TMI Blog2022 (8) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Section 13 (8) are inapplicable. Accordingly the ground Nos. 1 and 2 of the assessee are allowed. Life membership fees/ corpus donation which are in the nature of capital receipt and not chargeable to tax - HELD THAT:- The issue in question is already mentioned in the Rules and Regulation of the Society which indicates that the fees like entrance fees as well as life membership are part of the corpus fund and accordingly are in the nature of capital receipt. As such, there is no relevance by the ld. CIT(A) to restore the same to the AO for verification. Keeping in view the rules and regulation of the society as well as submission of the ld. AR of the assessee, we do not concur with the findings of the ld. CIT(A) to restore the issue to the AO. Thus Ground No. 3 of the assessee is allowed. Disallowance towards late deposit of PF, prior period expenses and disallowance of donation u/s 80G are only academic in nature and does not fall under the law while computing the income u/s 11 - ITA No. 197/JP/2022 - - - Dated:- 27-7-2022 - SHRI SANDEEP GOSAIN, JM And SHRI RATHOD KAMLESH JAYANTBHAI, AM Assessee by : Shri S.R. Sharma, CA Shri R.K. Bhatra, CA R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 142(1) alongwith questionnaire was issue to the assesee on 03-01-2014 for which the ld. AR of the assessee attended the proceedings from time to time and details required as per query were placed on record before the AO. The ld. AR of the assessee during the course of assessment proceedings produced the books of accounts on test check basis. It is noted from the records that the assessee-institution/society is registered under Rajasthan Non- Trading Companies Act, 1960. The assessee society is registered u/s 12A (a) vide order No. 1779 dated 10-9-1974. It is a trade association carrying out activities for upliftment of Gems Jewellery trade and for carrying out that object is providing dharam kanta facility to trade members publishing Gems Jewellery related journals, Gem jewellery Bourse, organization of Gem Jewellery trade shows and running and maintaining Janopyogi Bhavan for trade members. The assessee since its inception classified a Charitable Institution established for Charitable purpose i.e. towards advancement of general public utility within the meaning of Section 2 (15) of 1. T. Act, 1961 and recognizing this, the competent authority granted registration u/s 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to Rs. 56,54,784/- as taxable income of assessee and taxed life membership fees of Rs. 26,41,000/- holding it as normal income and disallowed expenses totaling to Rs. 78,681/-. The present appeal is against said denial of exemption u/s 11 12 and subjecting to tax the entire surplus of association as taxable and other additions so made. 2.2 The assessee filed appeal against the said assessment order before ld. CIT (A), Jaipur and filed written submissions with supporting documents which submissions are reproduced in appeal order. The Ld. CIT (A) considered the submissions of assessee after discussion in appeal order and thus dismissed the grounds raised by assessee by holding at para no. 6.2.10 at page no. 22 of his as under:- In view of foregoing discussions and also the factual and legal matrix in the care of the appellant and various decisions cited by the undersigned, I hold that the appellant was hit by the Proviso to section 2(15) of the Act even after the amendment of section 2(15) w.ef 01/04/2016 i.e. effective from AY 2016-17, as the objectives of the assessee had fallen within the fourth limb of 'charitable purpose i.e. advancement of any other objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er object of general utility , and, by the immediately following Finance Act, 2010, there was yet another proviso (i.e. second proviso) introduced to carve out an exception from the exception itself. In essence, the effect of these provisos was that even when an assessee was pursuing 'a charitable purpose' in the event of advancement of any other object of pubic utility it would cease to be for charitable purposes if it involves (a) carrying on an activity in the nature of trade, commerce or business; or (b) rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of nature of use or application or retention of the income from such activity. However, these provisions are not to apply when the activities are such a modest scale that the value of receipts in respect of the same are less than Rs. 10 lakhs. (raised to Rs. 25 Lacs by Finance Act, 2011 w.e.f. 1-4-2012). Therefore, as the legal position stands as in this previous year of assessee, even after the insertion of the above two provisos, as long as the object of general public utility is not merely a mask to hide true purpose or rendering of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as pursuing the objects of general public utility or pursuing trade, commerce or business etc. in the garb of pursuing the objects of general public utility. As the CBDT circular itself demonstrates, there could not have been any situation in which the assessee was pursuing the objects of general public utility as well as also engaged in trade, commerce of business etc. In the new proviso, however, even when the assessee is engaged in the activities in the nature of trade, commerce or business etc. and such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility it is excluded from the scope of purposes only when 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 In other words, even when the activities are in the course of advancement of any other object of general public utility, but in the nature of trade, commerce or business etc. the proviso seeks to exclude it only when the threshold level of activity is not satisfied. The new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 13 (8) is unsustainable in law. Section 2 (15) defines 'charitable purposes. The introduction of the proviso to section 2 (15) was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at heart and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations. And, this was also the assurance given by the Finance Minister while introducing the Finance Bill, 2008. The correct interpretation of the proviso to section 2 (15) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 read with Section 13 (8) are inapplicable after 1-4-2009 but prior to 1-4-16 (A.Y 2016-17). The assessee for this A. Y 2012-13 do not fall in first proviso to section 2 (15) and therefore existed for charitable purpose within the meaning of Section 2 (15) and provisions of Section 13 (8) are not applicable to it. The assessee is entitled to exemption u/s 11 of 1. T. Act, 1961 as in earlier years. The Hon'ble Jurisdictional ITAT, Jaipur bench, Jaipur in the case of M/s Rajasthan Cricket Association Vs Add. CIT, Range-2, Jaipur (2017) 79 Taxmann.Com 464 dated 23-03-2017 held that In the light of the above binding precedents, we are unable to affirm the view of the revenue. In the present case, material as placed before us suggests that the Assessing Officer is swayed by the figures and volume of receipts. The undisputed facts are that the assessee is registered under the Rajasthan Sports (registration, recognition and regulation) Act 2005 and formed with the objective of promoting the sports of cricket within the state of Rajasthan so main objective or activity of the assessee is promotion of the cricket. The association is organizing tournament like Ranji Trophy Ira ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 12A is sine qua non for eligibility of benefit of section 11. The coordinate bench of Tribunal in Gujarat Cricket Association 15 JCCIT (E) [20191 101 Taxmann.com 453 (Ahd-Trib) held that where predominant object of various cricket associations was to promote cricket and profit earning was not predominant purpose proviso to section 2 (15) could not have been invoked to decline benefit of sections 11 and 12. It was further held that amounts received under TV subsidy by assessee cricket association from Board of Control for Cricket in India (BCCI) being under a resolution which specifically stated that TV subsidies should henceforth be sent to Member Associations towards corpus funds and not under any legal obligation, were to be treated as corpus donations. It was also held that where infrastructure subsidy received by assessee cricket association from Board of Control for Cricket in India (BCCI) was relatable to a capital asset created by assessee on his own or by an eligible district cricket association; it was outside ambit of revenue receipt /taxable income. The Hon'ble Gujarat High Court in DIT (E) Vs Gujarat Cricket Association (2020) 120 Taxmann.com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing cricket, as long as purpose for which all funds at disposal of assessee trust, BCCI, including additional funds generated from IPL, were employed for promoting cricket, activities of assessee could not be said to be of commercial nature Held, yes Whether, thus, assessee was entitled for continuation of registration under section 12A-Held, yes [Paras 29 and 30) [In favour of assessee] The reliance is also placed on following judicial pronouncements: In DCIT (Exemption) Vs. Sabarmati Gaushala (362 ITR 539) it was held that on interpretation of the proviso, to section 2 (15) introduced w.e.f. 01-04-2009 (A.Y. 2009-10) keeping in mind the intention of the legislature with which it was introduced, that merely because the trust is carrying out activities for the purpose of achieving the objects of the trust, certain incidental surpluses are generated, will not render the activity in the nature of trade, commerce or business. The legal terms trade, commerce or business in proviso mean activity undertaken with a view to make or earn profit. The purport of the proviso is not to exclude entities which are essentially for charitable purposes but are conducting some activities for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h in case of Society of India Automobile Manufacturers V. ITO (ITA No. 4837/Dell/2017) has held as under:- Even if there has resulted some surplus in organizing these conferences and seminars etc. It cannot be said that the assessee carried out any trade, commerce or business or rendering any service in relation to any trade, commerce or business It is manifest that none of the activities undertaken by the assessee was pursued with the prior object of earning income. All such activities were performed with the object of promotion of growth of the automobile industry in India which is an object of general public utility The activities of the assessee is organizing seminars and conferences can be seen de hors its main object of general public utility so as to bring the case within the ambit of first proviso to section 2 (15) Even if there has generated some excess of receipts over expenses in doing these activities, the same is a normal incidence of the activity of promotion of automobile industries and cannot be characterized as doing any business etc or rendering of any services in connection with business etc. Since the AO has denied the benefit of sections 11 and 12 on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view: (1) Institute of Chartered Accountants of India Vs. DGIT (Exemption) 347 ITR 99. (2) Bureau of Indian Standards Vs DGIT 358 ITR 78 (3) DIT Vs. Womans India Trust 379 ITR 506 (4) CIT (Ex) Vs. Rajasthan Cricket Association (2017) 164 ITD 212 (JP. Trib) (5)Indian Trade Promotion Organization Vs DGIT (Exemp) (2015) 371 ITR 333 (V) (Delhi) (6) Praxis Institute of Participatory Practices Vs. DIT 2015) 154 ITD 10 (Delhi) (7) Hoshiarpur Improvement Trust Vs. ITO (2015) 155 ITD 570 (Asr) (8) GVK EMRI (UP) Vs. DIT Exempt (2014) 63 SOT 195 (9) IT.O. V. Society of Essential Health Action and training (2014) 63 SOT 133 In view of the above submissions the Jewellers Association fulfills all the condition of granting to it exemption u/s 11 12 of 1. T. Act, 1961 and do not hit by provision to section 2 (15). The Ld. CIT(A) is wrong and has erred in law in confirming the action of Ld. A.O. in holding that assessee association is not entitled to exemption u/s 11 12 of 1. T. Act, 1961 as its income constitute commercial activity and so proviso to clause (15) sub section 2 read with section 13 (d) becomes applicable. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the activities are for advancement of General Public Utility and not of trade/ commerce for profit motive. The ld. AR has also derived support from the Speech of Hon ble Finance Minister, CBDT Circular and the decided case laws. 2.3.1 As regards the issue of mutuality, the ld. AR has submitted that it is a mutual organisation and has participation only for its members and therefore its income is exempt on principal of mutuality. To this effect, the ld. AR of the assessee has placed on record the CBDT Circular No. 11 of 2008 dated 19.12.2008 which clarifies the said amendment in para 3.1 of the said circular. 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 association 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 must be complete identity between the contributors and the participants. Therefore, where indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. AR of the assessee has filed the Rules and Regulation of the Society. The Assessee society is also registered u/s 12A (a) vide order No. 1779 dated 10-09- 1974 whose main objects are carrying out activities for upliftment of Gems and Jewellery trade. In order to clarify the position of charitable purpose, we take into consideration Section 2(15) as under:- Charitable purpose includes relief of the poor, education, yoga, 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 or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless- (i) such activity is undertaken in the course of actual carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However the dominant and main object of the assessee is pursuing object of advancement of general public utility. The association is registered under Non Trading Companies Act, 1960 and it specifically applies to entities which intend to apply their surplus or other income in promoting their objects and prohibits the payment of any dividend to its Members which was to be utilized fully for the purposes of objects of the assessee society. During the course of hearing, the ld. AR further relied on following case laws. (1) ACIT (Exemption) vs Surat District Cricket Association (2022) 139 Taxmann.com 182 (Surat-Trib). (2) Board of Control for Cricket in India vs Pr.CIT, Central Charge-3, Mumbai, 132 Taxmann.com 132 (Bombay-Trib) (3) All India Rubber Industries Association vs ADIT (E), Mumbai (ITA No. 1368,3994 (Mum) of 2016 and 247 (Mum) of 2017 vide order dated 12-10- 2018. (4) Rajasthan Cricket Association vs Addl. CIT, Range 2(3), Jaipur From these judgements, it is noted that All India Rubber Industries Association vs ADIT(E) (supra) clearly hits on the issue wherein the ITAT Mumbai Bench has held as under:- Assessee company registered under-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity and so provision of first proviso to clause (15) of Section 2 read with Section 13 (8) are inapplicable. Accordingly the ground Nos. 1 and 2 of the assessee are allowed. 3.1 The ground No 3 of the assessee is regarding life membership fees/ corpus donation which are in the nature of capital receipt and not chargeable to tax. This issue has been decided by the ld. CIT(A) by observing as under:- 7.2.3 .. I hold that part of the life membership fees which is attributable towards subscription of magazines etc. which is otherwise charged to normal members, the entire life membership fees could not be attributed to revenue receipts. However, the necessary facts towards objective/ attribution of life membership fees needed to be brought on record. The lump-sum payment on account of life membership fees are to be dissected into two parts one being entrance fee and the other being commuted payment in lieu of annual subscriptions. The element of entrance fee was to maintain parity with ordinary members, and the same was of return for investing the right of membership and hence it was the capital receipt, the other element was the consolidation of the revenue receipt and hen ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
