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D.C.I.T (E) Cir-I Kolkata Versus Indian Chamber of Commerce

Charitable institution - applicability of the provision of section 13 (8) - benefit of section 11 - Held that:- in the given facts and 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 d .....

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t 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 our view the 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. Accordingly, in the given facts o .....

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Shri S. S. Viswanethra Ravi, Judicial Member For the Appellant/ department : Shri Sellong Yaden, Addl CIT, ld.DR For the Respondent/ assessee: Shri Ravi Tulsiyan, FCA, ld.AR ORDER Shri S. S. Viswanethra Ravi, JM These two appeals of the Revenue arises out of the common order dated 23-12-2015 of the CIT(A)-25, Kolkata in Appeal Nos. 152 and 197 of 2514-15 for the assessment years 2010-11 & 2011-12 respectively both assessment orders framed by the AO u/s. 143(3) of the Income Tax Act, 1961 (h .....

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e case of income tax proceedings. 3. That on the facts and circumstances of the case the CIT(A) has erred in law in granting relief without appreciating the fact that interpretation of 1st proviso to section 2(15) was required to be taken up together with the restriction laid down in the 2nd proviso below section 2(15) for the relevant assessment year. 4. That on the facts and circumstances of the case the CIT(A) has erred in granting relief by adopting an interpretation which itself did not app .....

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ing company incorporated under section 25 of the companies act, 1956 without any share capital and does not distribute any dividends to its members, its entire receipt being expended for the fulfilment of its objects. The assessee was duly set up for the purpose of promotion and protection of Indian business and industry and was registered under section 12A of the act as a charitable institution. 4. The assessee filed its return of income for the assessment year 2010 - 11 on 14th October 2010 de .....

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business or providing service in relation to trade, commerce or business for a fee shall not be regarded as charitable purpose. Based on such amendment assessing officer completed the assessment under section 143(3) of the act determining the total income of the assessee at ₹ 2,31,50,090/- without allowing exemption under section 11 as claimed by the assessee and as allowed in the earlier years. 5. In first appeal, the CIT-A allowed the appeal of the assessee observing as under:- (i) That .....

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ive and detailed order (supra) had examined and discussed all the facts, circumstances and various prominent decisions and thereafter had come to the decision that the activities of ICC generating those receipts were but only incidental to the attainment of the objective of the trust which were for charitable purposes. (iii) that Hon ble ITAT while dealing with the appeal for A.Y 2009 - 10 involving the amended section 2(15) and restrictive proviso thereto duly considered vide para 33 of the ord .....

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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 connected solely for the empowerment, betterment and for creating of awareness amongst the industrialists in order to being about the development of trade and industries in India. Further it is to be noticed that the memorandum has also specifically authorised the chamber to do all other things .....

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of the said activities. The surplus and 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 on separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the as .....

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b) environment management centre (c) fees for certificate of origin. (iv) Thus the Hon ble ITAT held that the activities generating the nature of the impugned receipts were part and parcel of charitable purpose 6. The facts and circumstances under which the benefit of section 11 of the Act was denied by the assessing officer in assessment year s 2010 - 11 and 2011 - 12 is same as in A.Y 2009 - 10 in ITA No.1284/Kol/2012 in assessee s own case. Relevant findings of the order are re-produced herei .....

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s 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 pu .....

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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 activities were out of the spon .....

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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 order above, which need not .....

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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 also the definition of bus .....

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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 of general public utilit .....

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bsidiary 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 948-49 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 co .....

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eld 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 merely powers incidental to t .....

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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 .....

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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 again laid: that the fu .....

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at 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 relevance here to quote the dec .....

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d 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 income derived by a trade .....

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ee 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 residual head, dependin .....

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c 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 of the above discussion, .....

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