TMI Blog2020 (9) TMI 626X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-section (2) to Sec. 11. Accordingly, not being able to persuade ourselves to subscribe to the view taken by the A.O that as the assessee over the years had invested surplus aggregating in term deposits with the banks, it was thus be concluded that it was working with a profit motive, we vacate the said observation. We may herein observe that the narrowing of the definition of charitable purpose as contemplated in Sec. 2(15) insofar the same is related to advancement of any other object of general public utility , was carried out by the legislature by way of an insertion of a proviso , vide the Finance Act, 2009 w.e.f 01.04.2009. Assessments in the case of the assessee trust for A.Ys 2010-11 to A.Y 2013-14 were framed u/s 143(3), and its claim for deduction u/s 11 after being tested in the backdrop of the amended definition of charitable purpose , and also, the proviso that supplemented the said definition, were in both the years found by the revenue to be in order. Revenue while framing the assessment for the aforementioned preceding years had not held the activities of the assessee trust as being in the nature of trade, commerce or business, or those of renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjects of the Appellant is not to be treated as for charitable purpose. 2. In the alternative and without prejudice to the above, the CIT(A) erred in confirming the action of the Assessing Officer in not providing relief to the extent of receipts from members, applying the principle of mutuality, despite the fact that the Assessing Officer has himself treated the Assessee-trust as a mutual association. 2. Briefly stated, the assessee which is a company registered under Sec. 25 of the Companies Act, 1956 (now Sec. 8 of the Companies Act, 2013) is registered as a trust with the DIT (Exemption), Mumbai under Sec. 12A of the Act. The assessee trust had e-filed its return of income for A.Y 2016-17 on 14.10.2016, declaring its total income at Rs. nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. In the course of the assessment proceedings it was observed by the A.O that the main objects of the assessee trust were as under: a) To act as a group of associations/ federations functioning at national and state level and with the object to address the national issues relating to real estate sector and better standard fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable. Apart from that, the assessee drawing support from certain judicial pronouncements tried to impress upon the A.O that rendering of services like holding conventions, meetings, conferences and seminars by professional institutions could not be construed as being in the nature of trade, commerce or business. As such, it was the claim of the assessee that the conventions organised by it for the benefit of the real estate industry could not be brought within the meaning of or be treated as being in the nature of trade, commerce or business, for the purpose of declining its entitlement towards claim of deductions envisaged in Sec.11 and Sec.12 of the Act. To sum up, it was the claim of the assessee that its activities were not hit by the proviso to Sec. 2(15) of the Act. However, the aforesaid claim of the assessee did not find favour with the A.O. After deliberating on the activities carried out by the assessee during the year under consideration, the A.O was of the view that the assessee was engaged in carrying out commercial activities with a motive of making profit. Also, the fact that the assessee had parked a substantial amount of ₹ 13,65,13,564/- as term deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purview of the principle of mutuality. Backed by his aforesaid deliberations the A.O brought the net surplus generated by the assessee during the year to tax in its hands. Accordingly, the income of the assessee was assessed by the A.O vide his order passed u/s 143(3), dated 15.12.2018 at ₹ 5,08,75,100/-. 3. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, not finding favour with the contentions advanced by the assessee, the CIT(A) upheld the view taken by the A.O and dismissed the appeal. 4. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorised representative for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements pressed into service by them. The ld. Authorised representative for the assessee (for short A.R ) vehemently submitted that the case of the assessee trust was not hit by the proviso to Sec. 2(15) of the Act, and thus, was duly eligible for claim of deduction envisaged in Sec. 11 of the Act. In order to buttress his aforesaid claim the ld. A.R took us through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of actual carrying out of such advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year. As per the aforesaid post-amended definition of the term charitable purpose , 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 or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. However, an exception to the application of the aforesaid exclusion has been provided by the legislature by way of a Provision that has been made available on the statute vide the Finance Act, 2015 w.e.f A.Y 2016-17. As per the Proviso to Sec. 2(15), if any activity in the nature of trade, commerce or business, or any activity of rendering any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable activities, undertake activities like publishing books or holding program on yoga or other programs as part of actual carrying out of the objects which are of charitable nature were being put to hardship due to first and second proviso to section 2(15). 4.3 The activity of Yoga has been one of the focus areas in the present times and international recognition has also been granted to it by the United Nations. Therefore the provisions of the Income-tax Act have been amended to include 'yoga' as a specific category in the definition of charitable purpose on the lines of education. 4.4 In order to ensure appropriate balance between the object of preventing business activity in the garb of charity and at the same time protecting the activities undertaken by the genuine organization as part of actual carrying out of the primary purpose of the trust or institution, the definition of charitable purpose in the Income-tax Act has been amended to provide 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the same irrespective of the nature of use or application, or retention, of the income from such activity, would take such advancement of any other object of general public utility beyond the meaning of charitable purpose as provided in Sec. 2(15) of the Act. But then, the legislature had provided an exception, as per which, if the activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; AND (ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent of the total receipts of the trust or institution undertaking such activity or activities of that previous year, then such trust or institution would not be hit by the exclusion carved out in the definition of charitable purpose as provided in Sec. 2(15) of the Act. 7. Before proceeding any further, we may herein observe that the ld. CIT(A) while adjudicating the present appeal had erroneously referred to the pre-amended provisions of Sec. 2(15) of the Act. As observed by us at length hereinabove, the case of the present assessee would be regulated by the post-amended Sec. 2(15), as had been made av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower authorities, we find, that they had observed that the activities of the assessee trust, viz. (i). offering of services in relation to trade and business of construction industry in lieu of fees, cess or other consideration; and (ii). receipt of interest on income accumulated in form of term deposits with banks, were in the nature of commercial activities. It was observed by the lower authorities that as the assessee was carrying on activities which were in the nature of commerce, and the receipts there from were in excess of the prescribed limit, it could thus not be held to be carrying on charitable activities within the meaning of Sec. 2(15) of the Act. Apart from that, the CIT(A) by referring to Sec. 11(4A) of the Act, had observed, that the provisions of Sec. 11 would be applicable only to such profits and gains that would be derived by a trust or institution from carrying on a business that was incidental to the attainment of the objectives of such trust or institution. In the backdrop of his aforesaid observations, the CIT(A) was of the view that the dealings of trade and industry associations with the non-members for activities which were in the nature of trade, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard for its all member associations; to encourage fraternity, feelings of co-operation and mutual help among the members of the confederation in respect of the subjects connected with the common good of trade, industry and profession of building, construction and development of funds; and to encourage adoption and promotion of fair business practices according to an ethical code of fair business practices and to maintain efficiency, dignity and integrity of the confederation, the assessee trust in our considered view had to carry out certain activities, say holding conventions, exhibitions, meetings etc. Insofar carrying out of such activities are concerned, we are unable to comprehend as to how simplicitor carrying on of the same for the furtherance of the objects of the assessee trust on a standalone basis would take the color as that of a trade, commerce or business. At the same time, we also cannot remain oblivious of the fact that a trust or a society whose objects falls within the realm of advancement of any other object of general public utility , would loose its character as that of a charitable institution, if it is involved in carrying on of any activity in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be connected with the real estate sector, viz. Housing Finance Companies etc., who would participate in such conventions /seminars, as they played a very crucial role in the development of real estate sector in India. As per the ld. A.R eminent personalities from various fields would be roped in for delivering lectures on issues having a material bearing on the real estate sector. As for the receipts from holding of the conventions, it was submitted by the ld. A.R that on an average, per person fee/charge would work out to ₹ 30,000/- to ₹ 32,000/-, which would include making of arrangements for their boarding and lodging facilities. It was further submitted by the ld. A.R, that in the course of the conventions the members and also the individuals connected with the real estate sector would display their advertisements, for which the assessee would receive sponsorship fees from them. It was submitted by the ld. A.R that the displaying of the advertisements during the conventions would again be a step towards furtherance of the objects of the assessee trust, as the same would benefit the members who would become aware of the services rendered by such sponsors. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and other entities related to the real estate sector, we are afraid that the lower authorities had failed to appreciate that the objective of allowing display of such advertisements/banners was in order to make the members aware of the services rendered by such sponsors. As the convention would be held by the assessee trust only once in a year, and that too spread over a short span of only two days, we are of the considered view that such standalone event cannot be brought within the meaning of trade, commerce or business, wherein profit is the dominant motive. Insofar the quantum of surplus generated in the hands of the assessee during the year is concerned, we are in agreement with the claim of the assessee that the same if considered in the backdrop of the size of the association which has 21 State chapters, 220 city chapters and 20,000 members, cannot be held to be substantial. In the totality of our aforesaid deliberations, we are of a strong conviction that the surplus generated in the hands of the assesses in the course of the convention held by it only once during the year in furtherance of its objects and for the benefit of its members/real estate sector of the country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2008, w.e.f 01.04.2009 is in order, or not. We find that pursuant to the post amended Sec. 2(15), the legislature in all its wisdom by making available the proviso to the said statutory provision had narrowed down the scope and gamut of the definition of the term Charitable purpose , to the extent the same is relatable to the advancement of any other object of general public utility . That as per the amended Sec. 2(15), 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 other activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. 9. We have given a thoughtful consideration to the issue before us. We find that the assessee is registered as a Charitable organization under Sec. 12A with the Director of Income-tax (Exemption), Mumbai. That as the activities of the assessee were primarily in the nature of advancement of any other object of general public utility , t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities of the assessee trust, which as observed by us hereinabove can safely be held to have been indispensably required for the growth of the industry and giving its members an exposure to the developments in the industry and keeping pace with the day to day changes and innovations in the industry, the objects of the assessee trust would have been frustrated and rendered as merely dumb and name sake in nature, defeating the very purpose for which it was set up. We find that a perusal of the orders of the lower authorities reveals that their view that the assessee was involved in carrying on of commercial activities within the meaning of Sec. 2(15), was primarily guided by the fact that the products of the sponsors from whom sponsorship fees were received by the assessee were displayed at the seminar held at Bangalore. We are of the considered view that the holding of the seminar at Bangalore was in furtherance of the main object of the assessee trust, which was solely for empowerment, betterment and creating awareness amongst the industrialists in order to bring about the development of the Fragrance and Flavours industry in India. We further find that the assessee was not by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, the sale of the goods or articles produced in the course of such training could not be construed as carrying on of trade, commerce or business, did find favour with the Hon ble High Court. We find that in the case of the assessee before us, the holding of the seminars and carrying on of other activities, viz. receipt of subscriptions from the members, sale of publications, Fafai Journal, holding of workshops conferences, directory receipts etc., were activities which were for facilitating the dominant object of the assessee trust, viz. providing knowledge, information, awareness, demonstrations etc. to the members of the Fragrance and Flavours industry, therefore, neither the carrying on of either of the aforesaid activities, and specifically the display of the products of the sponsor members of the industry in the course of the seminar at Bangalore by the assessee, which we find had been emphasized by the revenue as the primary reason for concluding that the assessee was carrying on commercial activities, could thus be held as such and brought within the sweep of the first proviso of Sec. 2(15). We further find that the Hon ble High Court of Madras in the case of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Institute of Chartered Accountants Of India Vs, Director General of Income Tax (Exemption) (2013) 260 CTR 1 (Del). The High Court held that n o doubt the assessee institute was holding classes and providing coaching facilities for the members and articled clerks etc. who wanted to appear in the examination conducted by the Institute of Chartered Accountants, but these classes were not held for coaching or for appearance in an examination conducted by some other entity. The High Court observed that as conducting of coaching classes was with the predominant object of maintaining and upholding the standards of the accountancy profession and in furtherance of the object and purpose for which the institute was established, i.e., professional excellence and promotion of accountancy as a preferred profession, and to sharpen the skills and knowledge of the members of Institute who would attend the courses/lectures etc., therefore, the a ctivities of providing coaching classes or undertaking campus placement interviews for a fee were in relation to the main object of the assessee institute, which could not be held to be trade, business or commerce. The High Court while concluding as her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of securing the main object of advancement and development of the Fragrance and Flavours industry in India. We are further of the considered view that the aforesaid activities of the assessee trust are neither in the nature of trade, commerce or business, nor an activity rendered in relation to any trade, commerce or business. We further find that the activities of the assessee trust are not with any motive to earn profit, which though we are not oblivious would not conclusively determine as to whether an activity is in the nature of a trade, commerce or business, but then, the same undoubtedly remains a crucial factor for characterising an activity, as one. We find that the surplus arising to the assessee is only incidental and ancillary to the dominant object of the assessee, viz. advancement and development of the Fragrance and Flavours industry in India. We further find that the surplus generated by the assessee trust was utilized only for the purpose of feeding its dominant object, and no part of such surplus was distributed amongst its members. We have deliberated on the records pertaining to the nature of the activities of the assessee trust, and have observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities that the parking of substantial amount of surplus funds by the assessee trust over a period as time deposits with the banks and receipt of interest income on the same revealed, that the activities of the assessee trust were backed by a profit motive, we are afraid does not find favour with us. As pointed out by the ld. A.R, and rightly so, the term deposits of ₹ 13.65 crores referred to by the A.O were the term deposits accumulated by the assessee trust over a period of 15 years i.e since the year 1999, and therefore, merely on the ground of having such huge term deposits the assessee s entitlement towards claim of deduction u/s 11 of the Act could not have been denied. In fact, we are in agreement with the claim of the ld. A.R, that as per clause (iii) of Sec. 11(5) of the Act, deposit of money in any account with a scheduled bank is one of the prescribed form and mode of depositing the money referred to in clause (b) of sub-section (2) to Sec. 11. Accordingly, not being able to persuade ourselves to subscribe to the view taken by the A.O that as the assessee over the years had invested surplus aggregating to ₹ 13,65,13,524/- in term deposits with the banks, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, wherein it had assailed the order of the CIT(A), on the ground that he had erred in not allowing the relief by applying the principle of mutuality, and is thus left open. The Ground of appeal No. 2 is disposed off in terms of our aforesaid observations. 15. The appeal of the assessee is allowed in terms of our observations recorded hereinabove. A.Y.2014-15 ITA No.2815/Mum/2018 16. We shall now advert to the appeal of the assessee for A.Y. 2014-15. The impugned order has been assailed before us on the following grounds of appeal: 1. In the facts and circumstances of the case and in law, the Ld. CIT-(A) erred in taxing interest earned on FDs with Bank by invoking concept of Mutuality ignoring the provisions of Section 11 as applicable to appellant. 2. Ld CIT-(A) erred in ignoring appellant's status of being registered charitable organization for general public utility by stating that receipts from conventions are business and commercial activity when such amount was received from sponsors of the event i.e. members. He also erred in computing total income of appellant in other way as applicable to appellant. 17. Briefly stated, the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted by the ld. Authorised representatives for both the parties that the facts and the issue involved in the present appeal remained the same as were there before us in the assessee s appeal for the immediately succeeding year i.e A.Y 2016-17 in ITA No.6896/Mum/2019 . 21. We have deliberated on the facts involved in the captioned appeal of the assessee, and find, that the facts and the issue therein involved are more or less the same as were there before us in the appeal of the assessee for A.Y 2016-17 in ITA No. 6896/mum/2019. At the same time, we find that the only difference in the present appeal before us i.e for A.Y 2014-15 is that unlike A.Y 2016-17, in the year under consideration i.e A.Y 2014-15 the preamended definition of charitable purpose would be applicable. However, as we have while disposing off the appeal of the assessee for A.Y 2016-17, therein concluded that the activities of the assessee trust cannot be brought within the realm of trade, commerce or business, or those of rendering of any services in relation to any trade, commerce or business. therefore, finding no shift in facts during the year in question, we follow the view therein taken. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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