Director Of Income Tax v. Maruti Center For Excellence

a. * IN THE HIGH COURT OF DELHI AT NEW DELHI trA No. 50/2011 Reserved on:3'd May, 2OL2Date of Decision: 21't May, 2OL2 % ....Petitioner DIRECTOR OF INCOME TAX....PetitionerThrough Mr. Abhishek Maratha, Sr. Standing [Counsel] Versus ..... RespondentsRespondents MARUTI CENTER FOR EXCELLENCE..... RespondentsRespondentsThrough Mr. S. Ganesh, Sr. Advocate withMs. Kavita Jha and Mr. Somnath Shukla, [Advs.] CORAM:HON,BLEMR. JUSTICE SANJIV KHANNAHON'BLE MR. JUSTICE R.V. EASWAR SANJIV KHANNA. J. For detailed order see ITA 1335/20t0 titled [Director ][of]Income Tax Vs. trilaruti Center for Excellence [pronounced today.] (sANlrv KHANNA)JUDGE tril*^-t [,.] (R.V. EASWAR )JUDGE May ZL,ZOLZkkb S IN THE HIGH COURT OF DEI.HI fTA No. L335/2OLO Reserved on:3'd [flv/ray, ]2.OL2Date of Decision:Jlsffi"y, [2oL2] LIIRECTOR OF INCOME TAX ....PetitionerThrough Ms. Suruchi Aggarwal, [Sr. ][Standing ][Counsel'] Versus ivlARUTl CENTER FOR EXCELLENCE ...RespondentsThrough Mr. S. Ganesh, [Sr. ][Advocate ][with]Ms. Kavita Jha and Mr. Somnath [Shul<la, ][Advs'] ITA No. S,O/}OLL DIRECTOR OF INCOME TAX ....PCtitiONCTThrough Mr. Abhishel< N4aratha, Sr. Standing [Counsel] Versus li4ARUTl CENTER FOR EXCELLENCE ...RespondentsThrough Mr. S. Ganesh, Sr. Advocate with.Ms. [Kavita Jha ][and ][Mr. ][Somnath ][Shukla, Advs'] CORAM: HON'BLEMR. JUSTICE SNTiIV KHANNAI."iON'BLE MR. JUSTICE R,V. EASWAR SANJtV KHANNA. J, Director of Incorne l'ax has filed thcse two[lixemptionsJ appeal.s against Maruti Center for Hxcellencc [assesscc/respondcnt,i'or short). In ITA No. 1335/20L0, which relatcs [to ][assessmcnt ycal-]2005-06, ordcr dated 2nd Septentber, 2009, [pasr;ed ]by [tirc ][lnconic]'fax Appellate 'fribunal [tribunal, for shortJ has bcen challengcd. InI rAs 1335/10 &. 50/2011 Pagc 1 of 25 i'l'A No. 50/ZOII, order [ctated ][12th ][May,20L0 whiclr ][relates ][to ][llre]assessment year 2006-07, [passed ][by ][the ][tribunal has ][bcen]::lrallenged. As the issue [and question ][involved ][in ][the ][above ][two]identical [and ][similar, they ][are ][being ][disposed ][of by this]rppeals are common order. We heard [the learned ][counsel ][for ][the parties ][on ][the]substantial [question ][of ][law framed ][on ][3'd ][May, ][2012:-]following "Whether the Incomc Tax Appellate ['fribunal]was right in holding [that the ][assessee ][is ][a]charitable institution [and ][has ][not ][violated ][thc]Section 13i11(cltiil [read ][with ][13[3J ][of ][thc]lncome Tax Act, L961?" 't. 'fhe assessee is a society which was set up oll or about [24tr']June, [2002. Its ][office was ][initially ][located ][at ][c/o ][Maruti ][LJdyog]i,imited, 11th F'loor, |eevan [Prakash, ][25 Kasturba ][Gandhi Marg, ][New]Delhi 110 001. The [persons desirous ][of setting ][r-rp ][the ][socicty ][an''l]the initial members of the [governing body ][were ][Mr. ]Jagdish [l(hattar,]1nd six others. It is an [undisputed ][position that ]Jagdish [l(harttar was]the Managing Director of [Maruti ][Udyog ][Limited' ][Itulcs ][and]iegulations of the society [have been ][placed on ][record' ][Somc ][of thc]r-elevant rules read as under:- "MEMBERSHIF: 4. An individual, [partnership ]firm, [company ][or ][a]body corporate who [ts ][ossocf ][ated ][with ][Maruti](Jdog Limited (MUL) QS vendor, dealer,transportation, & [Iogistic ][company' ][casuql] I IAs I335l1O &50l7oII supplier or civil contractor or is sub-vender [of big]vendors of MUL, shall be entltled to apply [to]become a member of the society. 5.An application for membershlp shall [be ][mqde ]inwriting on the application form prescribed [by ][Lhe]Governing lSoard and shall be [qccompanied ][by]the prescribed admission fee for the membership.writing on the application form prescribed [by ][Lhe]Governing lSoard and shall be [qccompanied ][by]the prescribed admission fee for the membership. XXXXXX "MEMBERSHIF: 4. An individual, [partnership ]firm, [company ][or ][a]body corporate who [ts ][ossocf ][ated ][with ][Maruti](Jdog Limited (MUL) QS vendor, dealer,transportation, & [Iogistic ][company' ][casuql] I IAs I335l1O &50l7oII supplier or civil contractor or is sub-vender [of big]vendors of MUL, shall be entltled to apply [to]become a member of the society. 5.An application for membershlp shall [be ][mqde ]inwriting on the application form prescribed [by ][Lhe]Governing lSoard and shall be [qccompanied ][by]the prescribed admission fee for the membership.writing on the application form prescribed [by ][Lhe]Governing lSoard and shall be [qccompanied ][by]the prescribed admission fee for the membership. XXXXXX 7.(a) ['l'he ]membership fee shall be detennined by [the]Government Board from time to [time. ][I;or ][the]time being it shall be Rs.25,00,000/-.Government Board from time to [time. ][I;or ][the]time being it shall be Rs.25,00,000/-. (b)membership fee shall be determined hy [the]Associatlon shall be the founder members [of ][the]society and shall not be required [to ][pay ][any]admission fee. However, they have subscribed [as]nominees of MUL [qnd ]shall remain as members ofthe society so long as they are not withdrawn [by]MUL,Associatlon shall be the founder members [of ][the]society and shall not be required [to ][pay ][any]admission fee. However, they have subscribed [as]nominees of MUL [qnd ]shall remain as members ofthe society so long as they are not withdrawn [by]MUL, XXXXXX L0. A member shall cease to be [member ][of ][the]Society, if,Society, if, (i) By notice in writing addressed to theSociety he resign from his/its [membership]Society he resign from his/its [membership] (ii) ln the case of an individual members uponthe death of the said member.the death of the said member. In the case of his/its disassociation with tvlUL [as](ii] its vendor, dealer, transportation & Iogisticcompqny, casual supplier or civil contractor or assub-vendor of big vendors of MUL.its vendor, dealer, transportation & Iogisticcompqny, casual supplier or civil contractor or assub-vendor of big vendors of MUL. (iv) 0n his /its expuls[on of membershitrt underthe Rules & regulation of the Society.the Rules & regulation of the Society. XXXXXX G)VERN I N G )ARD / [COit ] [L] 13.'fhe property and affairs of the society shall hemanaged by the Governing [Board/Council.]managed by the Governing [Board/Council.] L4..The Governing board [shall ][consist of ][not ][less ][than]seven members and [not ][.more ][that ][twelve]members. MaiorlQ members, [not ][exceeding]severs shall be [nominated by ][MUL, ][the ]foundingmember and the balance [shall ][be ][elected]members.seven members and [not ][.more ][that ][twelve]members. MaiorlQ members, [not ][exceeding]severs shall be [nominated by ][MUL, ][the ]foundingmember and the balance [shall ][be ][elected]members. XXXXX MANAGING COMMITTEE 22.'the Governing Board shall have powers toconstitute a managing [committee ][to ][provide ][it]constitute a managing [committee ][to ][provide ][it]necessary guidance [and ][supervision ][in important]matters of the centre. [The ][Managlng ][Committee]shall comprise of the following five [members:]matters of the centre. [The ][Managlng ][Committee]shall comprise of the following five [members:] 1. CEO 2. Four Governing Boqrd [members ][two ][euclt]representing MUL and elected [memhers'"]representing MUL and elected [memhers'"] 3. 'fhe aims and objects for which the society was e.stablished [are] sratcd in the Memorandum [and ][Articles of ][Association and read ][as]uncier:- a.To propagate amongst [organizatiorts ][up']in terms oJ' [quality, cost ][and]in terms oJ' [quality, cost ][and]gradation technology orientation through [trainrng,]consultancy and other [supportive ][service's.]technology orientation through [trainrng,]consultancy and other [supportive ][service's.] 1. CEO 2. Four Governing Boqrd [members ][two ][euclt]representing MUL and elected [memhers'"]representing MUL and elected [memhers'"] 3. 'fhe aims and objects for which the society was e.stablished [are] sratcd in the Memorandum [and ][Articles of ][Association and read ][as]uncier:- a.To propagate amongst [organizatiorts ][up']in terms oJ' [quality, cost ][and]in terms oJ' [quality, cost ][and]gradation technology orientation through [trainrng,]consultancy and other [supportive ][service's.]technology orientation through [trainrng,]consultancy and other [supportive ][service's.] b.'fo help organizations to reqch world classIevels of performQnce and [to ][gain ][word ][vide]respect for professional [competency ][in ][the]Ievels of performQnce and [to ][gain ][word ][vide]respect for professional [competency ][in ][the]field [of ][quality ][management.] i fAs 1335/1o & so/20L1 C.7'o help organizations thorough training,consultancy and supportive services [to]achieve total Quality Management(TolW),TP M, rSO 9 0 00/QS9 000/T5L 6949, [L4.0 ][0 ][0.]consultancy and supportive services [to]achieve total Quality Management(TolW),TP M, rSO 9 0 00/QS9 000/T5L 6949, [L4.0 ][0 ][0.] d. To organize short term and [cert[fication]training courses in the fields "f [quality]training courses in the fields "f [quality]management. e.'l'o provide consultoncy in the field of TQMDeming prize, 6Sigma, NPD, QFD, [I|I[EA<]TPM, Koizen, T'51,6949/Q59000 [and ] [9000]anri ISO 14000.Deming prize, 6Sigma, NPD, QFD, [I|I[EA<]TPM, Koizen, T'51,6949/Q59000 [and ] [9000]anri ISO 14000. t.€To provide support servlces in [the ]field [of]measurement of IQS/CST for )EMs, [vendor]auditing for 0EMs/big vertdors,measurement of IQS/CST for )EMs, [vendor]auditing for 0EMs/big vertdors, g.To provide library, standards and researchpapers and internet centre relating to [quality]management and related fields.papers and internet centre relating to [quality]management and related fields. h.T'o provide support services as benchmarkingclearing house and tired party cert[ficationservices for IS0 9000.clearing house and tired party cert[ficationservices for IS0 9000. To establish and/or acquire, maintain and/orsupport schools. College, Seminary, StudyCentres, Universities and other Institutionssupport schools. College, Seminary, StudyCentres, Universities and other Institutionsfor [Imparting ][and ][tralning ][of students ][in ][the]field [of ][quality ][management.]field [of ][quality ][management.] l.T'o establish and support Professorships,F-ellowships, Lectureships, [Scholarships, and]prizes at Schools, Colleges or otLter educationInstitutions.F-ellowships, Lectureships, [Scholarships, and]prizes at Schools, Colleges or otLter educationInstitutions. l(.To establish, maintain and support [I'lostels]and /or Boarding houses and grant of freeand /or Boarding houses and grant of freefood [and lodging ][to ][deserving ][students ][upon]such terms and for such periods in each [cqse]as the Governlng tsoard ntay [thinl< ]fit.such terms and for such periods in each [cqse]as the Governlng tsoard ntay [thinl< ]fit. il As 1335/10 & 50/2011 'lo grant endowment at Universities,Research Institutlons and other educationaland scientific instttution .fo, spread [oJ]education and knowledge in all or [any]brq.nches of qualiqt management.Research Institutlons and other educationaland scientific instttution .fo, spread [oJ]education and knowledge in all or [any]brq.nches of qualiqt management. m.To [qvoid ]scholarship and fellowship on suc|rterms and conditions as the Governing [Boarcl]may thing proper.terms and conditions as the Governing [Boarcl]may thing proper. n. Establish, mqintaln and support Libraries,Museums and Reading Rooms -fo,advancement of Education and [l{nowledge ][in]all or any branches of quality management.Museums and Reading Rooms -fo,advancement of Education and [l{nowledge ][in]all or any branches of quality management. 'lo grant endowment at Universities,Research Institutlons and other educationaland scientific instttution .fo, spread [oJ]education and knowledge in all or [any]brq.nches of qualiqt management.Research Institutlons and other educationaland scientific instttution .fo, spread [oJ]education and knowledge in all or [any]brq.nches of qualiqt management. m.To [qvoid ]scholarship and fellowship on suc|rterms and conditions as the Governing [Boarcl]may thing proper.terms and conditions as the Governing [Boarcl]may thing proper. n. Establish, mqintaln and support Libraries,Museums and Reading Rooms -fo,advancement of Education and [l{nowledge ][in]all or any branches of quality management.Museums and Reading Rooms -fo,advancement of Education and [l{nowledge ][in]all or any branches of quality management. o. To Carry out any other charitable activiLy [as]the Governing Board think [proper."]the Governing Board think [proper."] .+.4 of the said Memorandum and [Articles ][ol]Paragraph Paragraph r\ssociation is also relevant and reads [as ]under:- 4.. AII the income earning (including amountreceived by way of sale of l<now how premiumand royalty fee charged for a research project)moveable, immovable propertfes at the [society]shall be solely util[zed an applied towardspromot[on of its aims and objectives only as setforth [in ][the memorandum ][of ][associat[on and ][not]profit and thereof shall be paid for transferreddirectty or indlrectly by way of dividends, [bonus,]profits or any manner whqtsoever to the presentsr past members of the Society or to any personclaiming through anyone or more of the [present]to past members. No member of the claimingthrough anyone or mare of the present to pastmembers. No member of the socieQt shall haveany personal claim on any moveable or[mmovable properties of the society or make anyprofitwhatsoever by virtue of its membership." 5. 'the admitted position is that the respondcnt socicty wasgranted registration under Section I2AA of thc Income ['fax ]Act [Act,for short], by the Director of Income Tax [Excmption.sJ. [We ][have]been informed at the Bar that this exemption was cancellcd by [an]order passed by the Director of Income l'ax [iixemptionJ [but ][the ][said]order has been set aside bv the tribunal with a direction of remit.'fhis decision proceeds on the position that thc rcgistration glantcdlrnder Section 12AA of the Act has not becn revokcd.6. 'l'he Assessing Officer in thc two a.ssessn-Icnt ycars has l-rcldthat the asscssee was not performing charitable activitics as dcfincdunder Section 2(15) of the Act and the purposc of the forntation [of]i.he society appeared lo be for mutual bencfit of Maruti LldyogLimited and members of the reSpondent. It ha.s bcen lreld that thcsccicty had violated Section l-3[1][.][iiJ read with Scction [13(3) of]rhe Act as the society was for the private bcnefit of the mcmbcrs.Accordingly, the entire income of the assessee was held to be taxabreof Rs.5.25 crores received in Lfrcincluding corpus receipts asscssment year 2005-06. In the assessmcnt ycar 2006-07, altcxcess of income over expenditure of Rs.69,16,879/- was hcld to bcLaxablc in addition to intcrest on lrixed Dcposits of I1s,43,84,75:l/-. lTAs 1"335/10 & 50/2011 -/ . The assessee succeeded in [the ][first ][appeal ][before ][the ][Cll'](,\ppeals), who referred to the [decision ][of the ][Supreme ][Court ][in]ACIT vs. Surat City [Gymkhana, ][2008) [300 ][I'fll ][21'4 ][(S.C'). By ][the]irnpugned. orders, the tribunal has [affirmed ][the ][decision of ][thc first]ap,pellate authority.(,\ppeals), who referred to the [decision ][of the ][Supreme ][Court ][in]ACIT vs. Surat City [Gymkhana, ][2008) [300 ][I'fll ][21'4 ][(S.C'). By ][the]irnpugned. orders, the tribunal has [affirmed ][the ][decision of ][thc first]ap,pellate authority. tJ. Sections 2(15) {as it existed [prior ][to ][amendment ][w.e.f'] i.+.2009j, 13(1J(c)[ii] and [13(3J ][of ][the ][Act ][read ][as ][undcr:-] Section 2 Definitions.- [In ][this ][Act, ][unless ][the]co ntext o therwis e r eq uir es,- XXX tJ. Sections 2(15) {as it existed [prior ][to ][amendment ][w.e.f'] i.+.2009j, 13(1J(c)[ii] and [13(3J ][of ][the ][Act ][read ][as ][undcr:-] Section 2 Definitions.- [In ][this ][Act, ][unless ][the]co ntext o therwis e r eq uir es,- XXX (15) ["charitable ]purpose" includes [relief ][of ][the]poor, education, medical relief, and [l-he]advancement of any other [obiect ][of ][general]public utility; SectionT3 fi (1) Nothing contained in section 11 [or section 12] shall [operate ][so as ][to]exclude from the total income [of ][the ][previous]year of the person in receipt thereof- (c) in the case of a trust forchqritable or religiouspurposes or a charitableor relig[ous institution,any income thereof-purposes or a charitableor relig[ous institution,any income thereof- 0 (ii)if any part of such income or [any ][property of ][the]trust or the institution [(whenever created or]established) is during the [previous ][year ][used ][or]applied, directly or indirectly for the [benefit ][of]any person rrtrred [to ][in sub-section ][(3) ][:]trust or the institution [(whenever created or]established) is during the [previous ][year ][used ][or]applied, directly or indirectly for the [benefit ][of]any person rrtrred [to ][in sub-section ][(3) ][:] I Provided that in the case of a trust or [institution]created or established before the commencementof this Act, the provisions of sub-clause [(ii) ][shall]not apply to any use or application, whetherdirectly or indirectly, of any part of such [income]or any property of the trust or inst[tution for [the]benefit of any person referred to in sub-sectiott(3), If such use or application r.s by way ofcompliance w[th a mandatory term of [the trust]or a mandatory rule governing [the ][institutiott ][:] Provided further that in the case of a trust forrel[gious purposes or a religious [institution](whenever created or established) or [q ]trust forcharitable purposes or a charitable [institution]created or estqblished before the commencementof this Act, the provisions of sub-clause [(ii) ][shall]not apply to any use or application, [whether]directly ar indfrectly, of any part of such [inconte]or any property of the trust or institution for [the]benefit of any person referred to in sub-section(3) in so far as such use or application relates [to]any period before the l.st day of June, [1,970;] fExplanation.-F'or [the ][purposes ][of ][sub-clause](ii) of clause (c), in determining whether any partof the income or any property of any [Lrust ][or]institution Is during the previous [year ][used ][or]applied, directly or indirectl;t, for the benefit [of]any person referred to in sub-section [(3), ]in so faras such use or application relates to any [period]before the lst day of July, 1972, [no ][regard shall]be hsd to the amendments made to this [section]by section 7 [other than sub-clause (ii) of clause(a) thereofl of the F-inance Act, 1-972 | Section X.3(3)(3) T'he personsreferred to inclause (c) of sub-section (1) andsub-section (2)are the following, namely :- (a) the author of the trust or thefounder [of ][the]institution:lAs 1335/10 &sO/2O1.tPagc 9 9 of 25 Pagc 9 9 of 25 who has [made ]a [substantial](b) any person contribution to the trust or [institution, ]lthaL [is ][Lo]soy, any person whose totsl contribution [up ][to]the end of the relevant [previous ][year ][exceeds]ffiftyl [thou ][s ][and ][rup ][ee ][sl ][;]contribution to the trust or [institution, ]lthaL [is ][Lo]soy, any person whose totsl contribution [up ][to]the end of the relevant [previous ][year ][exceeds]ffiftyl [thou ][s ][and ][rup ][ee ][sl ][;] (r) where such author, founder or [person ][is ][a ][l:lindu]undivided family, a member of [the ]family;undivided family, a member of [the ]family; [(cc)any [trustee ][of ][the ][trust ][or ][mana[ler ][(hy]whatever name called) [of ][the ][institution;l]whatever name called) [of ][the ][institution;l] (d) any relative of any such author, founder, [person,][member, [trustee or ][monagerl ][as ][aforesaid;][member, [trustee or ][monagerl ][as ][aforesaid;] (r) where such author, founder or [person ][is ][a ][l:lindu]undivided family, a member of [the ]family;undivided family, a member of [the ]family; [(cc)any [trustee ][of ][the ][trust ][or ][mana[ler ][(hy]whatever name called) [of ][the ][institution;l]whatever name called) [of ][the ][institution;l] (d) any relative of any such author, founder, [person,][member, [trustee or ][monagerl ][as ][aforesaid;][member, [trustee or ][monagerl ][as ][aforesaid;] (e) any concern in which any of [the persons ][ref'errecl]to [n clauses (a), (b), [(c) ][, [(cc)l ][and ][(d) ][hss ][cr]s ub stanti al inter e st. ["]to [n clauses (a), (b), [(c) ][, [(cc)l ][and ][(d) ][hss ][cr]s ub stanti al inter e st. ["] IScction 2(1,5) of the Act defines ["charitablc purposc". ]['l'he ][last]portion thereof includes ["advancemcnt ]of any othcr [object ][of]gencral public utility". It is accepted [position ][that ][the ][rcspondcrrI]claims that it was/is a charitable [institution ][because ][its activities ][fall]rn,the last portion or the residuary [part ][of ][the ][aforcsaid ][clar,rsc.'l'hc]Supreme Court rn Surat City Gymkhana [(supra), ][did ][not ][pcrmit ][and]allow the Revenue to challenge the ratio cxpoundcd [by ][tl-rc ][Gujarat]fligh Court in Hiralal Ehagwati vs. CIT, [(2000) 246 ][Il'R ][l8tl ][Guj.).It has been held in lliralal Bhagwati's [case ][supra) [that ][oncc ][arr]institution has been registered under Section I2A/12AA, [the]Assessing Officer cannot go into and [reexamine ][whcthcr ][or ][nol]objects for which the institution [was established is ][charitablc ][wrtl-rin]the mcaning of Section 2(15) of [the ][Act. ]['l'his ][aspcct ][has ][[o ][bc]lTAs 1335/10 & so/20L1Pagc 10 of 25portion thereof includes ["advancemcnt ]of any othcr [object ][of]gencral public utility". It is accepted [position ][that ][the ][rcspondcrrI]claims that it was/is a charitable [institution ][because ][its activities ][fall]rn,the last portion or the residuary [part ][of ][the ][aforcsaid ][clar,rsc.'l'hc]Supreme Court rn Surat City Gymkhana [(supra), ][did ][not ][pcrmit ][and]allow the Revenue to challenge the ratio cxpoundcd [by ][tl-rc ][Gujarat]fligh Court in Hiralal Ehagwati vs. CIT, [(2000) 246 ][Il'R ][l8tl ][Guj.).It has been held in lliralal Bhagwati's [case ][supra) [that ][oncc ][arr]institution has been registered under Section I2A/12AA, [the]Assessing Officer cannot go into and [reexamine ][whcthcr ][or ][nol]objects for which the institution [was established is ][charitablc ][wrtl-rin]the mcaning of Section 2(15) of [the ][Act. ]['l'his ][aspcct ][has ][[o ][bc]lTAs 1335/10 & so/20L1Pagc 10 of 25 I examined at the time of registration and cannot bc re-cxetmincdovery time at the time of assessment. At the time of the registration,the authorify is to examine the objects for which the institution wascrcatcd as well as conduct an empirical study of thc past activitics.10. To this extent, we find merit in the contention raised by thcassessee who has drawn our attention to the aims and obtcct.s forvvhich the respondent society was established. IIc has also drelwnour attention to the paragraph 4 of the Memorandum of Associationivhich has been also reproduced above. A reading of thc said objcctscx-facie shows that the respondent is established fbr advanccment.rf an object of general public utility. I-lowevcr, the aims and objectsof association which are incorporated in thc Memorandum i.s one.rspect and the other aspect is the actual working and thc arctivitiesr.rndcrtakcn by the assessee with refercnce to thc asscssmcnt ycal irrquestion. Thcse are two separate aspects and have to be cxamined,ndcpendcntly. We are concerned with the second aspcct i.e. theapplication of income and use of property of thc institt-ttion, duringlhe assessment years in question. The activities undertal<cn andperformed should be charitable and should not violate thc spccificstipulations mentioned in the Act. Incorporatcd in Scction.s L1,, L2:rnd 13, are various provisions/stipulations regarding thc actualt,t As 1335/10 & 50/2011Page 11 of 25 ii,orking and functioning of an insritution, [which ][clairns ][that ][its],-.]:ject and purpose is charitable. Violation of thcse provisions, have,.lreir own consequences and effect. l1-. Section 13[1][cJ[ii] is a provision in the [Act which ][deals ][with]:rctual functioning and activities undertaken [during ][the ][assessment],\,car in question. The said Section has to be read along with Section13[3J. Section 13[1][c][ii) states that no [part ][of the incomc ][or ][any]yir:opert] of the institution should be [used ][or ][applied ][directly ][or]indirectly for the benefit of any [person ]referred [to ][in ][sub-section ][3].'l'he words "directly or indirectly"are important and rcflect theintention of the Legislature that income or [property ][should ][not ][bc]{-,ven indirectly used for benefit of a member. ['l'he ]word ['indircctly']r-r.sed in Section 13[3J[c][ii] shows the expansive [and ][comprcl-rensive]scopc and intention behind incorporation of [thc ][said ][provision. ]['l'hc],rr-ovision postulates and states that charity for self or closelyiclated/associated persons as defined in Section 13[3) [is ][an];nathema and not acceptable. [Income ][and ][the ][property ][of ][thc]cl-raritable institution should bc used for charitable activities [which]:enefit third persons and should not [directly ][or ][indircctly ][bencfit]Lhe pcrsons covered under Section L3(3). 1,2. Section 13t31 of the A'cl, as noticed, consists of several sub-1)-1r3S. [These ][clauses ][refer ][to ][the ][author ][or ][foundcr ][of ][the]tr-ust/institution; in [case ][of ] [any member of ][the ][family; ][trutstee]c;r the manager, any [person ][who ][has made ][substantial contributio^t];rs stipulated; or [any ][relative ][of ][the ][said persons ][or ][any concern ][in]r,vhich any of the said [persons have ][substantial ][interests. ][l{cading ][of]siib-clauses again indicates [the broad ][and expansive covcrage ][which]'Lhe Legislature wanted to give to Section 13[3]. [Thc ][obvious]iltention is to [prevent ][abuse ][and misuse ][of ][theprovisions. ][Ilowevet',]care and caution must [be ][taken not ][to ][expand ][the ][scope ][bcyond ][the]legislative intent. We should [not ][be ][understood ][to ][mcan ][;rnd ][imply]rhat incomc or property [of ][the ][institution ][cannot bc paid ][or utilized]by any person covered [by ][Section ][13[3J ][of ][thc ][Act. ][what ][is]postulated by Section 13t1ltcl[ii) [is ][that thc ][incomc or ][thc property]should not be used directly [or ][indirectly ][for ][the ][benefit ][of ][tl-rc]1)€rsopS [mentioned ][in ][Section ][13[3). ]['fhe ][term'benefit'is ][important]and shows that reasonable [and ][fair ][payments made ][for thc ][actual]:;ervices rendered and [provided ][by persons ][under ][Section 13[3J ][will]bc and are allowed. Justified [and ][reasonable paymcnts ][and]adcquate Compensation [ior ][services ][rendered, ][good.s ][supplied ][etc']cannot be regarded aS [providing ][a"benefit" ][to ][a ][pcrson ][undcr]irAs 1335/1,0 & 50i2011Page 13 of [25] :jection 13[3J. What is prohibited and barred is applicatior-r [o1']income or use of the property of the institution [directly ][or ][indirectly]isr ["bencfit" ]oF a person nientioned in Section 13[3J i.e. [he ][is ][paid]beyond what is reasonable, adequate, commensurate [and justified]i'or the services rendered or goods supplied. The said [per.son ][should]riot profit at the expense of the trust/institution. [Charity should ][not]bccome the primary or important source [of ][business ][profits ][and ][a].laqade to [promote ][business ][ittterest ][or ][secure ][advantage, ][for]persons mentioned in Section L3[3J in the name of charity.'fhcr,,'ord ["benefit" ]need not be restricted to direct material [bcncfiL, ][but]js of wide significance comprehending whatever would be bcneficialin any respect, materially or otherwise. Benefit can be [pccuniary ][ot"]Iron pecuniary. This would be the correct legislative [intent.] i3. LJnder Section 13[1][c][ii] of the Act, the [purposc ]of [the]:;itciety must be to benefit the public or [sub-scrve ][the ][objcct ][of]llcneral [public. ]['fhus, ][vyhere ][the dominant motive ][of ][the ][applicatiort]of income or property is to help the members of [a ][socicty, ][ancl]rcmotely and indirectly to benefit the public, it cannot bc said [that]tirc institution meets the requirements of the said Section. Agair,wherc the primary purpose is to [benefit ][thc ][private ][itrtercsts of]tr,ersons [under ][Section ][13[3), provisions ][of ][Section ][13[1)[c][ii) ][arc]rlAs 1335/10 & 50/2011Pagc L4 ol 25 attracted. ['fhus, ]the general purpose or object as stated in thcIvlernorandum may be a beneficial one, but it would [violate ][Scction]l3[1)[cJ[ii] read with Section 13[3J, where the benefit is [primarily]confined to the members of the institution [itself ][or ][employees ][of ][a]lrarticular [firm ][or ][company covered ][under ][thc ][ambit ][of ][13[3),]however large the number of beneficiaries may be. Wherc [the]institution/charity operates and uses its income/ propcrty [for ][thc]benefit of its members, it violates Section 13[1)[c][ii) [and ][lras ][to ][bc:]Lienied the privilege bestowed. A word of caution, wc are [tlot]concerned, and are not examining the question ["business ]hcld under'u'ust", the income of which subserves charity. We arc answcring [and]cxamining the actual utilization and deployment of income/property, i.e., the end use and not generation of income for the enduse. !+. ['fhis ]brings us to the factual position in the prcscnt casc andihe findings recorded by the tribunal, keeping in mind tl'rc alorcsaidcrposition with reference to Section 13[1][.][iiJ and Section 13[3Jof the Act. In the order dated 2nd September, 2009 of thc tribunalior the assessment year 2005-06, the entire discussion is Iimited to.\,vo paragraphs and they read as under: "3. Having heqrd the arguments of the ld. DRsupporting the grounds of appeal raised, we [do]r-i As 1335/1,O & 50 /2011.Pagc 15 of 25 not find ony mer[t therein. ['l'he ]Ir1. CIT'(A) foundas undisputed facts that registration u/s 12A oJ'the l.T. Act, as granted to the [essessee, ][was]followed for [the ][period ][under ][consideration; ][that]during this period, a certificate u/s BOG of the Acthad [qlso ]been granted to the assessee; thattherefore, the assessee was entitled to [exemption]11 of the Act; that as per the [qssessee's ]bqlancesheet and lncome & Expenditure Account, [rlo][ncome or asset or property o-f the Society hadbeen used or applied during the [year ]for [the]benefit of either the Settlor or [the ]Maruti [Udltog]I.imited; that the income of the assessee Societywqs mainly from interest on fixed deposits andbonds, data processing charges, consultancy fee,trainlng progromme fee and incentive [received;]that none of these items could be said to [have]been used for the benefit of the Supplier; that [the]assefs in the balance sheet of the assessee werefixed [assets, ][investments ][[n ] [bonds, ][fixed]deposits with banks, current assets [and ][loans ][crnd]advances; that none of them had been placedwith the Settlor or the Maruti Udyog I'imiLed;that therefore, 13(1)(C) (ii) of the Act was [not]attracted: and that neither fn the assessmentorder, nor in the remand report submitted befbrethe CIT'9A), had the AO brought out any such userof the income or the assefs of the SocieLy for thebenefit of the Settlor or the Maruti [Udyog]Limited. 4. The above facts, as noted by the Id. CI'f U)while decidfng in favour of the essessee, remqinpatent on record. No material to the contrary hascome on the file. As such, the Id. CIT'(A) cannot besa[d to have committee any error in passing theImpugned order. The findings of the ld. CI'|'(A)are therefore upheld snd the grounds raised [by]the Department are rejected." 4. The above facts, as noted by the Id. CI'f U)while decidfng in favour of the essessee, remqinpatent on record. No material to the contrary hascome on the file. As such, the Id. CIT'(A) cannot besa[d to have committee any error in passing theImpugned order. The findings of the ld. CI'|'(A)are therefore upheld snd the grounds raised [by]the Department are rejected." 15. For the assessment [year ]2006-07 , [therc ][is no discussion about]rire factual matrix and the tribunal [has ][recorded ][that ][adhering ][to]principle of stare decisis, there was no [justification to ][interfcrc with]r-he well reasoned order [passed by ][the ][first ][appellate ][authority']'r6. ['fhc ]order of the tribunal in the assessn'lent year 2005-06 [is]clevoid of reasoning and does [not refer ][to ][factual ][matrix ][and ][details]i,'hich have to be examined and [considered ][while ][deciding ][tl"re]cluestion whether or [not ][Section ][13[1)[c][ii] ][read ][with ][Section 13(3)]i.s violated. The facts, figures [mentioned ][in ][the ][income expenditure]account and the activities [undertaken ][etc. ][have ][not ][been mcntionecl]:t' spccifically examined. [What ][was and ][whethcr ][any ][bcncfit ][or]:rCvantage was enjoyed by [the ][person mentioned ][in ][Scction ][13(3J]iias not been adverted to and [considered. ][Gencral ][observations ][have]lrecn made. The order of the tribunal [is ][cryptic ][and ][cannot ][be].:ategorized as a reasoned [and ][speaking ][order which ][is ][mandatcd].ind rcquired to be passed by [the final ][fact ][finding authority.] t7. We may, in this [regard ][refer ][to ][some ][observations ][and]i'indings rccorded by the Assessing Officer [in ][the ][two ][asscssment]ordcrs including the [reply ][given ][by ][the ][asscssce ][and ]["donor']tnembers" in the assessment [proceedings. ][In ][the two ][orders, ][thc]Ofiicer had [made ][a ][specific reference ][to ][clause ][4 ][of ][thc]tr.ssessing i-r-As 1335/10 & [sO ]/2011' Pagc 17 of 25 iir-rles which postulates and [prescribes ]conditions [for ][becoming ][a]inember of the society, which.has [been ][quoted above. ][It ][was ][noliced]lhat the assessee had received corpus donation [of ][Rs.5.25 crores]irom 30 parties in the assessment [year ][2005-06. They ][wcrc ][thc]vendors or the original equipment suppliers [of ][Maruti ][l.Jdyog]r,td.l'hough clauses ("J and [c) to [dJ [may ][not be ][attracted, ][but]ciausc tbl to Section 13[3) would be attracted [in ][casc ][thc]icntributions made upto the [end ][of ][the ][previous ][ycar ][excced]iis.S0,000 f -. Accordingly, clause [e] to Section [13[3] would ][apply.] iB. Notices were issued to the [said ][vendors/suppliers and ][in ][at-t] rdentical worded reply, they had stated [as ][under:-] "(1) "Maruti Centre for Excellence', a societyregistered under the Societies Registration [Act]XXI of 1860 accepted our donation [with ][a ][specific]dlrection that the said monev shall from [o ][part ][of]Corpus oi the lnstitution to [provide ][us ]Quali\t [Up]gradation. Productivi\t Improvement. [ReducLion]Implementation of Maruti production [S)tstern anQ]support to Tier-2 Suppliers to upgradation [to]achieve world class standards." (2) ["Your ]goodself has asl<ed to specify thcpurpose for which donation have given are [cts]under mentioned: * Up gradat[onQuality * Pro ductiviQ lmprovement * Reduction in DelIverY F-ailures ; iAs 1335/10 & 50/2011 x Training of Manpower Improvement in Customer SatisfactionImprovement in Customer Satisfaction Implementation of Maruti production SystemImplementation of Maruti production System x Support to T[er-2 Suppliers to upgrade them." (emphasis supplied) 'i9.The Assessing Officer thereafter has observed that [:]The Assessing Officer thereafter has observed that [:] "From the above,it is clear that the benefit of theabove tralning goesto the Maruti Ildyog Ltd'production, not togeneral public [qt ]large." 2C.'fhe assessee had stated and submitted to the Asse.ssing 0fficcr as under:- (2) ["Your ]goodself has asl<ed to specify thcpurpose for which donation have given are [cts]under mentioned: * Up gradat[onQuality * Pro ductiviQ lmprovement * Reduction in DelIverY F-ailures ; iAs 1335/10 & 50/2011 x Training of Manpower Improvement in Customer SatisfactionImprovement in Customer Satisfaction Implementation of Maruti production SystemImplementation of Maruti production System x Support to T[er-2 Suppliers to upgrade them." (emphasis supplied) 'i9.The Assessing Officer thereafter has observed that [:]The Assessing Officer thereafter has observed that [:] "From the above,it is clear that the benefit of theabove tralning goesto the Maruti Ildyog Ltd'production, not togeneral public [qt ]large." 2C.'fhe assessee had stated and submitted to the Asse.ssing 0fficcr as under:- "suzuki Corporation, Japan has promised to theGovt. of India that Maruti Udyog Ltd. shall bemade an export oriented unit for supplying carsin other parts of the world. Worl<ing in thstdirection, it has been felt that suppliers of Marutihqve to be upgraded to world class levels interms of quality, cost and technology orientationthrough consultancy training and other supporLservices. To achieve these obiectives the idea [to]launch ["Mqruti ]Center for Excellence" wasconceived. 'fhe vision of this center is to become an IndianEquivalent of JUSE, helping organizations reachworld class levels of performance [qnd ]gainworldwide respect for profess[onql competency inthe field of Quality Managernent. Th[s ['CENTER" ]encourages vendors [to]attailike TOM, T'PM, Lean manufacturing. Six [Sigma]Business Excellence programmers [etc. ][under ][the]guidance of foreign consultants' ['l'he ]["Center"]i i-As 1335/10 & 50/2011 Page 19 of 25 Page 19 of 25 pr,ovides external support to implementation [&]teachtng of foreign consultants [qt ]the operatingIevel." (emphasis supplied) .,') L. In the reply given by the vendors/suppliers [they ][have stated]riiat money was paid to provide them with [quality ][upgradation,]productivity improvement etc. They have stated [this ][was ][the]purpose for which the donation was given. ['fhe ]assessee, in [its reply]in the form of notes on activities, [has ][avcrrcd ][that ][thc ][Ccntcr']cncourages the vendors to attain and implement [world ][class ][best]i:tracticcs. '-/.2^ The orders of the Assessing Officer, though somewhatecnfusing and unclear, with reference [to ][the ][aforesaid ][assertions]states that the training given by the respondcnt institution [wats fot']r:he bcncfit of the Maruti Udyog Limited or the vendors or sr-tpplicr:;connected with the Maruti Udyog Limited. Training facilities [were]trot available to general public at large and [was ][not for thc ][bcttefit ][ol]cire public at large. He observed that the membership [was ][only ][operr], o the parties associated to the Maruti Udyog Limited [and ][not ][to]others and the activities undertaken by the [assessee ][werc for ][thc]be nefit of the members. 23. Clause 13[3J of the Act quoted above, [statcs ][tl-rat ][a ][pcrsorr]rvhose total contribution upto the end of the relevant [previous ][year], I As 1335/L0 & 50/2011 Pagc 20 of 25 Jo exceeds Rs.50,000 /-, is covered and must not bc the bcncficiary ofrny benefit,directlyor indirectlv. ['l'his ]is the,-estriction/requirement of Section 13[1][c)[ii]. ['l'hus ]all thc vcndorsor suppliers of the Maruti Udyog Limited who had paid contributionrny benefit,directlyor indirectlv. ['l'his ]is the,-estriction/requirement of Section 13[1][c)[ii]. ['l'hus ]all thc vcndorsor suppliers of the Maruti Udyog Limited who had paid contributionirf more than 11s.50,000 /- have to meet and should not violate thcrrrandate of Section 13 [1) [cJ [iiJ.rrrandate of Section 13 [1) [cJ [iiJ. 23. Clause 13[3J of the Act quoted above, [statcs ][tl-rat ][a ][pcrsorr]rvhose total contribution upto the end of the relevant [previous ][year], I As 1335/L0 & 50/2011 Pagc 20 of 25 Jo exceeds Rs.50,000 /-, is covered and must not bc the bcncficiary ofrny benefit,directlyor indirectlv. ['l'his ]is the,-estriction/requirement of Section 13[1][c)[ii]. ['l'hus ]all thc vcndorsor suppliers of the Maruti Udyog Limited who had paid contributionrny benefit,directlyor indirectlv. ['l'his ]is the,-estriction/requirement of Section 13[1][c)[ii]. ['l'hus ]all thc vcndorsor suppliers of the Maruti Udyog Limited who had paid contributionirf more than 11s.50,000 /- have to meet and should not violate thcrrrandate of Section 13 [1) [cJ [iiJ.rrrandate of Section 13 [1) [cJ [iiJ. 2+. Lcarned counsel for the assesscc, during thc coursc of'hcaringhad specifically rclied on and drawn our attention to thc ordcr of thc.issessment year 2006-07. The assessment order rcfers to thc lettcri.ated 20th November, 2008, written by the as.sessec, in which it wasstated that the assessee was engaged in the activities of impartingr:ducation and training in the field of quality, cost and technologyli-icntation to public at large including its membcrs. ['l'l-rc],,rogrammes undertaken were attendcd by employecs of'variourscompanies/firms which were engaged in the automotivc sector. I-lci;ad submitted that the Assessing Officer had rccorded that 39 non-N'iaruti vcndors were given training in the period relevant to thcassc.ssmcnt year 2005-06. Our attention was drawn to Lhc narmcs ofi2 unconnected concerns/companies, whose officcrs/cmployccsv\/ere given two days training in the period rclcvant to thc.-is.sessmcnt year 20A6-07. It wa.s stated that samc I'ec was clrargecli iAs 1335/10 &50/2011Palte 2L of 25 i'rom thc participants, whether or [not thcy ][wcrc ][mcmbcrs ][ol'thc]respondent society. [Thus, ]it [was ][submitted ][that ][clraritable]purpose/activities is proved and [there was no ][violation of ][Section]r3 [1J [c] (iiJ.'25. 'fhis to our mind may be relevant to detcrminc and dccidcrr,rhether an institution was carrying [on ][charitable ][activitics ][and]wherher or not it is vioiating [Section ][13[r][.][iiJ ][of ][thc ][Act ][br-rt ][this]alone is not thc only or sole [requirement ][to ][dctcrminc ][and ][dcciclc]r-he question/aspect of benefit. [What the ][said Section ][postulatcs ][and]requires is no benefit dircctly [or ][indirectly ][must accruc ][to ][a ][pcrson]nientioncd in Section 13(3] [of the Act ][by ][application ][of ][iucorne or]use of property of the charitablc [institution. ]['l'hus, ][char'ging thc]samc fce may be [relevant ][but ][may ][not ][determinativc ][for ][dccidirlg]whcther or not direct or indirect benefit [in ][thc ][fortlr ][of ][use of]property or income of thc institution, [by ][a ][membcr ][has tal<cn placc]during the relevant previous [year. ]['fhe ][issuc/qucstiorl ][is ][much]broacier and requires [deeper ][scrutiny ][and ][verification. ][ln ][thc]prescnt case, it will require examination [of ][the ][expcnditurc ][incurred]on the training and whether [this ][was ][a ]["bcnefit" ][to ][thc ][persons]rnentioncd in section 13[3). [For ][example, ][in ][case ][traiuing ][wels]subsidized, then it can be said [and argued ][that ][bcnefit ][was ][givcn ][to] i fAs 1335/10 & 50/201.1, Page 22 of 25 lire member, even if same fee was charged from non-member.s.rir-rrther and importantly, Section 13[1J[c] [ii] [will ][get ][attractcd ][if ][the]l;cnefit was confined primarily and predominantly to [thc ][pcrsolls]r,rentioned in Section 13t3] ib) and [(eJ ]and [incidentally ][some ][benefit]i,ad percolated and flowed to the public/third [persons.] 26. During the course of hearing, [learned ][counsel ][for ][the ][assessee]had drawn our attention to paragraph B of the order [passed ][by ][thc]fll'f for the assessment [year ][2005-06, ][in ][which ][hc ][had][AppealsJ rccorded as under:- i fAs 1335/10 & 50/201.1, Page 22 of 25 lire member, even if same fee was charged from non-member.s.rir-rrther and importantly, Section 13[1J[c] [ii] [will ][get ][attractcd ][if ][the]l;cnefit was confined primarily and predominantly to [thc ][pcrsolls]r,rentioned in Section 13t3] ib) and [(eJ ]and [incidentally ][some ][benefit]i,ad percolated and flowed to the public/third [persons.] 26. During the course of hearing, [learned ][counsel ][for ][the ][assessee]had drawn our attention to paragraph B of the order [passed ][by ][thc]fll'f for the assessment [year ][2005-06, ][in ][which ][hc ][had][AppealsJ rccorded as under:- "8. 0n exomination of the Balance Sheet andlncome & Expenditure Account [at ][pages ][6 ][and ][7]of the paper Book , I do not fi.ni [that ][any ][income]or [qsset ]or property of the Society has been [used]or applied during the year for the benefit [of ][the]Settlor or for that matter the Maruti [Udyog ][I'td.](MUL) The income of the Soc[ety is [mainly ]from[nterest on Fixed Depos[ts and [Bonds, ][data]processing charges received, consultqncy fee,and incentive [received']training programme fee, None of these items could [be ][said ][to ][be ][used ]forthe benefit of the Settlor. ['fhe ][assets ][in ][the]Balance Sheet of the assessee are fixed [assets,][nvestments in RBI bonds, fixed [deposits with]I3ank, current assets,loans and [advances. ][None ][of]these have been placed with the settler [or ][the]Marutl l.Jdyog Ltd. ['l'herefore, ]the conditionsnecessary for the application of Section [1:l](1)@(i0 are not fulfilled in this [case. ][Even]to the of [the ][LIon'ble]according iudgment Allahabad High Court [(supra), ][the ] [hcrs,]neither in his assessment order [nor in ][the ][remcrnd]report, pointed out any income or [usset ][of ][the]Society or any part thereof, [having ][been ][used ]for 'rAs 1335/10 &50/20II the benefit of the Settlor or the Maruti Udyog I'td.T'herefore, on a pla[n reading of the Act and [the]Balance Sheet and Income & [Expenditure]Account, it has to be held that the appellantSociety is not In violation of Section 13(1)(c)(ii)of the Income Tax Act." '27. 'fhe aforesaid paragraph does not help us to dccidc the question in favour of the a