TaxTMI 
TaxTMI 
2020 (10) TMI 555
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....e after claiming exemption under section 11 of the Act. In course of the assessment proceedings, the Assessing Officer, on verifying the material on record noted that the assessee is a mutual trade association having the main object to safeguard the interest of the industry and trade amongst persons, companies, factories and firms engaged as manufacturer of rubber products made out of natural rubber, synthetic rubber and latex in India. According to the Assessing Officer, the assessee is a mutual trade association receiving membership contribution and, in turn, members are provided a common platform to avail the facilities provided to the rubber trade. He observed, though, the assessee has claimed itself to be a charitable institution, however, during the year under consideration, it has provided certain services including arranging of exhibition/seminar, etc., on receipt of fees to both members and non-members who are mainly in the business/trade associated to the rubber industry. Being of the view that the receipts from non- members in course of an activity in the nature of business/trade is hit by the proviso to section 2(15) of the Act, the Assessing Officer called upon the ....
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.... assessee in assessment years 2011-12, 2012-13 and 2013-14 was rejected by the Assessing Officer while framing assessment for those assessment years. However, when the dispute ultimately reached before the Tribunal, the Co-ordinate Bench in order dated 12th October 2018, passed in ITA no.3994/Mum./2016, ITA no.1368/Mum./2016 and ITA no.247/Mum./2017 respectively for the assessment years 2011-12, 2012-13 and 2013-14 after examining all aspects of the issue and taking note of the submissions made by the parties ultimately concluded that the assessee is eligible to avail exemption under section 11 of the Act. The observations/finding of the Co-ordinate Bench in this regard is extracted hereunder in extenso for better clarity:- "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. "....
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....tion relating to the Natural Rubber, Synthetic Rubber and Latex Goods Industry and Trade generally and to print and publish any advertisements, newspapers, periodicals, 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 s....
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....permits the welfare of the general public. It cannot be said that a purpose would cease to be charitable if it includes taking of steps for the 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....
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....so inserted to Sec. 2(15) of the Act. Pertinently, the assessee continues to enjoy recognition u/s 12A of the Act; and, in any case, de hors the proviso to Sec. 2(15) of the Act, there is no dispute by the 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 deta....
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....ished for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption would have to be determined 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 gi....
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....that in order to invoke the proviso to Sec. 2(15) of the Act, it is imperative for the Revenue to establish that there is an element of profit motive in the activities of the assessee. Notably, the fact that some of the activities carried out by an entity involving 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 t....
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....aid discussion, in our view, the Assessing Officer erred in invoking proviso to Sec. 2(15) of the Act to treat the activities of the assessee as being non-charitable specifically considering the fact that no material or evidence has been led to show that there was any profit 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 benef....
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....ere essentially associations established for the protection of interests of businessmen carrying on a particular trade." 21. In fact, the Hon'ble Delhi High Court specifically considered the receipts derived by a Chamber of Commerce and Industry for performing specific services to its members. The following discussion in 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 Mor....