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Deputy Director of Income Tax (Exemptions) -II, Chennai Versus M/s The Chennai Custom House Agents Association

2015 (9) TMI 11 - ITAT CHENNAI

Claim of exemption under section 11 denied - income from non-members - CIT(A) has allowed the claim of principles of mutuality to the extent of income received from the members - Held that:- Prior to the amendment ie upto 31.03.2009, all the objects of any general public utility is eligible to be classified as charitable purpose under section 2(15) of the Act. After 01.04.2009, as per the second limb of section 2(15), any activity of rendering any services in relation to any trade, commerce and .....

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considered as a charitable organization and therefore, the Assessing Officer as well as the ld. CIT(A) rightly denied the exemption claim of the assessee under section 11 of the Act.

Assessee is not eligible for claiming exemption under section 11 of the Act and also not eligible for claiming principles of mutuality. The Hon'ble Kerala High Court in the case of Investors Club, Trissur v. CIT [2008 (2) TMI 546 - KERALA HIGH COURT] has observed that "we do not know how the assessee can .....

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visions of the Act. Accordingly, this ground of appeal of the assessee is also dismissed. - Decided against assessee. - ITA No. 596/Mds/2013 - Dated:- 22-7-2015 - Chandra Poojari, AM And V. Durga Rao, JM,JJ. For the Appellant : Shri AV Sreekanth, JCIT For the Respondent : Shri Saroj Kumar Parida, Adv. ORDER Per V. Durga Rao, Judicial Member Both cross appeals filed by the Revenue and the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) XII, Chennai, dated 2 .....

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ed and assessment was completed under section 143(3) of the Act. In the assessment proceedings, the Assessing Officer has observed that the Memorandum and Article of Association filed by the assessee depicts that the Association is having six objects. 3. From the objects of the assessee, the Assessing Officer came to a conclusion that the assessee is coming under the limb"object of general public utility" under section 2(15) of the Act. The Assessing Officer further observed that the a .....

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benefited by the Association. The Golden Jubilee celebrations were conducted in two parts at two places. The meeting and the affair of the trade were conducted at Hotel Lee Royal Meridian. The entertainment part of the celebration was at Trade Centre with dance programmes of the cine artists, food, video stage performance, etc. This part of the programme was spent mostly on which, comes to ₹ 35,51,166/- out of ₹ 46,99,110/-. The payments by sponsors are in the nature of business prom .....

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activity. The Association has earned a good profit of ₹ 13,05,976/- from the functions, in addition to spending a considerable part of the collection on food and entertainment of the members and their family. Accordingly, the Assessing Officer has denied the claim of the assessee under section 11 of the Act. 4. So far as mutuality claim of the assessee, the Assessing Officer has observed by following various judicial precedents and held that since there is no identity between the contribu .....

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ble for exemption under section 11 of the Act, the assessee, being enjoying 12A registration. 6. The ld. CIT(A), by considering the submissions of the assessee and also section 2(15) of the Act, has observed that the meaning or definition of"advancement of object of general public utility" for the purpose of section 2(15) underwent a clear change consequent to the amendment i.e. insertion of proviso to section 2(15) of the Act w.e.f. 01.04.2009. Prior to the amendment (i.e. upto 31.03. .....

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or services in relation to any trade, commerce and business from such activity, are excluded from the definition of general public utility for the purpose of section 2(15) of the Act. The ld. CIT(A) has further observed that the assessee is rendering services to its members (Custom house agents), to carry out their business/professional activities. The activities of the assessee directly amount to the services rendered by it in relation to the trade, business and commerce. Therefore, the assesse .....

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t. 7. In so far as mutuality is concerned, the ld. CIT(A) has observed that the assessee has received contribution from the members of ₹ 23,51,000/- and from non-members ₹ 36,54,087/- and the total amount received for the purpose of Golden Jubilee celebration at ₹ 60,05,087/-. The ld. CIT(A), on the basis of contribution received and after reducing the proportionate allowable expenses from the contribution of non-members of ₹ 6,98,522/-, directed the Assessing Officer to .....

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11 of the Act. However, the ld. CIT(A) has allowed the claim of principles of mutuality to the extent of income received from the members. 9. On being aggrieved, the Revenue as well as assessee carried the matter in appeal before the Tribunal. 10. The ld. DR has submitted that the assessee is not carrying any charitable activity and therefore, not eligible for claiming exemption under section 11 of the Act. He further submitted that consequent to the amendment i.e. insertion of proviso to sectio .....

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erned. 11. On the other hand, the ld. Counsel for the assessee has submitted that the assessee is recognized as charitable organization since 1986 onwards and exemption section 11 cannot be denied by virtue of proviso to section 2(15) w.e.f. 01.04.2009. In so far as silver jubilee celebration is concerned, the ld. Counsel for the assessee has submitted that as a mark of remembrance some silver mementos were purchased and gifted to the members and the assessee society has not violated any of the .....

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range, secure and organize service of labour for clearing and forwarding and allied operations for the promotion and help, encouragements and development of Custom House Agents Trade on such terms and conditions that the Association may think fit. (3) To regulate, coordinate and formulate rules and regulation for proper working of the Custom House Agents Trade and to take all necessary steps for promoting or securing proper legislation affecting the afore said interest. (4) To encourage and prom .....

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ledge and encourage and develop the Custom House Agents in the fields of clearing and forwarding and allied operations. Therefore, the assessee has claimed that it is qualified to be an organization engaged in advancement object of general public utility. The point for consideration before us is whether the assessee is a charitable organization for the purpose of claiming exemption under section 11 of the Act in view of the proviso of section 2(15) brought to substitute w.e.f. 01.04.2009? The pr .....

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uding 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 f .....

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under section 2(15) of the Act. After 01.04.2009, as per the second limb of section 2(15), any activity of rendering any services in relation to any trade, commerce and business for a cess or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity cannot come under the purview of charity. In the present case, the assessee is rendering services to its members custom house agents], to carry out their business/professional activities .....

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owing various judicial precedents by observing that the assessee is not eligible for benefit of mutuality. On appeal, the ld. CIT(A), by taking into consideration of the contribution received from the members and the non-members, by disallowing proportionate expenditure to the extent of contribution received from the members, held that mutuality is applicable and directed the Assessing Officer to consider the same. We find that the contribution received by the assessee from the members of ₹ .....

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directed the Assessing Officer to assess the net tax of ₹ 36,08,385/-. Further, we find that the assessee having 12A registration and claiming as a charitable organization not eligible to be claimed again under principles of mutuality. The assessee being charitable organization cannot claim the benefit under principles of mutuality for the reason that the charitable organization is for the purpose of the third parties and not for its own members. The principles of mutuality passed on the b .....

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ntos and distributed amongst the members of the society. Therefore, the assessee society, by gifting the mementos and the members are benefitted, which is clearly in violation of the provisions of section 13(1)(c) of the Act. 16. The Hon'ble Kerala High Court in the case of Investors Club, Trissur v. CIT 318 ITR 427 has observed that "we do not know how the assessee can claim principles of mutuality when the assessee has entitled to claim exemption under charitable organization, it has .....

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