TMI Blog2022 (11) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant had receipt registration fee for certified agents, certification test fee etc. It is admitted position that the registration and certification activities were carried out by the Appellant as per the directives of SEBI. Appellant has been holding investor education camps and publishes material/information. In our view, the aforesaid activities of the Appellant are directed towards the benefit of investors and potential investors forming part of the general public and are not limited to the benefit of its members. Appellant has also maintained separate accounts in respect of these activities. As regards activities of the Appellant directed towards the benefit of its members are concern, the Assessing Officer has granted the benefit of principle of mutuality in respect of the same. AO is directed to allow exemption under Section 11 of the Act to the Appellant. Appeal of assessee allowed. - ITA No. 5762/MUM/2015 And ITA No. 5761/MUM/2015 And ITA No. 6888/MUM/2016 - - - Dated:- 6-9-2022 - Shri Pramod Kumar, Vice President And Shri Rahul Chaudhary, Judicial Member For the Appellant : Shri Samir Kapadia/ Nitesh Joshi For the Respondent : Shri Milind Chava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m claiming the benefit of being treated as charitable organizations. 8. The learned Commissioner (Appeals) erred in not disposing of the appellant s ground pertaining to allowance of expenses incurred in earning the income, on merits, and in merely directing the Assessing Officer to dispose of your appellant s rectification application, without giving any other directions in this regard. Relief Sought Your appellants pray that the order of the learned Assessing Officer be modified by allowing exemption u/s 11 and 12 to your appellants, and that the expenses of Rs. 3,32,93,766/- incurred in earning the income be allowed as a deduction. 4. The brief facts of the case are that the Appellant, a Section 25 Company incorporated under the provisions of the Companies Act, 1956 and holding valid registration under Section 12A of the Act, filed its return of income on 30.09.2011 declaring Nil income after claiming exemption under Section 11 and 12 of the Act. The case of the Appellant was selected for scrutiny. During the assessment proceedings, the Appellant was asked to explain why the income from registration fees, certification test fee, receipts from sale of public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and registration. It was contended on behalf of the Appellant that registered under Section 12A was granted to the Appellant after examination of the objects of the trust which did not include any profit motive. However, the CIT(A), not being convinced, dismissed the appeal holding that merely because registration has been granted to the Appellant under Section 12A of the Act does not automatically entitled the Appellant to get exemption under Section 11 read with Section 2(15) of the Act, the operations/activities of the Appellant and the claim of exemption under Section 11 of the Act is to be examined and tested on year to year basis. The CIT(A) concluded that though in the present case there has been no change in the activities undertaken by the Appellant as compared to the earlier years, there has been violation of conditions required to be fulfilled to qualify as charitable institution on account of the amendment in Section 2(15) of the Act. By operation of law the activities which were earlier qualified as charitable were now rendered non-charitable. In case this contention of the Appellant of providing indirect benefit to the public is accepted then all mutual benefit organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and business with the object of earning profits. The Appellant does not carry on any activity in the nature of trade, commerce or business. The majority of receipts are from the registration, examination and certification work carried on by the Appellant under the aegis of SEBI which is the securities market regulator working for the benefit of investors and general public. The Learned Authorised Representative for the Appellant took us through some of the directives issued by SEBI to establish that SEBI has issued directives directly addressed to the Appellant which are required to be adhered to by the Appellant. He submitted that the Appellant has been at the forefront of promoting transparency and in disseminating information. Appellant is also actively involved in a variety of initiatives aimed at spreading education and awareness amongst the public at large. The Appellant holds investor education camps and publishes material/information (such as daily Net Asset Values of all mutual funds) on its website which is available for the benefit of all the investors and potential investors. The work undertaken by the Appellant must be seen as public service and cannot be equated with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef 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 or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year; (Emphasis Supplied) 11. In his speech, the then Minister of Finance had stated that the genuine charitable organizations would not be affected by way of the above amendment. The relevant extract of the speech is as under: 180. 'Charitable purpose' includes relief of the poor, educati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the contributors and the participants. Therefore, where 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carries on any trade, business or commerce or any activity of rendering any service in relation to any trade, commerce or business, for a cess or a fee. 66. As stated earlier the matter was remanded to DGIT(E) to consider the submissions of the petitioner that it had been incurring administrative expenses which were much greater than the surplus and that had resulted due to the coaching provided to the students. Having erroneously come to the conclusion that the petitioner was carrying on business, the DGIT(E) has rejected the submission of the petitioner that its common administrative expenditure exceeded the surplus generated from coaching, as being not relevant. The DGIT(E) has also failed to consider that the activities being pursued by the petitioner are not with the object of earning profit but with the object of imparting knowledge and skill to ensure that Chartered Accountants in India have the requisite skill and professional competence and comprehend the code of ethics to be followed by them. 67. The expressions trade , commerce and business as occurring in the first proviso to section 2(15) of the Act must be read in the context of the intent and purport o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haritable purpose and not to earn profit, it would not lose its character of a charitable purpose merely be cause some profit arises from the activity. 70. Although in that case the statutory provisions being considered by the Supreme Court were different and the utilisation of income earned is, now, not a relevant consideration in view of the express words of the first proviso to section 2(15) of the Act, nonetheless the test of dominant object of an entity would be relevant to determine whether the entity is carrying on business or not. In the present case, there is little doubt that the objects of the activities of the petitioner are entirely for charitable purposes. 71. Although, it is not essential that an activity be carried on for profit motive in order to be considered as business, but existence of profit motive would be a vital indicator in determining whether an organisation is carrying on business or not. In the present case, the petitioner has submitted figures to indicate that expenditure on salaries and depreciation exceeds the surplus as generated from holding coaching classes. In addition, the petitioner institute provides study material and other academi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness from the scope of charitable purpose . The purpose of introducing the proviso to section 2(15) of the Act can be understood from the Budge Speech of the Finance Minister while introducing the Finance Bill, 2008. The expression business , trade or commerce as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable any incidental activity for furtherance of the object would not fall within the expressions business , trade or commerce .' (Emphasis supplied) 19. In fact the Revenue has not been able to show that the view taken by the Apex Court in Surat Art Silk Cloth Mfg Association (supra), Gujarat High Court in Sabarmati Ashram Gaushala Trust in Tax Appeal No. 1162 of 2013 (supra) and the Delhi High Court in ICAI [2012] 347 ITR 99 (Delhi) and ICAI [2013] 358 ITR 91 (Delhi) laying down the dominant activity test should not commend to us. Therefore, the view taken by the Tribunal in the present facts cannot be found fault with. (Emphasis Supplied) 16. On perusal of the above judgments, it becomes clear that even after the amendment to Section 2(15) of the Act the dominant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic utility' is a question of fact to be examined keeping in view the facts of each case. It is admitted position that the Appellant was registered under Section 12A of the Act since 09.01.1996 and was granted the benefit of exemption in terms of Section 11 of the Act in the preceding assessment years even though the Appellant had receipt registration fee for certified agents, certification test fee etc. It is admitted position that the registration and certification activities were carried out by the Appellant as per the directives of SEBI. Further, the Appellant has been holding investor education camps and publishes material/information. In our view, the aforesaid activities of the Appellant are directed towards the benefit of investors and potential investors forming part of the general public and are not limited to the benefit of its members. The Appellant has also maintained separate accounts in respect of these activities. As regards activities of the Appellant directed towards the benefit of its members are concern, the Assessing Officer has granted the benefit of principle of mutuality in respect of the same. 18. In view of the above, the Assessing Officer is directe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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