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Income Tax Officer (E) -1, Kolkata Versus Indian Leather Products Association, Kolkata

2015 (12) TMI 901 - ITAT KOLKATA

Benefit of exemption u/s 11 denied - charitable purpose u/s 2(15) - profit motive - Association of leather merchants - AO was of the view that the assessee was allowing outsiders also to participate by keeping their stall in the trade fair organized by the assessee. The AO was therefore of the view that the assessee was having dealings or relations with the outside body and generating income. - Held that:- Keeping in mind the factual aspects and the objects of the Assessee and principle laid dow .....

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not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we uphold the order of CIT(A) and hold that the Assessee's income is not includible in the total income. - Decided in favo .....

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Ld. CIT (A) / Jalpaiguri had erred in justifying the applicability of the proviso to section 2( 15) of the Income Tax Act, 1961. 2. That on the facts in the circumstances of the case, The Ld. CIT (A) / Jalpaiguri had erred in appreciating the cardinal requirement of the concept of mutuality. 3. That on the facts and in circumstances of the case, The Ld. CIT (A)/Jalpaiguri had erred in considering the contribution from non-members as income according to the proviso to section 2(15) of the Income .....

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ers, regarding the trade to remove hardship of the members, to assist the members in increasing the volume by organizing trade shows, fairs, seminars and publishing of magazines for the sole benefit and advantages of the leather industry. The prime object of the assessee is to promote leather trade. 4. During the previous year the assessee derived income from conducting trade shows, seminars, fairs, SVHC testing, leather goods park booking fees, fashion magazine and entry tickets for various tra .....

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usiness then such assessee will not be considered as existing for a charitable purpose. AO was of the view that the assessee was allowing outsiders also to participate by keeping their stall in the trade fair organized by the assessee. The AO was therefore of the view that the assessee was having dealings or relations with the outside body and generating income. The AO therefore concluded that the assessee was deriving income by carrying on activity in the nature of trade, commerce or business. .....

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air was held between in 22nd February to 24th February. The fair was inaugurated by State Finance Minister, Dr.Asim Kumar Dasgupta and was chaired by Sri Bikash Ranjan Bhattacharya, the Mayor of Kolkata. Thirty eight business houses including several leading international companies took up stalls at the Fair. Delegates from various countries such as USA, Europe, South Africa, Australia, Germany, Sri Lanka, Italy and Spain visited the fair. The fair helped in generating business valued at ₹ .....

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Apart from the receipt ₹ 15,64,566, there was no contribution from non-members for any other activities of the association such as National Seminar, Leather Testing, Foreign Language courses etc. The Assessee submitted that since the motive of the association was to spread knowledge and assist the members in increasing their business whereby development of trade and industry, the contribution received for various activities of the association has been wrongly treated as business activities .....

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essee has not carried out any such activity by charging rent from the non-members for the stalls in the trade fair organized by the assessee. The organization of trade fair is one of the declared objects of the assessee on the basis of which it has been registered u/s 12A and the donations to it are eligible for deduction u/s 8OG. He was of the view that the first Proviso to Section 2(15) will be attracted only when the assessee is found to be involved in advancement of any other object of gener .....

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inference. The CIT(A) accordingly directed the AO to compute the income of the assessee without invoking the First Proviso to Section 2(15). 5.2 Aggrieved by the order of the CIT(A) the revenue has preferred the present appeal before the Tribunal. 6. We have heard the rival submissions and the learned DR, who reiterated the stand of the AO as reflected in the order of the assessment. The learned counsel for the assessee relied on the order of the CIT(A) and also filed before us the copy of the .....

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the rival submissions. The AO examined the claim of the Assessee for exemption u/s.11 of the Act, in the light of the proviso to Sec.2(15) of the Act. Sec.2 (15) of the Act, which defines the expression "Charitable purpose" for the purpose of the Act, had undergone an amendment by the Finance Act, 2008 with effect from 01-04-2009. The expression charitable purpose, prior to the aforesaid amendment read as follows; "(15) "Charitable purpose" includes relief to the poor, e .....

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ther 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". It can be seen from the proviso to Sec.2(15) which came into effect from 01-04-2009 that advanceme .....

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ore the question that we need to be answered is as to whether the proviso to Sec.2(15) of the Act would be applicable to the case of the Assessee. 9. We shall now understand the approach to be adopted in coming to the conclusion as to whether the proviso to Sec.2(15) of the Act will be applicable to the Assessee in the light of the decision of the Hon'ble Delhi High Court in the case of India Trade Promotion Organization Vs. DGIT(Exemption) and others 371 ITR 333 (Delhi) . The facts of the c .....

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te or States, shall not form part of the total income under the Act. The prescribed authority withdrew the approval granted to the Assessee consequent to the insertion of the proviso to Sec.2(15) of the Act, on the ground that the Assessee was deriving rental income from letting out space for rent during trade fairs and exhibitions, was deriving income from sale of tickets and income from food and beverage outlets. The said withdrawal was challenged by the Assessee before the Hon'ble Delhi H .....

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, commerce or business. The second part has reference to any activity of rendering any service ¨Din relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess¡® or fee¡® or any other consideration, income is gener .....

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le purpose. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the .....

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ished for charitable purposes, will get the exemption would have to be determined having regard to the objects of the institution and its importance throughout India or throughout any State or States. (iv) Merely, because an institution derives income out of activities which may be commercial, that does, in any way, affect the nature of the Institution as a charitable institution if it otherwise qualifies for such a character. (v) Merely because a fee or some other consideration is collected or .....

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al interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). 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. (vii) Section 2(15) is only a definition clause. Section 2 begins with the words, ¨Din this Act, unless the context otherwise requires¡Î. The .....

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as defined in Section 2(15) cannot be construed literally and in absolute terms. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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 consid .....

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ny trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. (emphasis supplied) It can be seen from the bye-laws of the Assessee that the dominant and prime objective of the A .....

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