TMI Blog2014 (12) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... aining same and also legal position being the same, in the face of the history, dominant object for which assessee association was constituted, being a charitable one i.e. promotion and protection of trade, commerce and industries and particularly trade, commerce and industries in or with which Indian are engaged or concerned, any income arising from activity is exempt u/s 11 of the Act. In assessee’s own case as decided in Commissioner of Income-Tax, West Bengal II Versus Indian Chamber Of Commerce [1970 (9) TMI 13 - CALCUTTA High Court] - the expression “any other object of general public utility” u/s 2(15) does not expressly refer to trade or business, for a normal connotation of “general public utility” would not directly include trade or business - the word used in this new law is “activity” and not trade or business - Normally, a trade or business is always with profit or with profit motive, though no doubt, under some recent statutes as in the Sales Tax Act, the new concept of business without profit is being introduced - as defined in section 2(15) post amendment in 1961 Act post amendment is that “activity not involving profits” hits the case of assesse. The purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant since the AY 1984-85. 2. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant s activities of conducting the Environment Management Centers, meetings, conferences seminars and the Issuance of Certificate of Origin were all in the nature of business carried on systematically and continuously with a motive to earn profit from the same. 3. That on the acts and the circumstances of the case of the appellant and in law, the Ld. CIT(A) erred in holding that decision of the Hon ble Delhi HC dated 19th September, 2011, in the case of DIT (Exemptions) Vs Institute of Chartered Accountants of India and that the case of The Institute of Chartered Accountants of India in Write Petition 1927 of 2010 are not applicable to the case of the appellant in as much the facts of the said case are different from the case of the appellant. 4. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in holding that the appellant s activities of conducting the Environment Management Centers, meetings, conferences seminars and the Issuance of Certificate of Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or concerned. It was further claimed that the objects of advancement of trade and commerce, being objects for advancement of any other general public utility , the assessee falling within the ambit of definition charitable purpose as laid out u/s.2(15) of the Act. Accordingly, it claimed exemption from income arising out of its activities under the provisions of section 11 of the Act. 4. The assessee filed its return of income for the year under consideration i.e. A.Y. 2008-09 being a charitable institution eligible for exemption u/s. 11 of the Act on 13.10.2008 declaring NIL total income. During assessment proceedings AO noted that certain activities of the assessee were clearly in the nature of business activities and thus issued a show-cause notice, as to why the following receipts credited in the income and expenditure account were not to be treated as in the nature of business receipts? Environment Management Centre (including sponsorship of ₹ 33,37,328/-) ₹ 44,63,456/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 (SC). He stated that the said decision of the Divisional Bench of the Supreme Court in the case of assessee was reversed by Constitutional Bench of the Supreme Court by majority decision in the case of Addl.CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC). He further stated that law laid down by Apex Court in the case of Surat Art Silk Cloth Manufacturers Association (supra), the Larger Bench of the Supreme Court in the case of Commissioner of Income-tax v. Federation of Indian Chambers of Commerce Industry (1981)130 ITR 186 took the view that the activities of Chamber of Commerce, the assessee, was charitable in nature falling u/s 2(15) of the Act. He narrated facts that the aforesaid judgment of Hon ble Supreme Court in the case of assessee pertained to A.Y 1964-65, wherein the definition of charitable purpose was different from the one applicable for AY 2008-09, Vide Finance Act, 1983 w.e.f. 1.4.1984 the words not involving the carrying on of any activity for profit were omitted. He argued that the decision in the case of assessee by Hon ble Calcutta High Court and Hon ble Supreme Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requires that activities must be carried out in such a manner that it does not result in any profit. The object of the assessee is therefore covered under the definition of charitable purpose both under the old and new section 2(15) as amended by Finance Act, 1983 and applicable for A.Y. 2008-089. Thus, other conditions u/s. 11 being satisfied, the income of the assessee for A.Y. 2008-09 is exempt from tax under sec. 11 of the Act. 6. But CIT(A) held that AO was right in invoking provisions of section 11(4A) and in denying exemptions u/s 11 of the Act. CIT(A) held that since assessee is engaged in the systematic and continuous activities with a motive to earn profit and the activities involved were on commercial lines, thus the A.O was right in holding that assessee was engaged in carrying out activities, which were in the nature of business. CIT(A) dismissed the appeal of the assessee, even though reliance placed on the decisions of the Hon ble Delhi High Court in the case of Institute of Chartered Accountants of India (supra) and in the case of The Institute of Chartered Accountants of India Anr. (supra) on the ground that the facts of these cases were different from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of assessee and Ld. SR DR Sh Snehotpal Dutta on behalf of revenue argued. Ld. Counsel for the assessee first of all started his arguments from inception of this association that assessee association since 1925 till A.Y. 1963-64 was incurring losses and loss returns were filed. In the year 1963 relating to the A.Y. 1964-65, assessee return surplus of ₹ 1,58,690/-. And gross receipts comprised of arbitration fees of ₹ 4,792/, fees from certificate of origin ₹ 4,552/, miscellaneous receipts ₹ 208 and share of income from M/s Calcutta Licensed Measures. Assessee after deducting expenses of ₹ 47,641/- net surplus of ₹ 1,58,690 was arrived at. The assessee claimed that it was entitled to exemption u/s 11 of the Act. It was claimed that assessee was a company for a Charitable purpose within the meaning of section 2(15) of the Act and thus it was entitled to the exemption u/s. 11 of the Act. It was contended that the AO taking into consideration the definition of Charitable Purpose as provided in Sec. 2(15) of the Act, the words not involving the carrying on of any activity of profit held that the activities of the assessee constitutes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Ld. counsel, Hon ble Delhi High Court after taking into consideration large number of cases dealing with the questions as to what constitutes business , held that the DIT(Exemption) was not justifying in holding that ICAI was carrying on business by holding coaching classes and programmes for which fees were charges. It was held that the same was not like doing business and therefore, the appeal of Revenue was dismissed. In view of the above, Ld. counsel for the assessee stated that the issue now stands covered in favour of assessee by the decision of Hon ble Supreme Court in the case of Surat Art Silk Cloth Manufacturer Association (supra) and also by the decision of Hon ble Delhi High Court in the case of Institute of Chartered Accountants of India (supra). He also argued on other aspects also, which we will deal with. 8. On the other hand, Ld. SR-DR heavily relied on the orders of the lower authorities and also relied on the decision of Hon ble Supreme Court in assessee s own case, i.e. Indian Chambers of Commerce (supra). 9. We have heard rival submissions and gone through facts and circumstances of the case. Facts narrated in para 2 3 are undisputed. Hence, we need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r concerned and (e) to do all other things as may be conducive to the development of trade, commerce and industries or incidental to the attainment of the above objects or any of them. Thus, it being the case, it was an institution with charitable purpose , it was eligible for exemption of its income under the provisions of section 11 of the Act but AO held that in the definition of charitable purpose in section 2(15) of the Act, the words not involving the carrying on of any activity for profit had been introduced and as, the aforesaid activities of the assessee was for profit, the surplus received from these sources were taxable. On appeal before AAC, the order of the AO was confirmed. On second appeal, Tribunal allowed relief by relying on the decision of Hon ble Supreme Court in the case of Andhra Chamber of Commerce (supra), wherein it was held that advancement or promotion of trade, commerce and industry was an object of general public utility and also it was held that if the primary purpose of any association/body was the advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity giving rise to income wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t directly include trade or business. But, after the decision of the Supreme Court in the Andhra Chamber of Commerce case (1), it was quite clear that the wide expression any other object of general public utility under section 2(15) would include objects for promotion of trade or commerce without any profit motive as coming well within charitable purpose. The present amendment introduced by the Income-tax Act, 1961, by adding the words not involving the carrying on of any activity for profit was to put this wholesome limitation upon any and every object of general public utility of various description becoming a charitable purpose and thereby qualifying for exemption. It is to be noticed that the word used in this new laws is activity and not trade or business. Normally, a trader or business is always with profit or with profit motive, though, no doubt, under some recent statutes as in the Sales Tax Act, the new concept of business without profit is being introduced. 11. Hon ble Supreme Court affirming the decision of the Calcutta High Court held in its decision Indian Chamber of Commerce (supra) that: (from head note) that the activities of the chamber being acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e carrying on of an activity for profit as private profit : the words general public utility themselves exclude objects of private gain. Per Khanna and Gupta JJ.-(i) The word education in section 2(15) of the Income-tax Act, 1961, connotes the process of training and developing the knowledge, skill, mind and character of students by normal schooling, and has not been used in the wide and extensive sense according to which every acquisition of further knowledge constitutes education. (ii) Ordinarily, profit motive is a normal incident of business activity and if the activity of a trust consists of the carrying on of a business and there are no restrictions on its making profit, the court would be well justified in assuming, in the absence of some indicating to the contrary, that the object of the trust involves the carrying on of an activity for profit. (iii) It would be contrary to all rules of construction to ignore the import of the newly added words not involving the carrying on of an activity for profit and construe the definition in section 2(15) of the Act of 1961, as if the newly added words merely qualify and affirm the position as it obtained under the defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the cases of Loka Shikshana Trust(supra) and the Indian Chamber of Commerce(supra). The majority view in the case of Surat Art Silk was that the condition that the purpose should not involve the carrying on of any activity for profit would be satisfied in profit-making was not the real object. The theory of dominant or primary object of the trust had, therefore, been treated to be the determining factor, even in regard to fourth head of charity i.e. advancement of any other object of general public utility, so as to make the carrying on of the business activity merely ancillary or incidental to the main object. Facts in the case before Supreme Court were that assessee, a company incorporated under the Companies Act, 1913, after certain vital amendments in its memorandum of association, was registered under s. 25 of the Companies Act, 1956. Its objects as amended were: (a) to promote commerce and trade in art silks yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth; (b) to carry on all and any of the business of art silks yarn, raw silk, cotton yarn, as well as art silk cloth, silk cloth and cotton cloth, belonging to and on behalf of its members; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 directly to Hon'ble Supreme Court. 15. Hon ble Supreme Court by a majority view of 4 is to 1,; by Bhagwati, Untwalia, Tulzapukar and Pathak JJ. (Sen J. dissenting)) was as follows: ( from head note) (i) that the dominant or primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth as set out in clause (a) and the objects specified in clauses (b) to (e) were merely powers incidental to the carrying out of that dominant and primary purpose; (ii) that the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., was an object of public utility not involving the carrying on of any activity for profit within the meaning of s. 2(15); and that the assessee was entitled to exemption under s. 11(1)(a): Per Bhagwati, Untwalia and Tulzapurkar JJ: . (ii) Where the main or primary objects are distributive, each and every one of the objects must be charitable in order that the trust or institution may be upheld as a valid charity. But if the primary or dominant purpose of a trust or institution is charitable, another object which by itself may not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character of the trust. The test now is, more clearly than 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. (viii) It is not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on no-profit no-loss basis or that profit shall be prescribed. Even if there is no such express provision, the nature of the charitable purpose, the manner in which the activity for advancing the charitable purpose is being arrived on and the surrounding circumstances may clearly indicate that the activity is not propelled by a dominant profit motive. (i) The restrictive clause in s. 2(15) must be read with the advancement of any other object of general public utility and not object of general public utility . (ii) The requirement of s. 2(15) is satisfied where there is either a total absence of the purpose of profit-making or it is so insignificant compared to the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 83 (Ker) and Andhra Pradesh State Road Transport Corporation v. CIT [1975] 100 ITR 392 (AAP) approved. Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 (SC) overruled. Observations of Khanna and Gupta JJ. In Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) disapproved. Observations of Beg J. in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 IT 234 (SC) approved. Per Bhagwati, Untwalia and Tulzapuarkar JJ: (i) It is only the particular question of law on which there is a conflict of decisions in the High Courts that can referred by the Tribunal directly to the Supreme Court under s. 257 and the Supreme Court cannot travel beyond the particular question of law which has been referred to it on account of the conflict. The true meaning of the last ten words in s 2(₹ 15), viz., not involving the carrying on of any activity for profit , is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit. So long as the purpose does not involve the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned judge proceeded to explain what according to him was the true interpretation of the last concluding words in s. 2, cl. (1 5). The learned judge said : (pp. 803, 804) : So viewed, an institution which carries out charitable purposes out of income derived from property held under trust wholly for charitable purpose may still forfeit the claim to exemption in respect of such takings or incomes as may come to it from pursuing any activity for profit. Notwithstanding the possibility of obscurity and of dual meanings when the emphasis is shifted from advancement to object used in section 2(15), we are clear in our minds that by the new definition the benefit of exclusion from total in is taken away where in accomplishing a charitable purpose the institution engages itself in activities for profit. The Calcutta decisions are right in linking activities for profit with advancement of the object. If you want immunity from taxation, your means of fulfilling charitable purposes must be unsullied by profitmaking ventures. The advancement of the object of general public utility must not involve the carrying on of any activity for profit. If it does, you forfeit. The Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of general public utility, the trust or institution engages itself in activity for profit or in other words, the trust or institution should not resort to carrying on of an activity for profit for the purpose of accomplishment or attainment of the object of general public utility This view clearly supports the construction canvassed on behalf of the revenue for our acceptance, but, with the greatest respect to the learned judges who decided the Indian Chamber of Commerce case [1975] 101 ITR 796 (SC), we think, for reasons already discussed, that this view is incorrect and we cannot accept the same. There is, however, one comment which is necessary to be made whilst we are on this point and that arises out of certain observations made by this court in Sole Trustee, Loka Shikshana Trust s case [₹ 975] 101 ITR 234 as well as Indian Chamber of Commerce s case [1975] 101 ITR 796. It was said by Khanna J. in Sole Trustee, Loka Shikshana Trust s case : if the activity of a trust consists of carrying on a business and there are no restrictions on its making profit, the court would be well justified in assuming in the absence of some indication to the contrary that the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an institution is established or a charitable purpose falls to be determined by reference to the real purpose of the trust or the institution and not by the circumstance that the in derived can be measured by standards usually applicable to a commercial activity. The quantum of income is not test in itself. It may be the result of an activity permissible under a truly charitable purpose for, as has been observed, a profitable activity in working out the charitable purpose is not excluded. I am unable to agree, with respect, with all that has fallen from H.R. Khanna and A.C. Gupta JJ. in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC) that the terms of the trust must impose restrictions on masking profits, otherwise the purpose of the trust must be regarded as involving the carrying on of a profit-making activity. On the contrary, I find myself in agreement with Beg J. to the extent that he says, in the same case, that it is the genuineness of the purpose, that it is truly charitable, which determines the issue. It seems necessary to me that a distinction must constantly be maintain between what is merely a definition of charitable purpose and the powers conferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in s. 2(15) of the Act, governed the word advancement and not the words object of general public utility . On direct reference to Hon'ble Supreme Court it was held, by relying on the decision of Surat Art Silk Cloth Manufacturers Association (supra) that: (head note) that the income derived by the respondent from the activities, such as holding the Indian Trade Fair and sponsoring the Conference of the Afro-Asian Organisation, were for the advancement of the dominant object and purpose of the Federation, viz., promotion, protection and development of trade, commerce and industry in India, and were exempt from tax under s. 11(1)(a) read with s. 2(15). Surat Art Silk Cloth Manufactures Association (supra) applied. Held also, that the clauses in the respondents memorandum enabling it (i) to establish and support or aid the establishment of associations, institutions, funds or trusts for the convenience of its employees, (ii) to establish trusts of its surplus income or property, and (iii) to undertake and execute trusts or undertakings which may seem to the Federation desirable, were merely powers incidental or ancillary to the main purpose of the Federa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s.11 of the Act claimed and was granted. We have to refer the amended provision vide Finance Act 1984 the said section 2(15) of the Act, whereby the phrase not involving the carrying on of any activity for profit; was omitted and amended section 2(15) of the Act read as follows: (15) charitable purpose includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility ; The above situation, wherein exemption u/s 11 of the Act was granted and continued till AY 2007-08 but in the present AY 2008-09, AO denied exemption u/s 11 of the Act and CIT(A) upheld the action of the AO. In AY 2008-09, AO alleged that the income of the assessee from the said activities were business income and thus it was not entitled to exemption u/s 11 of the Act in view of the provisions of section 11(4A) not being fulfilled. Assessee before us filed copies of assessment orders from AY 1985-86 till AY 2007-08, which are as under: - Assessment Order u/s. 143(3)/11/263/143(3)/13(1)(d) dated 30/03/1992 passed for the AY 1985-86 (copy enclosed at pages 47-55 of assessee s paper book) - Assessment Order u/s 143(3)/11/13(1)(d)/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief of the poor, education, medical relief, and the advancement of any other object of general public utility. Further section 11 of the Act, exempting income from property held for charitable or religious purposes from tax subject to fulfillment of conditions prescribed therein remained unchanged. We find that in such a situation, it would be relevant to quote the decision of Hon ble Apex Court in the case of Radhasoami Satsang v. Commissioner of Income-tax 193 ITR 321 (SC) wherein it was held that: (ii) That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened. Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phrase not involving the carrying on of any activity for profit; was omitted and section 11 of the Act exempted income from property held for charitable or religious purposes from tax subject to the fulfillment of the conditions prescribed therein. Hence, it is the clear that it stood covered by fourth limb of definition of charitable purpose u/s 2(15) of the Act advancement of any the object of general public utility as its objects, as laid down in the Memorandum and Articles of Association, were to promote and protect the trade, commerce, and industries of India, and, in particular, the trade, commerce and industries in or with which Indians are engaged or concerned and (e) to do all other things as may be conducive to the development of trade, commerce and industries or incidental to the attainment of the above objects or any of them. The objects of assessee, for which the association came into existence, are clearly set out in clause 3 of the Memorandum of Association which reads as under: 3(a) To promote and protect the trade, commerce and industries and in particular the trade, commerce and indust5ries in or with which Indians are engaged or concerned. The act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit. To regard an activity as business, there must be a course of dealings continued, or contemplated to be continued, normally with an object of making profit and not for support or pleasure [Bharat Development (P) Ltd. v. CIT (1982) 133 ITR 470 (Del)] The third essential characteristic is that a business transaction must be between two persons. Business is not as unilateral act. It is brought about by a transaction between two or more persons. And lastly, the business activity usually involves a twin activity. There is usually an element of reciprocity involved in a business transaction. Thus a continuous activity with profit motive or capable of producing profits, gains, benefits, advantages or livelihood was held to be one of the main criterions of business . Further the concept of profit motive was examined by Hon ble Supreme Court, in the State of Gujarat versus Raipur Manufacturing Company (1967) 19 STC 1 (SC), wherein it was stated that business is normally with the object of making profit. An activity as business, there must be a course of dealings either actually continued or contemplated to be continued with profit motive and not for sport or pleasure. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Accountants of India (supra) and of The Institute of Chartered Accountants of India Anr. (supra) wherein it was clearly held that in the cases of many professional institutions whose main activity is not business , the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the revenue. In view of the above, we are of the view what clearly transpires in the case of the assessee is that the main object being a charitable activity and not an activity carried out for the purposes of profit, the incidental activities being the activities which were carried out solely for furtherance of and to accomplish the main objects of development of trade and commerce, which would not in any case amount to business . 23. The assessee before us explained individual nature and purpose of the specific activities, it is stated that the activities held by AO and CIT(A) to be business in nature, were as follows: (a) Meetings, Conferences Seminars (b) Environ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry of Alternative and Renewable Energy, State Pollution Control Board for carrying on its activities, they being the associate partners in the conducting of the said seminars, workshops and interactive sessions. As per the object of the association, conducting said seminars, conventions etc. for general public, no entry fees is collected. The sponsorships provided are utilized towards meeting the costs of the seminars and the surplus generated out of such activities is retained by the Association for purposes of meeting its charitable objects. 24. Now coming to the Environment Management Centre , it was stated by assessee that the same is a chapter to look after all the areas related to industrial safety, environment friendliness and hazard management. The Indian Chamber of Commerce Environment Management Centre (ICC-EMC), set up with the prime objective of facilitating business and industry to meet their environmental responsibilities has one major goal: to promote environment management for enhancing competitiveness and efficiency in business and industry in order to ensure a cleaner, safer and healthier environment for the society at large. While facilitating the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained that the same is a document used in international trade. It is a printed form, completed by the exporter or its agent and certified by an issuing body, attesting that the goods in a particular export shipment have been wholly produced, manufactured or processed in a particular country. As per international norms and equipments the said Certificate or Origin is required to accompany each export of physical goods. Due to the widespread network of the Chamber of Commerce community, in most countries, Chambers of Commerce were seen as the organizations which could be allowed to issue certificates of origin. As such, seen as competent authorities , Chambers began to more wide spread issue non-preferential certificates of origin. Thus in India the assessee association, the Indian Chamber of Commerce was duly authorized by the Directorate General of Foreign Trade and Ministry of Commerce, Govt. of India to issue Non-preferential Certificate of Origin to the exporters. Exporters are required to submit formal application attaching with the same, copies of the relevant Bills, Challan and LCs. The assessee has been efficiently providing this service at a nominal charge and with utm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the members and to provide education and training to students/article clerks, (ii) The fees charged from students/articles clerks were not excessive. Expenditure was incurred for preparation of the study package, CD, etc., salary of the faculty and other professionals, printing and stationery, research and development. Study package included large question bank for which no separate cost was charged. The students registered for chartered accountancy are also provided on-line guidance through institute s own Website. At a very nominal cost, these services are provided to the students. The institute also provides computer training to the students registered with it, at a very low fee ITAT, therefore, held that the ICAI was not doing any business: by running coaching classes. Accordingly, the order passed by the DI under section 263 of the Act was cancelled. The DI filed an appeal before the Hon ble Delhi High Court where one of the questions of law arose for consideration before the Delhi High Court was:- Whether the ITAT was justified in the eyes of law in the facts and circumstances of the present case in passing the impugned order that running of the coaching classe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be no doubt that the activities of the nature described above, in the case of an assessee such as the present one, which is as trade associationITA Chamber of Commerce and Industry, established to protect the interests of trade and industry in Punjab, Haryana and Delhi were activities which are incidental to the attainment of the objects of the chamber. We do not think that the Tribunal is justified in taking the view that the assessee, which is a chamber of commerce and industry, is carrying on business activities which require compliance with the conditions of Section 114A). In CIT, Madras v. Andhra Chamber of Commerce (1965) 55 ITR 722, it was held by the Supreme Court that advancement or promotion of trade, commerce and industry leading to economic prosperity enured for the benefit of the entire community; that prosperity would be shared also by those who engaged in trade commerce and industry, but on that account the purpose was not rendered any the less an object of general public utility. Echoing these sentiments another Bench of equal strength of the Supreme Court in Commissioner of Income Tax, New Delhi v. Federation of Indian Chambers of Commerce and Industries, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not enjoy any exemption. Since the surplus had to be brought to tax under a particular head, it was thought by the legislature that the head profit and gains of business would be the most appropriate head under which the surplus can be brought to tax. This does not, however, mean that a business is carried on by the association in the sense that there is a profit motive which drives the carrying on of the activity. 12. In most of the cases, the services are performed in the true spirit of service to the members of the association (such as a chamber of commerce) and the fees charged are so calculated or fixed that it merely covers the costs incurred by the association in rendering the service. Since accuracy in matching the costs and the fees charged cannot be maintained consistently, there can arise a surplus. The mere arising of a surplus does not clothe the activity of performing the services for the members with a profit motive, which is essential in business. It has been observed by the Supreme Court in Surat Art Silk (supra) that where profit making is the predominant object of the activity, the purpose, though an object of general public utility would ceas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressly refer to trade or business, for a normal connotation of general public utility would not directly include trade or business. But, after the decision of the Supreme Court in the Andhra Chamber of Commerce case (1), it was quite clear that the wide expression any other object of general public utility under section 2(15) would include objects for promotion of trade or commerce without any profit motive as coming well within charitable purpose. The present amendment introduced by the Income-tax Act, 1961, by adding the words not involving the carrying on of any activity for profit was to put this wholesome limitation upon any and every object of general public utility of various description becoming a charitable purpose and thereby qualifying for exemption. It is to be noticed that the word used in this new law is activity and not trade or business. Normally, a trade or business is always with profit or with profit motive, though no doubt, under some recent statutes as in the Sales Tax Act, the new concept o business without profit is being introduced. Further, Hon ble Supreme Court while echoing Calcutta High Court, referred to these activities generating surplus in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or institution maintains separate books of accounts in respect of such business. The pre-assumption in section 11(4) is that the activities which may be incidental to the main objects are however business in nature. Applying the above to the case of the assessee, it is very much clear that as explained in full details above, none of the activities undertaken by assessee were business activity carried on with a profit motive and therefore, there was no need to maintain separate books of account for such activities. The generation of income is not conclusive test for determining the charitable nature of the activities. Further, in connection to the reference made by the A.O in his Remand Report to the decision of the Supreme Court in the case of FICCI, it is stated here that here that in FICCI, the Supreme Court had clearly laid out that the income derived by the respondent from the activities, such as holding the Indian Trade Fair and sponsoring the Conference of the Afro-Asian Organization, were for the advancement of the dominant objet and purpose of the Federation, viz., promotion, protection and development of trade, commerce and industry in India, and were exempt from tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in confirming the allegation of the Ld. AO that the appellant s case was covered within clause (iii) of section 28 of the I.T Act, 1961 whereby income derived by a trade, professional or similar association from its specific performance for its members was held to be taxable under the head profits and gains of business or profession. 3. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant was hit by the first proviso to section 2(15) of the Income Tax Act inserted w.e.f. 01/04/2009, inasmuch as the appellant was allegedly involved in the rendering of service in relation to any trade, commerce or business, for cess or fee or any other consideration. 4. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant s activities of conducting the Environment Management Centres, meetings, conferences seminars and the Issuance of Certificate of Origin were all in the nature of business carried on systematically and continuously with a motive to earn profit from the same. 5. That on the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity; The rationale for bringing this proviso can be understood by referring to the relevant portion of the Memorandum explaining the provisions in the Finance Bill, 2008 reported in 298 ITR (St) 2000-01 which reads as under: (Clause 3) It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(23C) or section 11 of the Act on the ground that they ware charitable institutions. This is based on the argument that they are engaged in the advancement of an object of general public util ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income from such activity. 2. The following implications arise from this amendment 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute charitable purpose even if it incidentally involves the carrying on of commercial activities. 2.2 Relief of the poor encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that i) the business should be incidental to the attainment of the objectives of the entity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessee, who claim that their object is charitable purpose within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 33. From the Memo Explaining the provisions of Finance Bill 2008 CBDT Circular dated 19-12-2008, what will be position of an entity engaged in the advancement of any other object of general public utility , whether the same will be hit by commercial activities in view of the newly inserted proviso to section 2(15) of the Act or not? The proviso was introduced with the sole aim of bringing into ambit of taxation such entities which were engaged in commercial activities. Here, we need ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce . The activities which are undertaken by the institute should be in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. We will analyse the term business from the definition of the term business as defined in section 2(13) of the act and whether assessee s activities falls within the terminology of business . The term Business read as under:- 2. Definitions: (13) business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture The word Business is of large and infinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the legislature is to make the definition extensive as the term includes has been used. The legislature has deliberately departed from giving a definite import to the term business but has made reference to several other general terms like trade , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture . The term bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive (Board of Revenue v. A. M. Ansari (1976) 38 STC 577 (Supreme Court); (1976) 3 scc 512). Such profit motive may, however, be statutorily excluded from the definition of business but still the person may be carrying on business. Further in para 30 of the same judgment, it is stated thus: 30. In our view, if the main activity was not business , then the connected, incidental or ancillary activities of sales would not normally amount to business unless an independent intention to conduct business in these connected, incidental or ancillary activities is established by the Revenue. It will then be necessary to find out whether the transactions which are connected, incidental or ancillary are only an infinitesimal or small part of the main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are not business and the onus of proof of an independent intention to do business in these connecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whether the same were carried out predominantly with a profit motive. The AO and CIT(A) in their orders relied upon the following judicial decisions: * Barendra Prasad Ray v. Income-tax Officer (129 ITR 295) SC * Commissioner of Income-tax v. Dharma Reddy (A) (73 ITR 751) SC * Sole Trustee, Loka Shikshana Trust v. Commissioner of Income-tax (101 ITR 234 SC) We have already discussed the case law of Hon'ble Delhi High Court in the case of PHD Chamber of Commerce Industry(Supra), wherein very categorically held that activities and services performed for a fee or against a payment, by a trade, professional or similar association, such as a chamber of commerce and industry could not be held to be business in nature carried out with a profit motive. From all the above what thus transpires is that it is the primary or dominant purpose of the institution, which must be charitable. Where the main activity is charitable then the activities which are incidental or ancillary to the main activity, even if carried out for profit, would not mitigate or change the charitable character of the institution. Thus in the cases of many professional institution whose main act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit motive in any of the said activities. The surplus arising out of the same was merely incidental to the main object to charity. The majority of the receipts in the said activities were out of the sponsorships and donations. The expenses incurred on the said activities as and when incurred were all separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of general public utility, it can never be the case that it is engaged in business, trade or commerce or in any service in relation to business, trade or commerce. The individual nature and purpose of the specific activities, it is stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olitical domain for achieving that purpose, e.g. promotion of or opposition to legislation concerning that purpose, was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object. In connection to the above case it is laid out the said case dealt with the assessment of the assessee in the A.Ys 1948-49 to wherein relevant to the said AYs 948-49 to 1952-53, by the last paragraph of sub-section (3) of the IT Act, 1922 , charitable purposes was defined as .. In this sub-section Charitable purpose includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancillary activity may not come within the meaning of business . In the recent decision which deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR 0099 Del HC, laying down the very same principle it was again laid: that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business. Again, Hon'ble Bombay Higi Court in the WP of Baun Foundation Trust (Writ Petition No. 1206 of 2010 in the High Court of judicature At Bombay 27 March 2012) it was held that 4 It is a well settled position in law that the dominant nature of the purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital. Thus from all the above it is seen that though the definition of charitable purpose under section 2(15) has undergone cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the scope of the exemption under Section 11. Section 2(15) which incorporates the definition of charitable purposes simply shows that several mutual associations may also fall within the definition. The receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii) would still be entitled to the exemption under Section 11 r.w.s. 2(15) of the Act, provided there is no profit motive. Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and which is not involved in the carrying on of any activity in the nature of business , the said section 28(iii) of the Act does not apply. 38. In view of the above discussion, we are of the considered view that in the given facts and detailed reading of the various judicial decisions through the years, interpreting the definition of charitable purpose as laid out in section 2(15) of the Act and also the definition of business in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
