Section 2(15) –First proviso to Section 2(15) will not apply where the services are rendered for fees but it is only subservient to the charitable objects of the institute and is not in the nature of business itself.
Facts:
The assessee is a society under the Societies Registration Act, 1860 and registered u/s. 12A(a). Its objectives include promoting, encouraging and developing horticultural activities in the country. As a part of pursuing its objective, one of the activities that the assessee was involved in was disbursement of subsidy received from the Ministry of Agriculture in respect of qualified horticulture projects. In the course of the assessment proceedings, the AO noticed that the assessee had received a sum of Rs. 2.21 crore on account of cost of application form and the brochure from the subsidy seekers. The AO was of the view that the amounts so received were for services rendered to the customers, which is in the nature of business, commerce and trade, and, therefore, the activities of the assessee cannot be treated as charitable activities of the nature as contemplated by section 2(15). On appeal, the CIT(A) confirmed the order of the AO, as according to him,the assessee’s claim was hit by second limb of first proviso to section 2(15).
Before the Tribunal, the revenue relied on the decision of the Andhra Pradesh High Court in the case of Andhra Pradesh State Seed Certification Agency vs.Chief Commissioner of Income Tax [(2013) 356 ITR360] and contended that as long as the services are rendered to a business, trade or commerce, irrespective of the motives of the person rendering such services, the services so rendered vitiate the charitable character of the assessee rendering such services.
Held:
The Tribunal noted that there is no dispute as regards the objects of the assessee viz., objects of general public utility, which is also a charitable purpose as per the law; and as confirmed by the lower authorities, the first limb of first proviso to section 2(15) is not attracted on the facts of the case of the assessee. As regards the revenue’s case, that the case is covered under the second limb of first proviso to section 2(15), on the basis that the assessee has rendered services “in relation to trade, commerce or business” for a consideration, the Tribunal relying on the decision of the Delhi High Court in the case of GS1 vs. Director General of Income Tax (Exemptions)[(2013) 360 ITR 138], observed that the scope of second limb extends only to such cases in which a business is carried out to feed the charitable activities. For invoking second limb of first proviso to section 2(15), it is sine qua non that the assessee extends services to business, trade or commerce and such services have been extended in the course of business carried on by the assessee. According to it, even in a situation in which an assessee receives a fees or consideration for rendition of a service to the business, trade or commerce, as long as such a service is subservient to the charitable cause and is not in the nature of business itself, the disability under second limb of first proviso to section 2(15) will not come into play. Further, it also noted that in another decision of the Delhi High Court in the case of The Institute of Chartered Accountants of India vs. DGIT (Exemptions) [(2013) 358 ITR 91], the rendition of services by the assessee was viewed in conjunction with the overall objectives of the assesse and once it was seen that those services were not in the nature of trade, commerce or business per se, the mere charging of fees for services so rendered, were held to be sub-servient to the charitable objectives and it was held to have no effect on the overall charitable objects of the assessee.
As regards the case law relied on by the revenue the tribunal preferred to follow the decision of the jurisdictional High Court.
