TMI Blog2023 (1) TMI 1346X X X X Extracts X X X X X X X X Extracts X X X X ..... utility (GPU) in the definition of charitable purposes primarily on the grounds that the institutions were carrying on trade, commerce or business for consideration, which does not qualify as GPU under the provisions of the Act as amended by Finance Act (FA), 2008 read with subsequent amendments. Before the Hon ble supreme court (supra), in the cases of most of the entities, there is no dispute as to the activities involved in the appeal qualified as GPUs within the meaning of the term charitable purposes , but the dispute was in respect of the meaning of fee, cess or other consideration and its impact on construing whether the activity falls under to the description of trade, commerce or business . Hon ble Supreme Court held that where fee, cess or other consideration is statutorily fixed or where it represents recoupment of cost or cost with nominal mark up, the activity may not be construed as trade, commerce or business and will be excluded from the mischief of commercial activity under the amended provision. If, however, fee, cess or other consideration charged is substantially higher over cost, it is tainted with trade, commerce or business and will qual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... together and disposed off by way of this common order for convenience. 2. Firstly, we take up the appeal of the assessee for assessment year 2012-13. The grounds raised by the assessee in its appeal are reproduced as under: The Appellant appeals against the impugned order dated 11.11.2016 passed by the Commissioner of Income-tax (Appeals)-1, Mumbai (the CIT(A)) (received by it on 12.12.2016), under section 253 of the Income-tax Act (the Act), on the following amongst other grounds each of which is in the alternative and without prejudice to any others: 1. Whether the CIT(A) erred in upholding the action of the learned Assessing Officer (AO) in denying the Appellant's claim for exemption under section 11 of the Act and thereby assessing it on a total income of Rs.21,78,74,270/-. 2. Whether the CIT(A) ought to have held that the object of general public utility pursued by the Appellant did not involve 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 and, therefore, proviso to section 2(15) of the Act had no application to its case. 3. Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 10B of Income-tax Rules, 1962 (in short, the Rules ) declaring deficit of ₹8,97,94,173/-. The return of income filed by the assessee was selected for scrutiny assessment and the statutory notices under the Income-tax Act, 1961 (in short, the Act ) were issued and complied with. In the scrutiny proceedings, the Assessing Officer observed receipts from membership, subscription fees, grants from Government of India, income from publication, exhibitions, award functions etc. Regarding the activity of conducting exhibitions, the Assessing Officer was of the view that it was a commercial activity, which prima-facie falls in the nature of trade or business, in view of expression Business having wide meaning in fiscal statues. He also inferred profit motive to the assessee based on the fact that term deposits placed with the banks at the end of the year was of ₹33,20,71,475/- giving rise to interest of ₹6,13,47,543/-. According to the Assessing Officer, the assessee was generating huge profit year after year from its activities. The learned Assessing Officer referred to amendment to the definition of charitable purpose to section 2(15) of Act with effect from 01/04/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Society of Goa Vs CIT (2013) 23 ITR(Trib) 635 . He further held that the registration under section 12A of the Act would not ipso facto entitle the assessee for claim of exemption under section 11 of that unless conditions stipulated therein and other relevant provisions in this behalf are fulfilled by the assessee. The reliance placed by the assessee on the order of first appellate authority and the Tribunal for assessment year 2009-10 and 201011 was not found to be relevant by him in view of the proviso to section 2(15) of the Act and rejected the plea of the assessee of application of rule of consistency. The Ld. CIT(A) finally upheld the action of the Assessing Officer for: (i) disallowance of benefit under section 11 of the Act in respect of the income including income from exhibition, in view of express provision of section 13(8) of the act. (ii) denial of carryforward of deficitby in the year under consideration, holding that facts of the assessment year 2004-05, where the ITAT allowed such carryforward, are different 3.3 Aggrieved with denial of benefit of provisions of section 11 and carryforward of deficit, the assessee is before the Tribunal by way of raisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion which arises before us is whether the activity of conducting exhibitions trade fair by the assessee amounts to trade, commerce or business or activity of rendering services in relation to trade, commerce or business. 5.1 In this regard, the ld. consul of the assessee has brought our attention to the historical background leading to establishing of the assessee organisation. Prior to the assessee came into existence, the role of promotion of the export of gems and jewellery products was with the Director General of Foreign Trade (DGFT) i.e. an organisation under the control of Ministry of Commerce and Industry, Government of India. As a part of export promotion, the trade exhibitions used to be conducted by the DGFT and said conducting of exhibitions by DGFT continued till the assessee came into existence in the year 1966. 5.2 Further, the ld. counsel of assessee referred to copy of certificate of incorporation (PB-13), according to which the company i.e. the Gem and Jewellery Export Promotion Council (GJEPC) has been incorporated under section 25 of the Companies Act, 1956 on 27/04/1966 as company limited by guarantee. In the memorandum of association (PB: 15 -22) ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He referred to an annual feature of the EP(G J) division in the Department of commerce, Ministry of commerce and industry, government of India, which issues calendars for each year, wherein it approves the exhibitions for gems and jewellery product. The Ld. Counsel referred to copy of such approval for overseas exhibitions and domestic exhibitions placed at paperbook pages 182 to 186 and 187 to 203 respectively. A copy of such approval of international exhibition and domestic exhibition available on pages 185 to 186 and 187 is reproduced as under : International Exhibition : F.No. 12/32/2011-EP(G J) Government of India Ministry of Commerce Industry Department of Commerce EP(G J) Division New Delhi, 13th December, 2011. To 1. Shri Raiv Jain Chairman, Gem Jewellery Export Promotion Council Mumbai 2. Chairman-cum-Managing Director MMTC Limited, New Delhi 3. Shri Nirmal Sinha Chairman, HHEC of India Limited NOIDA Subject: Calendar of Overseas Exhibitions for the year 2012. Sir, I am directed to inform that the following Calendar exhibitions in Gem Jewellery Products has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Beijing/Shanghai 2. Further assistance for grant under any scheme of Department of Commerce for participation in the above mentioned events is to be obtained separately as per the guidelines of such scheme. Domestic exhibition : F.No.12/10/2011-EP(G J) Government of India Ministry of Commerce Industry Department of Commerce EP(G J) Division) Udyog Bhavan, New Delhi Dated:17 March, 2011 To Director General, Directorate General of Inspection, Customs and Central Excise, Delhi Subject: India International Jewellery Show (IIJS) 2011, Mumbai (4-8 August, 2011) Sir, I am directed to state that Department of Commerce has approved the proposal of Gem Jewellery Export Promotion Council (GJEPC) for organizing India Show coinciding with the India international Jewellery Show (IJS) 2011 from 4-8 August, 2011 at NSE Complex, Goregaon (East), Mumbai 2. The Gem Jewellery exporters from Domestic Tariff Area (DA)/Export Processing Zones/Export Oriented Units (EOUs)/Special Economic Zones (SEZs) shall participate in the Show and display precio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: 4.2 I have carefully considered the facts of the case and submissions made by the appellant. I have also gone through the decisions relied on by the A.R. Respectfully following the decisions of IT.A.T.; Bombay, in assessee's own case for A.Y. 2004-05 to A.Y. 2008-09 and the order of the Hon'ble High Court in ITA (LOD) 1113 of 2010 dated 15-2-2011,it is held that denying exemption us. 11 of the Act to the appellant is not justified. The AO, is accordingly, directed to allow exemption to the appellant u/s 11 of the Act. This ground of appeal is allowed. 5.7 Against the order of the Ld CIT(A) for AY 2009-10 and 201011, the Revenue did not prefer appeal before the ITAT on ground of exemption allowed by the ld CIT(A), which is evident from the following grounds of appeal raised by the Revenue for appeal filed before the ITAT in ITA no. 5757/Mum/2015 for AY 2009-10 and ITA No. 5756/Mum/2015 for AY 2010-11 : Grounds of appeal before ITAT by revenue in ITA No. 5757/Mum/2015 for AY 2009-10: Whether on the facts of the case and in law the ldCITCA) erred in allowing the appeal of the assessee on account of disallowing depreciation on fixed assets of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Lissie Medical Institutions vs CIT 76 DTR (Ker) 372 has decided the issue in the favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Led (199 ITR 43). 3. The Appellant prays that, to the extent of above grounds, the order of the Commissioner of Income Tax (Appeal)-7, Mumbai be set aside and that of the Assessing Officer be restored. 4. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 5.8 We note that ld. CIT(A) while adjudicating the issue of benefit u/s 11 of the Act in the appeals for AY 2009-10 and AY 2010-11, relied on the decision of Hon ble jurisdiction High Court in ITA No. 1113 of 2010. The relevant finding of the Hon ble High Court is reproduced as under: 1. The office objections are overruled. Basically two questions are raised by the revenue in this appeal, which read as under- (1). Whether on the facts and circumstances of the case and in law the Tribunal was right in holding that the assessee has fulfilled the conditions as laid down -u/s.11(4A) of the IT Act 1961 and is therefore entitled for exemption us. 11 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his finding in Para-6.2 wherein it is held that assessee's activities are incidental to the main object of the assessee. The Ld.CIT(A)categorically held that the assessee is maintaining cash book, ledger, joumal, etc., for the exhibition activity and, accordingly, it was held by him that the assessee is eligible for exemption u/s.11 of the Act, therefore, we see no infirmity in this finding of the Ld. CIT(A). Accordingly, we confirm the order of the Ld. CIT(A) in this respect. 3. From the above finding of fact and in the light of the judgment of the Apex Court in the case of Assistant Commissioner of Income. Tax Vs. Thanthi Trust reported in 247 I.T.R. 785, the decision of the Tribunal holding that the assessee has fulfilled all the conditions of Section 11(4A) of the Income Tax Act cannot be faulted. Moreover, the Tribunal has recorded finding of fact that the assessee has maintained separate books of account in respect of exhibition activity. In this view of the matter, the first question raised by the revenue cannot be entertained. 5.9 We find that the Hon ble High Court has noted the facts recorded by the ITAT regarding of objects of the assessee and conductin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent withdrawal of exemption under section 11]are reproduced as under: Section 2(15) (15) charitable purpose? includes relief of the poor, education, yoga,) medical relief, (preservation of environment (including water-sheds, 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 out of such advancement of any other object of general public utility?5; 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 institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration is not confined to the provision of services or goods without charging anything or charging a token or nominal amount. This is spelt out in Indian Chamber of Commerce (supra) where this Court held that certain GPUs can render services to the public with the condition that they would not charge more than is actually needed for the rendering of the services, - may be it may not be an exact equivalent, such mathematical precision being impossible in the case of variables, - may be a little surplus is left over at the end of the year the broad inhibition against making profit is a good guarantee that the carrying on of the activity is not for profit . 171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act. If one keeps this in mind, what Section 2(15) emphasizes is that so long as a GPU s charity s object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or commerce, should be part of the GPU s activities, to achieve its object of advancing general public utility. The other condition which is drawn in as part of the exemption condition, is that if such trading or commercial activity takes place the receipts should be confined to a prescribed percentage of the overall receipts. Section 13(8) too reinforces the same condition. 175. In the opinion of this court, the change intended by Parliament through the amendment of Section 2(15) was sought to be emphasised and clarified by the amendment of Section 10(23C) and the insertion of Section 13(8). This was Parliaments emphatic way of saying that generally no commercial or business or trading activity ought to be engaged by GPU charities but that in the course of their functioning of carrying out activities of general public utility, they can in a limited manner do so, provided the receipts are within the limit spelt out in Clause (ii) of the proviso to Section 2(15). 5.15 Thus, the Hon ble Supreme Court has laid down principle giving the example of Gandhi Peace Foundation that where in the process of dissemination of Philoshopy of Mahatama Gandhi through museum and exh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were in the context of the unamended Section 2(15). 201. The question that arises is whether the change in definition impacts the claims of trade promotion bodies, federations of commerce, or such organizations, that they are GPU charities. The judgment in Surat Art Silk (supra) proceeded on the assumption that trade promotion was the pre-dominant object of the GPU charity before the court, and that other objects including procuring licences, trade etc. were incidental. The assessee in Surat Silk had clear trading objects: (b) To carry on all and any of the business of Art Silk Yarn, Raw Silk, Cotton Yarn as well as Art Silk f loth, Silk Cloth and Cotton Cloth belonging to and on behalf of the members. ********* ********** (e) To buy and sell and deal in all kinds of cloth and other goods and fabrics belonging to and on behalf of the Members. This court, nevertheless, held that since the predominant object of the assessee was trade promotion, while furthering it, the fact that some trading occurred, leading to income, did not preclude the assessee from claiming tax exemption. 202. In the opinion of this court, the change in definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which is then rented out to individual Indian exporters, who showcase their products and services, and ultimately secure export orders. Towards these services, i.e., booking and providing space, AEPC charges rentals. Now, these rents are not towards fixed assets owned by it. They are in fact charges, or fees, towards services in relation to business; likewise, the skill development and diploma courses conducted by it, for which fees are charged, are to improve business functioning of garment exporters. Furthermore, market surveys and market intelligence, especially country specific activities, aimed at catering to specified exporters, or specified class of exporters, is also service in relation to trade, commerce or business. 205. In the circumstances, it cannot be said that AEPC s functioning does not involve any element of trade, commerce or business, or service in relation thereto. Though in some instances, the recipient may be an individual business house or exporter, there is no doubt that these activities, performed by a trade body continue to be trade promotion. Therefore, they are in the actual course of carrying on the GPU activity. In such a case, for each year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. It has to receive fees, to reimburse its costs. The materials on record nowhere suggest that its receipts (in the nature of membership fee, connectivity charges, data transfer differential charges, and registration charges) are of such nature as to be called as fees or consideration towards business, trade or commerce, or service in relation to it. The functions ERNET performs are vital to the development of online educational and research platforms. For these reasons, it is held that the impugned judgment, which upheld the ITAT s order, does not call for interference 209. The Revenue has appealed the decision of Delhi High Court in which the National Internet Exchange of India (NIXI) was held to be a GPU category charity. The materials on record show that NIXI was established in 2003 under the aegis of the Ministry of Information Technology of the Union Government for the promotion and growth of internet services in India, to regulate the internet traffic, act as an internet exchange, and undertake .in domain name registration. Concededly, NIXI, is a not for profit, and is barred from undertaking any commercial or business activity. Its object is to promote the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question, had considered and pronounced upon the interpretation of Section 2 (15) of the Income Tax Act, 1961, in relation to charitable trusts which engage in activities that further objects of general public utility. The activities and cases of various kinds of charities, trusts and organizations, including statutory corporations and bodies, regulatory bodies, non- statutory regulatory bodies, trade organizations and bodies, sports bodies and organizations, trusts, etc were considered by the court, and dealt with in the judgment. Para 253 recorded the court's summary of conclusions in relation to each such trust, charity or organization. 3. It was urged on behalf of the revenue, that the clarification it seeks is necessary, because in Para 253 H and in Para 254, it has been precluded from examining the facts and assessing the concerned assessment years, in relation to the assesses in these appeals. It was urged that the conclusions recorded in the judgment and those in the said two paragraphs, preclude it from dealing with the assessments of parties before this court and, furthermore, the dismissal of the revenue's appeals will preclude an examination of the merits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id expenditure is provided in the notes to the financial statement for the year ended 31/03/2012, which is available on paperbook page 124 to 126. As against this expenditure on exhibitions, revenue (income) of ₹83,95,30,850/from exhibitions within and outside India has been shown in the notes to financial statement, which are available on paperbook page 119. The assessee has further claimed expenditure on advertisement for exhibition amounting to ₹1,78,37,641/-. Thus, we find that in the year under consideration there is net loss of ₹1,60,55,079/- from the activity of exhibitions conducted by the assessee within and outside India. In the immediately preceding assessment year the expenses on exhibitions were of ₹77,09,23,044/-as compared to revenue or income of ₹70,79,56,744/-. The assessee has further incurred expenditure on advertisement for exhibitions and thus there was a net loss from the consideration charged by the assessee for conducting said exhibitions or trade fair. Details of exhibition revenue and expenses submitted by the assessee for assessment year 2011-12 to 2015-16 is reproduced as under: The Gem Jewellery Export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g brand India by way of holding of exhibitions and participation in exhibitions held by overseas trade promotion bodies. The relevant part of the annual report, focusing on the exhibition and trade fair conducted /participated is reproduced for ready reference: 5.22. It is the contention of the ld. counsel that object and purpose behind this activity is not to provide any individualized services to particular entity but to promote the Indian brand and the focus is on the display of the ability of the Indian gems and jewellery industry before the global stakeholders and the participation in such exhibition only enables display of the product and not purchase and sale thereof. The DR could controvert above factual aspects of the conducting affairs of the assessee. 5.23. In view of above discussion, we are of the opinion that assessee is not hit by the proviso to section 2(15) of the Act as far as activity of conducting or participating in exhibitions within India or overseas and therefore the disallowance of exemption claimed by the assessee made by the Assessing Officer and the finding of the Ld. CIT(A) on the issue in dispute are set aside and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er stated that department has filed SLP against the order of the Hon'ble High Court. 7.1. In submissions, the Ld. AR has pointed out that the Hon'ble Mumbai High Court vide order No.1113/2010 dated 15-2-2011 (supra) has allowed the set off of deficit in assessee's own case for A.Y. 2004-06. Thus there is no reason for AO to deny the same. 7.2 I have considered the facts of the case and the submissions made by the appellant. Respectfully following the jurisdictional High Court decision stated above, I direct the AD to and allow the deficit to be carried forward. This ground of appeal is allowed. 8.4 In the year under consideration, ld CIT(A) has noted that since exemptions under section 11 had been denied to the assessee by the AO therefore, the action of AO in denying carryforward of the deficit was upheld by the ld CIT(A). 8.5 However, the claim of exemption under section 11 has been allowed to the assessee by us, therefore, the Assessing Officer is directed to allow the claim of the assessee of carryforward of the deficit following the finding of the Hon ble jurisdiction High Court (supra). The ground No. 9 and 10 of the appeal of the assessee ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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