TaxTMI 
TaxTMI 
2018 (10) TMI 1172
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....ppeals) erred in denying the deduction u/s 44A- "special provision for deduction in case of trade, professional or similar association" to the assessee, a Trade Association registered u/s 12A of the Income-tax Act, 1961. eligible and claiming such deduction u/s 44A of the Act. 2. The learned CIT (Appeals) erred in fact and law by concluding: (i) "that the appellant is providing services to its members in lieu of membership fees being paid."; and (ii) that this amounted to "remuneration received for rendering any specific services to such members." in denying the deduction u/s 44A of the Act 3. The learned CIT (Appeals) erred in applying the ratio in "Surat City Gymkhana v/s DCIT (Guj) 254 ITR 733" in denying the deduction u/s 44A of the Act. The denial of the deduction u/s 44A is erroneous, perverse and ought to be set aside and the special deduction allowed. 4. The learned CIT (Appeals) erred in fact and law in denying the assessee the benefit of the exemption of section 11 of the Act: (i) by misapplying CBDT circular No 11/2008 and disregarding the submissions made by the assessee (ii) by confirming ....
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....table institution' u/s 12A of the Act and carrying on objects of general public utility. On the issue of mutuality, assessee contended that so far as the subscription revenue earned from its members was concerned, it was governed by the Principle of Mutuality, and the same was exempt from tax. On other activities, including those relating to the non-members, assessee pointed out that it was carrying on objects of general public utility and being registered u/s 12A of the Act, it was entitled to the benefits of exemption under Sec. 11/12 of the Act. Assessee also explained before the Assessing Officer that it was publishing a magazine for dissemination of information relating to the Rubber industry in India and developments abroad. It was explained that such magazine is circulated to the members while the non-members were entitled for the magazine for a nominal subscription in order to mitigate the cost of publication. The same was also circulated on a gratis basis to the public through libraries, concerned Departments of the Government, etc. The assessee also explained that the magazine contained technical research, data and other important articles written by persons in the field ....
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.... Officer has misdirected himself in holding that the Principles of Mutuality and charitable purpose are mutually exclusive. Thirdly, it is pointed out that the registration of the assessee u/s 12A of the Act continues to hold and, therefore, it was not open for the Assessing Officer to re-examine and re-evaluate the objects of the assessee and say that the same are not for charitable purpose unless it can be established that the activities being carried out are not in accordance with the objects. The learned representative pointed out that the activities of assessee stand on a similar footing as in the past years and in view of the continuation of registration u/s 12A of the Act, the objects could not be said to be lacking in charitable purpose. For this proposition, reliance has been placed on the judgment of the Hon'ble Gujarat High Court in the case of Hiralal Bhagwati vs CIT, 246 ITR 188 (Guj.), which has since been affirmed by the Hon'ble Supreme Court in the case of ACIT vs. Surat City Gymkhana, 300 ITR 214 (SC). Further, it is argued that the proviso to Sec. 2(15) of the Act introduced by the Finance Act, 2008 w.e.f. 01.04.2009 has been wrongly invoked by the Assessi....
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....o canvassed by the ld. DR that the activities of the assessee are predominantly for the benefits of its members and not for public at large and, therefore, the same could not be treated to be charitable in nature. 10. We have carefully considered the rival submissions. Before we proceed to address the specific objections raised by the Assessing Officer, we deem it fit and proper to refer to the objects for which the assessee-association has been established. As noted earlier, assessee has been founded in 1945 and is further registered u/s 25 of the Companies Act, 1956. As per its Memorandum of Association, some of the important objects are as follows. "(a) To promote co-operation among Persons, Companies, Factories and Firms, engaged as Manufacturers of rubber products made out of Natural Rubber, Synthetic Rubber & Latex in India with a view to adopting a common policy and collectively taking such steps, as may be deemed necessary or expedient to further and safeguard the interests of the Industry and Trade, provided that the Association shall not make or support any regulation or restriction which would make the Association a Trade Union. (b) To regulate and s....
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....bjects or any of them." 11. The Memorandum of Association also prescribes by way of clause 4 that income and property of the association whensoever derived shall be applied solely towards the promotion of the objects of the Association as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly to the members of the Association except, of course, for payment of remuneration to the employees of the association. Clause 7 of the Memorandum of Association also brings out that upon winding up or dissolution of the Association, the surplus remaining after satisfaction of all debts and liabilities, if any, shall not be paid or distributed amongst the members of the Association but shall be given or transferred to some other Association or Institution having similar objects. 12. We are only referring to the aforesaid features of the assessee-association to point out that the objects of the assessee-association are primarily revolving around promotion and safeguarding the interests of Rubber trade and industry. In fact, clause 3(a) specifically rules out making or supporting any regulation or restriction, which would make t....
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....view was taken by the jurisdictional High Court in the case of CIT vs Western India Chambers of Commerce Ltd. 13 ITR 67 (Bom.). The decision of the Gujarat High Court relied upon by the revenue authorities is not relevant in the facts of the present case. In that case distribution of property amongst members was permitted. Whereas in the present case it is not permitted. In my opinion, facts of the present are covered by the decision of the jurisdictional High Court rendered in the case of Western India Chambers of Commerce (supra). Respectfully following the precedent, I decide this issue in favour of the assessee and against the revenue. [underlined for emphasis by us]" 13. Therefore, in our considered opinion, there is no justification for the Assessing Officer to hold that since the objects of the assessee seek to promote and protect the interests of a particular trade, industry, the same loses the character of being charitable. 14. The other and more substantive point made out by the Assessing Officer is based on the proviso to Sec. 2(15) of the Act which has been inserted by the Finance Act, 2008 w.e.f. 01.04.2009. In this context, the amended Sec. 2(15) of the....
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.... would render the activities of the assessee to be of non-charitable purpose. The Hon'ble Delhi High Court in the case of India Trade Promotion Organisation (supra) as well as in the case of Institute of Chartered Accountants of India (supra) have extensively examined the nature and scope of the proviso to Sec. 2(15) of the Act. At this point, we may note that a similar issue came-up before our coordinate bench at Kolkata in the case of Indian Leather Products Association (supra). Therein also, the charge made by the Revenue was that the proviso inserted to Sec. 2(15) of the Act w.e.f. 01.04.2009 had rendered the activities of the assessee non-charitable. Our co-ordinate bench perused the detailed judgment of the Hon'ble Delhi High Court in the case of India Trade Promotion Organisation (supra) and culled out the principles laid down by the Hon'ble Delhi High Court for the interpretation of the proviso to Sec. 2(15) of the Act. The principles so culled out by our co-ordinate bench are quite illustrative and read as under :- "(i) The proviso to Sec.2(15) of the Act introduced by virtue of the Finance Act, 2008 with effect from 01.04.2009 has two parts. The first....
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....Institution as a charitable institution if it otherwise qualifies for such a character. (v) Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. If the driving force is not the desire to earn profits but to do charity, the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. (vi) If a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). Courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above. (vii) Section 2(15) is only a definition clause. Section 2 begins with the words, in this Act, unless the context otherwise requires. The expression "charitable purpose" appe....
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....High Court in the case of Shree Nasik Panchvati Panjrapole (supra). Though the said judgment is with regard to the registration u/s 12A of the Act, but the parity of reasoning laid down by the Hon'ble Bombay High Court in context of proviso to Sec. 2(15) of the Act is very eloquent. In the case before the Hon'ble Bombay High Court, the dominant activity being carried out by the assessee-trust for over 130 years was to take care of old, sick and disabled cows. An incidental activity of selling milk was being carried out, which resulted in receipt of money on the sale of milk. The contention of the Revenue was that the activity of selling milk obtained from the cows was in the nature of trade, business or commerce and thus the charitable status was hit by the proviso to Sec. 2(15) of the Act. The aforesaid proposition advanced by the Revenue was squarely negated by the Hon'ble High Court. As per the Hon'ble High Court, the incidental activity of obtaining milk while taking care of the cows would not be hit by the proviso to Sec. 2(15) of the Act because selling of milk by itself could not be construed to be an activity in the nature of trade, commerce or business havi....
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....e, in view of the aforesaid discussion, we set-aside the order of CIT(A) and direct the Assessing Officer to allow the exemption u/s 12A of the Act to the assessee. 20. Before parting, we may also advert to the stand of the Assessing Officer that assessee was a mutual association as it was intended for the benefits of its members who were involved in rubber trade and industry. Being a mutual association, as per the Assessing Officer, it was entitled to the benefits of Principle of Mutuality and, therefore, any surplus remaining from the dealings with the members was exempt. Therefore, according to the Assessing Officer, such an institution could not be eligible for the benefits of Sec. 11/12 of the Act as it was a mutual association existing for promotion of interests of its members. In our considered opinion, the said approach of the Assessing Officer is clearly misguided. In this context, it would suffice for us to reproduce hereinafter the following extract from the judgment of the Hon'ble Delhi High Court in the case of PHD Chamber of Commerce & Industry (supra) :- "16. A survey of the decided cases shows that trade and professional associations have been held e....
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....fit element in such services. "15. CIT vs. Andhra Commerce of Chamber (supra) introduced the possibility of some of the trade, professional or other similar association being entitled to the exemption under Section 11. It seems to us that all that Section 28(iii) does is to constitute certain income of the association to be business income without affecting the scope of the exemption under Section11. Section 2(15) which incorporates the definition of "charitable purpose" as including relief of the poor, education, medical relief and the advancement of any other object of general public utility, on the lines of what Sir Samuel Romilly suggested to the Court in Morice v. Durham, Bishop of Durham (1805) 10 Ves Jr. 522, shows that several mutual associations may also fall within the definition. On this basis, a Gymkhana Club formed to promote physical fitness, sports and games and social intercourse amongst the members has been held entitled to the exemption under Section 11 by the Madras High Court in Commissioner of Income-tax v. Ootacamund Gymkhana Club (1977) 110 ITR 392; an association formed for the general benefit of the members of the legal profession was held eligible....
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....ec. 11/12 of the Act on one more Ground, namely, that assessee had invested sum of Rs. 18,75,000/- in Rubber Skill Development Centre, which was in violation of Sec. 13(1)(d) r.w.s 11(5) of the Act. 26. On this aspect, the stand of the assessee was that Rubber Skill Development Centre is a company under the Companies Act, 1956 which enjoys licence u/s 25 of the Companies Act, 1956 and that it was a Special Purpose Vehicle (SPV) formed with the approval of the Government of India. Assessee also pointed out that Rubber Skill Development Centre is also registered u/s 12AA of the Act with the Commissioner of Income-tax. Before us, the learned representative for the assessee pointed out that the impugned contribution is towards the Share Capital, i.e. towards the corpus of Rubber Sector Skill Council and such contribution is to be understood as application of funds towards the promotion of objects of the assessee-association. It was pointed out that it was not in the nature of any investment inasmuch as Rubber Sector Skill Council was itself a Sec. 25 mandated company under the Companies Act, 1956 and, therefore, no dividend could be declared by it. It was, therefore, pointed out tha....