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Indo French Chamber of Commerce & Industry, Assistant Director of Income-tax Versus Assistant Director of Income-tax, Indo French Chamber of Commerce & Industry

2016 (4) TMI 651 - ITAT MUMBAI

Exemption u/s. 11 denied - Activity carried on by assesse charitable or not u/s 2(15) - Held that:- As find that the assessee trust is registered with the DIT(E), Mumbai u/s. 12A of the Act as charitable institution. The assessee falls under the definition of charitable purposes under the last limb of definition to charitable purposes u/s. 2(15) of the act i.e. “the advancement of any other object of general public utility”.

We find that the case of assessee is covered by the orders .....

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lete embargo on earning profit from any of the activities of the Society. Profit is the essence of trade, commerce or business. When services are rendered without profit motive, the element of trade, commerce or business disappears from such activities. Therefore, it can be safely construed that the activities of the assessee are not hit by the newly added proviso to Section 2(15) of the Act. - Decided in favour of assessee - ITA No. 386/Mum/2013, ITA No. 1122/Mum/2013 - Dated:- 15-4-2016 - Shri .....

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2. First we take up ITA No. 386/Mum/2013 (assessee s appeal). The first issue in this appeal of assessee is against the order of the CIT(A) in confirming the action of AO in rejecting the claim of assessee u/s. 11 of the Act. 3. Briefly stated facts relating to this issue are that the AO during the course of assessment proceedings held that the assessee Institution is predominantly a mutual association and non charitable objects and the object of mutual benefits are contradictory to each other. .....

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ed as mutual association and not as charitable institution. Accordingly, he denied exemption u/s. 11 of the Act in view of the proviso to section 2(15) of the Act as introduced w.e.f. 01.04.2009 by the Finance Act, 2008. Aggrieved, assessee preferred appeal before CIT(A), who also confirmed the action of AO and after considering the submissions of the assessee he held as under: 4.6. I have carefully considered the facts of the case, submissions of the appellant and the assessment order. I find t .....

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seminars, training programme and commercial fees from technical services. All the activities are systematic and organized and continuous. It is clearly seen that the element of charity is lacking. Section 2(15) of the Act has been amended by the Finance Act, 2008, with effect from April 1, 2009, and reads as under: "Section 2(15) - "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) a .....

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ve of the nature of use or application, or retention, of the income from such activity;" 4.7 The above proviso to Sec.2(15) is added w.e.f. 2009-10. Several activities of the appellant have been found to be organized, systematic activities bearing the nature of trade and business activity. Earning of substantial fees in organized manner cannot be considered as being charitable activity. Hence, the appellant is covered by the amendment to the proviso to Section 2(15) of the Act since these a .....

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of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year. " In view of the income of the appellant exceeding Rs.l0 lacs as per the proviso to section 2(15), the appellant is covered by the quantum limit of section 2(15) and 13(8) of the Act. Since the activities of the appellant have been held to be business the provisions of Section 13(8) of the Act will also come into play and .....

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Aggrieved, now assessee is in second appeal before Tribunal. 4. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated and admitted facts are that the assessee is a Chamber of Commerce registered u/s. 12A of the Act. The assessee being a company incorporated u/s. 25 of the Companies Act, 1956 without share capital and does not distribute any dividend to its members and also its entire receipts are expended for fulfillment of its objects as it is a ch .....

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estions. 2. To, collect, publish and disseminate, statistic relating to home and foreign trade and commerce and manufactures of the Indian Union and the Republic of France; to consider questions connected therewith, to make representations to Governments, legislative bodies, chamber of Commerce and other authorities thereon. 3. To assist in the setting up of joint Ventures in India and in third countries in association with individuals, firms, companies and corporations of Indian and French nati .....

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pose as defined u/s. 2(15) of the Act i.e. the advancement of any other object of general public utility . During the course of assessment proceedings, the AO called for the details and assessee filed all the details including income and expenditure made by Chamber. The source of income of the assessee has been verified by the AO and noted that it is from subscription of membership, advertisement, interest received, interest, translation fee, seminars or workshops and other receives includes exc .....

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ves carrying on any activity in the nature of trade, commerce or business or any activity or 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 . Before us, ld. counsel for the assessee referred to para 3.1 and 3.2 of Circular No. 11 of 2008 vide F. No. 134/34/2008-TPL dated 19.12.2008. Ld. counsel for the assessee relied on the recent dec .....

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s. 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e. the fourth limb of the definition of 'charitable purpose' contained in s. 2(15). Hence, such entities will not be eligible for exemption under s. 11 or under s. 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based .....

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s or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between Gthe contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso t .....

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ess or renders any service in relation 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. Assessees, who claim that their .....

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e and monthly subscription fee from its members. Apart from this, the assessee is also accepting grants and special contributions, admission/registration fee for seminars/conferences conducted by the society. The assessee is not charging any fee for the services rendered by it. The fees charged by way of admission fee, monthly subscription, admission and registration fee etc., are utilized only for the promotion of the aims and objects of the society. Clause 1 of the aims and objects put complet .....

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o object No. 5 of the assessee's coordinate body's aims and objects which is identical to object No. 5 of the assessee's aims and object, held: .............. So far as object No. 6 is concerned, there can be no doubt that it is a charitable object since inviting intellectuals, industrialists, scholars, tends to enlighten the faculties of the members which is to their ultimate benefit and may help them in becoming more evolved and better human beings. In fact, the Rajasthan High Cour .....

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eld as under: "6. The Director of IT (Exemptions) is also not right in his view that the activities of the society are restricted to Japanese companies and Japanese Government Institutions who alone can become members of the society and, therefore, the Indian public at large is not benefited by the activities. It has to be remembered that the society has been formed to promote development of trade and commence between India and Japan and facilitate economic cooperation between the two count .....

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f will not be benefited by the activities of the society." In view of this categoric findings of the Delhi Bench of the Tribunal, we hold that the benefits of the activities of the trust are not confined to select segment but would flow to larger section of society. 6. Finally, Ld. counsel for the assessee relied on the coordinate bench decision of ITAT, Kolkata in the case of Indian Chamber of Commerce Vs. ITO in ITA No.1491 & 1284/K/2012 for AT 2008-09 & 2009-10 dated 02.12.2014, .....

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al activities. Here, we need to appreciate the concept of an entity engaged in commercial activities . In very simple words, any entity whose main or dominant object is commercial can only be said to be a commercial entity. An entity whose main purpose is undoubtedly charitable in nature without an iota of commerciality in it cannot be said to be engaged in commercial activity. Also we need to note that another point that emerges from the above is that whether an entity is carrying on an activit .....

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and is a Charitable Institution registered as such u/s 12A of the Act, set up for the promotion and protection of Indian business and industry. The main purpose of this Institution is promotion and protection of trade and commerce in the country and not to conduct any commercial activities. Further, it has also never been the contention of the revenue that the assessee is engaged in commercial activities but it is hit by the proviso to section 2(15) of the act and thus will be deemed to be engag .....

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ade, commerce or business intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity in relation to the trade commerce or business must be for a cess or fee or any other consideration. From the proviso, it is seen that the most material and relevant words in the proviso are trade, business or commerce . The activities which are undertaken by the institute should be in the natu .....

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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 , com .....

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wide enough to include any trade, commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture and any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. 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 business in the incidental or ancillary activ .....

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tion of dealer contained in Section 2(11) of the Act clearly indicates that in order to hold a person to be a dealer he must carry on business and then only he may also be deemed to be carrying on business in respect of transaction incidental or ancillary thereto. We have stated above that the main and dominant activity of the Trust in furtherance of its object is to spread message. Hence, such activity does not amount to business . Publication for the purpose of spreading message is incidental .....

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st 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) 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 .....

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connected, incidental or ancillary activities of sales are not business and the onus of proof of an independent intention to do business in these connected, incidental and ancillary sales will rest on the department. If, for example, these connected, incidental or ancillary transactions are so large as to render the main activity infinitesimal or very small, then of course the case would fall under the first category referred to earlier. (emphasis supplied. Further, Hon'ble Supreme Court in .....

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irrespective of the profit motive, it could not be said that the Trust either was dealer or was carrying on trade, commerce etc. The Trust is not carrying on trade, commerce etc., n the sense of occupation to be a dealer as its main object is to spread message of Saibaba of Shirdi as already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question referred by the Tribunal in the affirmative and in favour of the respondent-assessee. We must ho .....

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ain 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. Therefore, the issue whether a professional institution is or is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form inc .....

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amber 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 activiti .....

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al or ancillary activities is established by the revenue. The test, therefore, to be applied is whether the activity which is pursued is ancillary to a dominant object or is independent to the main object and forms a separate object in itself. The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to .....

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on 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 protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or concerned. The activities of conducting Environment Management Centre, Meetings, Conferences & Seminar and issuance of Certificate of Origin, being the activities stated to be services in relation to trade, comme .....

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, or incidental to attainment of the above objectives or any of them. Thus it was only for the purpose of securing its 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 me .....

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ion 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 that the activities held by AO and the (A) to be business in nature, were as follows: (a) Meetings, Conferences & Seminars (b) Environment Management Centre (c) Fees for Certificate of .....

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sue. We find that CIT(A) without appreciating that the basis principle underlying the definition of charitable purpose remained unaltered, and on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, whereby the restrictive first proviso was inserted therein, lower authorities held that the same substantially changed the position of law and thus the principle of consistency did not apply. But we are of the view that a detailed reading of the various judicial decisions through the years, i .....

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al or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be charitable in nature. Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) 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 na .....

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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 1948-49 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 .....

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Hon'ble Apex court in the earliest decision in the case of Surat Art Silk Cloth Manufacturers Association (Supra) held the theory of dominant or primary object of the trust to be the determining factor so as to take the carrying on of the business activity merely ancillary or incidental to the main object. It was held as follows:- (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 .....

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case of Federation of Indian Chambers of Commerce & Industry (supra) held that that the dominant object with which the Federation was constituted being a charitable purpose viz. promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, the respondent was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and c .....

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lished. In such cases, the onus of proof of an independent intention to carry on business : connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or 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 Gener .....

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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 changes, the principle underlying the same has remained th .....

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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 ordered, it would not be at all appropriate to allow the position to be changed in a subsequent year. 37. ……. .....

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n 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 resulting in profit and even if carried out with non members, were all held to be charitable in nature. Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of obj .....

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primary purpose was advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act. This issue of assessee s appeal is allowed. 7. On the other hand, when these were confronted to Ld. Sr. DR i.e. the coordinate bench decision of ITAT, Kolkata in the case of Indian Chamber of Commerce and .....

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