TMI Blog2020 (7) TMI 505X X X X Extracts X X X X X X X X Extracts X X X X ..... We find from the perusal of the orders of the lower authorities that nowhere they had pointed out that assessee activities involved in the nature of trade, commerce or business or activity of rendering any service in relation to any trade, commerce or business and in consideration of which a cess or fee has been received by the assessee. Hence, we hold that assessee s case does not fall within the ambit of proviso to Section 2(15) of the Act. - Decision in the case of ALL INDIA RUBBER INDUSTRIES ASSOCIATION VERSUS ADIT (E) [ 2018 (10) TMI 1172 - ITAT MUMBAI] followed - Decided in favour of assessee. - ITA No.2435/Mum/2019 - - - Dated:- 17-7-2020 - Shri M. Balaganesh, AM And Shri Amarjit Singh, JM For the Assessee : Shri Ketan Ved For the Revenue : Shri Amit Pratap Singh, Sr. AR ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.2435/Mum/2019 for A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-3, Mumbai in appeal No.CIT(A)-3(IT)-10478/2017-18 dated 18/01/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 07/03/2016 by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common good of Indian business, and in particular with the Cotton Textile Industry and allied industries and trades. To carry on publicity and propaganda for the purpose of educating the public with regard to the scope, importance and needs of the Cotton Textile Industry and allied Industries and trades and generally to promote the interests of the consumers. Obtaining policy inputs from the Government targeted at the overall growth of the textile and clothing sector. 3.2. In accordance with the objects as spelt out in the Memorandum of Association , a brief nature of the activities undertaken by the assessee are as under:- The efforts for obtaining policy inputs from the Government of India targeted at the overall growth of the textile and clothing sector have helped in shaping Government initiatives like The Technology Upgradation Fund Scheme‟ ( TUFS), The Technological Mission on Cotton, The Debt Restructuring Package and significant rationalization of the excise duty structure for the sector. Though its subsidiary body, namely ICMF Cotton Development and Research Association ( ICMF-CDRA), the assessee has been supporting cotton extension and seed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards promotion of its objects and not for the benefit of its members. 3.5. We find that assessee had derived following income apart from its regular income:- Particulars Amounts in Rs. Interest on fixed deposits 1,46,64,431 Interest income on advances given to employees 29,335 Interest on income-tax refund 1,53,212 Exchange gain 12,118 Miscellaneous Income 6,679 Total 1,48,65,975 3.6. The ld. AO applied the principles of mutuality and observed that the regular income derived by the assessee from its members are exempt on the principles of mutuality. However, with regard to the interest income, exchange gain and miscellaneous income as tabulated in the aforesaid table, the ld. AO observed that these incomes were derived by the assessee from its non-members and accordingly, the same would not be exempt on the principles of mutuality. The ld. AO observed that assessee is a mutual association and not a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions laid down in Section 11(5) of the Act. 5. Thus it becomes apparent that the interest income is one of the modes of recovery of a part of the costs incurred by the Appellant in carrying on its objects as specified in its Memorandum of Association which we would like to re-iterate are for the advancement of any other object of general public utility in terms of Section 2(15) of the Act. 6. It is further submitted that what the Appellant is doing is deriving interest income from fixed deposits and spending it for its objects which are charitable in nature thereby falling in line with the law laid down in Section 11(1)(a) of the Act. Section 11 of the Act lays down that the income derived from the property held under the trust to the extent to which such income is utilized for charitable purposes for exempt from tax. Re.: Interest Income from Advance to Employees ₹ 29,335/- Re.: Interest on Refund of Tax Deducted at Source ₹ 1,53,212/- Re.: Miscellaneous Income ₹ 6,879/- 1. The above-mentioned receipts are not for rendering any services but to meet its costs and not to make any profit for itself. 2. Interest on refund of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be received from any activity in the nature of any trade, commerce or business. Without prejudice to the aforesaid, your Honour‟s attention is invited to the decision of the Kolkata Bench of the Income-tax Appellate Tribunal in the case Indian Chamber of Commerce v/s. Income-tax Officer, Exemption-I (2014) 52 taxmann.com 52 (Kolkata-Trib.) (copy enclosed-refer Appendix K ) (refer page Nos. 206 to 242 of the compilation) wherein it has been held that assessee-association, formed with object of advancement and development of trade, commerce and industry in India, its primary object being charitable in nature under section 2(15), income earned by it from any incidental activities would also be eligible for exemption under section 11. The Tribunal further held that in absence of profit motive, receipts derived by chamber of commerce and industry for performing specific services to its members, though treated as business income under section 28(iii), would still be entitled to exemption under section 11, read with 2(15). 26. Further, the Assessing Officer has also made addition of ₹ 3,94,295/- to the total income of the Appellant being the expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee together with the various case laws relied upon by him without assigning any reasons thereon and upheld the action of the ld. AO that assessee trust is only a mutual association and accordingly, any receipt received from non-members would be liable to tax as business income. He also held that assessee s case is squarely covered by the proviso to Section 2(15) of the Act and accordingly, upheld action of the ld.AO in rejecting the claim of Section 11 of the Act. 3.9. We find from the aforesaid narration of primary facts vis- -vis objects of the activities carried out by the assessee, which are not in dispute before us, that the assessee was formed to promote and protect trade, commerce and industries of India in general and more particularly in respect of cotton textile industry and allied industries and trades. Admittedly, the activities carried on by the assessee were not with a view to make profits. It is not even the case of the revenue that assessee trust is not existing for the purpose of not for profit within the meaning of Section 11-13 of the Act. We find that the ld. AO had erroneously treated the assessee as a mutual association instead of charitable or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icy and collectively taking such steps, as may be deemed necessary or expedient to further and safeguard the interests of the Industry and Trade, provided that the Association shall not make or support any regulation or restriction which would make the Association a Trade Union. (b) To regulate and standardise as far as possible business practices in the Rubber Manufacturing Industry and its allied Trades. (c) To promote and safeguard the interests of the Indian Rubber Industry and Trade in all its branches and by all possible means and in particular by (1) providing a meeting place with facilities for exchange of views of Members and others interested in the Industry and Trade, (2) providing facilities for communication, co-ordination of interests or co-operation with similar or allied associations or societies in other countries, (3) arranging and providing facilities for conferences, exhibitions, demonstrations, lectures, and excursions and other functions relating to the Rubber Industry and Trade, (4) establishing, equipping and maintaining laboratories for Testing as well as Research and Libraries for the benefit of the Members and if possible of non-members also; (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... features of the assessee association to point out that the objects of the assessee-association are primarily revolving around promotion and safeguarding the interests of Rubber trade and industry. In fact, clause 3(a) specifically rules out making or supporting any regulation or restriction, which would make the assessee association a trade union. A perusal of the objects does lead to an inference that it is formed with the objects of promoting or protecting the interests of Rubber industry. Notably, assessee continues to be registered u/s 12A of the Act, and in that regard, its objects can be stated to be in the realm of advancement of objects of general public utility‟. The Assessing Officer has made out a case that since the objects are not for the benefit of general public at large, but are for a section of public inasmuch as the benefits are limited 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, the Tribunal in ITA No. 2057/Mum/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lar trade, industry, the same loses the character of being charitable. 14. The other and more substantive point made out by the Assessing Officer is based on the proviso to Sec. 2(15) of the Act which has been inserted by the Finance Act, 2008 w.e.f. 01.04.2009. In this context, the amended Sec. 2(15) of the Act as on the statute w.e.f. 01.04.2009 reads as under :- (15) Charitable purpose includes relief to the poor, education, medical relief and the advancement of any other object of general public utility The definition after the amendment reads as follows; Charitable purpose includes relief of the poor, education, 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, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court for the interpretation of the proviso to Sec. 2(15) of the Act. The principles so culled out by our co-ordinate bench are quite illustrative and read as under :- (i) The proviso to Sec.2(15) of the Act introduced by virtue of the Finance Act, 2008 with effect from 01.04.2009 has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess‟ or fee or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not. (ii) If an activity in the nature of trade, commerce or business is carried on and it generates incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above. (vii) Section 2(15) is only a definition clause. Section 2 begins with the words, in this Act, unless the context otherwise requires. The expression charitable purpose appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression charitable purpose , as defined in Section 2(15) of the said Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression charitable purpose by the revenue. (viii) The expression charitable purpose , as defined in Section 2(15) cannot be construed literally and in absolute terms. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. As per the Hon'ble High Court, the incidental activity of obtaining milk while taking care of the cows would not be hit by the proviso to Sec. 2(15) of the Act because selling of milk by itself could not be construed to be an activity in the nature of trade, commerce or business having regard to the facts of the case. It was noted that the dominant activity being carried out by the assessee was to take care of the old, sick and disabled cows, which fell within the purview of Sec. 2(15) of the Act and any incidental activity carried out, which resulted in receipt of money would not attract the proviso to Sec. 2(15) of the Act unless there was a profit motive. Quite clearly, in the factsituation before the Hon'ble High Court, the motive and the purpose of the activities was to take care of old, sick and disabled cows and not to earn profit by selling milk, which was only an incidental activity; and, accordingly, the assessee was found eligible for registration u/s 12A of the Act. 18. In this background, if we are to examine the case made out by the Revenue in the instant, we do not find any finding at all by the Assessing Officer or even by the CIT(A) that any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context, it would suffice for us to reproduce hereinafter the following extract from the judgment of the Hon'ble Delhi High Court in the case of PHD Chamber of Commerce Industry (supra) :- 16. A survey of the decided cases shows that trade and professional associations have been held entitled to the exemption under Section 11. An association of businessmen who sold goods on hire purchase [Add. CIT vs. South India Hire Purchase Association [1979] 116 ITR 793 (Mad.), an association of traders dealing in photographic and connected trades [CIT v. South Indian Photographic Allied Trades Association [1987] 166 ITR 166/[1986] 26 Taxman 485 (Mad.) and an association consisting of Kirana Merchants (Madras Kirana Merchants Association v. CIT [1978] 111 ITR 156) were held by the Madras High Court to be eligible for the exemption under Section 11 notwithstanding that some of the associations charged their members fees for specific services rendered. Other cases on similar lines are: NAME OF CASE CITATION ASSOCIATION OF Banaras Brass Merchant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption under Section11. Section 2(15) which incorporates the definition of charitable purpose as including relief of the poor, education, medical relief and the advancement of any other object of general public utility, on the lines of what Sir Samuel Romilly suggested to the Court in Morice v. Durham, Bishop of Durham (1805) 10 Ves Jr. 522, shows that several mutual associations may also fall within the definition. On this basis, a Gymkhana Club formed to promote physical fitness, sports and games and social intercourse amongst the members has been held entitled to the exemption under Section 11 by the Madras High Court in Commissioner of Income-tax v. Ootacamund Gymkhana Club (1977) 110 ITR 392; an association formed for the general benefit of the members of the legal profession was held eligible for the exemption by the Supreme Court in Commissioner of Income-tax v. Bar Council of Maharashtra, (1981) 130 ITR 28; a public utility undertaking such as a State Road Transport Corporation was held eligible for the exemption by the Supreme Court in Commissioner of Income-tax v. Andhra Pradesh State Road Transport Corporation 159 ITR 1. In all these cases the common thread which wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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