Sushma Chowla, Judicial Member
1. This appeal by the assessee is agaiinst the order of Commissioner (Appeals)-XXXIII, Mumbai, dated 19-1-2005 relating to assessment year 2001-02. The assessee has raised the following grounds of appeal against the action of the authorities below in denying exemption under Sections 11 to 13 of the Income Tax Act.
(i) The Commissioner (Appeals) erred in confirming the order of the ADIT(E) denying exemption under Section 11 of the Act to the appellant without adjudicating ground Nos. 1 and 2 of the grounds and without considering all the submissions made by the appellant's representatives at the time of hearing.
(ii) The assessing officer erred in refusing to consider that the income of the appellant trust is not taxable in accordance with Sections 11 to 13 of the Act. In doing so, the assessing officer had not considered rule of consistency which is applicable in tax proceedings. It has been judicially held that if facts and circumstances for earlier years are similar, same view should ordinarily be followed in subsequent years.
(iii) The Commissioner (Appeals) erred in confirming the order of assessing officer denying the exemption of income of the appellant under Section 11
on the ground that the appellant was carrying on business under Section 2(13) of the Act. The appellant submits that activities which are carried on by the appellant do not constitute activities from business. The Commissioner (Appeals) upheld the order of the assessing officer in rejecting the claim of the appellant without considering the facts and submissions made by the appellant during the appellate proceedings.
(iv) The appellant submits that all the activities carried out by the appellant like holding seminars, conferences, coaching classes are activities carried out by the appellant to promote the scientific development of marine engineering in all its branches and to further such knowledge. Accordingly income from sponsorship, advertisements, subscription etc. therefrom is not income from business.
(v) With regard to coaching classes conducted by the appellant, same are training classes conducted for marine engineering training programme and certificate given by the appellant is required for jobs in marine engineering field.
(vi) Without prejudice to the above, the appellant submits that even if it is held that the appellant was carrying on business activities even then the income of the trust would be governed by Section 11(4A) of the Act as the business carried on by the institute was incidental to the attainment of the objects of the trust and separate books of account are maintained by the trust in respect of its activities.
(vii) The Commissioner (Appeals) erred in confirming the addition of Rs. 3,04,104 in respect of the following capital receipts to the income of the appellant on the ground that no direction letters from the donors that they shall form part of the corpus of the trust have been furnished to the assessing officer:
Entrance fees 4,67,550 Life Membership fees 6,70,105 Transfer fees 83,685
Donation received under Benevolence Fund 2,826
Donation received under building fund 80,478
The appellant submits that the above amounts received are corpus donation as per Clause 8.6 of the Articles of the appellant for Entrance and Transfer fees and other income for being voluntary donation and from change of grade of membership.
(viii) The assessing officer also has not considered that the appellant had applied Rs. 19,06,809 towards capital expenditure and therefore has to be considered as amount applied to the objects of the Trust.
(ix) The assessing officer erred in not considering interest income of Rs. 2,27,185 and dividend income of Rs. 4,84,857 as exempt under Section 11 of the Act.
2. The facts of the case are that the assessee is an institution registered under the Societies Registration Act, 1860. The objects of the Trust as per the Memorandum and Articles of Association are as under:
(i) To promote the scientific development of marine engineering in all its branches and in the furtherance of such knowledge.
(ii) To enable marine engineers to meet and correspond to facilitate the inter change of ideas respective improvements and improved methods of working machinery and to publish and communicate information on such objects.
(iii) 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 can be approved.
(iv) To corporate with Universities, other educational institutions and public educational bodies for the furtherance of education in engineering science.
The assessee society, having its head office at Mumbai, is operating through several branches in India and is registered under Sections 12A and 80G of the Income Tax Act. The assessee society has claimed exemption under Section 11 of the Income Tax Act. The assessee is also registered with Charity Commissioner and files regular accounts. In order to pursue its objects, the assessee society held technical conferences, seminars to educate the members of the institution and for this purpose, received sponsorship income from companies engaged in the marine industries. During the year under consideration, the assessee held a national conference in Mumbai and an international conference in Chennai. The institution also conducts coaching classes, which are in the nature of preparatory course approved by the Director General of Shipping, Ministry of Surface Transport, Government of India. In addition entrance fees are also received 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 institution also receives voluntary donations from members, various industries and in addition, dividend income is received on its investments. During the year under consideration, the assessing officer asked the assessee to specify the element of charity which entitles it for exemption under Section 11 of the Income Tax Act. The assessee had filed the income and expenditure accounts in respect of the Head Office and various Branches giving details of income and expenditure under different heads, which are reproduced below:
Net Balance (Rs.)
Coaching class income for the year ended 31-3-2001:
Mumbai - Dadar/Matunga
Mumbai - Nerul
Career Development Cell income & expenditure for the year ended 31-3-2001
Head Office (Mumbai) 28,75,700 3,41,472 25,34,227
Tech. Meetings & seminar for the year ended 31-3-2001: Mumbai Branch 14,34,153 7,40,017 6,94,136 Chennai 35,01,093 12,12,575 22,88,517 Delhi - 8,000 (8,000) Cochin 99,150 89,986 9,163
Kolkata 2,24,800 3,29,028 (1,04,228) Goa - 3,117 (3,117) Visakhapatnam - 12,207 (12,207) Pune 12,770 29,324 (16,554) 52,71,966 24,24,256 28,47,709
In addition to the above details, break-up of expenditure under respective heads was filed before the assessing officer and the same were scrutinized by the assessing officer.
3. As mentioned earlier, the assessee society had held a national conference at umbai i.e., Annual Meet (IME(I), Mumbai Branch), wherein in addition to the delegates fees of Rs. 1,55,800, the assessee had received sponsorship income of Rs. 7,02,511 and advertisement income of Rs. 5,75,842, totalling to Rs. 14,34,153. During the sessions of two clays, technical sessions were conducted from 9 AM to 5.30 PM, ranging on different topics with different speakers addressing each session. During the course of the session, delegates were provided with Tea, Lunch and Dinner at the end of the session. By holding such technical sessions, the assessee had earned surplus of Rs. 6,94,136, which formed part of the income of the assessee society for the year under consideration. Similarly, an international conference was held at Chennai called as Marine Symposium 2000 IME(I). During the said conference, in addition to the delegate fees of Rs. 2,30,932, the assessee had received sponsorship income of Rs. 12,29,277 and also co-sponsorship income of Rs. 6,83,590 and advertisement income of Rs. 94,943 on account of ads in the brochure published during the event along with stall fees of Rs. 3,36,793, totalling Rs. 34,79,423. The assessee had incurred total expenditure of Rs. 12,12,575 on delegates, seminar and exhibitions, hotel expenditure and mementoes issued on the occasion. The assessee society had earned surplus of Rs. 22,88,517 on account of the funds raising activity conducted by the assessee society. Both the conferences were on account of technical meetings and seminars with the aim of raising funds for carrying on the objects of the assessee society. Only in respect of these two technical meetings there were surplus but in respect of all the other branches, there were insignificant surplus or losses.
4. The assessee society is also conducting mandatory preparatory courses approved and required by the Director General of Shipping, Ministry of Surface Transport, Government of India. The institution also conducts examination and certification courses on behalf of the Director General of Shipping. The said courses are compulsory and members from all India enroll themselves to the said courses being held in Mumbai. The candidates willing to appear in the professional examination in Marine Engineering have to necessarily attend such courses prior to becoming eligible to appear in the said examination. During the year under consideration, the assessee had received income of Rs. 26,56,320 on account of holding coaching classes at Mumbai, Dadar Matunga and Rs. 3,58,600 at Nerul Branch, against which total expenditure of Rs. 12,10,414 and Rs. 73,159, respectively, was claimed. The said coaching classes conducted by the assessee resulted into net income of Rs. 14,45,906 + Rs. 2,85,440 during the year under consideration. The assessee society at Mumbai had also conducted career development courses under which total receipt was Rs. 28,35,700 after expenditure of Rs. 3,41,472, the sum of Rs. 25,34,227 was the balance surplus for the year under consideration.
5. The ld. assessing officer, while completing the assessment, was of the view that the assessee cannot be allowed the benefit of Section 11/12A 'merely because it has provided for certain objects which are of charitable nature'. Relying on the decision of the Hon?ble Supreme Court decision in the case of Sole Trustee Loka Shikshana Trust v. CIT , the assessing officer held that 'if the result of the business activity is profit, then there is no provision in the Income Tax Act to exempt such income on the basis of motive of the person'. He further observed that there are certain objects of the assessee society which are of charitable nature, but the real test to resolve the issue is as to how the society is carrying on its activities on day-to-day basis. As per the assessing officer, the assessee society is carrying on its activities as that of an ordinary business organization and accordingly the assessing officer held that the assessee society is engaged in the business as defined under Section 2(13) of the Income Tax Act.
6. Regarding the applicability of the provisions of Sub-section (4d) to Section 11 of the Income Tax Act, wherein exemption of income arising out of business activity is provided, in case such business is incidental to the main objects of the organization, the claim of the assessee was rejected by the assessing officer as according to him the income and expenditure disclosed by the assessee society did not have any element of charitable acts. The assessing officer was of the view that the assessee had not functioned in any manner to achieve any charitable objects and the organization of events for raising funds/surplus cannot be treated to be incidental to any charitable objects and therefore, exemption claimed under Section 11 was denied to the assessee. In addition, the expenditure of capital nature and receipts to be in the form of capital receipts were also brought to the charge of tax.
7. The Commissioner (Appeals) relying on the order of the assessing officer, agreed with the conclusion of the assessing officer that expenditure incurred was not incidental to the attainment of the objects of the society. The Commissioner (Appeals) further observed that the assessee has not been able to prove that the expenditure incurred were towards attainment of the objects of the Trust, although the object of the Trust was charitable in nature. All the expenses had been incurred either on the dinner or for guests of members, which is not incidental to the objects of the Trust. Accordingly, he assessed the income as business income and denied exemption claimed under Section 11 of the Act.
8. Shri V.H. Patil and Shri P.N. Vepari appeared on behalf of the assessee appellant and Shri Vijay Shankar represented the department. The ld. authorized representative for the assessee submitted that the assessee is registered under Sections 12A and 80G of the Income Tax Act since 1983 and the assessee is filing its return of income along with income and expenditure accounts from year to year and is being assessed as charitable institute for all these years. It is only during the year under consideration that the assessing officer has held that the organization is carrying on its activities with the aim of making profits and accordingly exemption under Section 11 of the Act was denied. The ld. AR submitted the synopsis regarding the nature of activities carried on by the assessee in which he submitted as under:
The activities of the Trust fall within the object of general public utility which is a wide term and nothing ensures for any members personally. To carry out the objects of the Institute, it has 8 branches at various places in India and has more than 4300 members. It carries out the following activities:
(a) Conducting mandatory preparatory courses, approved and required by the Director General of Shipping, Ministry of Surface Transport, Government of India.
(b) The institute also carries out examination and certification on behalf of the Director General of Shipping.
(c) Every year there is an annual technical and social meet in which are read technical papers pertaining to the Shipping Industry and attended by members from all over the country, Government Officers and various companies which are interested in the Shipping business. During the annual technical meet on 17-2-2001 which was held at Centaur Hotel, Juhu, the following technical papers were presented:
(i) New Lubricant Technology in the latest marine engines.
(ii) Fatigue Hull Damage of Single Hull VLCC's from Det Norske Veritas.
(iii) Common Rail Low-Speed Engines.
Information was also given on technical matters like Micro-welding systems, Iron Rich Water, Fireproof Material, Glowing Bacteria, Oxyzen Regenerating Mixture, Double Scrubbed So2 Protection for Ballast Tanks, Lily for Water Purification. Fresh Use for Sludge and Aqua-saver System.
(d) The various companies connected with the marine business take this opportunity to give advertisements in the brochure taken out for this purpose and some of them also act as sponsors for the function.
(e) Holding of seminars both Indian and International is for updating technical information of the participants. During the assessment year 2001-02 an international seminar was held in Chennai which was attended by people from marine industries all over the world. A special broachers was taken out for the seminar in which the organizers connected with marine engineering had given advertisements as well as sponsorships.
(f) The Institute also publishes its monthly journal MER(I) which is circulated not only to members free of cost but also to various educational institutions at no cost. The point to be noted is that the journal is supplied at a nominal cost to various shipping companies who in turn distribute the same to their employees serving at sea. During the year under consideration the total amount recovered on sale of the journal in Rs. 94,150 and whereas the cost of publishing and distribution is Rs. 6,24,600.
(g) The Administration (Directorate General of Shipping) continues to place increasing responsibilities on the Institute, by requiring the Institute to work closely with the Chief Examiner of Engineers in the Directorate General, in assessing the needs of the profession and to then provide feedback on the professional development of these mariners. In a working paper on Guidelines for Engineer Training, which are to come into effect from 1-1-2004, a few pages from which are enclosed as Annexure X, the Director General of Shipping has specifically characterized the Institute as 'a professional body registered under the Charitable Trust Act, which provides specific discipline and industry related support services to its members, while acting as an independent authority and spokes body for the profession'. The DG Shipping goes on to state its expectation that the Institute will consistently improve the qualitative characteristics of the marine engineering professional towards continues global acceptability and recognition. Much of the work done by the Institute towards these ends are not paid for and are thus not reflected in the accounts.
It is clear from the above explanation that the Institute carries out activities of imparting education including advancement of knowledge, dissemination of knowledge and communication of knowledge, and advancement of the development of Marine Engineering in particular and environment protection of the seas and waterways and atmosphere, safety of crew and passengers, safe operation of water transport, all of which are of general public utility.
9. The ld. authorized representative further submitted that as per the objects of the assessee society, which are for the purpose of development of marine engineering, examinations are being held for different levels of marine engineering and the assessee society used to prepare the students for the said examinations. In addition, the assessee society also conducts preparatory classes and holds examinations as per the approval and requirements of the Director General of Shipping, Ministry of Surface Transport, Government of India. In addition to the coaching classes, the assessee had held technical meetings, which are fund raising programmes, in addition to upgrading the technical information of the participants.
10. The ld. authorized representative further submitted that after the amendment in 1992, in order in achieve the objects of the institute, business can be carried on to achieve the said objects for which the specific requirement is to maintain separate books of account. He placed reliance on the Hon?ble Supreme Court decisions in the cases of Radhasoami Satsang v. CIT and Addl. CIT v. Surat Art Silk Cloth Mfrs. Association for the proposition that if a particular stand has been accepted from year to year by the assessing officer, he (assessing officer) should find something different in the conduct of the business in order to deviate from the said stand as held by several Courts.
11. The ld. departmental Representative placed strong reliance on the orders of the assessing officer and the Commissioner (Appeals) and supported the observations of the assessing officer and the Commissioner (Appeals) in not allowing the claim of expenditure as the assessee had failed to prove that the said expenditure had been incurred for the attainment of the objects of the society. He further stated that the expenditure incurred on dinner for the guests of the members is not incidental to the objects of the Trust and has been correctly disallowed by the authorities below. Regarding the deviation from the earlier years, he pointed out that though the assessment order had been completed under Section 143(3) of the Act, the nature and extent of the expenses were never examined by the assessing officer as it is apparent from the orders available on record for the different assessment years.
12. In his rejoinder, the ld. authorized representative drew our attention to the assessment order relating to the assessment year 1985-86 wherein during the course of the assessment proceedings, details of expenses were filed and the vouchers in respect of the said expenses were also produced before the assessing officer and narration to that fact is found in the said assessment order.
13. We have heard the rival submissions, perused the records. The assessee is registered under Sections 12A and 80G of the Income Tax Act. The assessee has claimed exemption under Section 11 of the Income Tax Act since its inception and the same has been allowed for the past 25 years and there is no change in its activity or its objects. During the year under consideration, the assessing officer has denied exemption under Section 11 of the Act to the assessee holding that the expenditure have been incurred on dinner for its members and guests. The assessing officer has also held that the activities of the assessee is profit making by way of holding conferences wherein money was collected both from members and guests in addition to advertisement revenue from business groups with the motive of making profits, In view of the said circumstances, the assessing officer has held that the assessee is carrying on business as defined under Section 2(13) of the Income Tax Act.
14. The moot question for our determination is whether the assessee is pursuing its objects as per the provisions of Section 2(15) of the Income Tax Act, i.e., relief for poor, education, medical relief and advancement of any other object of general public utility and is entitled to exemption under Section 11 of the Income Tax Act. We have already noted the primary and main objects of the assessee. It is clear from the objects that the promotion of scientific development of marine engineering is the main activity of the assessee. In order to enable the marine engineers, i.e., members of the assessee society, to meet and exchange ideas, annual meetings are held by the assessee in addition to international meet which is held once in four years. In the said meetings, the members interact 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 are presented, which are attended by members from all over the country, Government officers and representative from various companies interested in the shipping business. During the year under consideration two Meetings/Seminars were held, one at Mumbai and another international seminar in Chennai, which was attended by people from marine industries all over the world. Brochures were takes out for the said Meeting/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 have been shown as the income of the assessee for the year under consideration. The assessee is maintaining separate accounts for the said technical meetings which is incidental to the objects of the trust, which is in compliance of the provisions of Sub-section (4A) of Section 11 of the Income Tax Act.
15. In the present case, the assessing officer has denied the exemption to the assessee observing that the activity carried on by it is not for the members except for holding dinners at the end of the technical sessions. No material has been brought on record by the authorities below to establish that the said activity carried on by the assessee are 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 is crystal clear that the funds have been raised by holding annual technical meetings at Mumbai and the International Meet at Chennai. In case, the said meetings are not being held in all the other branches, the assessee had incurred losses, which clearly proves the case of the assessee that in order to meet its day-to-day expenses at different branches, in fulfilment of its object, it was necessary and prudent for the assessee to hold such meetings wherein funds are collected which will go a long way in attaining its objects. There is 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 is circulated amongst its members and also amongst persons connected with marine engineering, which is 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 does not mean that the assessee was carrying on business. The Apex Court, in the case of Surat Art Silk Cloth Mfrs. Association (supra), have held as under:
The test which has not to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit- making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But, where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. 'If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly than not in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity'. The restrictive condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit making is not the real object.
From the facts and circumstances of the case, it is clear that the assessee had not carried on 'business' as per the provisions of Section 2(13) of the Income Tax Act. 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 subsection (3A) shall apply. In the facts of the present case, the assessee has complied with all the conditions by maintaining separate books of account in respect of income from technical meetings and seminars and coaching fees, which are in furtherance to the objectives of the assessee trust and, hence, exempt from taxation.
16. In addition to the technical meetings, the assessee has also conducted coaching classes for its members which is 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 has charged entrance fees from members. In addition, the assessee has received voluntary donations from members and various industries. The assessee is also holding examination as approved by the Director General of Shipping. Some of the surplus funds received by the assessee are used for publishing its monthly journal MER(I) which is circulated to its members free of cost. The said journals are also circulated amongst various educational institutions and shipping companies. During the year under consideration, the cost of publishing and distribution of these journals was Rs. 6,24,600 against which the assessee had earned income on sale of journals of Rs. 94,150 only. The funds to meet the cost of publishing and distribution of these journals are utilized out of surplus funds available with the assessee. Thus, the cumulative activity carried on by the assessee trust are in furtherance of its objects and are entitled to exemption under Section 11 of the Income Tax Act.
17. We further find that the nature of business activities of the assessee are same as carried on from year to year and has been accepted by the income-tax department for the preceding years. We also agree with contentions of the authorized representative that if a particular stand has been accepted from year to year by the assessing officer, he (Assessing Officer) should find something different in the conduct of the business in order to deviate from the said stand as held by several Courts. 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. We have carefully gone through the judicial pronouncements relied upon by the ld. AR. We find that although the Supreme Court, in the case of Radhasoami Satsang (supra) had given a note that the decision is confined to the facts of the present case, but the law is settled on this point as held by the Delhi High Court in the case of CIT v. A.R.J. Security Printers .
18. Considering the facts of the case in totality, we are of the considered view that the activities carried on by the assessee society are 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 is exempt under Section 11 of the Income Tax Act.
19. The ld. authorized representative further brought to our notice that the Commissioner (Appeals) has erred in computing the total income of the assessee. The Commissioner (Appeals), in his order, had adopted gross receipts at Rs. 98,09,302, which included all the receipts. But, the Commissioner (Appeals) has, in addition, added the sum of Rs. 13,04,104 on account of entrance fees, life membership fees, transfer fees and donations which are already part and parcel in the figure of Rs. 98,09,302. Thus, it has resulted into double addition. With regard to this, we direct the assessing officer to verify the contention of the authorized representative for the assessee and if the contentions are found to be correct, necessary amendments/modification may be effected.
20. With regard to ground No. 8, we have heard both the parties. In view of our finding with regard to the earlier grounds that the income earned by the assessee trust through holding meetings/seminars, which are incidental to the attainment of the objectives of the assessee trust, are not to be considered as business income, we hold that the amount of Rs. 19,06,809 applied by the assessee trust towards capital expenditure are to be considered as amount applied towards attainment of its objectives.
21. With regard to ground No. 9, we find that interest income and dividend income were allowed to be exempted under Section 11 of the Income Tax Act for the preceding assessment years. The facts and circumstances in the present year being similar and considering the facts that the revenue authorities have not brought any material on record to show that these incomes are not eligible for exemption, we direct the assessing officer to allow exemption in respect of interest and dividend income.
22. In the result, the assessee appeal is partly allowed.