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2015 (6) TMI 4 - ITAT DELHI

2015 (6) TMI 4 - ITAT DELHI - [2015] 44 ITR (Trib) 219 (ITAT [Del]) - Eligibility of exemption u/s 11 - whether the activities of the assessee are charitable in nature? - Held that:- CIT(A) has categorically held that the provisions of sec. 2(15) of the Act will be seen that the proviso to section 2(15) of the Act will be applicable only if the entities carrying out any activity or rendering any services in the nature of trading, commerce or business and the most important feature of the busines .....

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to give up the strict and literal interpretation sought to be given to the expression “charitable purpose” by the Revenue and if an Institution established for charitable purpose did not receive an income at all then what would be need for taking any benefit u/s 10(23C)(iv) of the Act.

Therefore, if the expression “charitable purpose” is given meaning that in case an Institution, with an object of advancement of general public utility, derives an income then it would be falling withi .....

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t to mention that the AO has not brought out any fact to support this allegation that the activities carried out by the assessee society were conducted or derived in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business and the dominant and prime objective of the assessee society was to earn profit i.e. activities of the assessee society was derived for profit motive. - Decided against revenue.

Entitlement of .....

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approved the conclusion of the CIT(A) that the assessee society is eligible for exemption u/s 11 of the Act then we are of the considered view that the CIT(A) directed the AO to allow depreciation for the assessee society in both the assessment years. Therefore, this ground and objection of the ld. DR being devoid of merits is dismissed. - Decided against revenue - ITA Nos. 248 & 1572/Del/2013 - Dated:- 11-5-2015 - Shri B. C. Meena And Shri C. M. Garg,JJ. For the Appellant : Sh. Vikram Sahay, Sr .....

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ng that the activities of the assessee are Charitable in nature. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding that the activities of the assessee is eligible for exemption u/s 11 of the Income Tax Act, 1961. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in direction to allow depreciation on ₹ 73,68,590/-. 4. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has e .....

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re charitable in nature; 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding that the assessee is eligible for exemption u/s 11 of the Income Tax Act, 1961; 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in upholding that the assessee is eligible for exemption on earned surplus of ₹ 2,41,40,492/- on the basis of principle of mutuality; 4. On the facts and in the circumstances of the case and in la .....

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s incorporated as a company on 26.04.1951 as Punjab Chamber of Commerce and thereafter on 13.08.1981 afresh certificate of incorporation was issued in the name of PHD Chamber of Commerce and Industry under Companies Act, 1956. The assessee is also registered u/s 12A of the Income Tax Act, 1961 vide certificate dated 23/05/1994 from the A.Y. 1996-97 upto A.Y. 2005-06 and it was granted exemption u/s 11 of the Act. For the year assessment year under consideration, the AO noted that the assessee ha .....

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Act. 5. Being aggrieved by the above assessment order, the assessee preferred an appeal before the CIT(A) which was allowed by passing the impugned order granting part relief for the assessee. Now the aggrieved revenue before this Tribunal with the grounds as reproduced hereinabove. 6. The ld. Departmental Representative (DR) contended that while the assessee is not working according to the aims and objectives of the memorandum of the Association and is providing services to the non members per .....

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correct in denying exemption u/s 11 of the Act and rightly taxed all the receipts collected from the members and non members. 7. The ld. DR supporting the order of the AO for A.Y. 2009-10 submitted that after the amendment to section 2(15) of the Act w.e.f. A.Y. 2009-10 the assessee s claim of exemption the sixth limb of the charitable activity mentioned in section 2(15) of the Act is not tenable. The ld. DR also drawn our attention towards paragraph no. 14 of the assessment order for A.Y. 2009 .....

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ity of rendering any service in relation to any trade, 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 ld. DR lastly submitted that the AO rightly denied exemption u/s 11 & 12 of the Act to the assessee society and rightly taxed the same. 8. Replying to the above, the ld. Sr. Counsel of the respondent assessee at the very outset, submitted that while framing the assessment for A.Y. .....

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s incidental to the carrying out of the purchase of the trusts and separate books of accounts were maintained for the business. The ld. Sr. Counsel further pointed out that the AO finally held that as the assessee was also providing services to the non members and had not maintained separate books of accounts therefore, the exemption u/s 11 of the Act could not be granted to the assessee because the activities of the assessee society were not charitable in nature as by providing services to non .....

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ted in 357 ITR 296 (Del.). The ld. Sr. Counsel further drawn our attention towards placitum 20 of the judgment of High Court (supra) and submitted that the Hon ble High Court held that the aforesaid findings of the Tribunal that the assessee s activities could not be termed as charitable cannot be sustained as the activities performed by the assessee were similar with the activities provided to the non members and the same were not with the profit motive and, therefore, cannot be characterized a .....

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the paper book of the assessee. The ld. Sr. Counsel also drawn our attentions towards this fact that the factual situation remains the same in the two subsequent assessment years under consideration before us as there is no change of facts that the assesee carried on the same activities as were carried by it in the earlier assessment years and such activities are in accordance with its memorandum and article of association right from its incorporation till date. 10. The ld. Sr. Counsel reiterate .....

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1,75,01,190/- for A.Y. 2008-09 and aggregates to ₹ 12,36,91,232/- for A.Y. 2009-10 and the surplus before depreciation was 3,06,27,500/- for A.Y. 2008-09 and ₹ 3,22,63,291/- for A.Y. 2009-10 respectively and for A.Y. 2008-09 the claim of depreciation was wrongly denied which was a statutory deduction in view of decision of Hon ble Jurisdictional High Court of Delhi in the case of DIT(E) vs. Indraprastha Cancer Society (2015) 53 taxmann.com 463 (Del.). 12. Supporting the impugned orde .....

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proviso to sec. 2(15) of the Act was came into existence w.e.f. A.Y. 2009-10. Therefore, the AO was quite justified in denying exemption u/s 11 of the Act to the assessee in view of newly inserted provision to section 2(15) of the Act. 14. On careful consideration of above submissions, we note that the Hon ble Jurisdictional High Court of Delhi in assessee s own case for A.Y. 2006-07 and A.Y. 2007-08 (supra) in para 20 at page 310 has observed as under: 20. Turning specifically to the facts of .....

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set forth in this memorandum of association, and no portion by way of dividend or bonus or otherwise, shall be paid to the persons who at any time, are, or have been, members of the company, or to any of them or to any person claiming through any of them; provide that nothing herein contained shall prevent the payment in good faith of remuneration to any officer or servants of the company, to any member thereof, or to any other person in return for any services actively rendered to, for or on b .....

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r of Commerce & Industry. Respectfully following the judgment of the Hon ble High Court of Delhi in assessee s own case (supra), we are inclined to hold that the assessee s activities are being driven by a charitable motive according to its objects as per Memorandum of Association. 16. Turning to the issue of newly inserted proviso to section 2(15) of the Act firstly we respectfully take cognizance of decision of the Hon ble Jurisdictional High Court of Delhi in the case of India Trade Promo .....

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r consideration. Speaking for Hon ble High Court of Delhi their lordships further elaborated that in both the activities, in the nature of trade, commerce or business, the dominant and the prime objective has to be seen and if the dominant and prime objective of the Institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any services in relation .....

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the Act by virtue of Finance Act, 2008 was directed to prevent the unholy practise of pure trade, commerce and business entities from marking their activities and portraying them in the garb of an activity with the object of a general public utility and the proviso has not been designed and inserted to hit those Institutions, which had the advancement of the objects of general public utility at their hards and were charity institutions. Emphasizing on the intention of the legislation the Hon bl .....

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he Act the same would have to be read down and interpreted in the context of sec. 10(23C)(iv) of the Act because context requires such interpretation. It was also held that when the expression charitable purpose as defined in sec. 2(15) of the Act is read in the context of sec. 10(23C)(iv) of the Act, we would have to give up the strict and literal interpretation sought to be given to the expression charitable purpose by the legislature. 18. We respectfully reproduced relevant operative paragrap .....

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he facts of the case that the income received by the petitioner is from the letting out of space, sale of publications, sale of tickets and leasing out food and beverages outlets in Pragati Maidan. The dominant and main object of the petitioner is to organise trade fairs / exhibitions in order to promote trade, commerce and business not only within India, but internationally. This is done through the organisation of trade fairs, including the annual International Trade Fair and other exhibitions .....

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f any, or other income in promoting their objects and prohibits, the payment of any dividend to its members. This makes it clear that any income generated by the petitioner does not find its way into the pockets of any individuals or entities. It is to be utilized fully for the purposes of the objects of the petitioner. 46. At this juncture, we may point out that we are in agreement with the argument advanced by Mr Syali that the proviso to Section 2(15) does not make any distinction between ent .....

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the income received by any person on behalf of, inter alia, an institution established for charitable purposes. We have to, therefore, examine the meaning of the expression "charitable purposes" in the context of Section 10(23C)(iv). Looking at the said expression from this stand point, it becomes clear that it has a reference to income. Because, it is only when such an institution has an income that the question of not including that income in its total income would arise. Therefore, .....

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objects of the petitioner and its importance throughout India in the field of advancement of promotion of trade and commerce, the petitioner would be entitled to be regarded as an institution which would qualify for that exemption. The only thing that we have to examine is - whether the petitioner had been established for charitable purposes? The fact that it derives income does not, in any way, detract from the position that it is an institution established for charitable purposes. Therefore, i .....

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character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. It is clear from the facts of the present case that the driving force is not the desire to earn profits but, the obje .....

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le 14 of the Constitution). It is well-settled that the courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above, in Arun Kumar (supra). 55. It would be appropriate to also examine the observations of another Division Bench of this court in G.S.1 (supra). While considering Circular No.11 of 2008 issued by the CBDT, to which a reference has been made earlier in this judgment, the .....

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s, it is evident that the introduction of the proviso to Section 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to .....

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2009-10 from the activities which the assessee society carried on during the earlier assessment years. Therefore, we may safely infer that the activities of the assessee society were similar during the assessment years under consideration as similar to the activities which were carried out during the earlier assessment years. As we have already noted that the Hon ble High Court of Delhi in its judgment in assessee s own case for A.Y. 2006-07 and 2007-08 has held that it is proper to view the act .....

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en by the assessee society are of charitable nature and purpose as defined in section 2(15) of the Act and the provisions of section 11(4A) of the Act are not applicable to the case of the assessee society and, therefore, the AO was not justified in denying the exemption u/s 11 of the Act for the assessee. 20. Turning to the case of the assessee for A.Y. 2008-09 from bare reading of the impugned order, we observe that the CIT(A) in para 4.3 following the order of Hon ble High Court of Delhi date .....

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ion made by the AO for A.Y. 2008-09. 21. Turning to the case of A.Y. 2009-10 from bare reading of the impugned order of the CIT(A) we note that the CIT(A) granted relief for the assessee with following observations and conclusions: 4.1 I have gone through the findings of the AO in the assessment order and the submissions made by the ld. AR before me during appeal proceedings. The main contention of the ld. AO is that there is an amendment to sec. 2(15) of the Income Tax Act, 1961 w.e.f. A.Y. 200 .....

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any activity in the nature of trade, commerce or business, or any activity 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 sue or application, or retention, of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year.] 4.2 In this regard the is .....

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f the AO that in rendering these services the assessee was carrying on a business activity. PARA 8 OF ORDER The nice question as to whether by rendering specific services to members and non members for a fee, a trade, professional or similar association can be said to be carrying on a business activity needs to be examined. The further question to be addressed, with reference to sec. 11(4A), would be whether such activities (which amount to a business) were incidental to the attainment of the ob .....

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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 11(4A). Para 18 OF ORDER The Tribunal in the present case disapproved the view taken by the Assessing Officer that by rendering professional services to members and non-members, it was not carrying on a charitable activity. This was because the assessee s objects were charitable in nature and i .....

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ivities were carried on pursuant to the objects and, therefore, they do not constitute business. At the same breath it has also been observed that the receipts were earned by repetitive activities, which can rightly be termed as business. Having regard to the authorities which we have noticed above it is not proper to characterize the activities of the chamber as activities amounting to a business in the generally understood sense of the word, the most important feature of business being profit .....

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e activities were maintained for such business was unnecessary. We accordingly answer the substantial question of law framed by us in the negative, in favour of the assessee and against the Revenue. However, there shall be no order as to costs. On going through the aforesaid order passed by the Hon ble Delhi High Court in the case of the appellant chamber, it is seen that the Hon ble Delhi High Court has held that the various activities carried out by the appellant chamber were not propelled by .....

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n view of the provisions of section 2(15) it will be seen that the proviso to section 2(15) of the Income Tax Act will be applicable only if the entity is carrying out any activity or rendering any service in the nature of trade, commerce or business and most important feature of business being profit motive. In the present case activities carried out by the appellant were not propelled by any profit motive. In view of the above as the appellant chamber has not carried out any activity in the na .....

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1/- is hereby deleted. Ground No. 1 of the appellant is allowed. 22. In view of above observations and conclusions of CIT(A), we note that the CIT(A) has categorically held that the provisions of sec. 2(15) of the Act will be seen that the proviso to section 2(15) of the Act will be applicable only if the entities carrying out any activity or rendering any services in the nature of trading, commerce or business and the most important feature of the business is being profit motive. After analyzin .....

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eral interpretation sought to be given to the expression charitable purpose by the Revenue and if an Institution established for charitable purpose did not receive an income at all then what would be need for taking any benefit u/s 10(23C)(iv) of the Act. 23. Therefore, in our humble understanding, if the expression charitable purpose is given meaning that in case an Institution, with an object of advancement of general public utility, derives an income then it would be falling within the except .....

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in the order of the CIT(A) which granted relief for the assessee by directing the AO to allow exemption u/s 11 of the Act for the assessee. At this point, it is also pertinent to mention that the AO has not brought out any fact to support this allegation that the activities carried out by the assessee society were conducted or derived in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business and the dominant and prime obj .....

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