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M/s. Credai Bengal Versus Commissioner of Income Tax (Exemption)

2016 (11) TMI 600 - ITAT KOLKATA

Revision u/s 263 - as per CIT(A) the activities of the assessee are commercial in nature and Secondly the income of assessee has been applied in foreign country which is the contravention of the provision of section 11(1)(a) of the Act - Held that:- The facts of the case are squarely applicable of case of Indian Chamber of Commerce Vs. ITO (2014 (12) TMI 256 - ITAT KOLKATA ), wherein it was held that the activities of the assessee are charitable in nature. - The activity of conducting the tr .....

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es are not incurred by the assessee outside India therefore in our considered view there is no violation to the provisions of section 11(1)(a) of the Act. Accordingly we conclude that the impugned order of the ld. CIT passed u/s 263 of the Act is not sustainable in law and accordingly directed to be set aside. - Decided in favour of assessee. - ITA No. 381/Kol /2016 - Dated:- 30-9-2016 - Shri Waseem Ahmed, Accountant Member And Shri K. Narasimha Chary, Judicial Member By Appellant : Shri S.K.Tul .....

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Shri Niraj Kumar, Ld. Sr. Departmental Representative represented on behalf of Revenue. 2. The issue raised by the assessee in this appeal is that ld. CIT u/s 263 of the Act erred in holding the order of the AO passed under section 143(3)/11 of the Act as erroneous and prejudicial to the interest of Revenue. 3. The facts in brief as culled out from the records are that the assessee in the instant case is a company registered u/s 25 of the Companies Act and is engaged in promoting commerce and in .....

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account of the following two issues :- Violation of provisions of section 2(15) of the Act (i) The assessee for the year has held three fairs out which two were in India and one in North America. These three fairs generated surplus fund to the assessee for an amount of ₹ 1.10 crores. As per the ld. CIT observed that such activities are commercial in nature and therefore such income is purely from a business activity with an intention to earn profit and hence the provisions of sec. 2(15) o .....

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ee stands as under : Violation of provisions of section 2(15) of the Act i. The assessee in compliance to the notice submitted that the activities of the assessee are in pursuance of its main object as mentioned in the memorandum of the company. These activities are conducted only for the purpose of securing its object i.e. advancement and development of trade, commerce & industry in India. As such its activities are not in the nature of business and there was no motive to earn profit. The s .....

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of the Act ii. As regards the violation of section 11(1)(a) of the Act with regard to the income applied outside India for the fair held outside India, the assessee submitted that all the receipts from members and participants are from India only. Similarly all the expenses in connection with the fair in North America were incurred in India. The purpose of holding the fair in North America to invite the Indian Residents residing there to make investment in realty sector in India. The assessee h .....

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but in the instant case before us the main activities of the assessee are holding fairs in & outside India. Therefore the activities are as such commercial in nature with profit motive and therefore there is violation of the provisions of section 2(15) of the Act. Violation of provisions of section 11(1)(a) of the Act There is no doubt that the fair was held outside India and therefore the assessee has clearly violated the provisions of section 11(1)(a) of the Act to the extent money applie .....

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ivities of promoting trade & commerce and having been recognized u/s. 12A of the Act, the holding of fairs for promotion of trade & commerce are its regular activities and, therefore, the Ld. CIT (Exemption) erred in holding that such fairs amount to carrying on business and hit by the amended provisions of sub-s.(15) of sec.2 of the Act. 3. That the Ld. AO having passed the assessment order u/s. 143(3)/11 of the Act after considering all the facts emanating and relating to the concerned .....

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of sec. 11(1)(a) of the Act. 5. That as the full facts relating to holding of fairs in India and abroad with the participation of non-members and a net surplus generated from such activities were in the knowledge of the Ld. AO and s he had already dealt with such activities in a particular manner as discussed in the assessment order for A.Y 2011-12, the Ld. CIT (Exemption) erred in assuming jurisdiction u/s. 263 of the Act in order to impose his own views on the Ld. A.O. 5. The ld. AR before us .....

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o are entrepreneurs in housing industry. The assessee is not providing assistance/ support services to any specified individual but to a section of the people, i.e. entrepreneurs/ investors in real estate industry. Therefore, in the circumstances of the case, the object of the assessee is for the benefit of a section of the community or a class identifiable by some common quality of public and impersonal nature and as such it cannot detract from its charitable character. The activities of the as .....

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es incurred to organize fair outside India has been incurred first and subsequently income has arisen out of India. Therefore, such expenses out of the income arises in India are 'application outside India' out of receipts in India and hence in violation of sec. 11(1)(a) of the Act. To this, it is submitted at the cost of repetition that the fair was organized to invite the Indian residents of North America to invest in India in realty sector. So, it was for the advancement of realty bus .....

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. CIT that receipt on account of trade fair was utilized outside India is factually incorrect and beyond the evidence on record. Under the circumstances, the assessee, as required by section 11, has applied the receipts for charitable purposes in India and such application is deductible from the gross receipts of the Institution. 1. The ld. AR further submitted that the object and activity of the assessee organizing fair in order to advance the realty sector is incidental to the attainment of ma .....

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oss receipts of the institution. Section 11 of the Act duly recognizes and permits accumulation of 15% out of the gross receipts. For the furtherance of object, further accumulation is permitted by sec.11 (2) also. Without prejudice to the above submissions, it was also pleaded that the aims and activity of the assessee right from the inception till now remained the same. The assessments framed for earlier assessment years were consistently accepting the charitable activities carried on by the a .....

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above detailed submission with relevant evidences, it is prayed before the Hon ble Bench that the order passed u/s 263 of the Act by the Ld. CIT (Exemption) may kindly be directed to be quashed and annulled and the assessee may be given such relief(s) as prayed for. 6. On the other hand, ld. DR vehemently relied on the order of the ld. CIT passed u/s 263 of the Act. 7. We have heard the rival parties, perused the material available on record and duly considered the facts of case and the applicab .....

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ety are commercial in nature in the light of the above facts & circumstances. 2. Whether there is violation of the provision of section 11(1)(a) of the Act with regard to the application of income in a foreign country. Now to arrive at the correct conclusion of the case, we deem it necessary to reproduce the relevant provisions of sec. 263 of the Act. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that .....

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e reproduced section 263(1) can be summarized in the following points:- 1) The commissioner may call for an examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) Erroneous; and (ii) Is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case .....

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iation. The relevant main objects and objects incidental or ancillary to the attainment of the main objects stand as under: Main objects:- 3) To establish harmony between the construction industry and the Government Departments at the Central and State levels, local ad public bodies, financial institutions and private bodies and institutions for promoting healthy growth and development of the construction industry. 4) xxx xxxx xxxx 5) xxx xxxx xxxxx 6) To encourage research and development in th .....

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e-company was established with the aforesaid objects and the same were accepted by the Revenue while granting the registration u/s 12AA of the Act on 10.10.1995. Since the inception of the assessee-company the objects and activities remained same and which were accepted by the Revenue even under the assessment framed u/s 143(3)/147 of the Act consistently without holding the aforesaid activities as commercial in nature. Accordingly, in view above, we are inclined to provide the relief to the ass .....

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or beneficial interest in, the properties and they have always been utilised for the purpose of the religious community. Even if the trust was revocable, the property was not to go back to the Satguru on revocation. The constitution and the bye-laws on record indicate in cl. 1(b) that where the property was given to the Sant Satguru, it was intended for the common purpose of furthering the objects of the Sant Satguru and the Central Council had the authority to manage the property. Clause 9 of .....

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tified in holding that the property was subject to a legal liability of being used for the religious or charitable purpose of the Satsang.-All India Spinners' Assocn. vs. CIT (1944) 12 ITR 482 (PC) : TC23R.179 applied; The Secretary of State for India in Council vs. Radha Swami Satsang (1945) 13 ITR 520 (All) impliedly approved; CIT vs. Radha Swami Satsang (1980) 19 CTR (All) 345 : (1981) 132 ITR 647 (All) : TC23R.644 set aside. Properties of assessee, a religious institution, were meant for .....

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:- 2[(15) charitable purpose includes relief of the poor, education, [yoga] medical relief, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest,] and the advancement of any other object of general public utility: Provided 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, .....

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the activities of the assessee as commercial in nature in terms of the clause of section 2(15) i.e. advancement of any other object of general public utility . However we find that as per the proviso to section 15 along with the speech of the Finance Minister and CBDT circular number 11 of the 2008 dated 19th December 2008 make it clear that only the institution carrying on commercial activities are intended to be covered by the proviso, not the genuine charitable institutions. The activity wil .....

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e profit is received by the trust, which is incidental to the activities of the trust, the same shall not be construed to be activity in the nature of trade, commerce or business of the assessee. However, the assessee relied in the order of the Co-ordinate C Bench of this Tribunal in the case of Indian Chamber of Commerce Vs. ITO (ITA Nos. 1491 & 1284/Kol/2012 dated 02.12.2014. But the ld. CIT distinguished the said case law by holding that in that case the assessee s activities were inciden .....

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, conferences & seminar 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. 3. That on the acts and the circumstances of the case of the appellant and in law, the Ld. CIT(A) erred in holding that decision of the Hon'ble Delhi HC dated 19th September, 2011, in the case of DIT (Exemptions) Vs. Institute of Chartered Accountants of India and that the case of The Institute of Chart .....

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llant which was charitable in nature. 9. From the above facts, we find that there was no question to decide before the then Hon ble ITAT which is arising in the instant case whether the activities of the instant assessee are incidental/ ancillary to the main objects to the trade, commerce and industry or main objects are in the nature of trade, commerce and industry. Therefore, in our considered view the facts of the case are squarely applicable of case of Indian Chamber of Commerce Vs. ITO (Sup .....

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re conducted only for the purpose of securing the main object which is the advancement and development of trade and commerce and industry in India. The activities are not in the nature of business and there is no motive to earn profit. The income arising to the assessee is only incidental and ancillary to the dominant object for the welfare and common good of the country s trade, commerce and industry. The profits earned are utilized only for the purpose of feeding its dominant object and no par .....

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is a charitable institution, duly registered as such us.12A of the Act, carrying in 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 .....

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Further it is to be noticed that the Memorandum has also specifically authorized the Chamber to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them. Thus it was only for the 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 .....

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Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of general public utility, 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 .....

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id section amply reveals that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the institutions 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. .....

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.e.f. 1.4.2009 though the restrictive first proviso was inserted therein. Accordingly, in the given facts of the case as discussed above in detail, the assessee association 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 s. 2(15) of the Act. this issue of assessee s appeal is al .....

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R (SC) 378 : (1980) 121 ITR 1 (SC) : TC23R.195 is binding on the Bench. Undoubtedly, the activities of the assessee in regard to holding of the Conference of the Afro-Asian Organisation in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, viz., promotion, protection and development of trade, commerce and industry in India. The income derived by the assessee from such activities was exempt under r/w s. 11(1)(a) s. 2(15). There is a distinction .....

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tion and is incidental to the carrying out of the purpose for which it is constituted. If the primary or dominant purpose of a trust or institution is charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or the institution from being a valid charity. Likewise, cl. 3(z1) and (z2) which permit the establishment of a trust or trusts, appointment of trustees thereof from time to time and the vesting of funds or surplus i .....

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he system of taxation of income and profits of charities, with particular reference to "objects of general public utility" to prevent tax evasion, by diversion of business profits to charities. It is the vagueness of the fourth head of charity "any other object of general public utility" that impelled Parliament to insert the restrictive words "not involving the carrying on of any activity for profit". It was clearly inconsistent with the settled principles to hold .....

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charitable purpose' while enacting s. 2(15) rather than inserted the words "not involving the carrying on of any other activity for profit", thereby creating all this legal conundrum". When the Government had not accepted the recommendation of the Direct Tax Laws Committee in Chapter 2 (Interim Report, December, 1977) for the deletion of the words "not involving the carrying on of any activity for profits", by suitable legislation, it was impermissible for this Court .....

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onvenience are commendable indeed. One need not go in search of charitable persons amongst the taxpayers only. Still the majority view has got to be followed now. The main object of assessee being promotion, protection and development of trade, commerce, and industry in India, it was an object of general public utility and income derived from activities for advancing the dominant object was exempt under s. 11. Issue 2 Violation of provisions of section 11(1)(a) of the Act The ld. CIT has also he .....

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the previous year of the person in receipt of the income- [(a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India; and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of [fifteen] per cent of the income from such property; 10. From the above provision, we find th .....

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e fact that the income of the assessee has applied outside India. The fair in North America was organized to invite the Indian residents to invest in India in realty sectors. Therefore the object and activity for the fair in North America was for the advancement of realty business in India. Mostly all the participants were Indian corporate and contributions were received in Indian currency. There was no charitable act done in North America. In similar set of facts the Hon ble Supreme Court in th .....

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trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, which was clearly an object of general public utility and profit was merely a by-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognised by the Central Government under s. 25 of the Companies Act, 1956, and under its memorandum of association, the profit arising from any activity carried on by the asse .....

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profit did not alter the charitable character of the assessee. We are of the view that the Tribunal was right in taking the view that the purpose for which the assessee was established was a charitable purpose within the meaning of s. 2, cl. (15), and the income of the assessee was exempt from tax under s. 11. The question referred to us in each of these references must, therefore, be answered in favour of the assessee and against the Revenue. We also rely in the case of the of CIT Vs. Federati .....

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btedly, the activities of the assessee in regard to holding of the Conference of the Afro-Asian Organisation in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, viz., promotion, protection and development of trade, commerce and industry in India. The income derived by the assessee from such activities was exempt under r/w s. 11(1)(a) s. 2(15). There is a distinction between the "purpose" of a trust and "powers" conferred u .....

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stituted. If the primary or dominant purpose of a trust or institution is charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or the institution from being a valid charity. Likewise, cl. 3(z1) and (z2) which permit the establishment of a trust or trusts, appointment of trustees thereof from time to time and the vesting of funds or surplus income or any property of the assessee in the trustees, are nothing but powers .....

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erence to "objects of general public utility" to prevent tax evasion, by diversion of business profits to charities. It is the vagueness of the fourth head of charity "any other object of general public utility" that impelled Parliament to insert the restrictive words "not involving the carrying on of any activity for profit". It was clearly inconsistent with the settled principles to hold in the aforesaid case that if the dominant or primary object of a trust was c .....

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s "not involving the carrying on of any other activity for profit", thereby creating all this legal conundrum". When the Government had not accepted the recommendation of the Direct Tax Laws Committee in Chapter 2 (Interim Report, December, 1977) for the deletion of the words "not involving the carrying on of any activity for profits", by suitable legislation, it was impermissible for this Court by a process of judicial construction to achieve the same result. It is wron .....

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rsons amongst the taxpayers only. Still the majority view has got to be followed now. The main object of assessee being promotion, protection and development of trade, commerce, and industry in India, it was an object of general public utility and income derived from activities for advancing the dominant object was exempt under s. 11. 11. We also find that the activity of conducting the trade fair in foreign country of the assessee is within the object clause which was permitted while granting t .....

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