) and partly by
principle of mutuality. She observed that an assessee could have
income from different heads or income from different sources, but it
could not have its income and expenditure for the same sources
apportioned on the basis of different principles, as claimed by the
assessee. She, accordingly, held that the assessee could not be allowed
to compartmentalize its activities and income arising therefrom under
charitable activities and mutual activities. All the activities had to be
seen in its totality.
(e)    While cultural and intellectual activities of the assessee were
open to general public, the accommodation and related activities were
restricted only to its members as well non members specially invited
to participate in the activities of the society. Thus, there was no
complete identity between the contributors and participators and,
                                         6
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      therefore, the assessee could not be considered to be covered by
      principle of mutuality.
3.    Ld. counsel for the assessee referred to the condensed grounds of

appeal and submitted that the assessee has assailed the order of ld. DIT(E)

on following grounds:

       "1. That the Ld. DIT (Exemption) has grossly erred in law
      and on the facts of the appellant's case in holding that the order
      passed by the AO u/s 143(3) is erroneous and prejudicial to the
      interests of revenue. .
       2.   That the order passed u/s 263 dated 31.03.2014 is bad in
      law and the revision order uls.263 deserves to be cancelled.
      3.     That the Ld. DIT (Exemption) has erred in law in holding
      that the AO failed to examine the applicability of 1st and 2nd
      proviso of Section 2(15) of the Income Tax Act read with 3rd
      proviso to Section 143(3) and provisions of Section 13(8)
      although neither 3rd proviso to Section 143(3) nor Section
      13(8) were on statute book when AO. passed the assessment
      order.
      4.     That the Ld. DIT (Exemption) has grossly erred in
      holding that provisions of Sections 11, 12, 13 and Section
      10(23C)(iv) of the Income Tax Act are not applicable to the
      facts of the appellant in spite of the fact that registration u/s
      12A, 80G and 10(23C)(iv) remain intact.
      5.    That the Ld. DIT (Exemption) grossly erred in law in
      holding that the activities such as accommodation, food and
      beverages to the members of the appellant represent trade and
      business irrespective of the fact that "dominant object" of the
      appellant remains charitable not driven by "profit motive".
      6.    That the Ld. DIT (Exemption) grossly erred in law in
      invoking provisions of Section 263 although it was not a case of
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                                                                   India International Centre

       "no enquiry" by the AO on the applicability of provisions of
       Section 2(15) with its latest amendment.
       7.     That the Director of Income-tax (Exemptions) has erred
       in holding that all the activities of the assessee had to be seen in
       totality and the assessee cannot be allowed to compartmentalize
       its activities and income arising there from under charitable
       activities and mutual activities.
       8.     That the learned Director of Income-tax (Exemptions)
       has erred in holding that the AO has failed to bring to tax the
       entire surplus of Rs.292.70 lakhs.
       9.     That each ground is independent of and without prejudice
       to the other grounds raised herein".


3.1.   Ld. counsel submitted that the assessee is registered u/s 12A since 18-

6-1973 and also approved u/s 80G(5) and further notified u/s 10(23C)(iv) for

the AY 2006-07 onwards vide notification no. 13/2007 dated 19-1-2007. He

submitted that all these registrations are still       subsisting. Ld. counsel

submitted that since the inception till date, the assessment has been

completed u/s 143(3). He pointed out that the main allegation and the

findings given in the order u/s 263 by the DIT(Exemption) are that activities

undertaken by the assessee included providing of services such as

accommodation, food and beverages on chargeable basis and, therefore,

such activities were caught within the mischief of proviso 1 & 2 to section
                                          8
                                                                      ITA 3124/Del/2014
                                                                India International Centre

2(15) read with third proviso to section 143(3) and section 13(8) of the I.T.

Act.

3.2.   Ld. counsel submitted that assessment was completed u/s 143(3) of

the Act on 26-12-2011, whereas third proviso to section 143(3) as well as

section 13(8) of the I.T. Act were introduced by the Finance Act, 2012 with

retrospective effect from 1-4-2009. Therefore, when the assessment was

framed by the AO, third proviso to section 143(3) as well as section 13(8)

were not on the statute book and it was impossible for any assessing

authority to envisage as to what provisions of law were going to be

incorporated or changed in future. He relied on the decision of Hon'ble

Supreme Court in the case of CIT Vs. Max India Ltd. 295 ITR 282 (SC) as

also CIT Vs. Sasken Communication India Ltd. Taxsutra-538-HC-2014-

Karnataka, for the proposition that when assessment order is passed based

on the law prevalent at the time of assessment order, the same cannot be

revised u/s 263.

3.3.   Ld. counsel further submitted that the AO had issued a questionnaire

in course of assessment proceedings dated 23.8.2011 and had raised specific

queries vide question no.2 and question no.13 on the applicability of the

provisions of section 11, 12 and 13 read with sec. 2(15), in view of the latest
                                           9
                                                                        ITA 3124/Del/2014
                                                                  India International Centre

amendment. He pointed out that in the questionnaire, A.O. raised a specific

query no.I3, whether any business activities were being carried out by the

assessee. The assessee vide its submissions had specifically explained the

nature of activities by highlighting that how the activities of the assessee

remained charitable in nature. Therefore, this cannot be said to be a case of

"no enquiry" by the AO. He relied on following decisions:

       - Malabar Industrial Co. Ltd. vs. CIT, 243-ITR-83 (SC)
       - CIT vs. Green World Corn., 181 Taxman -111 (SC)
       - CIT vs. Sunbeam Auto Ltd., 332 ITR 167 (Del.)
       - CIT vs. Ani! Kumar Sharma, 335 ITR 83 (Del.)
       - CIT vs. Gabriel India Ltd., 203 ITR 108 (Born.)
       - CIT v. Kanda Rice Mills, 178 ITR 446 (P&H)
       2013- TIOL-761-HC-DEL


3.4.   He further pointed out that similar enquiries were also made by the

CBDT while notifying the Society u/s.10(23C)(iv) of the I.T. Act and on

only being satisfied, it had notified the assessee society as an eligible entity

u/s.10(23C)(iv) of the I.T. Act.      Therefore, it cannot be said that the

activities of the assessee were hit by the mischief of proviso to sec. 2(15).


3.5.   Ld. counsel submitted that before the AO as well before the ld.

DIT(E) detailed note on the activities and annual report was filed. The AO

formed an opinion that the activities of the assessee society were charitable
                                          10
                                                                        ITA 3124/Del/2014
                                                                  India International Centre

in nature. Therefore, once the AO had taken a possible view, then, ld.

DIT(E), under her power of revision u/s 263, could not impose her own view

to give a different finding. He relied on following decisions:

       - Malabar Industrial Co. Ltd. vs. CIT, 243-ITR-83 (SC)
       - CIT vs. Green World Corn., 181 Taxman - 111 (SC)

3.6.   Ld. counsel further submitted that in the initial notice or in the revised

notice u/s 263, ld. DIT(E) never raised any issue on the applicability of third

proviso to section 143(3) or section 13(8) or first proviso to section 2(15),

but in her order, she relied upon these provisions only. Ld. counsel pointed

out that the basis of order has to be the same as in the show cause notice.

For this proposition he relied on following decisions:

       - CIT v. Ashish Raj Pal 320 ITR 674;
       - CIT vs. Software Consultants 341 ITR 240 (Del.).

3.7.   Ld. counsel further submitted that even after insertion of proviso to

section 2(15) of the 1.T. Act, various courts have held that merely charging a

fee for some of the activities, which may result in surplus, does not ipso-

facto means that the activities of the Society are commercial in nature. The

trade or commerce in the normal course is different than what is required

u/s. 2(15) of the I.T. Act. He relied on following judgments for this




proposition ­
                                        11
                                                                     ITA 3124/Del/2014
                                                               India International Centre

       - ICAI vs. DGIT(Exemptions), 347 ITR 99 (Del);
       - DIT(Exemptions) vs. C.A. Study Circle, 347 ITR 321 (Mad.);
       - Tolani Education Society vs. DIT(Exemptions), (2013) 259 CTR
       (Born.) 26
       - Bureau of Indian Standards v. DGIT (Exemption), 358 ITR 78
           (Del.);
       - ICAI v. DGIT (Exemptions), 358 ITR 91 (Del.)
       - DIT (Exemption) v. Sabarmati Ashram, 362 ITR 539 (Guj.)
       - Council for the Indian School Certificate Examinations v. DGIT,
           2014- TIOL-855-HC-DEL-IT


3.8.   Ld. counsel further referred to the annual accounts and pointed out

that the gross receipts of the Society for the year ended 31st March 2009

was Rs.26.40 crores, which included interest income of Rs.6.17 crores. As

against this, the total expenditure was Rs.23.48 crores. The overall surplus,

as also stated by the DIT(E), was Rs.2.92 crores. Therefore, no activity,

whatsoever, of the Society could be said or alleged to be generating any

surplus. The surplus, if any, had resulted only because of interest income

being earned by the Society on the accumulated funds of earlier years.


3.9.   Ld. counsel submitted that the assessee's case is squarely covered by

the decision of Hon'ble Delhi High Court in the case of India Trade

Promotion Organisation v. D.G. of Income Tax (Exemptions) and others,

wherein the Hon'ble Delhi High Court, while upholding the constitutional

validity of the first proviso to Section 2(15) introduced w.e.f. 01.04.2009,
                                         12
                                                                      ITA 3124/Del/2014
                                                                India International Centre

has held that even after insertion of first proviso to Section 2(15), what is

required to be seen is that what is the dominant and main object i.e.

predominant object of society. So long as profit making was not the driving

force and objective of the assessee, then merely charging some fee for some

of the activities does not put it in the category of non- charitable entity in

respect of the objects falling in the category of "advancement of any other

object of general public utility".


3.10. Ld. counsel pointed out that there is no change in the objects or in the

activities of the centre for the last five decades or more. Therefore, the rule

of consistency has to be applied. For this proposition he relied on following

decisions:


      - Dy. Director of Income Tax Vs. Shanti Devi Progressive Educations
      Society [2012] 340 ITR 320 (Delhi).

      - Excel Industries SC-2013- TIOL-52-SC-IT



3.11. As regards the objection raised by ld. CIT on account of principle of

mutuality, ld. Counsel submitted that this has been accepted in the previous

years in assessee's own case.
                                         13
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                                                                India International Centre

3.12. Ld. counsel for the assessee referred to pages 2 & 3 of the PB,

wherein "Income & Expenditure A/c" is contained and pointed out that the

interest income is Rs. 617.45 lacs and the surplus generated Rs. 292.17 lacs.

No donations have been received by asessee. Therefore, it is evident that no

surplus is generated from catering, hostel activities. Surplus is born from

interest income earned on FDRs. He pointed out that assessee incurred loss

from hostel activities. Therefore, there is no question of any trade or

business being carried out by assessee. The whole object is to disseminate

knowledge for uplifting the social consciousness of the society in general.


4.     Ld. CIT(DR) referred to the assessment order and pointed out that

there could not be any short/ non-speaking order as is the present one, which

has been passed without any application of mind.


4.1.   Ld. CIT(DR) further submitted that AO has to give specific finding as

to how the surplus accrued to assessee i.e. whether from interest income, as

claimed by assessee, or from the activities carried out by assessee.


5.     Ld. counsel for the assessee in the rejoinder submitted that it is well

settled law that how AO writes an order is not within assessee's control. The

AO accepted the assessee's explanation after considering the annual report.

He relied on 256 ITR 1.
                                         14
                                                                       ITA 3124/Del/2014
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6.     We have considered the rival submissions and have perused the record

of the case. At the outset we may point out that as far as the objection of ld.

DIT(E) as regards the income not being returned by assessee in its income-

tax return or in form 10BB is concerned, the same was claimed as exempt on

account of concept of mutuality, as in earlier years and, therefore, there was

no basis for the AO to take any contrary view on the same. Accordingly, the

proceedings u/s 263 initiated by ld. DIT(E) on this count is not at all tenable

in law, particularly when this view has been taken by the department since

inception.


6.1.   Now coming to the main ground regarding applicability of proviso to

section 2(15) by the ld. DIT(E). This proviso has been made applicable to

institutions notified u/s 10(23C)(iv) w.e.f. 1-4-2009 by inserting 17th

proviso to section 10(23C)(iv) by Finance Act 2012, as reproduced below:


       "Provided also that the income of a trust or institution referred
       to in sub-clause (iv) or sub-clause (v) shall be included in its
       total income of the previous year if the provisions of the first
       proviso to clause (15) of section 2 become applicable to such
       trust or institution in the said previous year, whether or not any
       approval granted or notification issued in respect of such trust
       or institution has been withdrawn or rescinded."
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                                                                 India International Centre

6.2.   Prior to such insertion, the position of law was like this. Section 2(15)

defined the `charitable purpose'. This is an inclusive definition and,

therefore, in view of the opening phrase of section 2, which reads as "unless

the context otherwise requires", the said definition could not be imported to

institutions notified u/s 10(23C)(iv) by Competent Authority. Here approval

entitled the institution, subject to fulfillment of conditions laid down in

notification read with conditions laid down in section 10(23C). In view of 7th

proviso to section 10(23C), the Competent Authority was required to

examine that if the institution was deriving any income from profits and

gains, then the said business was only incidental to the attainment of its main

object. However, after application of proviso to section 2(15), by insertion

of 17th proviso to section 10(23C) by Finance Act, 2012 with retrospective

effect from 1-4-2009, the ambit has considerably been widened and if an

assessee is carrying on any activity which is in the nature of trade,

commerce or business then the assessee cannot be said to be carrying on

charitable activities. In view of changed legal position, ld. DIT(E) concluded

that since AO had not considered the applicability of proviso to section

2(15), the assessment order was erroneous as well as prejudicial to the

interest of Revenue.
                                         16
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6.3.   Admittedly, the third proviso to section 143(3), requiring the AO to

examine the applicability of proviso to section 2(15) in case of institutions

notified u/s 10(23C)(iv) in view of insertion of 17th proviso to section

10(23C), was not on statute book at the time when assessment order was

passed and since the notification remained in force, in any view of the

matter, the invocation of section 263 by ld. DIT(E) was not justified in view

of the decision of Hon'ble Supreme Court in the case of Max India Ltd.

(supra), wherein it has been held as under:-


       "We find no merit in the said contentions. Firstly, it is not in
       dispute that when the order of the Commissioner was passed
       there were two views on the word "profits" in that section. The
       problem with section 80HHC is that it has been amended
       eleven times. Different views existed on the day when the
       Commissioner passed the above order. Moreover, the
       mechanics of the section have become so complicated over the
       years that two views were inherently possible. Therefore,
       subsequent amendment in 2005 even though retrospective will
       not attract the provision of section 263 particularly when as
       stated above we have to take into account the position of law as
       it stood on the date when the Commissioner passed the order
       dated March 5, 1997, in purported exercise of his powers under
       section 263 of the Income-tax Act.

6.4.   Further we find that 263 proceedings initiated by ld. DIT(E) on the
ground that there was no application of mind by AO cannot be sustained
because vide questionnaire dated 23-8-2011, the AO had issued notice u/s
142(1) and had required the assessee as under:
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                                                                      ITA 3124/Del/2014
                                                                India International Centre

       "2. Note on the activities of the trust in AY 2009-10, Explanation
       along with documentary proof to justify that these activities were
       charitable as per Section 11,12,13 read with Section 2(15) in light of
       the recent amendment. Show computation as to how 85% is applied
       for objects of the trust.

6.5.   Further in question no. 13 the assessee was required as under:

       "13. Whether any business is carried out by the
       Trust/Society/Institution. If yes, please produce the complete books of
       accounts along with bills/ vouchers in respect of such business
       activities."

6.7.   The assessee had given detailed reply, the contents from which have
been reproduced in later part this order. Therefore, this cannot be said that
there was non application of mind by AO. We further find considerable
force in the submission of ld. counsel for the assessee that AO had taken one
of the possible views after considering the assessee's reply and, therefore,
263 proceedings could not be initiated against the assessee. Therefore, it
cannot be said that AO's order was in any manner erroneous or prejudicial to
the interests of revenue.

6.8.   However, since detailed arguments have been advanced before us

with respect to applicability of proviso to section 2(15), we proceed to

examine the same. First objection of revenue is with regard to the amounts

realized out of catering facilities provided at the centre. Catering facilities

were provided in the centre for members who came to the centre or stayed in

the centre and attended discourses, conferences, seminars, lectures etc. We
                                       18
                                                                    ITA 3124/Del/2014
                                                              India International Centre

reproduce the following note filed by assessee on catering facilities at the

centre:


      "INDIA INTERNATIONAL CENTRE
      Note on Catering Facilities at the Centre
      Catering facilities are provided in the Centre for members who
      come to the Centre or stay in the Centre and attend the
      discourses, conferences, seminars, lectures. The Centre has two
      dining halls and two Lounges. The dining hall operates for
      breakfast, lunch and dinner. The lounge provides variety of
      snacks, tea coffee and soft drinks. In the Dining Hall of the
      Main Centre, a Member can book a table for maximum of 8
      persons including guests. It may be stated that it is only the
      Members who can hold conferences, seminars and the centre is
      also providing catering services to them. The Rules relating to
      the booking and cancellation of IIC conferencing and catering
      facilities:
      1. Outside catering or food items brought from outside are not
      permitted.
      2.    Cell phones should be switched of before entering into
      conferencing venues and the noise outside the conference
      rooms and auditorium must be avoided.
      3.  Sale of ticket, books, collection of donation or any
      commercial activity is not permitted.
      4.    Live band, Marriage Ceremonies, Children's parties or
      any another function where rituals involving pendit, phera,
      havan etc. are not permitted.
      5. Meeting or political, Religious nature and AGM are not
      permitted.
      6.    It may not be out of place to mention here that the notice
      has also been granted exemption from income tax under sub
      clause (iv) of clause (23C) of Section 10 of Income Tax Act.
                                         19
                                                                       ITA 3124/Del/2014
                                                                 India International Centre

       The Kitchen and the dining hall are operated by IIC's own
       staff members and no outsourcing is done for the said
       facilities.
       Rules and Regulations
       Booking of Tables:
       1.    In the Dining Hall of the Main Centre, a Member can
       book a table for maximum of 8 persons and in the Dining Hall,
       Annexe for 10 persons.
       2.   There is no provision for reserving of table in the
       Lounge.
       3.    Children below 8 year of age are not allowed in the
       Dining Hall of both the Main Centre and Annexe. Members
       accompanied by children who visit the Lounge may use the
       outer Verandah of the Lounge in the Main Centre. In the
       Annexe Lounge, children below 8 years of age accompanying
       members are allowed to avail of catering facilities only during
       lunch hours on Saturday, Sunday and other Public Holidays
       between 12.30pm to 2.30 pm.
       4.     Tables are not allowed to be joined in any catering
       outlets.
       5.   Use of Cell Phones is not permitted in the Dining Hall,
       Lounge. Cell Phone may kindly be kept in Vibration mode.
       6.     Members are requested to speak in a manner that does
       not disturb those seated at the neighboring table."
6.9.   The second objection is with respect to hostel accommodation

provided on rent. On this aspect the assessee has given the following note:


       Note on Activities Carried on by India International Centre
       India International Centre (IIC) is a Society registered under the
       Societies Act of 1860 and is strictly governed by its
       Memorandum of Association and Rules & Regulations. The
                                  20
                                                                ITA 3124/Del/2014
                                                          India International Centre

objects of the Society are wholly charitable in nature and it has
been so held right from its inception year after year. There is
absolutely no change in the objects or the activities of the
Centre right from its inception.
Hostel services are predominant to sub-serve the main objective
of the Centre i.e. organizing a very large number of
programmes throughout the year which are open to the general
public, free of cost, the price of which is inestimable. The
activity of hostel provides basic amenities to all the invitees in
the seminars, cultural and other functions and to research
scholars free of cost and only guests of members are allowed to
avail of facilities in case surplus accommodation is available at
times. Your kind attention is invited to Art.VII of Memorandum
of the Centre which states "to organize and maintain, as far as
possible, on no-profit no-loss basis, limited residential
accommodation, with cultural and educational amenities, for
the members of the Society coming to participate in the
activities of the Society and of other bodies with cognate
objectives, as well as, non- members, specially invited to
participate in the activities of the Society", We give herein
below a resume of the activities of the Centre.
The Centre organizes very large number of programmes
throughout the year, which included seminars, talks,
discussions, music, dance, dance dramas, documentary films,
art exhibitions, feature films etc. Of these roughly 50% can
stated to be in the domain of academic and intellectual activities
in terms of seminars, talks, discussions and the balance 50% in
terms of cultural programmes, such as dance, music etc. All
these programmes are open to the general public free of cost,
the price of which is inestimable. The entire nerve centres of the
institution revolve around these programmes.
A very significant number of members I their guests come to
the Centre or stay in the Centre and attend the discourses,
conferences, seminars, lectures etc. sponsored by the IIC on its
own initiative or in collaboration with number of cultural,
academic, intellectual institution in the country,
                                         21
                                                                       ITA 3124/Del/2014
                                                                 India International Centre

       In addition to what the IIC and our collaborator organize, the
       Centre also makes its facilities available to members and their
       guests for conducting programmes of only academic,
       intellectual or cultural category of functions. 1500 programmes
       in a year are organized by members and their guests providing
       academic discussion contributing to the inteJ!ectual thought in
       the country and also organizing number of cultural programmes
       benefiting the citizens of Delhi. These programmes are
       organized in the Auditorium, Conference Halls, Rooms and
       Lecture Halls.
       There are also numbers of other seminars, large and small,
       where numbers of people were provided hospitality by IIC for
       stay in the hostel. In addition there are large numbers of smaller
       programmes spread throughout the year. For these programmes
       a very large number of members and their guests stay for
       varying periods of time. It is difficult to build information
       system or reflect in the accounts as to which or how many
       members attend which programmes like seminars or cultural
       events. The programmes always need not necessarily be in the
       IIC, like nominees of Universities attending conference in a
       number of institutions in Delhi. As per the rules these members
       are entitled to stay.
       That IIC is a centre for promotion of intellectual and cultural
       activities can be seen when we compare it with other
       institutions. This is because the Centre is geared to be only an
       institution of not only for promoting culture and academic
       thought. but also in inducting members ensures that the
       Members fulfill the objects of the Centre.
       Annual Subscription is charged from the members.
6.10. In the backdrop of aforementioned factual background, we proceed to

examine whether these activities take colour of trade or business activity or

merely facilitating in achievement of dominant object of assessee, which is

the test.
                                        22
                                                                     ITA 3124/Del/2014
                                                               India International Centre

6.11. The assessee society was formed to promote,         understanding and

amity between different communities        of the world by undertaking or

promoting study of their past and present culture, by disseminating or

exchanging knowledge thereof, and to provide facilities for undertaking,

organizing and facilitating study courses, conferences, seminars, lectures and

research on various matters in order to achieve these objects and to provide

facilities and also for establishing and maintaining libraries and undertaking

such publications the assessee had to earn income to incur expenditure on

the activities. At this juncture we may observe that unless there is profit

motive in carrying out an activity, it cannot take colour of trade or

commerce.


6.12. The predominant activities of the centre was not to earn income but to

provide facilities for disseminating or exchanging knowledge as per the

object of the society. There is no gainsaying that without creating a proper

platform the primary object of dissemination and exchanging of knowledge

could not be achieved. Therefore, merely because incidental income was

earned by assessee society for achieving its dominant object from providing

hostel and catering activities, it cannot be said that the assessee was doing

trade or business as contemplated under proviso to section 2(15). The centre
                                           23
                                                                          ITA 3124/Del/2014
                                                                    India International Centre

had to necessarily charge for the hostel, catering and use of such facilities

from members/ participants since it had to recover cost and at the same time

have enough funds to carry out the charitable activities. We are reminded at

this juncture of an old saying ­ "Everything comes at a price". It is

incomprehensible that an institution which is carrying out charitable objects

will provide the essential facilities free of charge. It is not the allegation of

ld. DIT(E) that the main object of asessee, in any manner, did not fulfill the

criteria of charitable activity. On the contrary she herself has observed that

the first category does fulfill the charitable purpose/ criteria and it is only the

second category i.e. giving of hostel, catering etc. that the assessee's

activities are caught within the mischief of second proviso to section 2(15).

It is also not the case of ld. DIT(E) that there was no free access to the

general public for programmes such as dance, music, seminars etc. In its

reply the assessee had also pointed out that there were number of occasions

when the centre did not charge institutions for holding their programmes

such as lectures, discussions or seminars etc. Admittedly there is no funding

from government or any other outside bodies to sustain activities of

promotion of cultural and intellectual activities and, therefore, the assessee

had to be totally self supporting and self financing and for this purpose, in
                                           24
                                                                         ITA 3124/Del/2014
                                                                   India International Centre

order to achieve its main objective, it had to charge and earn receipts from

members so that the activities could be carried out. Admittedly, the assessee

is disseminating knowledge to general public on subjects ranging from art,

dance, urban development means etc. through conferences, lectures etc. It

was further pointed out before AO that even while charging the members,

there was no commercial motive in fixing the rates. The rates were nowhere

near the commercial rates and were generally fixed to recover the cost and

cost of activities to run the centre. These activities could not be treated in the

nature of trade or commerce.


6.13. As regards hostel accommodation, there were number of rooms and

guidelines for hiring of the accommodation and also there were restrictions.

It was also pointed out that, as could be seen from the list of programmes,

the assessee conducted very large number of programmes during the year

which covered     discussions, music, dances, exhibitions and also certain

special programmes such as festivals during the course of the year. These

programmes were published through the newspapers and website. Further e-

mails were sent to members as well as non-members. Periodical articles also

appeared in the various newspapers          highlighting some of the special

programmes conducted by the centre.
                                         25
                                                                     ITA 3124/Del/2014
                                                               India International Centre

6.14. As regards ld. DIT(E)'s objection with regard to the membership of

the centre, the assessee had pointed out before the AO itself that individual

membership was open to all persons of India or foreign origin. Rule 4(A) of

Rules & Regulations provides qualification for membership.         There are

several categories for members, as reproduced below:


      "4. Qualification for Membership
      A. Individual membership of the following classes, open to
      persons of Indian or foreign origin, shall be subject to the
      provisions set out below:
      (a) Honorary Members
            (i)   Subject to their consent, the President of India, the
      Vice-President of India and the Prime Minister of India will be
      Honorary Members of the Centre.
      (ii) The Board may invite such other persons, as it may deem
      fit, to be Honorary Members.
      (b) Foundation Members
      Foundation Members are those persons who took an active
      interest or part in the establishment of the Centre and were
      enrolled as such.
      (c) Life Members
       Life Members are persons of high attainment in education,
      science, culture, art or other areas of public activity who are
      admitted as such.
      (d) Members
      Members are persons in the fields of academia, art, culture,
      science, technology, sports or those engaged in public or
                                        26
                                                                     ITA 3124/Del/2014
                                                               India International Centre

      professional functions and activities and are admitted as such in
      accordance with the decisions taken by the Board in this behalf.
      (e) Associate Members
      Associate Members are persons who are admitted as such in
      accordance with the decisions taken by the Board in this behalf.
      (f) Overseas Associate Members
      Overseas Associate Members are persons who are admitted as
      such in accordance with the decisions taken by the Board in this
      behalf.
      (g) Temporary Members
      Temporary Members are persons who are admitted as such in
      accordance with the decisions taken by the Board in this behalf.
      (h) Short Term Associate Members
      Short Term Associate Members are persons who are admitted
      as such in accordance with the decisions taken by the Board in
      this behalf Provided always that no person shall be eligible for
      admission under Rule 4(c) to (f) unless he/she has completed
      25* years of age at the time of applying for enrolment.
      Provided further that an applicant for individual membership,
      other than Temporary membership, should be duly proposed
      and seconded by two individual members (other than an
      Associate, Overseas Associate, Short Term Associate and
      Temporary Member), one of them certifying that the applicant
      is personally known to him or her and is, in his opinion, a
      person fit to be admitted as a member of the Centre.
6.15. From the rule, it is evident that members are persons in the field of

academic, art,   culture, science, technology, sports or those engaged in

public or professional functions and activities and are admitted as such in

accordance with the decisions taken by the Board in this behalf, in order to
                                           27
                                                                      ITA 3124/Del/2014
                                                                India International Centre

achieve the main object of assessee of disseminating knowledge in various

fields to public at large.


6.16. The assessee also pointed out that the members are presently from all

over the world and about 30% of members are outside the Delhi NCR

region.


6.17. From the detailed submissions of assessee, reproduced earlier, which

have not been controverted by department, we fail to understand as to how

these activities can be said to have an iota of commercial/ trade colour. The

dominant object of the assessee is definitely for the well being of public at

large by organizing          various seminars for the welfare of    people by

disseminating knowledge in various fields in order to uplift the social

consciousness of the society at large. (The composition of membership

clearly exemplifies the real intention of assessee. We fail to understand as to

how the hostel accommodation provided to various invitees could be

considered as a commercial activity. Before any activity can be branded as

being in the nature of trade or commerce, the AO has to demonstrate the

intention of parties Backed with facts and figures of carrying out activities

with profit motive. Mere surplus from any activity, which undisputedly has

been undertaken to achieve the dominant object, does not imply that the
                                          28
                                                                          ITA 3124/Del/2014
                                                                    India International Centre

same is run with profit motive. The intention has to be gathered from

circumstances which compelled the carrying on an activity. In the present

case, ld. counsel has clearly demonstrated that surplus was generated from

interest income and not from catering or hostel activities. Therefore, the

objection of ld. DIT(E) does not survive on this count also.





8.18. The primary object of insertion of proviso to section 2(15) was to curb
the practice of earning income by way of carrying on of trade or commerce
and claiming the same as exempt in the garb of pursuing the alleged
charitable object of general public utility. This proviso never meant to deny
the exemption to those institutions, where the predominant object is
undeniably a charitable object and in order to achieve the same incidental
activities, essential in the given circumstances, are carried on.
6.19. In view of the above discussion we hold that the proviso to section
2(15) is not at all applicable in the present case and, therefore, ld. DIT(E)
was not at all justified in invoking the proceedings u/s 263.
6.20. Further we find that the assessee's case is squarely covered by the
decision of Hon'ble Delhi High court in the case of India Trade Promotion
Organization Vs. Director General of incomew Tax (Exemptions) & Others
(WP(C) no. 1872/2013 dated 22-1-2015) 2015-TIOL-227-HC-DEL-IT, held
as under:
      "Having heard the matter, the High Court held that,
      if a meaning is given to the expression "charitable purpose" so
      as to suggest that in case /1/ en institution, having an objective
      of advancement of general public utility, derives an income, it
                                    29
                                                                   ITA 3124/Del/2014
                                                             India International Centre

would be falling within the exception carved out in the first
proviso to Section 2(15) of the Act, then there would be no
institution whatsoever which would qualify for the exemption
u/s 10(23C)(iv) of the Act. And, the said provision would be
rendered redundant. This is so, because, if the institution had no
income, recourse to Section 10(23C)(iv) would not be
necessary. And, if such an institution had an income, it would
not, on the interpretation sought to be given by the revenue, be
qualified for being considered as an institution established for
charitable purposes. So, either way, the provisions of Section
10 (23C)(iv) would not be available, either because it is not
necessary or because it is blocked. The intention behind If
introducing the proviso to Section 2(15) of the Act could
certainly not have been to render the provisions of Section 10
(23 C)(iv) redundant;
++ it is apparent that merely because a fee or some other
consideration is collected 01 received by an institution, it would
not lose its character of having been established for c charitable
purpose. It is also important to note that we must examine as to
what is the dominant activity of the institution in question. If
the dominant activity of the institution was 'not business, trade
or commerce, then any such incidental or ancillary activity
would also not fall within the categories of trade, commerce or
business. It is clear from the facts of the present case that the
driving force is not the desire to earn profits but, the object of
promoting trade and commerce not for itself, but for the nation
- both within India and outside India. Clearly, this is a
charitable purpose, which has as its motive the advancement of
an object 0, general public utility to which the exception carved
out in the first proviso to Section 2(15) 0, the Act would not
apply. It is so said, because, if a literal interpretation were to be
given to the said proviso, then it would risk being hit by Article
14 (the equality clause enshrined in Article 14 of the
Constitution). It is well-settled that the courts should' always
endeavour to uphold the Constitutional validity of a provision
and, in doing 50, the provision in' question may never to be
read down;
                                   30
                                                                 ITA 3124/Del/2014
                                                           India International Centre

++ the introduction of the proviso to Section 2(15) by virtue of
the Finance Act, 2008 was directed to prevent the unholy
practice of pure trade, commerce and business entities from
masking their activities and portraying them in the garb of an
activity with the object of e general public utility. It was not
designed to hit at those institutions, which had the advancement
of the objects of general public utility at their hearts and were
charity, institutions. The attempt was to remove the masks from
the entities, which were purely trade, commerce or business
entities, and to expose their true identities. The object was not
to hurt genuine charitable organizations. And, this was also the
assurance given by the Finance Minister while introducing the
Finance Bill 2008;
++ the expression "charitable purpose", as defined in Section
2(15) cannot be construed literally and in absolute terms. It has
to take colour and be considered in the context o. Section
10(23C)(iv) of the Act. It is also clear that if the literal
interpretation is given to the proviso to Section 2(15) of the
Act, then the proviso would be at risk of running fowl of the
principle of equality enshrined in Article 14 of the Constitution
India. In order to save the Constitutional validity of the proviso,
the same would have to be read down and interpreted it the
context of Section 10(23C)(iv) because, the context requires
such an interpretation. The correct interpretation of the proviso
to Section 2(15) of the Act would be that it carves out an
exception from the charitable purpose of advancement of any
other object of general public utility and that exception is
limited to activities 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. In both the activities, in the nature of trade,
commerce or business or the activity of rendering any service in
relation to any trade, commerce or business, the dominant and
the prime objective has to be seen. If the dominant and prime
objective of the institution, which claims to have been
established for charitable purposes, i: profit making, whether its
activities are directly in the nature of trade, commerce or
business: or indirectly in the rendering of any service in relation
                                         31
                                                                       ITA 3124/Del/2014
                                                                 India International Centre

      to any trade, commerce or business, then it would not be
      entitled to claim its object to be a 'charitable purpose'. On the
      flip side, where an institution is not driven primarily by a desire
      or motive to earn profits, but to do charity through the
      advancement of an object of general public utility, it cannot but
      be regarded as an institution established for charitable purposes;
      ++ thus, while this Court upholds the Constitutional validity of
      the proviso' to Section 2(15) 0, the Act, it has to be read down
      in the manner indicated. As a consequence, the impugned order
      dated 23.01.2013 was set aside and a mandamus was issued to
      the respondent to gram approval to the petitioner u/s
      10(23C)(iv) of the Act within six weeks from the date of this
      judgment."
6.21. In view of above discussion we hold that, in the facts and
circumstances of the present case,      the ld. DIT(E) was not justified in
initiating revisionary proceedings u/s 263 of the Act. According order passed
by the DIT(E) u/s 263 of the Act is quashed and the assessment order passed
by the AO is restored.

7.    In the result, assessee's appeal is allowed.
      Order pronounced in open court on 11-05-2015.


Sd/-                                          Sd/-
(C.M. GARG )                                  ( S.V. MEHROTRA )
JUDICIAL MEMBER                               ACCOUNTANT MEMBER
Dated: ______-05-2015.
MP: Copy to :
   1. Assessee
   2. AO
   3. CIT
   4. CIT(A)
   5. DR

 
 
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