TaxTMI 
TaxTMI 
2016 (11) TMI 600
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.... 3. The facts in brief as culled out from the records are that the assessee in the instant case is a company registered u/s 25 of the Companies Act and is engaged in promoting commerce and industry relating to construction in general and building construction in particular following the concept of mutuality. The assessee filed its return of income for the assessment year under appeal claiming exemption u/s. 11 of the Act and thereby total income returned was Nil. 4. The Ld. C.IT.(Exemption), Kolkata dated observed that the order of the AO u/s 143(3)/11 of the Act, 1961 dated 26.10.2013 for the assessment year under reference is erroneous and prejudicial to the interest of revenue on account of the following two issues :- Violation of provisions of section 2(15) of the Act (i) The assessee for the year has held three fairs out which two were in India and one in North America. These three fairs generated surplus fund to the assessee for an amount of Rs. 1.10 crores. As per the ld. CIT observed that such activities are commercial in nature and therefore such income is purely from a business activity with an intention to earn profit and hence the provisions of s....
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....rce (Supra)) are different and therefore the said case is not applicable to the assessee. In that case the activities of the assessee were incidental to the main objects but in the instant case before us the main activities of the assessee are holding fairs in & outside India. Therefore the activities are as such commercial in nature with profit motive and therefore there is violation of the provisions of section 2(15) of the Act. Violation of provisions of section 11(1)(a) of the Act There is no doubt that the fair was held outside India and therefore the assessee has clearly violated the provisions of section 11(1)(a) of the Act to the extent money applied in the form of expenses outside India. Being aggrieved by the impugned order of the ld. CIT u/s 263 of the Act, the assessee is in appeal before us on the following grounds of appeal:- "1. That the Ld. CIT (Exemption) under the facts and in the circumstances of the case, erred in holding that the order passed by the Ld. AO u/s 143(3)/11 of the IT Act, 1961 on 26.12.2013 was erroneous inasmuch as it was prejudicial to the interest of revenue. 2. That the appellant being engaged in charitable activities of....
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....ublic and impersonal nature and as such it cannot detract from its charitable character. The activities of the assessee is, therefore, charitable within the meaning of s. 2(15) of the Act. Similarly the allegation of the Ld. CIT that once the assessee had held the fair outside India, it was clearly evident that it had applied the receipt thereof outside India and hence the assessee had violated sec. 11(1)(a) of the Act to such extent was also not correct. The ld. CIT further held that cheques issued in India did not confirm the fact that application has been done in India. According to him, further, expenses incurred to organize fair outside India has been incurred first and subsequently income has arisen out of India. Therefore, such expenses out of the income arises in India are 'application outside India' out of receipts in India and hence in violation of sec. 11(1)(a) of the Act. To this, it is submitted at the cost of repetition that the fair was organized to invite the Indian residents of North America to invest in India in realty sector. So, it was for the advancement of realty business in India that the impugned fair was organized. All the members and non-members....
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....nstant case. In view of our above detailed submission with relevant evidences, it is prayed before the Hon'ble Bench that the order passed u/s 263 of the Act by the Ld. CIT (Exemption) may kindly be directed to be quashed and annulled and the assessee may be given such relief(s) as prayed for. 6. On the other hand, ld. DR vehemently relied on the order of the ld. CIT passed u/s 263 of the Act. 7. We have heard the rival parties, perused the material available on record and duly considered the facts of case and the applicable legal position. From the aforesaid discussion, we find that the ld. CIT has held the order of the AO as erroneous and prejudicial to the interest of revenue mainly on account of two reasons. Firstly the activities of the assessee are commercial in nature and Secondly the income of assessee has been applied in foreign country which is the contravention of the provision of section 11(1)(a) of the Act. Now the following questions arise for our consideration. 1. Whether the activities of the society are commercial in nature in the light of the above facts & circumstances. 2. Whether there is violation of the provision of section 11(1)(a) of ....
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.... 4) xxx xxxx xxxx 5) xxx xxxx xxxxx 6) To encourage research and development in the construction industry and for that purpose organizes conferences, seminars, exhibitions, films shows etc., and also establish laboratories, collect models and designs, etc.' Objects incidental or ancillary to the attainment of the main objects: '5) To organize conferences, exhibitions, film shows, seminars, tours, delegation, etc. in India and abroad and to nominate delegates and advisers and to take steps which may promote and support the construction industry, trade and profession.' The assessee-company was established with the aforesaid objects and the same were accepted by the Revenue while granting the registration u/s 12AA of the Act on 10.10.1995. Since the inception of the assessee-company the objects and activities remained same and which were accepted by the Revenue even under the assessment framed u/s 143(3)/147 of the Act consistently without holding the aforesaid activities as commercial in nature. Accordingly, in view above, we are inclined to provide the relief to the assessee on the basis of consistency as there is no change in the objec....
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....roduce the said provision which reads as under:- "2[(15) 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 : Provided further that first proviso shall not apply if the aggregate value of receipts from activities referred to therein is twenty-five lakh rupees or less in the previous year" The ld. CIT passed impugned order u/s 263 of the Act is treating the activities of the assessee as commercial in nature in terms of the clause of section 2(15) i.e. 'advancement of any other obje....
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....of India in Write Petition 1927 of 2010 are not applicable to the case of the appellant inasmuch the facts of the said case are different from the case of the appellant. 4. That on the acts and the circumstances of the case of the appellant the Ld. CIT(A) erred in holding that the appellant's activities of conducting the Environment management Centers, mettings, conferences & seminars and the issuance of Certificate of Origin were not incidental to the main object of the appellant which was charitable in nature." 9. From the above facts, we find that there was no question to decide before the then Hon'ble ITAT which is arising in the instant case whether the activities of the instant assessee are incidental/ ancillary to the main objects to the trade, commerce and industry or main objects are in the nature of trade, commerce and industry. Therefore, in our considered view the facts of the case are squarely applicable of case of Indian Chamber of Commerce Vs. ITO (Supra), wherein it was held that the activities of the assessee are charitable in nature. The relevant portion of the order is reproduced below:- "30. Hence in view of all the above, concluding this is....
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.... authorized the Chamber "to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them."Thus it was only for the purpose of securing its primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit motive in any of the said activities. The surplus arising out of the same was merely incidental to the main object to charity. The majority of the receipts in the said activities were out of the sponsorships and donations. The expenses incurred on the said activities as and when incurred were all separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of gene....
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....1981) 130 ITR 186 (SC) where the Hon'ble Supreme Court has held as under : "Whatever reservations one may have regarding the correctness of the interpretation of the exclusionary clause in the definition of 'charitable purpose' in s. 2(15) of the Act, there can be no doubt that the majority decision in the Addl. CIT vs. Surat Art Silk Cloth Manufactures Assn. (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) : TC23R.195 is binding on the Bench. Undoubtedly, the activities of the assessee in regard to holding of the Conference of the Afro-Asian Organisation in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, viz., promotion, protection and development of trade, commerce and industry in India. The income derived by the assessee from such activities was exempt under r/w s. 11(1)(a) s. 2(15). There is a distinction between the "purpose" of a trust and "powers" conferred upon the trustees as incidental to the carrying out of the purpose. For instance, cl. 3(v) enables the establishment and support of associations, institutions, funds, trusts and convenience calculated to benefit the employees and their dependents, for makin....
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....Direct Tax Laws Committee in Chapter 2 (Interim Report, December, 1977) for the deletion of the words "not involving the carrying on of any activity for profits", by suitable legislation, it was impermissible for this Court by a process of judicial construction to achieve the same result. It is wrong to think that all springs of charity in India will dry up if true effect is given to s. 2(15) in accordance with the minority judgment in the Surat Art Silk Cloth Manufacturers' Association's case. People who are truly charitable do not think of the tax benefits while making charities. One must realise that even the poor who do not pay income tax can be charitable and their charities made at great personal inconvenience are commendable indeed. One need not go in search of charitable persons amongst the taxpayers only. Still the majority view has got to be followed now. The main object of assessee being promotion, protection and development of trade, commerce, and industry in India, it was an object of general public utility and income derived from activities for advancing the dominant object was exempt under s. 11." Issue 2 Violation of provisions of section 11(1....
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.... quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, which was clearly an object of general public utility and profit was merely a by-product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognised by the Central Government under s. 25 of the Companies Act, 1956, and under its memorandum of association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of the assessee could be utilised only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alte....
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....or any property of the assessee in the trustees, are nothing but powers conferred on them for the proper financial management of the affairs of the trust which are incidental or ancillary to the main purpose of the trust.-Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association (1979) 13 CTR (SC) 378 : (1980) 121 ITR 1 (SC) : TC23R.195 followed. The majority decision in Surat Art Silk Manufacturers case has the effect of neutralising the radical changes brought about by Parliament in the system of taxation of income and profits of charities, with particular reference to "objects of general public utility" to prevent tax evasion, by diversion of business profits to charities. It is the vagueness of the fourth head of charity "any other object of general public utility" that impelled Parliament to insert the restrictive words "not involving the carrying on of any activity for profit". It was clearly inconsistent with the settled principles to hold in the aforesaid case that if the dominant or primary object of a trust was 'charity' under the fourth head 'any other object of general public utility', it was permissible for such an object of general public utility, ....