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2016 (6) TMI 802 - ITAT DELHI

2016 (6) TMI 802 - ITAT DELHI - TMI - Denial of benefit of sections 11 and 12 - object of carrying on the activity which resulted into income - income from Seminar and conferences - Held that:- The assessee has been set up as a body of Indian Automobile Manufacturers with a view to improve and protect the environment and safety of automobile vehicles and also to work towards the growth of automobile industry in India. All the ancillary objects are directed towards the attainment of principal obj .....

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nnot be described as carrying on business, trade or commerce. - The next major item is Seminars and conferences against which receipt of ₹ 1.85 crore has been shown. The assessee held four seminars/conferences, namely, SIAM Annual Session, Technical seminar, AOTS – Kaizen/MTP Programme and WHTC-August, 2009. Total receipts from these four conferences/seminars has totaled to ₹ 1.85 crore. The major item of receipt is ₹ 1.59 crore from ‘SIAM Annual Session’, the details of w .....

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e aimed at the overall promotion of the automobile sector. Even if there has resulted some surplus in organizing these conferences and seminars etc., it cannot be said that the assessee carried out any trade, commerce or business or rendering any service in relation to any trade, commerce or business. It is manifest that none of the activities undertaken by the assessee was pursued with the prior object of earning income. Au contraire, all such activities were performed with the prior object of .....

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nnot be characterized as doing any business etc. or rendering of any services in connection with business etc. Since the AO has denied the benefit of sections 11 and 12 on the ground that the assessee did not fall within the scope of charitable purpose defined in section 2(15) of the Act because of carrying on or rendering of any services in business, trade and commerce, which in our considered opinion is not a correct interpretation of the provision, we direct to grant such benefit to the asses .....

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assessment year 2009-10. 2. Succinctly, the facts of the case are that the assessee society was registered u/s 12A(a) of the Act by the order dated 12.10.1998 of the Director of Income-tax (Exemptions). The assessee also enjoyed exemption u/s 80G of the Act. Such grant of the benefits continued as such for all the following years except for the year under consideration, during the course of whose assessment proceedings, the AO observed from the Income & Expenditure Account of the assessee t .....

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laim of charitable character, which has been reproduced in the assessment order. Not convinced, the AO held that the activities of the assessee were hit by the amended provisions of section 2(15) of the Act. In his opinion, the receipts from seminar, statistical information and Auto Expo 2008 were not charitable activities. Relying upon the amended provisions of section 2(15), the AO denied the benefit of sections 11/12 and computed total income at ₹ 3.02 crore. The ld. CIT(A) approved the .....

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1998, a copy of which is available on pages 42 and 43 of the paper book. Exemption was granted by holding that: the activities of the trust can be held to be genuine and that it is carrying out charitable activities. Thus, it becomes clear that the activities of the assessee were admitted by the Revenue to be charitable. It is only because of the amendment made by the Finance Act, 2008 to section 2(15) w.e.f. 1.4.2009 that the AO proceeded to treat the activities of the assessee as not charitabl .....

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t 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 fee or any other consideration, irrespective of the nature of use 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 recei .....

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of exemption u/ss 11 and 12 of the Act, which provides 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 trading, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for consideration irrespective of the nature of use of the income from such activity. If we closely peruse the mandate of the proviso, it transpires that any oth .....

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such activities. The essence of the proviso is that the assessee must carry on any activity in the nature of trade, commerce or business or render any service in relation to any trade, commerce or business so as to be tagged as an activity of a non-charitable purpose. Thus, it becomes important to ascertain if the assessee was carrying on any activity in the nature of trade, commerce or business or was rendering any service in relation to any trade, commerce or business. 5. This can be viewed in .....

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on of environment, including global warming, pollution control and safety of automobile vehicle - users and public at large. iii) To work towards the sustainable growth of Automobile industry in India. 6. The above referred three objects are the principal objects of the assessee. The objects stated in subsequent sub-paras of para 3 have been described as ancillary objects of the society. Some of the ancillary objects, which are relevant for our purpose, read as under:- 2) To promote and diffuse .....

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professional bodies and other sectors of' trade, commerce and industry, within or outside India, on matters connected directly or indirectly with the automobile industry; IV. foster good relations with manufacturers, suppliers of goods and services and end-consumers of automobiles; . . V. encourage healthy industrial relations in the automobile industry; VI. further mutual help and co-operation amongst the Society's members and with the Government, other public bodies, institutions, orga .....

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merce and industry on all subjects involving their common good; 3) To organize or form organizations for the development and regulation of the sale of automobiles and/or components, and establish branch offices, markets, syndicates or boards, with such. powers as may be thought fit within India and in any other country or countries; 4). To encourage., assist, and extend knowledge, education and Information connected with environment and safety and trade, commerce and industries and manufacturers .....

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airs, either on behalf of the Society or in cooperation with others more particularly by organizing exhibitions, industrial and trade fairs of the automobile industry's and allied products and services from time to time; ……… 6). To make representations and to nominate representative or representatives to the Central or State authorities or bodies, executive or legislative, on any matter affecting the trade and for the best interests of the trade, commerce and manufacture .....

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) To collect, tabulate and circulate information and statistics of value to automobile manufacturers; ….. 13) To provide to automobile manufacturers in India the means of formulating, making known and influencing general policy in regard to economic, fiscal, commercial, labour, social, financial, technical, legal, safety and environmental, and educational matters; ….. 15) To make representations to the various Authorities, and to appear before any Authority in. the interest of pro .....

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. Again reverting to the proviso to section 2(15), which has been invoked by the authorities for denying the benefit, we find that the same states 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. Thus carrying on an activity in the nature of trade, commerce or busi .....

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oviso, which are aimed at earning income divorced from the objects for which it is charitable por una parte and the activities which are aimed at the attainment of the objects for which it was set up por otra parte. Whereas the former fall within the mandate of the proviso to section 2(15), the latter do not. The obvious reason is that the latter activities are in furtherance of the charitable objects of such society and income, if any, resulting from such activities does not convert the otherwi .....

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t up as a charitable institution, namely, the promotion of that particular trade, the resultant activity will amount to carrying on trade, commerce or business so as to fall within proviso to section 2(15). On the other hand, if it uses its premises for undertaking activities for which it was set up and is a charitable institution, and while doing so, there results some income, such income will not amount to carrying on any trade, commerce or business. The crux of the matter is to understand the .....

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tivity which resulted into some income or loss was carried on with the object of doing some trade, commerce or business, etc., or it was in furtherance of the objects (non-business) etc., for which the assessee was set up. In other words, the predominant object of the activities should be seen as to whether it is aimed at carrying on some business, trade or commerce or the furtherance of the object for which it was set up. If it falls in the first category, then, the case would be covered within .....

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mption u/s 11 of the Act. It further observed that if the object or purpose of an institution is charitable, the fact that the institution collects certain charges does not alter the character of the institution. The Hon ble High Court further observed in para 67 that: the purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose, but are conducting some activities for a consideration or a fee. The object of introducing the f .....

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utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under charitable purpose . Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. The e .....

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y the assessee, the Hon ble High Court held: Merely because a fees or some other consideration is collected or received by an institution, it would not lose its 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 institutional or ancillary activity would also not fall within .....

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elied by the ld. DR. The nitty gritty of the matter is that so long as the dominant activity of the assessee is not business, then, any institutional activity would not fall within the meaning of business, trade or commerce, etc., even if there is some surplus in doing such activity. 11. Coming back to the factual matrix of the case, we find that the assessee society was set up with the object of promoting the growth of automobile industry in India and also to improve and protect the environment .....

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attract the proviso to section 2(15). For that we will venture to examine the actual activities carried out by the assessee during the year, which can be traced from the income side of the assessee s Income and expenditure account, a copy of which is available on page 59 of the paper book. First item is Annual membership subscription amounting to ₹ 1.81 crore. This comprises of annual membership subscription and admission fees. The ld. AR submitted that the assessee has 46 regular members .....

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r publication of some technical literature concerning the automobile industry cannot be considered as carrying on of any trade, business or commerce. The next item is interest received amounting to ₹ 1.60 lac, which has been earned from banks, bonds, etc. This receipt also cannot be considered as arising from carrying on of any trade, commerce or business. The next important receipt is ₹ 1 crore from Auto Expo 2008. The AO has also accentuated on this amount to hold that the assessee .....

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described as carrying on business, trade or commerce. The next major item is Seminars and conferences against which receipt of ₹ 1.85 crore has been shown. The assessee held four seminars/conferences, namely, SIAM Annual Session, Technical seminar, AOTS - Kaizen/MTP Programme and WHTC-August, 2009. Total receipts from these four conferences/seminars has totaled to ₹ 1.85 crore. The major item of receipt is ₹ 1.59 crore from SIAM Annual Session , the details of which are availa .....

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