Director of Income Tax v. Maruti Centre for Excellence

la a. * IN THE HIGH COURT OF DELHI AT NEW DELHI trA No. 50/2011 % DIRECTOR OF INCOME TAX Reserved on:3'd May, 2OL2 Date of Decision: 21't May, 2OL2 ....Petitioner Through Mr. Abhishek Maratha, Sr. Standing Counsel Versus MARUTI CENTER FOR EXCELLENCE ..... Respondents Through Mr. S. Ganesh, Sr. Advocate with Ms. Kavita Jha and Mr. Somnath Shukla, Advs. CORAM: HON,BLEMR. JUSTICE SANJIV KHANNA HON'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,ZOLZ kkb Ir S IN THE HIGH COURT OF DEI.HI AT NEW DELFII fTA No. L335/2OLO Reserved on:3'd flv/ray, 2.OL2 Date of Decision:Jlsffi"y, 2oL2 LIIRECTOR OF INCOME TAX ....Petitioner Through Ms. Suruchi Aggarwal, Sr. Standing Counsel' Versus ivlARUTl CENTER FOR EXCELLENCE ...Respondents Through Mr. S. Ganesh, Sr. Advocate with Ms. Kavita Jha and Mr. Somnath Shul<la, Advs' ITA No. S,O/}OLL DIRECTOR OF INCOME TAX ....PCtitiONCT Through Mr. Abhishel< N4aratha, Sr. Standing Counsel Versus li4ARUTl CENTER FOR EXCELLENCE ...Respondents Through Mr. S. Ganesh, Sr. Advocate with .Ms. Kavita Jha and Mr. Somnath Shukla, Advs' CORAM: HON'BLEMR. JUSTICE SNTiIV KHANNA I."iON'BLE MR. JUSTICE R,V. EASWAR SANJtV KHANNA. J, Director of Incorne l'ax [lixemptionsJ has filed thcse two 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. In I rAs 1335/10 &. 50/2011 Pagc 1 of 25 /z_ 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 rppeals are identical and similar, they are being disposed of by this common order. We heard the learned counsel for the parties on the following substantial question of law framed on 3'd May, 2012:- "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:

¶4An 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 Pagc 2 of 25 l.z

¶5supplier or civil contractor or is sub-vender of big vendors of MUL, shall be entltled to apply to become a member of the society. An application for membershlp shall be mqde in 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

(b) Government Board from time to time. I;or the time being it shall be Rs.25,00,000/-. 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 of the society so long as they are not withdrawn by MUL, XXXXXX L0. A member shall cease to be member of the Society, if,

(i) By notice in writing addressed to the Society he resign from his/its membership

(ii) ln the case of an individual members upon the death of the said member. (ii] In the case of his/its disassociation with tvlUL as its vendor, dealer, transportation & Iogistic compqny, casual supplier or civil contractor or as sub-vendor of big vendors of MUL.

(iv) 0n his /its expuls[on of membershitrt under the Rules & regulation of the Society. XXXXXX l'fAs 1335/10 & 50/2011 r\ G)VERN I N G B )ARD / COit N CI L 'fhe property and affairs of the society shall he managed by the Governing Board/Council. 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 founding member and the balance shall be elected members. XXXXX MANAGING COMMITTEE 'the Governing Board shall have powers to 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:

1. CEO

¶2Four Governing Boqrd members two euclt 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:- To propagate amongst organizatiorts up' gradation in terms oJ' quality, cost and technology orientation through trainrng, consultancy and other supportive service's. 'fo help organizations to reqch world class Ievels of performQnce and to gain word vide respect for professional competency in the field of quality management. i fAs 1335/1o & so/20L1

¶13L4..

¶22a. b. If 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, ISO L4.0 0 0. d. To organize short term and cert[fication training courses in the fields "f quality management. e. €t. 'l'o provide consultoncy in the field of TQM Deming prize, 6Sigma, NPD, QFD, I|I[EA< TPM, Koizen, T'51,6949/Q59000 and ISO 9000 anri ISO 14000. To provide support servlces in the field of measurement of IQS/CST for )EMs, vendor auditing for 0EMs/big vertdors, To provide library, standards and research papers and internet centre relating to quality management and related fields. T'o provide support services as benchmarking clearing house and tired party cert[fication services for IS0 9000. To establish and/or acquire, maintain and/or support schools. College, Seminary, Study Centres, Universities and other Institutions for Imparting and tralning of students in the field of quality management. T'o establish and support Professorships, F-ellowships, Lectureships, Scholarships, and prizes at Schools, Colleges or otLter education Institutions. To establish, maintain and support I'lostels and /or Boarding houses and grant of free food and lodging to deserving students upon such terms and for such periods in each cqse as the Governlng tsoard ntay thinl< fit. g. h. l. il As 1335/10 & 50/2011 l(. /o 'lo grant endowment at Universities, Research Institutlons and other educational and scientific instttution .fo, spread oJ education and knowledge in all or any brq.nches of qualiqt management. To qvoid scholarship and fellowship on suc|r 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. o. To Carry out any other charitable activiLy as the Governing Board think proper." .+. Paragraph 4 of the said Memorandum and Articles ol r\ssociation is also relevant and reads as under:-

4.. AII the income earning (including amount received by way of sale of l<now how premium and royalty fee charged for a research project) moveable, immovable propertfes at the society shall be solely util[zed an applied towards promot[on of its aims and objectives only as set forth in the memorandum of associat[on and not profit and thereof shall be paid for transferred directty or indlrectly by way of dividends, bonus, profits or any manner whqtsoever to the present sr past members of the Society or to any person claiming through anyone or more of the present to past members. No member of the claiming through anyone or mare of the present to past members. No member of the socieQt shall have any personal claim on any moveable or [mmovable properties of the society or make any profitwhatsoever by virtue of its membership." iTAs 1335/10 & 5O/201,I Pagc 6 of 25 m. 4al+

¶5'the admitted position is that the respondcnt socicty was granted 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 glantcd lrnder Section 12AA of the Act has not becn revokcd.

¶6'l'he Assessing Officer in thc two a.ssessn-Icnt ycars has l-rcld that the asscssee was not performing charitable activitics as dcfincd under Section 2(15) of the Act and the purposc of the forntation of i.he society appeared lo be for mutual bencfit of Maruti Lldyog Limited and members of the reSpondent. It ha.s bcen lreld that thc sccicty 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 taxabre including corpus receipts of Rs.5.25 crores received in Lfrc asscssment year 2005-06. In the assessmcnt ycar 2006-07, alt cxcess of income over expenditure of Rs.69,16,879/- was hcld to bc Laxablc in addition to intcrest on lrixed Dcposits of I1s,43,84,75:l/-. lTAs 1"335/10 & 50/2011 PagcT ol 25 f9" -/ . 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. 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;

(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 for purposes or a charitable any income thereof-chqritable or religious or relig[ous institution,

(ii) I I As 1335/10 & s0/2011 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) : Pagc 8 of 25 SectionT3 fi /1 Section X.3(3)(3) T'he persons clause (c) of sub-section (1) and are the following, namely :-

(a) the author of the trust or the institution: lAs 1335/10 &sO/2O1.t I Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly 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 of compliance w[th a mandatory term of the trust or a mandatory rule governing the institutiott : Provided further that in the case of a trust for rel[gious purposes or a religious institution (whenever created or established) or q trust for charitable purposes or a charitable institution created or estqblished before the commencement of 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 part of 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 far as 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 | referred to in sub-section (2) founder of the Pagc 9 of 25

(b) any person who has made a substantial 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; [(cc)any trustee of the trust or mana[ler (hy whatever name called) of the institution;l

(d) any relative of any such author, founder, person, [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. " I Scction 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/20L1 Pagc 10 of 25 lo Ir examined at the time of registration and cannot bc re-cxetmincd overy time at the time of assessment. At the time of the registration, the authorify is to examine the objects for which the institution was crcatcd as well as conduct an empirical study of thc past activitics.

¶10To this extent, we find merit in the contention raised by thc assessee who has drawn our attention to the aims and obtcct.s for vvhich the respondent society was established. IIc has also drelwn our attention to the paragraph 4 of the Memorandum of Association ivhich has been also reproduced above. A reading of thc said objccts cx-facie shows that the respondent is established fbr advanccment .rf an object of general public utility. I-lowevcr, the aims and objects of association which are incorporated in thc Memorandum i.s one .rspect and the other aspect is the actual working and thc arctivities r.rndcrtakcn by the assessee with refercnce to thc asscssmcnt ycal irr question. Thcse are two separate aspects and have to be cxamined ,ndcpendcntly. We are concerned with the second aspcct i.e. the application of income and use of property of thc institt-ttion, during lhe assessment years in question. The activities undertal<cn and performed should be charitable and should not violate thc spccific stipulations mentioned in the Act. Incorporatcd in Scction.s L1,, L2 :rnd 13, are various provisions/stipulations regarding thc actual t,t As 1335/10 & 50/2011 12_ 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 Section 13[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 the intention 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 closely iclated/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). rTAs 1335/10 & 50/2011 Pagc 12 of 25 T4 ./-) 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 HUF 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 & 50i2011 J1 :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.'fhc r,,'ord "benefit" need not be restricted to direct material bcncfiL, but js of wide significance comprehending whatever would be bcneficial in 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 & 50/2011 Pagc L4 ol 25 2f attracted. 'fhus, the general purpose or object as stated in thc Ivlernorandum 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 end use. !+. 'fhis brings us to the factual position in the prcscnt casc and ihe findings recorded by the tribunal, keeping in mind tl'rc alorcsaid crposition with reference to Section 13[1][.][iiJ and Section 13[3J of the Act. In the order dated 2nd September, 2009 of thc tribunal ior 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. DR supporting the grounds of appeal raised, we do r-i As 1335/1,O & 50 /2011. Pagc 15 of 25 1e 'As 1335/10 &50/20LL not find ony mer[t therein. 'l'he Ir1. CIT'(A) found as 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 Act had qlso been granted to the assessee; that therefore, the assessee was entitled to exemption 11 of the Act; that as per the qssessee's bqlance sheet and lncome & Expenditure Account, rlo [ncome or asset or property o-f the Society had been 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 Society wqs mainly from interest on fixed deposits and bonds, 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 were fixed assets, investments [n RBI bonds, fixed deposits with banks, current assets and loans crnd advances; that none of them had been placed with 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 assessment order, nor in the remand report submitted befbre the CIT'9A), had the AO brought out any such user of the income or the assefs of the SocieLy for the benefit of the Settlor or the Maruti Udyog Limited.

¶4The above facts, as noted by the Id. CI'f U) while decidfng in favour of the essessee, remqin patent on record. No material to the contrary has come on the file. As such, the Id. CIT'(A) cannot be sa[d to have committee any error in passing the Impugned order. The findings of the ld. CI'|'(A) are therefore upheld snd the grounds raised by the Department are rejected."

¶15For 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 tr.ssessing Ofiicer had made a specific reference to clause 4 of thc i-r-As 1335/10 & sO /2011' Pagc 17 of 25 4^<Y 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 society registered 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 thc purpose for which donation have given are cts under mentioned: * Quality Up gradat[on * Pro ductiviQ lmprovement * Reduction in DelIverY F-ailures ; iAs 1335/10 & 50/2011 Page 18 ot 25 {r 'i9. x Training of Manpower * Improvement in Customer Satisfaction * Implementation of Maruti production System x Support to T[er-2 Suppliers to upgrade them." (emphasis supplied) The Assessing Officer thereafter has observed that : "From the above, above tralning goes production, not to it is clear that the benefit of the to the Maruti Ildyog Ltd' general public qt large." 2C. 'fhe assessee had stated and submitted to the Asse.ssing 0fficcr as under:- "suzuki Corporation, Japan has promised to the Govt. of India that Maruti Udyog Ltd. shall be made an export oriented unit for supplying cars in other parts of the world. Worl<ing in thst direction, it has been felt that suppliers of Maruti hqve to be upgraded to world class levels in terms of quality, cost and technology orientation through consultancy training and other supporL services. To achieve these obiectives the idea to launch "Mqruti Center for Excellence" was conceived. 'fhe vision of this center is to become an Indian Equivalent of JUSE, helping organizations reach world class levels of performance qnd gain worldwide respect for profess[onql competency in the field of Quality Managernent. Th[s 'CENTER" encourages vendors to attai like 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 Jo pr,ovides external support to implementation & teachtng of foreign consultants qt the operating Ievel." (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 somewhat ecnfusing 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.

¶23Clause 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 it exceeds Rs.50,000 /-, is covered and must not bc the bcncficiary of rny benefit, directly or indirectlv. 'l'his is the ,-estriction/requirement of Section 13[1][c)[ii]. 'l'hus all thc vcndors or suppliers of the Maruti Udyog Limited who had paid contribution irf more than 11s.50,000 /- have to meet and should not violate thc rrrandate of Section 13 [1) [cJ [iiJ. 2+. Lcarned counsel for the assesscc, during thc coursc of'hcaring had specifically rclied on and drawn our attention to thc ordcr of thc .issessment year 2006-07. The assessment order rcfers to thc lettcr i.ated 20th November, 2008, written by the as.sessec, in which it was stated that the assessee was engaged in the activities of imparting r:ducation and training in the field of quality, cost and technology li-icntation to public at large including its membcrs. 'l'l-rc ,,rogrammes undertaken were attendcd by employecs of'variours companies/firms which were engaged in the automotivc sector. I-lc i;ad submitted that the Assessing Officer had rccorded that 39 non-N'iaruti vcndors were given training in the period relevant to thc assc.ssmcnt year 2005-06. Our attention was drawn to Lhc narmcs of i2 unconnected concerns/companies, whose officcrs/cmployccs v\/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 clrargecl i iAs 1335/10 &50/2011 Palte 2L of 25 ] t-- 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 dccidc rr,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, 44)> 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.

¶26During the course of hearing, learned counsel for the assessee had drawn our attention to paragraph B of the order passed by thc fll'f [AppealsJ for the assessment year 2005-06, in which hc had rccorded as under:- "8. 0n exomination of the Balance Sheet and lncome & 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, training programme fee, and incentive received' None of these items could be said to be used for the 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 conditions necessary for the application of Section 1:l

(1)@(i0 are not fulfilled in this case. Even according to the iudgment of the LIon'ble Allahabad High Court (supra), the A0 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 4,J1 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 appellant Society 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 assessee. The said paragraph/reasons rgnorc and do not refer to aspects and issues which rcquirc elucidation and verification. In this connection, we may reproducc Lire findings recorded by the CIT [AppealJ in the same order, wlrich ;.rre to the following effect:-

¶10.,The beneficiaries of this education and training programme are the Auto ancillarie' manufactures'who may also be suppliers of MUI', apart from other outo companies. 'the direct benefit is to the people i.e. employees of these concerns who may also, incidentally, change their jobs. Therefore, education and training is to the public at large facilltated by auto ancillaries and imparted by the appellant Society it was claimed.

¶11I have considered appellant's submission. I find that this issue does not arlse from the order of the A0. Ilence, I dismiss ground No. 6 of the ap p ell ant a s infru ctt t o tt s. " 'l'hus, the findings/observations of the CI'f [AppcalJ are ttt,I conclusive and are ambiguous. '28. We note that CIT[Appeal), in the order for thc assessmcnt ycar 2QA6-07, has not recorded any independent findings but mcrcly l-As 1335/10 & s0/2011 Pagc 24 of 25 /) r'ccorded that the issue was decided by the tribunal in tl-rc earlier assessment year and he was bound by the said dccisiou. 'i9. In view of the aforesaid position, we answer the aloresaid question of law in negative with the order of remit. Question of law ,:; partly decided in favour of the appellant Revenuc. 'fhc tribur-ral ivill examine the factual matrix and position in the light of legal ncsition mentioned above. IJefore applying the ratio flaw, thcy slrall iri'st examine and record finding on facts relevant and which are to i:e examined. :j0. 'fhc appeals are accordingly disposed of. 'fhere will bc no crder as to costs. Xr) iviay [lt,'fon t<kb 7 llAs 1335/10 & 50/2011 -q-ltL-- (sANIrV KHANNA) IUDGE (R.V. EASWAR ) JUDGE