TMI Blog2013 (3) TMI 823X X X X Extracts X X X X X X X X Extracts X X X X ..... n, Hon'ble jurisdictional High Court with an observation that this Tribunal had not decided on the eligibility of the assessee to claim exemption under Section 11 of Income-tax Act, 1961 (in short 'the Act'), remitted the appeals back to this Tribunal for deciding on the said issue. 2. On account of the chequered history of the case, it will be worthwhile to recapitulate the course of events, leading to the appeal before the Hon'ble judicial High Court. 3. Assessee is a society registered under Societies Registration Act, 1975. It also had registration under Section 12A(a) of the Act since 4.7.1983. Assessee was all along claiming exemption under Sections 11 and 12 of the Act, based on such registration. For assessment years 1986-87 to 1993-94, it was denied such claim for exemption by the Assessing Officer for a reason that the major and predominant activity of the assessee was to import wattle extract from various countries and distribute it to its members, resulting in surplus income. Surplus derived from import of wattle extract which was distributed to its members, during previous years relevant to assessment years 1987-88 to 1991 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage of its total receipts on account of the service charges were as under:- Asst. Year Service charges received (Rs.) Service charges as a percentage of the surplus 1987-88 5,61,031 2.41 1988-89 7,68,565 2.59 1989-90 13,38,889 2.24 1990-91 10,56,442 2.65 1991-92 14,00,027 2.61 1992-93 12,29,753 2.56 1993-94 11,77,864 2.29 5. Assessee was put on notice by the Assessing Officer as to how it could claim exemption under Sections 11 and 12 of the Act. It seems along with its claim for exemption under Sections 11 and 12, assessee had also staked a claim on the principle of mutuali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, it was an association of various leather associations involved in business and was not solely for furthering the interest of merchants. Its intention was to promote leather industry as a whole. Further argument of the assessee was that promotion of a particular trade was not same as promotion of those interested in the trade. Assessee also submitted that Section 28(iii) was not at all applicable since it was not engaged in any business. According to it, purchase of wattle extract and its distribution among its members was not a business activity. As per assessee, it was not an association for promotion of a commercial venture or for social entertainment. Just because surplus was generated, it would not be possible to conclude that assessee was a non-charitable entity. As per the assessee, the purchase of wattle extract and distribution among its members was only an incidental service which started only in the year 1979. Assessee was in existence since sixty years. The minimum import quantity for wattle extract was 50 tonnes, and it was not possible for small tanners to purchase the extract in such large quantities. It was under such circumstances, assessee came to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11 of the Act in all its assessments upto assessment year 1985-86. It had registration under Section 12A(a) of the Act and also approval under Section 80G of the Act. Thus, charitable nature of its objects could not be questioned. As per ld CIT(Appeals), assessee had done a lot in the area of pollution control, environmental study and research. Distribution of wattle extract among the members was done on account of compulsion of quantity restraints placed on imports by the Government. Ld. CIT(Appeals) noted that assessee had no intention of making any profits in distribution of wattle extract among its members. Assessee also had made contribution of ₹ 15 lakhs to Central Leather Research Institute and also ₹ 50 lakhs for setting up an institute for promoting leather products. He was therefore of the view that assessee was entitled for exemption under Sections 11 and 12 of the Act. 9. Ld. CIT(Appeals) also held in favour of assessee on the grounds of mutuality. According to him, principles of mutuality clearly applied in the case of the assessee. Surplus arising out of distribution of wattle extract was not on account of any high margin of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. This Tribunal, after considering the contentions of the assessee, held in its favour relying on a note written by the Assessing Officer in the assessment order for assessment year 1985-86. Though this note was not meant for the assessee, as per this Tribunal, what was mentioned in the said note went in favour of assessee. The note, on which reliance was placed by the Tribunal, is reproduced hereunder:- The assessee filed its return of income for the Assessment Year on 1.7.1985 instead of 30.6.1985. The assessee filed an explanation for the delay in not filing the return of income. The explanation is satisfactory. The delay is condoned. The assessee trust imported wattle extract on behalf of its members and distributed it to the members. The trust stated that the import is restricted to 25 tonnes by individual members. Import of lesser quantities is not permitted. Hence the members submit their requisition to the Association and the wattle extract is collectively imported and distributed among the members. The wattle extract received is price after considering the incidental expenses and the shortage and the members are charged accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s right in holding that the assessee was mutual Association and, therefore, the income of the Association was exempt on the principles of mutuality? 3. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in basing its conclusions regarding the applicability of the principles of mutuality to the assessee Association solely relying on the office Note of the Assessing Officer for the assessment year 1985-1986 without going into the reasons for the later assessment years and the facts narrated in the assessment orders for the assessment years 1986-1987 to 1991-1992, especially since the principle of res judicata was not applicable to Income Tax proceedings? 4. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in upholding the order of the CIT(Appeals) holding that the assessee association would not be liable for payment of wealth tax as it was a trust exempted under Section 11 of the Income Tax Act, 1961 for the assessment year 1989-90? 5. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Income Tax Appellate Tribunal, Chennai Bench D shall pass orders under the Wealth Tax Act for the above said three assessment years. 14. Now before us, learned D.R., strongly assailing the orders of CIT(Appeals), reiterated the contentions which the Department had already taken in the first round of appeal before this Tribunal. According to him, the benefits were only to the members of the assessee and not to the public. Therefore, it was only an association for improving the lot of its members, who were identified and never for the benefit of the public. Relying on the object clauses 9, 11, 13, 14 and 15 of the Memorandum of Association of the assessee, learned D.R. submitted that it was clear therefrom that its benefits were only for the members and not for the public. When the benefits were only for providing services to a specified group of people, exemption under Sections 11 and 12 would not be available to the assessee. The primary principle on which exemption on charities has been formulated is that it should be for the benefit of the public. When the persons to whom the benefit is individually defined, then it is only providing benefit to a priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also one of the issues mentioned in the substantial questions of law framed by Hon'ble jurisdictional High Court, as mentioned by us, what has been remitted back to us is the issue regarding claim of exemption under Sections 11 and 12 of the Act. 17. Quantity of wattle extract imported by the assessee and the surplus that arose to it during various years, has been reproduced in a table at para 3 above. Surplus arising out of recoupment of service charges has been reproduced at para 4. As per Revenue, assessee was existing only for the benefit of its members who were a closed group persons and its benefit did not go to the public at all. It was only doing business activity in the nature of importing wattle extract and earning profit out of its distribution. 18. To resolve the issue we have to necessarily start from the objects of the assessee, as mentioned in the Memorandum of Association, copy of which has been produced before us. These objects read as under:- 1. To start and carry on scientific research against pollution due to lather tanning industry and also to do scientific improvements in every stage of manufacture in the leather ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion of the Association, may be necessary for furthering the interests of the trade and industry. 12. To communicate and correspond with public authorities and chambers of commerce and other mercantile and public bodies throughout the world and to promote measures for the protection of the interests of the Tanning Industry, skin and hide leather and allied trades. 13. To provide suitable places and other facilities for holding and conducting meetings, assemblies and organisations amongst the members. 14. To make available to the members such facilities as a meeting place of exchange for transaction of business in skins and hides and leather, tanning materials and other chemicals required for the industry. 15. To assist or help the members to transport their produce stock-intrade, or other goods, and to make available to them the services of vehicles upon such terms or conditions as the Association may think fit. 16. To provide facilities such as baling press, ware-house etc. and to undertake for the benefit of the members of the Association forwarding and clearing of merchandise by lorry, rail, steamer, air or other means of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibrary, encouraging meetings of industrialists and businessmen and to act as a representative body before various authorities. 19. First object of the assessee itself clearly mentions that it intended to do scientific research which helped to prevent pollution. It is an undisputable fact that tanning industry is one of the most polluting industry in the world and more so in India. Tanning is the process by which raw animal hides are converted into leather. Hides that arrive at a tannery have to be sorted, matched and treated with vegetable tanning agents or chemical tanning agents with the ultimate intention of giving a product, which is having a texture, look and shape acceptable in the market, and which is durable for use. About 175 different chemicals are used in tanning process. Tanning of shades and skins have been traditionally done using vegetable tanners. However, towards first half of twentieth century, along with industrialization, chemical tanners began to be used, since tanning was cheaper and easier when chemical tanners were used. However, along with this came the waste which were dissolved in water. Vegetable tanning resulted mostly in solidwaste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce the pollution has to be encouraged. It definitely brings benefit to the public at large. Any activity which helps bring down pollution, can only be considered as something done which is essentially in the nature of advancement of an object of general public utility. 21. Section 2(15) of the Act, as it stood at relevant point of time, reads as under:- charitable purpose includes relief of the poor, education, medical relief and advancement of any other object of general public utility. The words not involving carrying on any activity for profit were omitted by Finance Act, 1983 with effect from 1.4.1984 and was brought back in the Act by Finance Act, 2008 with effect from 1.4.2009, latter by a wholesome substitution of sub-section itself. In any case, during the impugned assessment years, the words not involving carrying on any activity for profit was not there in the definition as it stood in the relevant point of time. We cannot therefore say that effort of the assessee to bring wattle extract and distribute it among its members, was not a charitable activity. 22. However, a question that still remains, i.e. wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which would otherwise be available to a case of general public utility, would not stand in the way of an assessee claiming exemption under Section 11 of the Act. 24. There is no finding by the Assessing Officer that the amounts utilized by the assessee or the work done by the assessee was in violation of any objects of the assessee enumerated at para 17 above. The competent authority never cancelled or attempted to cancel the registration granted under Section 12A(a) of the Act. The said registration remains intact from the date of grant, namely, 4.7.1983. Admittedly, there has been no amendment to the objects of the Trust. No doubt, as pointed out by the learned D.R., objects of the assessee, namely, those mentioned in clauses 6, 11, 13, 14, 15 and 16 do enable it to give certain services only to its members. In our opinion, what is to be considered is the predominant object of the assessee and the predominant nature of the objects does show charity, as already mentioned by us at paras 17 18 above. As held by Hon'ble Apex Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (121 ITR 1), definition of charitable purpose would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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