Trust issuing origin certificates qualifies for tax exemption under section 10(23C)(iv) despite charging DGFT-approved fees

ITAT Mumbai held that a trust issuing certificates of origin was eligible for exemption under section 10(23C)(iv). The AO and CIT(E) rejected the application, arguing the trust engaged in trade/commerce rather than charitable activities. ITAT ruled that charging fees within DGFT limits (Rs. 100/-) for certification services, conducting seminars and training courses constituted charitable activities under section 2(15). The tribunal noted no evidence of profit motive or fund misuse, and emphasized that since the trust already held section 12A registration after verification, similar approval should be granted under section 10(23C)(iv). The appeal was allowed.

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Issues Involved:
1. Non-grant of exemption under Section 10(23C)(iv).
2. Applicability of Section 2(15) of the Income Tax Act, 1961.
3. Determination of charitable activities and profit motive.
4. Treatment of income from non-members and mutuality concept.

Issue-wise Detailed Analysis:

1. Non-grant of exemption under Section 10(23C)(iv):
The assessee, a non-profit company registered under section 25 of the Companies Act, 1956, sought approval for exemption under section 10(23C)(iv) of the Income Tax Act, 1961. The Ld. CIT(E) denied the exemption, holding that the assessee is not involved in charitable activities as required under section 10(23C)(iv) of the Act. The assessee argued that it is registered as a charitable institution under section 12A of the Act and its main objects are to promote, advance, and protect trade, commerce, and industry, which are charitable in nature.

2. Applicability of Section 2(15) of the Income Tax Act, 1961:
The Ld. CIT(E) invoked the provisions of section 2(15) of the Act, which defines "charitable purpose" and includes the advancement of any other object of general public utility. The Ld. CIT(E) observed that the assessee's activities, such as issuing certificates of origin and holding seminars, are in the nature of trade, commerce, or business. The assessee contended that its dominant object is charitable and any incidental activity for furtherance of the object would not fall within the expression trade, commerce, and business.

3. Determination of charitable activities and profit motive:
The Ld. CIT(E) concluded that the assessee's activities are not charitable in nature due to the amendments brought in section 2(15) of the Act w.e.f. 01.04.2009. The assessee argued that its activities are carried out without any intent to earn profits and any income earned is incidental. The Tribunal referred to the Supreme Court's decision in ACIT v. Surat Art Silk Cloth Manufacturers Association, which held that the relevant test is whether the predominant object of the activity is to subserve the charitable purpose or to earn profit. The Tribunal observed that the assessee's activities do not have a profit motive and are aimed at supporting its charitable objects.

4. Treatment of income from non-members and mutuality concept:
The Ld. CIT(E) noted that the assessee had requested to treat the income earned from non-members as not exempt under section 11 and to consider only the balance income as chargeable to tax. The Tribunal observed that this was a proposition submitted during the assessment proceedings to address the proposal to assess the income under the concept of mutuality. The Tribunal held that this does not mean that the assessee's activities are carried out with the sole object of making profit.

Tribunal's Decision:
The Tribunal allowed the appeals filed by the assessee, directing the Ld. CIT(E) to grant registration under section 10(23C)(iv) of the Act. The Tribunal observed that the assessee is eligible for registration as it is already registered under section 12A of the Act, and the evaluation process for both sections is similar. The Tribunal emphasized that the assessee's activities are charitable in nature, and any surplus funds are applied for the object of the trust. The decision for A.Y. 2016-17 was also applied to A.Y. 2017-18.

Order Pronouncement:
The appeals filed by the assessee were allowed, and the order was pronounced in the open court on 27th September, 2022.

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