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2015 (8) TMI 170 - ITAT CHENNAI

2015 (8) TMI 170 - ITAT CHENNAI - [2015] 41 ITR (Trib) 697 (ITAT [Chen]) - Eligibity for exemption under section 11 - CIT(A) allowed claim - whether the assessee association is not hit by amended provisions of section 2(15) of the Act under the object of general public utility? - Held 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 definitio .....

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ere all held to be "charitable" in nature.

Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (1964 (10) TMI 19 - SUPREME Court) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view the basic principle underlying the definition of "ch .....

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t hit by newly inserted proviso to section 2(15) of the Act - Decided in favour of assessee. - ITA No. 1192/Mds/2014 - Dated:- 26-6-2015 - Chandra Poojari, AM And Challa Nagendra Prasad, JM,JJ. For the Appellant : Mr P Radhakrishnan, JCIT For the Respondent : Mr R Vijayaraghavan, Adv. ORDER Per Challa Nagendra Prasad, JM. This appeal is filed by the Revenue against the order of Commissioner of Income Tax (Appeals)-VII, Chennai dated 22.01.2014 for the assessment year 2010-11. 2. The grievance of .....

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ship fee are incidental activities which were natural dominant activities which conform to the objects of the assessee society. 3. Brief facts are that assessee is a company registered under section 25 of the Companies Act. The main objects of the assessee are to support, protect, maintain increase and promote export leather articles and products and byeproducts of leather industry. The Council for Leather Exports is an autonomous non-profit company registered under Indian Companies Act entruste .....

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lso noticed that assessee is incurring expenses towards salary and staff related expenses, administrative expenses, expenses on codec activities. Analyzing these expenses and income, the Assessing Officer was of the view that assessee is not doing any multiple activities of any nature i.e. relief to poor, medical aid/relief and education. The activities of the assessee are not falling under the limb of any other objects of general public utility for the reason that activities of the assessee are .....

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the Act i.e. any other objects of general public utility and is not involved in any activity in the nature of trade, commerce or business. The Commissioner of Income Tax (Appeals) held that denial of exemption under section 2(15) and section 10(23C)(iv) of the Act is not based on proper appreciation of facts. Against this order, the Revenue is in appeal before us. 4. Departmental Representative vehemently supports the order of the Assessing Officer. 5. Counsel for the assessee submits that an i .....

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ard both sides. Perused orders of lower authorities and the case laws relied on. The assessee, Council for Leather Exports (CLE) is an autonomous non-profit company registered under Indian Companies Act. The main activities of the assessee are as under:- "Promoting, facilitating and attracting foreign direct investments into Indian Leather Industry including joint ventures, technical collaborations and strategic alliances; Disseminating market information, trends and policy implications and .....

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hange of information, knowledge ideas and strategies." 7. The Assessing Officer while completing the assessment proceedings noticed that assessee has received entrance membership subscription, certification fee, bulletin revenue, interest on deposits etc. and has incurred various expenses towards salaries and staff related expenses, administrative expenses, net expenses of codec activities and there was surplus of 2.45 crores out of income of 6.65 crores. The Assessing Officer was of the vi .....

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peals) held as under:- "4.4 Government of India, MOF Department of Revenue, CBDT in its notification No.23/2007 dated 06.02.2007 notified that any income of the Council for leather exports, Chennai shall not be included in the total income from the AY 2004-05 onwards in terms of sec.l0(23C)(iv) of the Act. Sec.10(23C)(iv) reads as under: (23C) any income received by an person on behalf of... (iv) any other fund or institution established for charitable purposes which may be approved by the .....

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t. 4.6 In view of the above facts, the appellant continues to enjoy exemption u/s 10(23C)(iv) of the Act. For the AY 2010-11, the AO was of the opinion that the appellant is not eligible for exemption u/s 10(23C)(iv) of the Act as the appellant has not satisfied the basic condition of "established for charitable purpose". According to the AO, the appellant was neither established for charitable purpose nor doing any activity in the nature of charity. 5. Perusal of objects set out in pa .....

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eral public utility". The AO's view that the activities are only for members and not for the general public are not acceptable as the persons engaged in the leather industry are section of general public. The view held by the AO is not correct and narrow interpretation of the definition of charitable purpose u/s 2(15) of the Act. The definition of charitable purpose u/s 2(15) of the Act is an inclusive definition and covers in its ambit any activity which is in the nature of general pub .....

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lant, the DIT(E), Chennai also declared that the appellant can claim exemption under specific provision of se.10(23C)(iv) of the Act. Moreover Circular No.11/2008 dated 19.12.2008 clarifies that the newly inserted proviso to sec.2(15) will apply only to entities whose purpose is advancement of any other object of general public utility. Such entities will not be eligible for exemption u/s 11 or u/s 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on a .....

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efit from the Government of India. Other receipts such as interest of deposits, sale of publications, bulletin revenue, etc. are only incidental in nature and are not in the nature of commercial activity. Grant in Aid is received from the Government of India every year for expenditure relating to exhibitions abroad, publicity abroad, seminar in India, buyer seller meet, etc. The various activities detailed by the assessing officer in the assessment order do not reveal any commercial activity and .....

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hat the appellant's activities are covered by the last limb of the definition u/s 2(15) of the Act i.e. any other object of general public utility and is not involved in any activity in the nature of trade, commerce or business. Therefore, I am of the opinion that the denial of exemption u/s 2(15) and sec.10(23C)(iv) of the Act by the AO are not based on proper appreciation of facts and hence not tenable. 5.2 I hold that the appellant is entitled to exemption u/s 10(23C)(iv) of the Act. Henc .....

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as under:- "58. In conclusion, we may say that the expression "charitable purposes" as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Const .....

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rade, 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. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit .....

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established for charitable purposes." 10. As could be seen from the above observations of the Hon'ble High Court that if the dominant and prime object 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 rendering of any service in relation to its any trade, commerce or business, then the assessee would not able to claim its object to be charita .....

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it is an institution established for charitable purposes. 11. A similar situation arose before the co-ordinate Bench of this Tribunal in the case of The Southern India Chamber of Commerce & Industry in ITA Nos.2733 & 2734/Mds/2014, wherein the Tribunal by its order dated 17.04.2015 held as under:- "3. Counsel for the assessee submits that exemption under section 11 was denied by the lower authorities on the ground that assessee is into business and the activities of the assessee are .....

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emption) in ITA No.1491 & 128/Kol/2012 dated 2.12.2014 for the assessment years 2008-09 & 2009-10. Referring to the said decision of this Tribunal, counsel submits that an identical issue has come up before the Kolkata Bench wherein it was held that receipts reported by the assessee for meetings, conferences, seminars, environment management centre, fees for certificate of origin is not in the nature of business and is incidental to carry on the objects of the assessee. Therefore, in vie .....

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ard both sides. Perused orders of lower authorities and decisions relied on. On going through the order of Kolkata Bench of this Tribunal in the case of India Chamber of Commerce Vs. ITO (supra), we find that the issue in appeal is squarely covered by the said decision, as the Tribunal had elaborately considered the activities of the assessee in that case which is similar to that of the assessee in the present appeal and the Tribunal held that assessee is a charitable organization and the receip .....

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t;35. In view of the above we thus now turn to examine and analyse in full details the particular facts of the present case. That the assessee association is a Charitable Institution, duly registered as such u/s. 12A of the Act, carrying on its main object of development of trade, industries and commerce. The main objects for which the association came into existence, are clearly set out in clause 3 of the Memorandum of Association which duly records and reads as under: "3(a) To promote and .....

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were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the development of trade and industries in India. Further it is to be noticed that the Memorandum has also specifically authorized the Chamber "to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them." Thus it was only for the purpose of securing it .....

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onsorships 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 th .....

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r above, which need not be repeated. 36. From facts in entirety, now the question arises is whether principle of consistency will apply or not? From AY 1985-86 to 2007-08 exemption u/s 11 of the Act was allowed. Now, having extensively with the newly amended section 2(15) of the Act and its absolute inapplicability to the case of assessee supported by various judicial decisions, we will discuss this issue We find that CIT(A) without appreciating that the basis principle underlying the definition .....

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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 factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was "charitable" in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if res .....

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that, "That if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political 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 affectin .....

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ef 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 ensure for the benefit of the public." The adding of the words "not involving the carrying on of any activity for profit: was introduced by the Income .....

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silk cloth and cotton cloth a 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)" Again the Hon'ble A .....

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t for the welfare and common good of the country's trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961" Again reiterating the dominant purpose theory, the Hon'ble SC in the case of Sai Publication Fund (supra) laid out as follows: "...If the main activity is not business, then any transaction incidental or ancillary would not normally amount to "business " unless an independent intention to carry on "busines .....

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t, 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 .....

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itable" purpose under section 2(15) has undergone changes, the principle underlying the same has remained the same In context of the above, with regard to the "principle of consistency" it would be of relevance here to quote the decision of the 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 t .....

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e ordered, it would not be at all appropriate to allow the position to be changed in a subsequent year." 37. Now coming to application of section 28(iii) of the Act. We find that section 28(iii) of the Act provides that the income derived by a trade, professional or similar association from specific services performed for its members will be brought to charge under the head "profits and gains of business or profession" The underlying idea behind s. 28(iii) is that there must be a .....

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the surplus arising to the mutual association and this is clear from the fact that these provisions are confirmed to services performed by the association "for its members". Such income would either be charged as business income or under the residual head, depending upon the question whether the activities of the association with the nonmembers amount to a business or otherwise. Section 28(iii) constitutes certain income of the association to be business income without affecting the sc .....

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e 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 .....

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