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TMI Blog2022 (1) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case and in law, is the ld. CIT(A) justified in not appreciating that the activities of the assessee are covered by proviso to section 2(15) of the Income-tax Act, 1961 and, thus, the assessee is not entitled to exemption under sections 11 and 12 of the Act in view of the provisions of the section 13(8) of the Act. 2.Whether the Ld. CIT(Appeals) has erred in law and on facts and in the circumstances of the case in allowing the claim of capital expenditure of Rs. 1,93,18,564/- when the assessee is clearly covered under the proviso to section 2(15) r.w.s. 13(8) of the Act and thereby not eligible for claim of exemptions. 3. Whether, the Ld. CIT(Appeals) has erred in the law and on facts and in the circumstances of the case in allowing the claim of accumulation of Rs. 41,74,368/- u/s 11(1)(a) when the assessee is clearly covered under the proviso to section 2(15) rws 13(8) of the Act and thereby not eligible for claim of exemptions" 2. At the outset of hearing Ld. Authorized Representative (AR) for the assessee submits that grounds of appeal raised by Revenue in both the years are squarely covered by the decision of the Co-ordinate bench of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per old Companies Act, 1956), is charitable institution or not. We note that in the instant case the assessment order u/s 143(3) was passed on 28.03.2013 determining total income at Rs. 3,54,82,267/- by making following additions: (i) Amount applied to Charitable Purpose treated as business income Rs. 30,81,12,572/- and (ii) Withdrawal of exemption claimed under section 11 and 12 of income from other sources to the tune of Rs. 1,31,94,745/-. Regarding (ii) addition, that is, withdrawal of exemption claimed under section 11 and 12 of income from other sources to the tune of Rs. 1,31,94,745/- is concerned, Shri Tushar Himarni, Sr. Advocate, invited our attention to page No. 16 of assessee`s paper book wherein "Income and Expenditure Account" of the assessee is placed. Total income of the assessee trust is Rs. 2,22,87,522/- and total expenditure is at Rs. 90,92,777/. Thus, resulted surplus is at Rs. 1,31,94,744/- (Rs. 2,22,87,522- Rs. 90,92,777). Once the gross interest income is added and again gross excess income over expenses ( Rs. 2,22,87,522 - Rs. 90,92,772), Rs. 1,31,94,745 is added, then it resulted in double addition/disallowance to that extent. Thus, Rs. 1,31,94,745/- i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs being well known gem and jewellery exporters. After development of plot as gem and jewelry park respective plots are being allotted to the respective members only. The assessee is not dealing with any outsider other than its members for the purpose of receipt of funds and utilization thereof (complete identity between contributor and participators to fund exist). The case of the Assessing officer is that in view of the First Proviso to Section 2(15), which is inserted by Finance Act, 2008, the assessee is carrying out activities in the nature of trade, commerce or business and consequently it cannot be regarded as charitable organization and therefore the exemption under sections 11 and 12 should not be allowed to the assessee. We note that the main object of the assessee trust is to develop the world class gems and jewellery park to provide common facilities required to promote exports of diamonds from India and for this purpose to establish utilities at a central place. For this purpose, contributions from the members being well known gems and jewellery exporters have been received and facilities have been provided exclusively to them. As per ld Counsel, these activities are b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel states that in consonance with such assurance given by the Hon'ble Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment, which are reproduced below: "3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' ie., the fourth limb of the definition of ' charitable purpose' contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y but is aimed "at excluding activities in the nature of trade, commerce or business which are masked as ' charitable purpose'. In this connection, Ld Counsel states that the activities of the development of gem and jewellery park for its members cannot be regarded as activity in nature of trade, commerce or business on the following grounds: (a) The assessee is a non-profit making company incorporated under section 25 of the Companies Act, 1956 (b) The assessee obtained registration u/s 12AA of the Income Tax Act, with regard to claiming income from property held for charitable or religious purpose, specifically under the head 'General public utility' (c) Its object is to establish a bourse for promotion of exports of diamond, gems, pearl and jewellery from India and provide for this purpose infrastructure and other facilities in India for Indian and overseas buyers and sellers of diamonds, gems, pearls and jewellery. Within its objects the assessee has taken the activity of developing gem and Jewelry Park. (d) In assessee's case, the facts are well covered by Finance Minister's Speech read together with para 3.1 of the Circular. It is well settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earning profits, the Memorandum of Association as well as Articles of Association clearly showed that the subscribers were desirous of being formed into a company not for profit and that the income and property of the company shall be applied solely for the promotion of its objects set forth in the Memorandum. Further, on working out the deficits for the years 1986-87 to 1997-98, by deducting from the income of the trust the expenditure incurred for the purposes of the trust and the acquisition of the fixed asset, it was found that consistent earning of profits had been only with a view to applying the same for charitable objects. Thus, relying on the observations made by the Supreme Court in Surat Art Silk Cloth Mfrs. Association's case (supra) that a charitable trust would not lose its character of charitable purpose if the predominant object of the activity is to carry out the charitable purpose and not to earn profits and if some profit arises from the activity, it would be difficult to hold that all pervading motive of the activities carried on by the assessee-trust was the making of the profit." We note that facts of the aforesaid case of Bharat Diamond Bourse(supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public utility' shall not be a charitable purpose if it involves the carrying on of- (a) Any activity in the nature of trade, commerce or business; or (b) 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 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -profit making company u/s25 of the Companies Act, 1956 and does not allow distributing either any part of its profits to members. The said fact is given at Note No. 7 of Schedule K, "Significant Accounting Policies" to Audited Annual Accounts for the year under consideration. 22. Reliance is also placed on the decision of Coordinate Bench of Chandigarh in the case of Himachal Pradesh Environment Vs. CIT (I.T.A.T. Chandigarh), ITA No. 74/ Chd/ 2009 wherein it is inter alia held that the proviso to section 2(15) can apply only to entities whose purpose is "advancement of any other object of general public utility". It is also observed that profit motive is the essence of trade, commerce or business, and where the services are rendered without a profit motive, such services will not have anything in common with trade, business or commerce. Accordingly, to fall within the second limb of the Proviso to section 2(15), 'rendering of service to trade, commerce or business' must be such that it has a profit motive. 23.On similar and identical facts the reliance can be placed on the decision of Hon'ble Gujarat High Court, in the case of DIT vs. Sabarmati Gaushala Aashram Tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any activity in the nature trade, commerce or business. It is well settled law that no one can trade with himself or derive profit from him. For that we rely on the judgment of Hon'ble Supreme Court, in the case of CIT vs. Bankipur Club Ltd 226 ITR 97 (SC), wherein the Hon'ble Apex Court held as under: "Under the IT Act, what is taxed is, the income, profits or gains earned or "arising", "accruing" to a "person". Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together in this way does not give rise to profits which are chargeable to tax. Where the trade or activity is mutual, the fact that, as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the persons other than its registered members. The assessee trust does not distribute its profits among members and it does not pay higher remuneration to its employees. It is abundantly clear that the income of the mutual concern falls outside the ambit of charging section 4 of the Income Tax Act and, therefore, outside the tax net. The net effect of applicability of exemption provision in section 11 is also just the same. It was also laid down in CIT vs. Andhra Chamber of Commerce (1981) 130 ITR 184 (SC), Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association 121 ITR 1 (SC) and in CIT vs. Bar Council of Maharashtra (1981) 130 ITR 28 (SC), that if the primary object of an entity like "Chamber of Commerce, professional association, a bar council, etc" is the promotion of any trade, industry, profession, etc. the fact that the business community or the profession as the case may be would be benefit therefrom, would not take away the object from the realm of object of general public utility and, therefore, they would be held established for a charitable purpose. In view of the above factual and legal position, it is quite clear that the object of the assessee is of general pub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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