TMI Blog2016 (7) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee : Shri Arvind Sonde For the Revenue : Shri V. S. Jadhav ORDER Per R. C. Sharma ( A. M ) This is an appeal filed by the assessee against the order of CIT(A)- Mumbai, for the assessment year 2009-2010. 2. In this appeal, the assessee is basically aggrieved for decline of exemption u/s.11 on the plea that proviso to section 2(15) was applicable to the assessee which was introduced w.e.f. assessment year 2009-2010. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is registered as a company u/s.25 of the Companies Act, 1956. The main objects of the assessee trust inter alia are to promote, advance and protect trade, commerce and industry in India. The AO held that the assessee was not imparting education in pursuance of its objects. He held that the activity of organizing seminars, training courses and holding commercial examinations do not fall within the definition of education. The assessee was running certain seminars and training programmes on account of which it collected ₹ 31401915/- and conducted examinations for which it collected fees of ₹ 1224751/-. These two activities were classifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 the main purpose, was profitable in nature. It was further observed that basic principle underlying the definition of charitable purpose remained unaltered even on amendment in the section 2(15) of the Act w.e.f.01-04-2009, though the restrictive first proviso was inserted therein. The precise observation of the Tribunal was as under :- Now ITA NO 1284/Kol/2012 of the assessee s appeal for AY 2009- 10 31. The only issue in this appeal of assessee is against the order of CIT(A) confirming denial of exemption u/s11 of the Act for the reason that the activities of assessee association is hit by the newly inserted proviso by the Finance (No.2)Act in section 2(15) of the Act w.r.e.f. 01.04.2009 and thereby falling u/s 28(iii) of the Act being profit of business. For this assessee association has raised following seven grounds. . 1. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the denial of exemption u/s 11 of the IT Act, 1961 failing to obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle laid down by the Court based on the facts of the case. 7. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the TDS disallowance of ₹ 2,50,874/- . 32. We have already discussed the facts above in ITA No1491/Kol/2012 for AY 2008-09, which are unchanged in this appeal also i.e. for AY 2009-10 but in view of amendment in Section 2(15) of the Act vide Finance Act 2008, w.e.f. 01/04/2009, whereby new proviso was inserted and according to lower authorities the activities of assessee association of conducting Environment Management Centres, meetings, conferences seminars and issuance of certificate of origin were all in the nature of rendering of service in relation to business, for consideration and falling under the last limb of charitable purpose, i.e. advancement of any other object of general public utility , thus covered by the proviso to section 2(15) of the Act. In connection to the above it would be relevant to know the amended section 2(15) of the Act in view of legislative intent behind such amendment. We have gone through section 2(15) of the Act, which is relevant for assessment year 2009-10 year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19th Dec., 2008 (2009) 308 ITR (St) 5 on the issue which reads as under: CBDT Circular No. 11/2008 19th December, 2008 Subject:- Definition of Charitable purpose under section 2(15) of the Income Tax Act, 1961-reg. Section 2(15) of the Income Tax Act, 1961 ( Act ) defines charitable purpose to include the following:- i) Relief of the poor ii) Education iii) Medical relief, and iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. However, it was seen that a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of charitable purpose . Therefore, section 2(15) was amended vide Finance Act, 20008 by adding a proviso which 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 a) Any activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the activity. 3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under any other object of general public utility . Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings 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 the 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 to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has never been dominantly engaged in any commercial activities 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 engaged in commercial activities. What will be the position to an institution engaged in advancement of any other object of general public utility, which lays down that such an institute will be deemed to be not charitable if it is involved in carrying on 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. According to us, part of the proviso being any activity of rendering any service in relation to any trade, commerce or business intends to expand the scope of the proviso to include services, which are rendered in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llary activity is established. 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 . To put it differently, the inclusion of incidental or ancillary activity in the definition of business presupposes the existence of trade, commerce etc. The definition 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 to the main activity which the Trust does not carry on as business. In this view, the activity of the Trust in bringing out publications and selling them at cost price to spread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otive, 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 however add here that whether a particular person is a dealer and whether he carries on business , are the mattes to be decided on facts and in the circumstances of each case. 34. Thus from the above, the logical corollary which inexorably flows from a careful perusal of the above laid decision is that in the cases of many institutions / associations whose main activity is not business the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the same were carried out predominantly with a profit motive. 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 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, commerce or business were all well covered by the main object being fully connected, incidental and ancillary to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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, interpreting the definition of charitable purpose as laid out in section 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Apex Court in the 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 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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 business from which income is derived and that in the course of such business specific services must be rendered for its members. The concept behind s.28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services for its members in a commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore the principle of mutuality and reach the surplus arising to the mutual association and this i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition of charitable purpose remained unaltered even on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, though the restrictive first proviso was inserted therein. Accordingly, in the given facts of the case as discussed above in detail, the assessee association s 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. 6. Facts and circumstances in the instant case before us are exactly similar vis.a.vis nature of activity being carried out by the assessee. Respectfully following the decision of co-ordinate bench in the case of Indian Chambers of Commerce Industry, wherein after discussing various High Court and Supreme Court judgement the Tribunal reached to the conclusion that even of amendment of section 2(15) of the Act w.e.f. 01.04.2009, assessee association s having primary purpose of advancement of objects of general public utility and it would remain charitable even if ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
