AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (3) TMI 823
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....s of this Tribunal before Hon'ble jurisdictional High Court whereupon, Hon'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 watt....
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....export trade, commerce and industry in the larger perspective of the nation's economic development. As per the assessee, its objects even included maintenance of library catering to the needs of leather industry as a whole. Again, as per the assessee, it was having registration under Section 12A(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. ....
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.... that the surplus arose. Unless the service charges were recouped, expenses including staff salary could not have been paid. Further, as per the assessee, it had applied a part of its income for direct charitable work, as per the table hereunder:- 1986-87 Rs. 21,604 1987-88 Rs. 39,848 1988-89 Rs. 59,455 1989-90 Rs. 1,94,030 1990-91 Rs. 3,56,574 1991-92 Rs. 2,55,362 7. Assessee also brought to the notice of ld. CIT(Appeals) that permission for accumulation of income was sought and received from the 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 Rs. 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 e....
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....utuality also. Since assessee was held to be eligible for exemption under Sections 11 and 12 of the Act, CIT(Appeals) also ruled that it was not liable under Wealth Tax Act as well. 10. Revenue moved in appeals for all the years before this Tribunal. Aspects with regard to claim of mutuality and also claim of exemption under Sections 11 and 12 of the Act, both of which were decided in favour of the assessee by ld. CIT(Appeals), were strongly assailed by the Revenue. Argument of the Revenue before this Tribunal was that benefits were limited to the members and not general public. According to Revenue, assessee's object did not fit into the definition of "charity" under Section 2(15) of the Act. 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 th....
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....e claims that the association is a mutual benefit society and there is no profit motive to the activities of the trust and hence the surplus is not chargeable to tax. On examination it is found that the assessee trust acted as intermediary for import of wattle extract this saved the members from importing the wattle extract individually and incurring her expense. The sales are not effected to outsiders and distribution is only to members. The surplus realised is only incidental to the transaction and there is no profit motive in the transactions. As the assessee is a mutual benefit society functioning without a profit motive provisions of Sec.11(4A) are not attracted." As per this Tribunal, above finding of the A.O. threw out the case of the Department altogether. There was no concrete reason for the Department to take a different stand for the impugned assessment years, when it had accepted that sales were 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 a....
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....r the assessment years 1990-91 and 1991-92?" Their Lordship held as under at paras 8, 9 and 10 of the judgment dated 2.11.2011 as under on the substantial questions of law raised:- "8. On a reference to the order of the Income Tax Appellate Tribunal, Chennai Bench 'B', which is the subject matter of T.C.(A) Nos. 1047 to 1049 of 2005, it is clear that the Tribunal had considered the office Note of the Income Tax Officer in the assessment order for the assessment year 19851986, wherein he had made certain observations, and it was based on that, the Tribunal has dismissed the appeals filed by the Revenue, however, without giving any finding about the eligibility of the assessee to claim exemption under Section 11 of the Act. 9. We have also called for the Memorandum and Rules of the assessee/ association. Unfortunately, the Income Tax Appellate Tribunal, Chennai Bench 'B', which is the authority to give a finding on the subject - whether the association is eligible for exemption under Section 11 of the Act or not, having not given such finding, we are of the view that for the purpose of giving such finding the matter has to be remi....
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....orting wattle extract and distributing to its members. This did not result in any public benefit. It was a closed group of people and facilities provided by the assessee were to this group only. Other than importing and distributing wattle extract to its members, there was no activity, much less any activity that could be called charity. 15. Per contra, learned A.R. once again relied on note of the Assessing Officer, reproduced at para 12 above. According to him, even if benefit ensued only for a section of the public, it could still be considered a public charity. Wattle extract, according to him, was an essential item which reduced pollution and it was in the interest of general public, that tanning industry used wattle extract in its tanning process. According to him, registration granted to the assessee under Section 12A(a) was intact. There was no change in the objects of the assessee at any point of time from the date of its registration. It was after duly considering the objects as per the Memorandum of Association, assessee was granted such registration. Once the Revenue had accepted the....
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....ather industry for more efficient and rationalised use of leather in India and to improve the export potential of the leather industry . 2. To start and carry on an institution for educating technicians, skilled labour and technocrats needed for the leather art its allied trade in general. 3. To maintain a library of books and periodicals of magazines of commercial, technical and scientific interest so as to diffuse useful knowledge and information amongst its members of Tanning Industry and allied trades. 4. To protect ensure and promote the interests of Tanning Industry and of skins and h ides, Leather Trade and other allied trades and industries. 5. To encourage meetings and get-together of merchants businessmen and industrialists in a spirit of friendship and in terms of their professional interest and to create a forum for ventilating their views and opinions on all matters connected with the trade and industries of common interest. 6. To assist and advise the members on all questions connected with the trade, commerce and manufacture of skins and hides, leathers trade and allied trades. 7. To collect, classify ....
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....steamer, air or other means of transports, 17. To send delegations to any place in the world to attend meetings or conferences held in connection with the Tanning Industry and trade in hides and skins, leather and other allied industries. 18. To arrange for participation in exhibitions or demonstrations of the goods relating to Tanning Industry, hides and skins leather trades and to take necessary steps for the publicity and popularisation of the products of the Tanning Industry and trade. 19. To conduct local, national or international fairs whether occasionally or periodically or to collaborate with Governmental, QuasiGovernmental organisations, or other associations or persons in the conduct or promotion of such fairs. 20. To act as agent of any members at arbitration of any dispute between the members and any other person or interest who is not a member of the Association. 21. The property and income of the society shall be applied solely towards the promotion of the objects of the society as set forth in the memorandum of the society no portion there of shall be paid or transferred directly or otherwise beneficially howsoever to the....
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....waste which were dissolved in water. Vegetable tanning resulted mostly in solidwaste which was easier to be processed and disposed of. However, chemical tanning resulted in highly toxic effluents. Effluents from tanneries on the banks of River Ganga rose to such a high level, that Hon'ble Apex Court intervened and directed closing of a number of such tanneries in the case of M.C. Mehta v. Union of India 1988 AIR 1115. Necessity of reducing hazardous effluents from tanneries was highlighted in this judgment. 20. Of the various chemical tanners, Chrome salt is the most favoured one of tanning industry since it gives excellent texture to the finished leather. However, chrome dissolved in liquid effluents from tanneries were not only toxic but also caused considerable environmental degradation, most of which were beyond repair, invoking the wrath of Hon'ble Apex Court in no uncertain terms in M.C. Mehta's case (supra). Hence a return to vegetable based tanning is the need of the time since leather industry as such is one earning considerable foreign exchange and leather products are favoured and used by many. It is in th....
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....ime. We cannot therefore say that effort of the assessee to bring wattle extract and distribute it among its members, was not a charitable activity. 22. However, a question that still remains, i.e. whether Section 11(4A) will disentitle the assessee from making a claim of exemption under Sections 11 and 12, considering its activity of importing wattle extract and distributing it among its members as one of business. Section 11(4A), as it stood at relevant point of time, read as under:- 11. ... ... ... ... ... ... ... ... .... .... ... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ..... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... ... .... .... .... .... .... .... .... [(4A) Sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) shall not apply in relation to any income, being profits and gains of business, unless - (a) the business is carried on by a trust wholly for public religious purposes did the busi....
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....mentioned in clauses 6, 11, 13, 14, 15 and 16 do enable it to give certain services only to its members. In our opinion, what is to be considered is the predominant object of the assessee and the predominant nature of the objects does show charity, as already mentioned by us at paras 17 & 18 above. As held by Hon'ble Apex Court in the case of Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (121 ITR 1), definition of "charitable purpose" would still be satisfied even if an activity for profit is carried on in the course of actually carrying out the primary purpose of the trust or institution. We cannot say that import of wattle extract and distribution of it among its members was an activity not connected to the primary purpose of the assessee organization. To constitute a valid charity, it is not necessary that one should provide something for nothing or for less than its cost or for less than its ordinary price. In other words, eleemosynary element is not essential as held by Privy Council in the case of The Trustees of the Tribune In re (7 ITR 415). Therefore, just because surplus has been generated, would not make an otherwise ....