2022 (9) TMI 1570 - AT - Income Tax

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

IMC Chamber of Commerce and Industry Versus CIT (Exemptions), Mumbai.

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 ... Exemption u/s 10(23C) (iv) - Charitable activity u/s 2(15) or not? - Assessment of trust - as per AO receipts from the issuance of certificate of origin be treated as trade, commerce or business - CIT(E) held that assessee is not involved in charitable activities as required by the provisions of section 10(23C)(iv), hence the application filed by the assessee is not fit case of grant of approval - HELD THAT:- Assessee collects fees from members/non-members within the limit prescribed by the DGFT i.e., not more than ₹.100/-. Whether the assessee charges fees for issuing certification is for making profit? - whether the fees collected by the assessee are more than other trade bodies, can this be treated as motive for making profit? - In our considered view assessee has liberty to charge fees for issuing certification within the limit fixed by the DGFT, just because other trade bodies are charging less than the fees collected by the assessee, it does not lead to presumption that assessee might have earned excess profit, it depends upon the setup and their broad objects. We observe that in similar fact on record the Hon'ble Supreme Court reviewed the similar issue in ACIT v. Surat Art Silk Cloth Manufacturers Association [1979 (11) TMI 1 - SUPREME COURT] decided the issue on applicability of the section 2(15) of the Act in favour of the assessee and against the revenue. Thus what is relevant is it is not important how the assessee has charged the fees to the members or non-members, it is relevant to analyse whether these activities are carried with the sole object of making profit or mere these activities are carried to support its objects of charity. Further, it is also relevant that whether these surplus funds earned from these activities are applied for the object of the trust. In the given case there is no finding from the tax authorities that the assessee has not applied for the object of the trust nor it has reported any misuse of the funds of the trust. we further observed that the CIT(E) equated the formal education and the indirect education. The assessee conducts seminars, training courses and commercial examinations for the benefit of its members, it need not be a formal education to be considered as the charitable activity. The courts have held that offering education through formal or informal are part of charitable activities. CIT(E) rejected the application with the observation that in the assessment proceedings in the A.Y. 2010-11 the Ld. AR of the assessee prayed before the AO to exclude the receipts received from non-members as part of profit which should be excluded for the purpose of applying concept of mutuality. In our considered view this is only a proposition submitted during the assessment proceedings only in order to address the proposal to assess the income under concept of mutuality. It does not mean that the assessee is carrying this activity to earn profit or it does not propose the fact that the activities are carried only with the object of making profit. Therefore in our considered view the assessee is eligible for registration u/s. 10(23C)(iv) of the Act since at the time of registration, the CIT(E) is expected to verify the objects for granting registration we observe that the revenue has already granted registration u/s. 12A of the Act. The evaluation process for registration u/s. 12A and u/s. 10(23C)(iv) of the Act are exactly similar, once the 12A registration is granted after due process of verification, we do not see any reason not to grant registration u/s. 10(23C)(iv) of the Act. Grounds raised by the assessee are allowed. 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.