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2016 (7) TMI 107 - ITAT MUMBAI

2016 (7) TMI 107 - ITAT MUMBAI - TMI - Exemption u/s.11 declined - whether proviso to section 2(15) was applicable to the assessee which was introduced w.e.f. assessment year 2009-2010? - The main objects of the assessee trust inter alia are to promote, advance and protect trade, commerce and industry in India - Held that:- Respectfully following the decision of co-ordinate bench in the case of Indian Chambers of Commerce & Industry [2014 (12) TMI 256 - ITAT KOLKATA ], wherein after discussing v .....

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r of assessee - ITA No. 4076/Mum/2013 - Dated:- 29-6-2016 - Shri R. C. Sharma, AM And Shri Mahavir Singh, JM For 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 intr .....

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xaminations 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 classified as activities to promote education. The AO relying on the Hon. Supreme Court decision in the case of Loka Shikshana Trust 101 ITR 234 and Bihar Institute of Mining 208 ITR o·Q4 Patna, Saurashtra Educat .....

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He further held that in. view of amendment to section 2(15) by insertion of proviso w.e.f. 1.4.2009 for AY:2009-10 onwards the assessee would not be entitled to exemption as it is conducting activities in the nature of business earning huge profits in a systematic and organized manner. He also held that earning such huge profit in a systematic and organized manner would not make it an entity existing for charitable purpose. 4. In view of the above discussion, he declined assessee s claim of exe .....

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oordinate bench in the case of Indian Chamber of Commerce, ITA No.1491/Kol/2012 and ITA No.1284/Kol/2012, order dated 2-12-2014, wherein amendment brought in section 2(15) has been elaborately discussed and it was held that assessee being engaged in main object of the institution was charitable in nature then the activities carried out towards achievement of the said object being incidental or ancillary to the main activity, even if carried out for profit, would not mitigate or change the charit .....

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e 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 Fi .....

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nd the circumstances of the case of the appellant the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant s case was covered within clause (iii) of section 28 of the I.T Act, 1961 whereby income derived by a trade, professional or similar association from its specific performance for its members was held to be taxable under the head profits and gains of business or profession. 3. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred i .....

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ucting the Environment Management Centres, meetings, conferences & seminars and the Issuance of Certificate of Origin were all in the nature of business carried on systematically and continuously with a motive to earn profit from the same. 5. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in holding that the reliance placed by the Ld. AO on the decision of the Hon'ble Supreme Court in the appellant s own case viz. Indian Chamber of Commerce Vs CI .....

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se of Commissioner of Income-tax v. Federation of Indian Chambers of Commerce & Industry (130 ITR 186 S.C) was not applicable to the case of the appellant in view of the amendment in the said section 2(15) of the Act without appreciating the basic 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 th .....

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siness, 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 under consideration, which lays down the definition o .....

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n 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; The rationale for bringing this proviso can be understood by referring to the relevant portion of the Memorandum explaining the provisions in the Finance Bill, 2008 reported in 298 ITR (St) 2000- 01 which reads as under: ( .....

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l lines is contrary to the intention of the proviso. With a view to limiting the scope of the phrase advancement of any other object of general public utility , it is proposed to amend section 2(15) so as to provide that the advancement of any other object of general public utility shall not a charitable purpose if it involves the carrying on of following activities: (a) Any activity in the nature of trade, commerce or business or, (b) Any activity or rendering of any service in relation to any .....

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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 claim .....

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ering 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. 2. The following implications arise from this amendment - 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is .....

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ns in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carryon a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that i) the business should be incidental to the attainment of the objectives of the entity, and ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is education or med .....

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or under section 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 on the nature, scope, extent and frequency 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 .....

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itable 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 section 2(15). 3.2 In the final analysis, however, whet .....

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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. Assessee, who claim that their object is charitable purpose within the meaning of Section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 33. From the Memo Explaining the provisions of Finance Bill .....

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ities . 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 activity in the nature of trade, commerce or business always remains a question of fact which will hav .....

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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 .....

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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 nature of trade, commerce or business or any activity of rendering any service in relation to any t .....

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es 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 , commerce , manufacture and adventure or concern in the nature of trade, commerce and manufacture . T .....

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ure 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 activity is established. In such cases, the onus of proof of an independent intention to carry on bus .....

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erson 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 o .....

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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) 3 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 the main activity was not business , then the connected, incidental or ancillary activities of .....

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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 this very same case held as under: … … This decision is directly on the point su .....

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as 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 .....

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t 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 incidental, ancillary and connected activities and whether the same were carried out predominantl .....

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rvices 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 activities which are incidental or ancillary to the main activity, even if carried out for profit, woul .....

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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 be decided whether the same form incidental, ancillary and connected activities and whether the .....

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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 .....

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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 merely incidental to the main object to charity. The majority of the receipts in the said activit .....

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ty, 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 origin Facts relating to these activities are discussed in detail in para 23 to 25 of this orde .....

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n 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, interpreting the definition of charitable purpose as laid out in section 2(15) of the Act and al .....

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n 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 nature. It was laid out by the Court that, That if the primary purpose be advancement of objects .....

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s 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 of the poor, education, medical relief and the advancement of any other object of general publi .....

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rs 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 cotton cloth a set out in clause (a) and the objects specified in clauses (b) to (e) were merel .....

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nt 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 fr .....

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d 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 General of Income-tax (Exemptions) [2012] 347 ITR 0099 Del HC, laying down the very same principle it was .....

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ttled 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 the same. In context of the above, with regard to the principle of consistency it would be of relevan .....

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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. Now coming to application of section 28(iii) of the Act. We find that section 28(iii) of the Act provides that the i .....

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emption, 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 is clear from the fact that these provisions are confirmed to services performed by the association for its members . Such income would either be charged as business income or under the .....

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y for performing specific services to its members, though treated as business income under Section 28(iii) would still be entitled to the exemption under Section 11 r.w.s. 2(15) of the Act, provided there is no profit motive. Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and which is not involved in the carrying on of any activity in the nature of business , the said section 28(iii) of the Act does not apply. 38. In view o .....

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t. 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 objects of genera .....

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