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M/s. Andhra Chamber of Commerce Versus The Assistant Director of Income Tax [Exemptions] - III, Chennai

2016 (7) TMI 812 - ITAT CHENNAI

Denial of exemption under section 11 - assessee was in receipt of fees for issuance of certificate of origin for the assessment year under consideration and hit by the proviso to section 2(15) - Held that:- 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 .....

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exemption under section 11 - Held that:- The provision of section 11 of the Act cannot override section 32 of the Act. If the assessee claimed exemption under section 11 under Chapter III of the Act, it cannot claim depreciation under section 32 of the Act. Therefore, the Assessing Officer has to examine whether the assessee has claimed the cost of acquisition of capital assets as application of income or not in any earlier assessment years and if it is claimed so, the assessee cannot claim depr .....

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see has not claimed the cost of acquisition of asset as application of income while claiming exemption under section 11 of the Act in any assessment year - Decided in favour of assessee for statistical purposes. - I.T.A.No.164/Mds/2015 - Dated:- 6-7-2016 - Shri Chandra Poojari, Accountant Member and Shri Duvvuru RL Reddy, Judicial Member For The Appellant : Shri R. Vijayaraghavan, Advocate For The Respndent : Smt. R. Ilavarasi, JCIT ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed .....

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2. The brief facts of the case are that the assessee is a company formed on 17.08.1928 and registered under Companies Act, 1956. The assessee was granted registration under section 12A(a) of the Income Tax Act, 1961 vide order dated 08.06.1992. The assessee filed its return of income on 01.10.2009 declaring income of ₹.48,75,933/- and claiming exemption under section 11 of the Act. The return filed by the assessee was processed under section 143(1) of the Act. The case of the assessee was .....

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s income, etc. The Assessing Officer was of the opinion that the income of the trust was earned from the activities, which are of general public utility other than charitable, medical or educational activities and hence observed that the same is covered by proviso to section 2(15) of the Act. The Assessing Officer was also of the opinion that there was no concept of mutuality in this case as the assessee serves as nonmembers also. Therefore, the Assessing Officer denied exemption under section 1 .....

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Officer and gave a finding that in this case, the assessee was in receipt of fees for issuance of certificate of origin for the assessment year under consideration and hence hit by the proviso to section 2(15) of the Act. Since proviso to section 2(15) of the Act is attracted, the provisions of sections 11 and 12 of the Act become inoperative and the surplus of the assessee is subjected to taxation. 4. On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the as .....

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ceipts reported by the assessee for meetings, conference & seminars, environment management centre and fees for issuing certificate of origin are incidental to the main object of the assessee. Further, the ld. Counsel for the assessee has relied on the decision of the Chennai Benches of the Tribunal in the case of The Southern India Chamber of Commerce & Industry v. JCIT in I.T.A. Nos. 2733 & 2734/Mds/2014 for the assessment years 2009-10 & 2010-11. Therefore, in view of the abov .....

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see was in receipt of fees for issuance of certificate of origin for the assessment year under consideration and hit by the proviso to section 2(15) of the Act. Similar issue has come up for consideration before the Kolkata Benches of the Tribunal in the case of Indian Chamber of Commerce v. ITIO, Exemptions (supra), wherein, the Tribunal has observed and held as under: 35. In view of the above we thus now turn to examine and analyse in full details the particular facts of the present case. T ha .....

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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 development of t .....

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t 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 activities were out of the sponsorships and donations. The expenses incurred on the said activities as and when incurred were all separately debited to the said accounts and the balance was sho .....

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fic activities, it is stated that the activities held by AO and the (A) to be business in nature, were as follows: 6 I.T.A. No.164/M/15 (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 order above, which need not be repeated. 36. From facts in entirety, now the question arises is whether principle of consistency will apply or not? From AY 1985-86 to 2007 .....

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in, 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 .....

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e 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 of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g. promotion of or opposition .....

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he A.Ys 1948-49 to wherein relevant to the said AYs 8-49 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 public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act part of the income from property held under a trust or othe .....

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illary 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 merely powers incidental to the carrying out of that dominant and primary purpose; (ii)That the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., .....

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o 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 .....

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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 again laid: that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/ enrolled chartered accountants. A .....

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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 relevance here to quote the decision of the Apex Court in the case of Radhasoami Satsang v. Commissioner of Income-tax (193 ITR 321 SC) wherein it was held that: .... (ii) That, in the absence o .....

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e 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 profess .....

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on 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 residual head, depending upon the question whether the activities of the association with the non-members amount to a business or otherwise. Section 28(iii) constitutes certain income of the as .....

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ided 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 of the above discussion, we are of the considered view that in the given facts and detailed reading of the various judicial decisions through the years, interpreting the definition of charitable .....

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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 nature. In 11 I.T.A. No.164/M/15 our view t .....

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e 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. By following the above decision of the Kolkata Benches of the Tribunal, the Coordinate Bench of the Tribunal in the case of The Southern India Chamber of Commerce & Industry v. JCIT (supra), decided the issue in favour of the assessee. Respectfully following the above decisions of the Tribunal, we set aside the order of the ld. CIT(A) an .....

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ear relevant to the assessment year 2009-10. On appeal, the ld. CIT(A) has held that the assets when purchased are claimed as application of income and claiming depreciation on the same assets would amount to double deduction and thus, confirmed 12 I.T.A. No.164/M/15 the order of the Assessing Officer. On being aggrieved, the assessee is in appeal before the Tribunal. 9. We have heard both sides, perused the materials on record and gone through the orders of authorities below. With regard to all .....

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