TMI Blog2022 (1) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... t providing any services to 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 - order on these addition are, therefore, upheld and the grounds of appeal of the Revenue are dismissed. - ITA No. 189 And 190/SRT/2020 - - - Dated:- 31-12-2021 - Shri Pawan Singh, Judicial Member And Dr. Arjun Lal Saini, Accountant Member For the Assessee : Shri Nitin Gheewala, CA For the Revenue : Shri H.P. Meena, CIT-DR ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. These two appeals by Revenueare directed against the common order of ld. Commissioner of Income tax (Appeals)-3, Surat [ CIT(A) for short] all dated 30.03.2020, for the assessment years (AYs) 2014-15 2017-18 respectively. In both the appeal, the Revenue has raised identical grounds of appeal, except varia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR for the Revenue and the learned authorized representative (AR) for the assessee and have gone through the order of authorities below as well as order of this Tribunal. We find that the Assessing Officer while passing the assessment order disallowed the claim of ₹ 1.93 crores as capital expenditure and accumulation of ₹ 41.74 lakh by taking view that the main objective of the assessee was the development of Gem and Jewellery Parks, which has not been completed in a decade s time. Further the assessee failed to focus on advancement, protection and development of trade and commerce and industry. The Assessing Officer invoked the provision of section 13(a) r.w.s.2 (15) and denied exemption under section 11 and 12. On appeal before Ld. CIT(A), the assessee was allowed relief by following his predecessors decision in earlier years in AY 2010-11, 2012-13 2013-14 respectively. We find that against the of Ld. CIT(A) in AYs 2010-11, 2012-13 and 2013-14 on similar set of fact, the revenue filed appeal before Tribunal, wherein the order of ld CIT(A) was upheld and the appeals of Revenue were dismissed by this combination while passing the following order:- 15.We have give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelop the world class gem and jewellery park. The city of Surat had been traditionally the head-quarter of diamond, traded export for Gujarat. The main objects of the assessee trust are as follows: (i) To establish common facilities required to promote exports of diamonds from India and to provide for this purpose trading halls and other utilities at a central place for Indian Exporters and Overseas buyer to carry on trade and commerce in diamonds with speed and in secure conditions. (ii) To establish and promote effective liaison between diamond trade and industry in India and abroad with a view to promoting their sales from India in International market. (iii) To promote, advance, protect and develop trade, commerce and industry in India relating to exports and imports of diamonds inter alia by setting up of world class gem and Jewellery Park. (iv) To develop India as Modern and sophisticated diamond market by establishing and maintaining an international trading center in India for all those engaged as manufacturers, traders, exporters and importers, brokers/commission agents of diamonds. The setting of Gujarat Hira Bourse (GHB) has a great impact on the diamond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded from the definition of charitable purpose . However, for the application of the said proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the present circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Minister's speech in the Parliament. Relevant portion of which reads as under: - I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th non-members, their claim to be chargeable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15). 3.2 In the final analysis, however, whether the assessee has for its object the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ' general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 18. We have gone through the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible (e) The First Proviso to Section 2(15) only applies where activities in the nature of trade, commerce or business are carried out with profit motive and in the present case there is no such profit motive as the assessee is incorporated as nonprofit organization under section 25 of the Companies Act, 1956. 19. In support of the above contentions, the ld Counsel relies on the decision of Hon'ble Supreme Court, delivered in the case of DIT vs. Bharat Diamond Bourse (2003) 259 ITR 280 (SC). In that case the Diamond Bourse was registered as a Company limited by guarantee. The primary objects of the Bourse were to establish common facilities required to promote exports of diamonds, promote effective liaison between the diamond trade industries in India and abroad, promote, advance, protect and develop trade, commerce and industry in India relating to export and import of diamonds and to develop India as modern and sophisticated diamond market. It was held by the Hon'ble Apex Court that the assessee was an institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. On similar and identical issues, the Coordinate Bench of ITAT Chennai delivered decision in the case of Ambur Economic Development Organization Ltd. Vs. DIT ITA No.l88/Mds/2012, dated 28th March, 2012. The said decision is delivered after the amendment made by Finance Act, 2008 in Section 2(15) of the Act. While delivering the said decision, the Coordinate Bench has considered First Proviso to Section 2(15) of the Act and Circular of the CBDT No. 11/2008. The findings of the Coordinate Bench are as follows: We have heard the parties and have gone through the impugned order. Board's circular no. 11 of 2008 dated 19.12.2008 clarifies exemption under section 11 in case of assessee claiming both to be charitable institution as well as mutual organization. The relevant extract of the circular is reproduced herein below:- . 1. Section 2(15) of the Income-tax Act, 1961 ('Act') defines charitable purpose to include the fallowing: - (i) Relief of the poor (ii) Education (iii) Medical relief, and (iv) The advancement of any other object of general public utility. An entity with a charitable object of the above nature was eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 3.2 In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is 1charitable purpose' within the meaning of section 2(15), would be well adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or business, - particularly if generating 'surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. By applying the ratio of the said decision to the assessee`s case under consideration, it can be said that whatever the surplus arises is purely incidental and no adverse inference of carrying out trade, commerce or business should be drawn in its case. In view of the aforesaid factual and legal position, proviso to Section 2(15) of the Act, does not attract in the present case of the assessee and therefore no disallowance is called for. 24. Now, we deal with the alternative argument of the ld Counsel, in respect of principle of mutuality. It is submitted by ld Counsel that a development of infrastructure project of gem and jewellery Park is being carried out from the funds of its members only and there is complete identity between contributor and participator to the fund. It is pertinent to note that at para 3.1 of the CBDT Circular, it is made clear that where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 3.1 of the said Circular, it is clarified that genuine industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, would not fall under the purview of the proviso to section 2 (15) of the Act, owing to the principle of mutuality. In view of the above, the assessee trust, under consideration, is carrying out only mutual activity and by no stretch of imagination can be considered as being carrying out activities in the nature of trade, commerce or business. 26. To conclude, we note that the activities of mutual organizations are to be restricted to contributions from and participation of only their members. In the case of assessee also, it can be seen from the facts discussed by assessing officer as well as assessee that the assessee organization is based on the principle of mutuality. It is clear from the facts that assessee has been allotting the plots and collecting contributions from its members only and there is complete identity between the persons who contribute the amounts to the assessee trust and beneficiaries of assessee`s a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised by Revenue in this appeal have been discussed in earlier paras in great length. Accordingly, our observations made in ITA No. 2917/Ahd/2014, for AY 2010-11, shall apply mutatis mutandis to the aforesaid other appeals of Revenue, namely, ITA No.1967/Ahd/2016 and ITA No.897/Ahd/2017. For the parity of reasons, we dismiss the abovementioned appeals of the Revenue in terms of directions noted in ITA No.2917/Ahd/2014 for AY 2010-11. 28. In the result, appeals filed by the Revenue (in ITA No. 2917/Ahd/2014,ITA No.1967/Ahd/2016 and ITA No.897/Ahd/2017), are dismissed. 5. Considering the consistency view of this combination on similar set of fact and following the principle of consistency we do not find any merit in the grounds of appeal raised by Revenue. Thereby we affirm the order of ld CIT(A). Resultantly, the appeal of Revenue stands dismissed. ITA No. 190/SRT/2020 for A.Y. 17-18 by revenue 6. As noted above, the Revenue has raised identical grounds of appeal in appeal for this year as raised in Appeal for A.Y. 204-15, except variation of withdrawal of exemption under section 11 and 12 of the Act, which have dismissed by affirming the order of Ld. CIT(A) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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