TaxTMI 
TaxTMI 
2020 (7) TMI 505
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.... registered u/s. 25 of the Companies Act, 1956. It is an apex industry association representing the entire value chain of textile and clothing sector. It is constituted by member associations, members and corporate members and young entrepreneurs group. Member associations covering all the geographical area of India nominate their selected members to the executive committee of the confederation. All textile companies which are members of these associations automatically become the members of the confederation. 3.1. We find that the assessee is registered u/s.12A of the Act and was accordingly, claiming exemption u/s.11 of the Act which was granted by the ld. AO up to A.Y.2012-13. For the A.Y.2013-14 also, the assessee claimed exemption u/s.11 of the Act in the return of income filed on 28/09/2013 claiming the deficit of Rs. 8,40,487/- to be carried forward to subsequent years. As per the Memorandum of Articles of Association of the assessee, the following are the primary objects for which the assessee was formed:- * To promote and protect trade, commerce and industries of India in general and more particularly in respect of Cotton Textile Industry and allied industries and trade....
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....ies of ICMF and the industry. * Confederation has also constituted sub-committees on Market Access, Investment and Skill Development for monitoring the developments and activities relating to the respective subjects and to give focused attention to topical issues facing its members and provide proper feedback to government. 3.3. The following restrictive clauses were specifically mentioned in the Memorandum of Articles of Association with regard to the application of income and property of the assessee confederation:- * Clause V(1) of the MOA, the Confederation is bound to apply income and the property when so ever derived shall be applied solely for the promotion of its objects as set forth in the memorandum. * Clause V(2) - No portion of the income or property aforesaid shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit, to persons who, at any time, are to have been members of the Confederation or to any one or more of them or to any persons claiming through any one or more of them. * Clause V(3) - No remuneration or other benefit in money or money‟s worth shall be given by the Confederation to any of its m....
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....ad also given individual explanation for each of the aforesaid nature of income received from non-members as under before the ld. CIT(A):- Re: Interest Income - Rs. 1,46,64,431/- 1. At the outset, we invite your Honour‟s attention to the fact that the aforesaid income received is to reduce the Appellant‟s costs which have to be increased while trying to achieve its objectives mentioned hereinabove in para 04 (page Nos.02 & 03) of the compilation. 2. Further a break-up of the interest income received by the Appellant is as under:- Particulars Amount (in Rs.) On Fixed Deposits with Body Corporates 99,00,481 On Fixed Deposits with Banks 45,30,274 On Savings Account with Bank 1,32,276 On Fixed Deposit of CITI‟s Export Promotion Fund with Bank 1,01,400 Total 1,46,64,431/- 3. Here we have been instructed to point out that to invest the money of the Appellant or of the funds of the Appellant in such manner and in such assets, properties, securities, shares, deposits or in investments of any kind is one of the objects of the Appellant- refer sub-clause 36 of Clause III of its Memorandum of Association - a copy of which has already been forwarded h....
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....xecutive training programmes in order to : * encourage and promote a friendly feeling and unanimity among commercial men on all subjects involving their common good. * Promote and protect the trade, commerce and manufacturers of India and in particular the trade, commerce and manufacturers of the Cotton Textile Industry. The representational functions of the Appellant relating to providing a channel of communication with government and other regulators and to improve the efficiency and working of members, etc. are also carried out through seminars, conference, training and exhibitions. The participation fees meet the costs. The role and objective of the seminars is also to bring together the members on a common platform on mutually relevant topics. In this case also, the participation fees meet the costs of the seminars conducted many a times at external venues which entail heavy expenditure which is recovered by the amounts received on seminar & training programs and conference & exhibitions. 2. Exchange gain is on account of foreign currency conversion difference on the amounts received from parties/Members for conducting events like Conferences, Seminars, Fairs, Bilatera....
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....t been granted to Appellant and the receipts from non-members have been taxed in terms of the impugned Order. * While doing so, no expenditure has been allowed as a deduction by the Assessing officer and simultaneously the Assessing Officer has also made an addition of Rs. 3,94,295/- being addition made to fixed assets claimed as application of income for the year by the Appellant. * The starting point of the assessed income considered by the Assessing Officer in the impugned Order is income received from non-members and no deduction whatsoever has been granted against the same and hence the addition made to the total income vis-à-vis the addition to fixed assets is erroneous. In view of the foregoing, it is submitted and it will be appreciated that the activities carried out by the Appellant are not in the nature of business and hence the activities continue to be in nature of advancement of any other object of general public utility and therefore fall within the definition of the term "charitable purpose‟ as defined u/s.2(15) of the Act and hence there can be no question of denying exemption u/s.11 of the Act. 3.8. We find that the ld. CIT(A) merely dismissed ....
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.... assessee. Hence, we hold that assessee's case does not fall within the ambit of proviso to Section 2(15) of the Act. We find that the ld. DR vehemently placed reliance on the orders of the lower authorities. We find that the Co-ordinate Bench of this Tribunal had adjudicated an identical issue under similar facts and circumstances in the case of All India Rubber Industries Association vs. Additional Director of Income Tax (Exemptions), Mumbai reported in 173 ITD 615 dated 12/10/2018 for the A.Yrs. 2011-12 to 2013-14, wherein it was held as under:- "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 ....
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....books, lectures or pamphlets that may be deemed desirable. .................................................................................................................................. (v) And generally to do all such other things as may be deemed incidental or conducive to the attainment of the above objects 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 ....
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....he promotion of trade, commerce or manufacture. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object must benefit the whole of mankind. It is sufficient if the intention is to benefit a section of the public. This 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 tr....
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.... Revenue that the objects of the assessee fall within the scope of Sec. 2(15) of the Act on account of the same being in the nature of "advancement of any other objects of general public utility". Therefore, one has to examine as to whether the insertion of proviso to Sec. 2(15) of the Act would render the activities of the assessee to be of noncharitable 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 interpret....
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....ermined having regard to the objects of the institution and its importance throughout India or throughout any State or States. (iv) Merely, because an institution derives income out of activities which may be commercial, that does, in any way, affect the nature of the 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, ....
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....volving charging of fee, etc. have resulted in a surplus could not ipso facto be determinative of the fact that there was an element of profit motive. 17. At this point, we may also refer to the judgment of the Hon'ble Bombay 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 activi....
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....rofit motive in carrying out such activities. Pertinently, there is no rebuttal at any stage to the assertions of the assessee that its activities in the instant years are similar to the activities in the past years. 19. Therefore, 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 ....
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....n the order of the Hon'ble Delhi High Court would show that such income was found to be entitled for benefits of Sec. 2(15) r.w.s. 11 of the Act provided, of course, there was no profit 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 ....