Section 11 of the Income-tax Act, 1961 – Charitable or religious trust

Last updated: 24 September 2007

Court :
IN THE ITAT MUMBAI, BENCH ‘I’

Brief :
Section 11 of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under – Assessment year 2001- 02 - Assessee-society having several branches in India was registered under sections 12A and 80G – Main object of assessee was promotion of scientific development of marine engineering- Assessee in order to pursue its objects held technical conferences, seminars to educate its members i.e. marine engineers and for this purpose received sponsorship income from companies engaged in marine industries - During previous year assessee held a national conference and an international conference and had shown surplus received as a result of such conferences as its income – Assessee was maintaining separate accounts for said technical meetings which was incidental to objects of trust – For relevant assessment year, assessee claimed exemption under section 11 but same was denied by Assessing Officer – Whether assessee had complied with all conditions of section 11(4A) by maintaining separate books of account in respect of income from technical meetings and seminars which were in furtherance to objectives of assessee trust and, hence, exempt from taxation – Held, yes – Whether since activities carried on by assessee were with a view to serve its members, for which sufficient funds were required and money was collected by way of sponsorship and advertisement in order of promote activities of assessee, assessee was entitled to exemption under section 11 as claimed – Held, yes FACTS The assessee-society, having its head office at Mumbai, was operating through several branches in India and was registered under sections 12A and 80G. It was also registered with the Charity Commissioner and filed regular accounts. The objects of the assessee as per the memorandum and articles of association were as follows: to promote the scientific development of marine engineering in all its branches and in the furtherance of such knowledge, to enable marine engineers to meet and correspond to facilitate the inter change of ideas respecting improvements and improved methods of working machinery and to publish and communicate information on such objects, to uphold the status of members of the institute by prescribing or holding examination for candidates for election or by requiring standards of knowledge and experience which could be approved, and to cooperate with universities, other educational institutions and public educational bodies for the furtherance of education in engineering science. The assessee in order to pursue its objects held technical conferences, seminars to educate its members and for this purpose, received sponsorship income from companies engaged in the marine industries. During the previous year, the assessee held a national conference in Mumbai and an international conference in Chennai and the surplus earned from the two conferences was shown in separate accounts. The assessee also conducted coaching classes, which were in the nature of preparatory course approved by the Director General of Shipping, Ministry of Surface Transport, Government of India. In addition, the assessee also received entrance fees from new members, life membership from new members and also existing members, transfer fee for change from one grade to another grade. Besides entry fees received from the members, the assessee also received voluntary donations from members, various industries and in addition dividend income was received on its investments. For the relevant assessment year, the assessee claimed exemption under section 11. The Assessing Officer held that the assessee could not be allowed the benefit of section 11/12A merely because it provided certain objects, which were of charitable nature. He observed there were certain objects of the assessee which were charitable nature, but the real test to resolve the issue was as to how the assessee was carrying on its activities on day to day basis. The Assessing Officer held that as the assessee was carrying on its activities as that of an ordinary business organization, the assessee was engaged in the business as defined under section 2(13). He also held that the provisions of sub-section (4A) of section 11 were not applicable to the instant case, as the income and expenditure disclosed by the assessee did not have any element of charitable acts, and that the assessee had not functioned in any manner to achieve any charitable objects and the organization of events for raising funds/ surplus could not be treated to be incidental to any charitable objects. The Assessing Officer, therefore, denied the exemption under section 11 to the assessee. On appeal, the Commissioner (Appeals) upheld the impugned order. On second appeal:

Citation :
Institute of Marine Engineers (I) v Assistant Director of Income-tax, Exemption II(1), Mumbai Pramod Kumar, Accountant Member and Sushma Chowla, Judicial Member IT Appeal No. 2522(Mum.) of 2005 [Assessment year 2001-02]

The assessee had claimed exemption under section 11 since its inception and the same had been allowed for the past 25 years and there was no change in its activity or its objects. [Para 13] The moot question for determination in the instant case was as to whether the assessee was pursuing its objects as per the provisions of section 2(15), i.e., relief for poor, education, medical relief and advancement of any other object of general public utility and was entitled to exemption under section 11. It was clear from the objects that the promotion of scientific development of marine engineering was the main activity of the assessee. In order to enable the marine engineers, i.e., members of the assessee, to meet and exchange ideas, annual meetings were held by the assessee in addition to international meet. In the said meetings, the members interacted with each other in addition to technical sessions being held for enlightenment of the subject of marine engineering. In these technical and social meetings, technical papers pertaining to the Shipping Industries were presented, which were attended by members from all over the country, government officers and representative from various companies interested in the shipping business. During the previous year, two meeting/seminars were held, which were attended by people from a marine industries all over the world. Brochures were taken out for the said meetings seminars in which the companies engaged with marine industries had given advertisements as well as sponsorships. The surplus received as a result of these international and national conferences had been shown as the income of the assessee for the relevant assessment. The assessee was maintaining separate accounts for the relevant assessment year. The assessee was maintaining separate accounts for the said technical meeting, which was incidental to the objects of the trust, which was in compliance of the provisions sub-section (4A) of section 11. [Para 14] The Assessing Officer had denied the exemption to the assessee observing that the activity carried on by it was not for the members except for holding dinners at the end of the technical sessions. No material had been brought on record to establish that the said activity carried on by the assessee was for earning profit and not for achieving its objects. Looking at the details of earnings and expenditure of the technical meetings and seminars, held for the year ended 31-3-2001, it was crystal clear that the funds had been raised by holding annual technical meetings at Mumbai and the International meet at Chennai. In case, the said meetings were not being held, in all the other branches, the assessee had incurred losses, which clearly proved the case of the assessee that in order to meet its day to day expenses at different branches, in fulfilhnent of its objects, it was necessary and prudent for the assessee to hold such meetings; wherein funds were collected which would go a long way in attaining its objects. There was no material to show that the assessee had violated any of its objects in carrying out such activities. The technical meetings and seminars were held in order to educate its members regarding the new technology and also to enable the marine engineers to meet and facilitate inter-change of ideas amongst the members. The brochure published in such meetings was circulated amongst its members and also amongst persons connected with marine engineering, which was again in furtherance of its objects of carrying on the activity of advancing the object of general public utility. The factum of making profit from such meetings did not mean that the assessee was carrying on business. Therefore, the assessee had not carried on 'business' as per the provisions of section 2(13). In any case, as per the amended provisions of section 11 (4A), which were amended by the Finance (No. 2) Act, 1991 with effect from 1-4-1992, it has been provided that in cases where the income of a trust or an institution includes profits and gains of business and such business is incidental to the attainment of the objectives of the trust or institution and separate books of account are being maintained by such trust or institution in respect of .such business, such income is exempt from tax and the provisions of sub-section (1) or sub-section (2) or sub-section (3) or (3A) shall apply. In the instant case, the assessee had complied with all the conditions by maintaining separate books of account in respect of income from technical meetings and seminars and coaching fees, which were in furtherance to the objectives of the assessee and, hence, exempt from taxation. [para 15] In addition to the technical meetings, the assessee had also conducted coaching classes for its members which was as per the preparatory courses approved by the Director General of Shipping. In addition to career development income received by the assessee at the head office, for conducting the said courses, the assessee had charged entrance fees from members. In addition, the assessee had received voluntary donations from members and various industries. The assessee was also holding examination as approved by the Director General of Shipping. Some of the surplus funds received by the assessee were used for publishing its monthly journal which was circulated to its members free of cost. The said journal was also circulated amongst various educational institutions and shipping companies. The funds to meet the cost of publishing and distribution of the journal were utilized out of surplus funds available with the assesee. Thus, the cumulative activity carried on by the assessee was in furtherance of its objects. [para16] Further, the nature of business activities of the assessee were same as carried on from year to year and had been accepted by the Income-tax department for the preceding years. If a particular stand had been accepted from year to year by the Assessing Officer, he should find something different in the conduct of the business in order to deviate from the said stand. Res judicata does not apply to the income-tax proceedings, but if no new facts are brought on record, there should not be any deviation from a particular stand. [para 17] Therefore, the activities carried on by the assessee were with a view to serve its members, for which sufficient funds were required and money was collected by way of sponsorship and advertisement in order to promote the activities of the assessee trust and the same income was exempt under section 11. [para 18] Editor’s Note : 1. It was also held by the Tribunal that the amount applied by the assessee trust towards capital expenditure were to be considered as amount applied towards attainment of its objectives. 2. It was also held by the Tribunal that interest income and dividend income were allowed to be exempted under section 11.