TaxTMI 
TaxTMI 
2013 (3) TMI 823
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....'ble jurisdictional High Court with an observation that this Tribunal had not decided on the eligibility of the assessee to claim exemption under Section 11 of Income-tax Act, 1961 (in short 'the Act'), remitted the appeals back to this Tribunal for deciding on the said issue. 2. On account of the chequered history of the case, it will be worthwhile to recapitulate the course of events, leading to the appeal before the Hon'ble judicial High Court. 3. Assessee is a society registered under Societies Registration Act, 1975. It also had registration under Section 12A(a) of the Act since 4.7.1983. Assessee was all along claiming exemption under Sections 11 and 12 of the Act, based on such registration. For assessment years 1986-87 to 1993-94, it was denied such claim for exemption by the Assessing Officer for a reason that the major and predominant activity of the assessee was to import wattle extract from various countries and distribute it to its members, resulting in surplus income. Surplus derived from import of wattle extract which was distributed to its members, during previous years relevant to assessment years 1987-88 to 1991-92, as appearing in the relevant....
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....(a) of the Act, and was eligible for claiming exemption under Sections 11 and 12 of the Act. In any case, as per the assessee, its income was exempt on the principles of mutuality also. However, the Assessing Officer was not impressed. He denied the claim of exemption for all these years and summary of the reasons for which he denied the claim of the assessee, were as under:- (1) The Assn. is not a charitable institution within the meaning of Sec.2(15) of the I.T. Act. (2) The income of the assn. is not exempt u/s 11 as it had not applied its income for charitable purposes. (3) Taking into account the gross profit inclusive of service charges received as the distribution of wattle extract the principal object of assn. is treated as carrying on business in wattle extract with its members. (4) The income of the assn. arising out of its business activities is liable to be included in its total income by virtue of Sec,11(4A). (5) The principle of mutuality does not apply to the assn. (6) Even if the assn. is considered as a mutual concern the income arising out of distribution of wattle extract is treated as business income u/s 28(1)(iii). Claim of the assessee on e....
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....Department and such accumulated income was used for constructing a building for the association, for effectively carrying on its activities. As per the assessee, it had along with M/s Indian Bank and Council for Leather Exports and Central Leather Research Institute, formed a company under Section 25 of the Companies Act, 1956, for the purpose of training technical persons in leather products. A sum of ₹ 50 lakhs was contributed for this. Further, as per the assessee, there was no commercial sale of wattle extract but, it was distributed among its members, with no motive to make any profit but only recovery of expenditure. In any case, as per assessee, it was covered by principles of mutuality. Assessee also mentioned a note prepared by the Assessing Officer, in relation to its assessment for assessment year 1985-86, wherein, the Assessing Officer had accepted assessee as exempt under the principles of mutuality. In a nutshell, claim of the assessee before Assessing Officer was that it was eligible for exemption under Sections 11 and 12 and also as a mutual association under Section 28(1)(iii) of the Act. 8. CIT(Appeals) was appreciative of these contentions. According to h....
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..... No nonmember could become the beneficiary and therefore, it was not a public charity. As per Revenue, the predominant object of the assessee was not a charitable one. Assessee was only importing wattle extract and supplying such extract among its members. This resulted in profits. Sections 11 and 12 could not be applied to it. 11. As against the above pleading of Revenue, contention of the assessee before this Tribunal was that even for subsequent assessment year, namely, assessment year 1996-97, Assessing Officer had allowed claim of exemption under Sections 11 and 12 despite new Section 11(4A) of the Act, coming into statute with effect from 1.4.1992. Further, as per the assessee, principle of mutuality was squarely applicable to it and the finding of the CIT(Appeals) with regard to mutuality was incidental to his main finding that it was eligible for exemption under Sections 11 and 12 of the Act. As per the assessee, for assessment year 1985-86 as well as subsequent assessment years 1995-96 and 1996-97, the plea of exemption was accepted by the lower authorities and therefore, Revenue could not say that for the years in-between, such exemption should be denied. 12. This Tr....
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....ere not effected to outsiders and surplus realized was only incidental. Tribunal also noted that the orders of CIT(Appeals) for subsequent assessment year 1995-96 and the order of Deputy Director (Exemption) for assessment year 1996-97 went in favour of the assessee and this made the Department's stand very shaky. Appeals of the Department for all the years, including the appeals under Wealth Tax Act, were thus dismissed. 13. Aggrieved the Revenue moved before Hon'ble jurisdictional High Court. The appeals were admitted for answering the following substantial questions of law:- "1. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in not giving a categorical finding that the income of the assessee Association was not exempt under Section 11 of the Income Tax Act for the assessment years 1986-87 to 1991-92 and in not reversing the orders of the Commissioner of Income Tax (Appeals) on this issue for the aforesaid assessment years? 2. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in holding that the assessee was mutual Association and, therefore, the income of the As....
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....pose of giving such finding the matter has to be remitted to the Tribunal. Even though the Income Tax Appellate Tribunal, Chennai Bench 'B' has passed a common order, which includes assessment years 1986-87 to 1988 to 1989, the learned Senior Standing Counsel is unable to inform this Court as to whether separate appeals have been filed in this regard. Therefore, the Income Tax Appellate Tribunal, Chennai Bench 'B' may consider the issue afresh in respect of the assessment years 1989-1990 to 1991-1992 only. 10. Accordingly, the impugned orders of both the Tribunals stand set aside and the matter is remanded to the Income Tax Appellate Tribunal, Chennai Bench 'B', to pass appropriate orders on merits and in accordance with law, of course after referring to the Memorandum and Rules of the Association, by giving a specific finding under Section 11 of the Act as to whether the assessee is entitled to grant of exemption or not. Consequent upon passing of orders by the Income Tax Appellate Tribunal, Chennai Bench 'B', as directed, the Income Tax Appellate Tribunal, Chennai Bench 'D' shall pass orders under the Wealth Tax Act for the above said three assessment years." 14. Now before ....
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....e of the assessee was for such objects. As long as it was for such objects, assessee could not be denied exemption under Sections 11 and 12 of the Act. There is no finding by the Assessing Officer that import of wattle extract and distribution among its members was something not covered by the objects of the assessee. Therefore, according to him, assessee was eligible for claiming exemption under Sections 11 and 12 of the Act. 16. We have perused the orders, heard the rival submissions and also gone through the directions of Hon'ble jurisdictional High Court carefully. Substantial questions of law framed by Hon'ble High Court has been reproduced by at para 13 above. What has been remitted back to us is only the issue relating to the claim of the assessee that its income is exempt under Sections 11 and 12 of the Act. Question of mutuality has already been decided in favour of assessee by the CIT(Appeals) in the orders for impugned assessment years. Though this is also one of the issues mentioned in the substantial questions of law framed by Hon'ble jurisdictional High Court, as mentioned by us, what has been remitted back to us is the issue regarding claim of exemption und....
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....to promote or oppose any legislation and other measures affecting the above trade and industry by all acknowledged means and to make known the grievances, if any, of the persons connected with the above i9ndustry and to obtain suitable relief there of from the appropriate authority or authorities. 9. To settle disputes or controversies between the members of the Association and to arbitrate in the settlement of disputes arising out of commercials between parties willing or agreeing to abide by the judgement and decision of the Association. 10. To establish health competition and promote just and equitable principles among the members in their friendly interest and thereby keep the above trade secure from social evils and injustices. 11. To render such assistance and services to members in the conduct and promotion of their trade and industry as in the opinion of the Association, may be necessary for furthering the interests of the trade and industry. 12. To communicate and correspond with public authorities and chambers of commerce and other mercantile and public bodies throughout the world and to promote measures for the protection of the interests of the Tanning Indus....
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....Income Tax Act, 1961. 23. If at any time the objects of the Association should become impossible of fulfilment, the properties and funds belonging to the Trust shall be utilised for such other allied charitable Association, as determined by the members or court of law. Learned D.R. has relied on clauses 11, 13, 14, 15 and 16 above, for arguing that benefits of assessee was only intended for its members and not for general public. No doubt, these objects did benefit the members of the assessee. Nevertheless, we cannot be oblivious to the other objects of the assessee. A reading of the other clauses of the objects, clearly show that predominant purpose of assessee society was to carry out scientific research against pollution, educating technicians, maintaining library, encouraging meetings of industrialists and businessmen and to act as a representative body before various authorities. 19. First object of the assessee itself clearly mentions that it intended to do scientific research which helped to prevent pollution. It is an undisputable fact that tanning industry is one of the most polluting industry in the world and more so in India. Tanning is the process by which raw an....
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....n on toxic effluents. This in turn helps the environment. Toxic effluents coming from chrome tanning has the presence of a hexavalent form of Chrome-6 and this is carcinogenic. Even though chrome tanning primarily use Chrome-3, this could transform itself to Chrome-6, by reacting with oxyen in higher temperature. When viewed from this angle, effort taken by the assessee to import wattle extract and distribute it among its members for use in tanning process cannot be termed as an activity which had benefited only its members. By the use of wattle extract, if dangerous chemicals otherwise used by tanning industry is reduced, even if by a small amount, it has immense benefit to the society. Even the smallest effort taken to reduce the pollution has to be encouraged. It definitely brings benefit to the public at large. Any activity which helps bring down pollution, can only be considered as something done which is essentially in the nature of advancement of an object of general public utility. 21. Section 2(15) of the Act, as it stood at relevant point of time, reads as under:- " "charitable purpose" includes relief of the poor, education, medical relief and advancement of any oth....
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....siness.] 23. There is no dispute that assessee was not a public religious organization. Hence, sub-clause (a) above will not apply to it. The only question is whether it will fall within sub-clause (b). As pointed out by the learned A.R., assessee is the apex association of various tanners association. The work in connection with the import of wattle extract was only carried out by the office-bearers of the assessee, who were nominated by its members, or appointed by its members. So, we cannot say that even if the import of wattle extract is considered as a business, it was not a business carried out by the beneficiaries of the assessee. When viewed against the predominant and primary objects of the assessee, we cannot say it was engaged in an activity which was not pursued as a means to accomplish such predominant object. As held by Hon'ble jurisdictional High Court in the case of CIT v. Aya Nadar Charitable Trust (TCA No.259 to 261/04 and 987 to 991/05 dated 16.8.12) when the predominant object was to carry out charitable purpose and not to earn profit, the exclusive clause under Section 2(15) which would otherwise be available to a case of general public utility, would not....