TMI Blog2018 (10) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the members of the assessee-association, therefore, the same is not charitable. In our view, the aforesaid approach of the Assessing Officer is contrary to the accepted legal position on this subject, and more so, considering that in assessee’s own case for Assessment Year 1997-98 wherein held the expression “object of general public utility” in sec. 2(15) prima facie includes all objects which permits the welfare of the general public. It cannot be said that a purpose would cease to be charitable if it includes taking of steps for the promotion of trade, commerce or manufacture. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object must benefit the whole of mankind. It is sufficient if the intention is to benefit a section of the public. Thus no justification for the Assessing Officer to hold that since the objects of the assessee seek to promote and protect the interests of a particular trade, industry, the same loses the character of being charitable. A portion of the submissions furnished by the assessee have been reproduced wherein assessee specifically asserted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ITA NO. 247/MUM/2017 - - - Dated:- 12-10-2018 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER For The Appellant : Ms. Aarti Vissanji For The Respondent : Shri V. Justin ORDER PER G.S. PANNU, AM : The captioned three appeals by the assessee involve common issues, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The appeal pertaining to Assessment Year 2012-13 is taken as the lead case, which is directed against the order of CIT(A)-1, Mumbai dated 22.12.2015, pertaining to the Assessment Year 2012-13, which in turn has arisen from the order dated 11.02.2015 passed by the Assessing Officer, Mumbai under section 143(3) of the Income Tax Act, 1961 (in short the Act ) 2. In this appeal, the Grounds raised by the assessee read as follows :- 1. The learned CIT (Appeals) erred in denying the deduction u/s 44A- special provision for deduction in case of trade, professional or similar association to the assessee, a Trade Association registered u/s 12A of the Income-tax Act, 1961. eligible and claiming such deduction u/s 44A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956. Broadly speaking, its objects are for promoting and safeguarding rubber industry in India. Assessee is also registered u/s 12AA of the Act with the Commissioner. For Assessment Year 2012-13, it filed its return of income declaring NIL income, which was subject to scrutiny assessment. 4. The Assessing Officer noted the objects of the assessee and was of the view that it was an association of members existing for its members only and, therefore, it was a mutual association. The Assessing Officer also noted that assessee was carrying out activities in the nature of trade, business or commerce and/or providing services in relation to trade, business or commerce and, therefore, it was hit by proviso to Sec. 2(15) of the Act which was inserted w.e.f. 01.04.2009. On being show caused on the aforesaid aspects, assessee pointed out that it was registered as a charitable institution u/s 12A of the Act and carrying on objects of general public utility. On the issue of mutuality, assessee contended that so far as the subscription revenue earned from its members was concerned, it was governed by the Principle of Mutuality, and the same was exempt from tax. On other activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is in further appeal before us. 6. Before us, the learned representative for the assessee vehemently pointed out that the lower authorities have misdirected themselves in denying the claim of exemption under Sec. 11/12 of the Act. It has been specifically pointed out that the Assessing Officer unjustly denied the claim of exemption u/s 11 of the Act on the ground that only a section of persons in the society were benefitted, i.e. members of the association. In this context, the learned representative submitted that it is a well-settled proposition that even where the benefits are for a section of the public, it would still be regarded as charitable purpose so long as it involves objects of general public utility and charitable status could not be denied merely because the activities do not benefit the whole of mankind. Secondly, it is sought to be pointed out that the Assessing Officer has misdirected himself in holding that the Principles of Mutuality and charitable purpose are mutually exclusive. Thirdly, it is pointed out that the registration of the assessee u/s 12A of the Act continues to hold and, therefore, it was not open for the Assessing Officer to re-examine an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el.); DIT (Exemptions) vs Shree Nasik Panchvati Panjrapole, (2017) 150 DTR 249 (Bom.). 8. It was, therefore, contended that the assessment made by the Assessing Officer denying the relief under Sec. 11/12 of the Act is unjustified and the income as returned by the assessee deserves to be restored. 9. On the other hand, the ld. DR appearing for the Revenue has defended the orders of the authorities below by placing reliance thereon. The ld. DR has primarily reiterated the stand of the Assessing Officer, which we have already noted in the earlier paras and is not being repeated for the sake of brevity. In particular, the ld. DR has referred to the discussion in the assessment order to the effect that assessee being predominantly a mutual association, its objects could not be taken to be charitable as the two concepts are contradictory to each other. It was also canvassed by the ld. DR that the activities of the assessee are predominantly for the benefits of its members and not for public at large and, therefore, the same could not be treated to be charitable in nature. 10. We have carefully considered the rival submissions. Before we proceed to address the specific objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (9) providing facilities and machinery for the settlement of disputes by arbitration. ........................................................................................................................ (j) To publish an official journal of the Association giving prominence to the aims, objects and activities and for the spread of knowledge and information relating to the Natural Rubber, Synthetic Rubber and Latex Goods Industry and Trade generally and to print and publish any advertisements, newspapers, periodicals, books, lectures or pamphlets that may be deemed desirable. ........................................................................................................................ (v) And generally to do all such other things as may be deemed incidental or conducive to the attainment of the above objects or any of them. 11. The Memorandum of Association also prescribes by way of clause 4 that income and property of the association whensoever derived shall be applied solely towards the promotion of the objects of the Association as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot of the whole problem. The advancement of an object of benefit to the public or a section of the public is distinguished from an individual or a group of individual would be of charitable purposes. This view was taken in the case of CIT vs Ahmedabad Rana Cast Association 140 ITR 1 (SC). The expression object of general public utility in sec. 2(15) prima facie includes all objects which permits the welfare of the general public. It cannot be said that a purpose would cease to be charitable if it includes taking of steps for the promotion of trade, commerce or manufacture. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object must benefit the whole of mankind. It is sufficient if the intention is to benefit a section of the public. This view was taken by the jurisdictional High Court in the case of CIT vs Western India Chambers of Commerce Ltd. 13 ITR 67 (Bom.). The decision of the Gujarat High Court relied upon by the revenue authorities is not relevant in the facts of the present case. In that case distribution of property amongst members was permitted. Whereas in the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso has been invoked by the Assessing Officer to say that as assessee s objects were of general public utility, and since in the course of carrying on its objects, it was receiving charges from its members as well as non-members, the activities could no longer be treated as charitable. In this context, one has to examine the import of the proviso inserted to Sec. 2(15) of the Act. Pertinently, the assessee continues to enjoy recognition u/s 12A of the Act; and, in any case, de hors the proviso to Sec. 2(15) of the Act, there is no dispute by the Revenue that the objects of the assessee fall within the scope of Sec. 2(15) of the Act on account of the same being in the nature of advancement of any other objects of general public utility . Therefore, one has to examine as to whether the insertion of proviso to Sec. 2(15) of the Act would render the activities of the assessee to be of non-charitable purpose. The Hon'ble Delhi High Court in the case of India Trade Promotion Organisation (supra) as well as in the case of Institute of Chartered Accountants of India (supra) have extensively examined the nature and scope of the proviso to Sec. 2(15) of the Act. At this point, we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of profit making is also very important. (iii) The meaning of the expression charitable purposes has to be examined in the context of income , because, it is only when there is income the question of not including that income in the total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption would have to be determined having regard to the objects of the institution and its importance throughout India or throughout any State or States. (iv) Merely, because an institution derives income out of activities which may be commercial, that does, in any way, affect the nature of the Institution as a charitable institution if it otherwise qualifies for such a character. (v) Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. If the dominant activity of the institution was not business, trade or commerce, then any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes. (emphasis supplied) 16. From the perusal of the aforesaid, what stands out is that in order to invoke the proviso to Sec. 2(15) of the Act, it is imperative for the Revenue to establish that there is an element of profit motive in the activities of the assessee. Notably, the fact that some of the activities carried out by an entity involving charging of fee, etc. have resulted in a surplus could not ipso facto be determinative of the fact that there was an element of profit motive. 17. At this point, we may also refer to the judgment of the Hon'ble Bombay High Court in the case of Shree Nasik Panchvati Panjrapole (supra). Though the said judgment is with regard to the registration u/s 12A of the Act, but the parity of reasoning laid down by the Hon'ble Bombay High Court in context of proviso to Sec. 2(15) of the Act is very eloquent. In the case before the Hon'ble Bombay High Court, the dominant activity being carried out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see specifically asserted that dissemination of information and publication of magazine relating to Rubber industry in India and developments abroad was a substantive activity carried out, which was for the charitable purpose of promoting the interests of Rubber industry and trade. Therefore, in view of the aforesaid discussion, in our view, the Assessing Officer erred in invoking proviso to Sec. 2(15) of the Act to treat the activities of the assessee as being non-charitable specifically considering the fact that no material or evidence has been led to show that there was any profit motive in carrying out such activities. Pertinently, there is no rebuttal at any stage to the assertions of the assessee that its activities in the instant years are similar to the activities in the past years. 19. Therefore, in view of the aforesaid discussion, we set-aside the order of CIT(A) and direct the Assessing Officer to allow the exemption u/s 12A of the Act to the assessee. 20. Before parting, we may also advert to the stand of the Assessing Officer that assessee was a mutual association as it was intended for the benefits of its members who were involved in rubber trade and industry. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Cal.) Mills and Steamers Presbyterian CIT v. Nachimuthu Industrial Association [1982] 138 ITR 585/ 14 Taxman 224 (Mad.) Industrial Association Add. CIT v. Madras Jewellers and Diamond Merchants Association [1981] 129 ITR 214 (Mad.) Jewellers and Diamond Merchants Add. CIT v. Automobile Association of Southern India [1981] 127 ITR 370/5 Taxman 77 (Mad.) Automobile owners The predominant intention theory was applied in these decisions and it was found that none of these associations worked for a profit and they were essentially associations established for the protection of interests of businessmen carrying on a particular trade. 21. In fact, the Hon'ble Delhi High Court specifically considered the receipts derived by a Chamber of Commerce and Industry for performing specific services to its members. The following discussion in the order of the Hon'ble Delhi High Court would show that such income was found to be entitled for benefits of Sec. 2(15) r.w.s. 11 of the Act provided, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect also, we find no reason to uphold the stand of the Revenue. 23. In the result, we hereby set-aside the order of CIT(A) and the Assessing Officer is directed to allow the benefit of Sec. 11/12 of the Act to the assessee and thereafter recompute the income, as per law. 24. It was a common point between the parties that in the Assessment Years 2011-12 and 2013-14 also, the substantive dispute stands on similar footing to that considered by us in the earlier paras in relation to Assessment Year 2012-13 and, therefore, our decision in Assessment Year 2012-13 will apply mutatis mutandis to these appeals, except for an additional point raised by the Assessing Officer in Assessment Year 2013-14, which is agitated by the assessee by way of Ground of appeal no. 5, which reads as under :- 5. The learned CIT(Appeals) erred in fact and law in holding that the assessee s contribution to the corpus of Rubber Skill Development Centre a Section 25 Company formed under the Prime Minister sector skill development programme was in violation of Section 13(1)(d) of the Income Tax Act, 1961. 25. In the assessment for Assessment Year 2013-14, the Assessing Officer has denied the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act, 1956. Sec. 13(1)(d) of the Act, inter-alia, prescribes that benefits of Section 11 or 12 of the Act shall not be available if any funds of the institution are invested in a mode other than those prescribed in Sec. 11(5) of the Act. No doubt, investment in shares of another concern is not a mode of investment prescribed in Sec. 11(5) of the Act; so however, the case set-up by the assessee herein is that it has made a contribution towards the corpus of the investee institution which is also a Sec. 25 company under the Companies Act, 1956. Notably, such companies are prohibited from declaring any dividend on its Share Capital and, therefore, in that sense, a person holding Share Capital in such a concern is not entitled to any return. Secondly, it is also clearly brought out that Rubber Sector Skill Council has been funded by the assessee along with ATMA as approved by the National Skill Development Corporation, i.e. Government of India in terms of a Memorandum of Understanding dated 16.03.2012, as noted by the Assessing Officer in para 6.1 of his order. It is also evident from the material on record that the said concern also holds registration u/s 12A of the Act. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X
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