TaxTMI 
TaxTMI 
2021 (7) TMI 555
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....ll as the facts narrated in ITA No.2917/Ahd/2014 for the A.Y. 2010-11, have been taken into consideration for deciding the above appeals en masse. 3. The Grievances raised by the Revenue in lead case in ITA No.2917/Ahd/2014, for the A.Y. 2010-11, are as follows: "[1] Whether on the facts and circumstances of the case, the Id.CIT(A) has erred in not holding that the assessee was not entitled to exemption u/s 11 and 12 and determining the income accordingly. [2] Whether on the facts and circumstances of the case, the Id.CIT(A) was justified in deleting the addition of Rs. 30,81,12,572/- when the assessee was carrying out business and the reason for holding the assessee to be a Mutual Organisation does not exist and hence it did not fulfill the conditions of section 11 & 12 of the I.T. Act. [3] Whether on the facts and circumstances of the case, the Id.CIT(A) was justified in deleting the addition of Rs. 1,31,94,745/- made on account of net income from other sources which becomes taxable due to section 2(15) of the I.T. Act. [4] On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing offic....
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....rs, traders, exporters and importers, brokers, commission agent of diamonds, gems, pearls and jewellery, to establish for the benefit of members of the bourse, effective liaison with other Agencies dealing in same trade, to establish, construct and run gems and jewellery park to provide all infrastructural facilities to its members and to host and organize gems and jewellery trade fares, exhibitions etc. in India and abroad. It was further explained that the assessee trust has been entrusted by the industry and the government to develop and provide infrastructure facility by way of an SEZ for furthering the growth of the gems and jewellery industry. It was also submitted that the assessee trust provides employment opportunities through this project and organizes various programs to encourage education and development and has also participated under 'Vibrant-2009' exhibition and 'Swarnim Gujarat' conducted by Gujarat government. It was further highlighted that the assessee has acquired a land on lease from Gujarat Industrial Development Corporation (GIDC), a government of Gujarat undertaking for the specific purpose of development of Gems and Jewellery Park with the cond....
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....the amount of Rs. 21,11,660/- as difference of deposits and installments which clearly exceeds, the monitory limit as prescribed u/s 2(15) of the Act. Some other irregularities such as the project has not been completed even after a long period, no details have been filed about the contribution made by assessee for charitable purposes by participating in 'Vibrant Gujarat' and 'Swarnim Gujarat', there is no clarity about sub-letting/transfer of plots to its members, allowing membership to everybody etc. were also noticed by assessing officer. 7. Therefore, in the light of the above facts, the assessing officer noted that assessee trust does not fulfill the mandate of first and second proviso of section 2(15) of the Act. Moreover, the total receipts of the assessee trust are exceeding Rs. 10,00,000/- therefore a gross violation is apparent. The activities of the assessee trust cannot be called as activities for "General Public Utility" and thereby not falling within the definition of charitable purpose. Further, the violation of the provisions of section 2(15) and 11(5) is doubtlessly proved in the case of assessee trust. As it is proved that the claim of the assessee trus....
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....er in appeal before the ld.CIT(A) who has deleted the addition made by the ld.Assessing officer. Aggrieved by the order of ld.CIT(A), the Revenue is in appeal before us. 11. Shri Ritesh Mishra, Learned CIT(DR) submits before the Bench that activities of the assessee does not fulfill the mandate of first and second proviso of section 2(15) of the Act. The total receipts of the assessee are exceeding Rs. 10,00,000/-, therefore, gross violation is apparent. Learned DR pointed out that activities of the assessee trust cannot be called as activities for "General Public Utility" and thereby not falling within the definition of charitable purpose, because, it can be seen that the assessee has taken land from Gujarat Govt for a hundred year lease for establishing the Gem and Jewellery Park at Surat which comprises SEZ area and the DTA area and the infrastructure project in the said piece of land has been undertaken in accordance with the Industrial Infrastructure Upgradation Scheme( IIUS), 2003 as approved by Ministry of Commerce & Industry. As per the approval letter of the ministry, the assessee has to acquire a Special Purpose Vehicle(SPV), SAR infracon Pvt Ltd to avail the grant san....
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....was right to conclude that the assessee was doing business activities in the garb of charitable organization with an intention to earn profit, therefore, order passed by the assessing officer may be upheld. 12. On the other hand, Shri Tushar Himarni, Senior Advocate, begins by pointing out that assessee trust is an organization based on principle of mutuality and, therefore, covered by the Circular No. 11/2008, dated 19.12.2008. The assessee trust has been established for the purpose of promotion of exports of diamonds, gems, pearl and jewellery exclusively for its members. The assessee trust has fulfilled all the required conditions to be treated it as charitable institution. Shri Tushar Himarni, explained the requirements of section 2 (15) of the Act and pleads that section 2(15) of the Act gives the definition of 'Charitable purpose' which includes relief of the poor, education, medical relief,, [preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects or artistic or historic interest,] and the advancement of any other object of general public utility. By making amendment vide Finance Act, 2008, a prov....
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....h entities will not be eligible for exemption under section 11 or under section 10 (2AC) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity." Shri Tushar Himarni, explained that there are industry and trade associations who claim exemption from tax under section 11 of the Act on the ground that their objects are for charitable purpose as these are covered under ' any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund, for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. 13. Shri Tushar Himarni, (Senior advocate) further pleads that assessee's trust activities are in the nature of general public utility, objectives of the trust are not profit making. The assessee trust is a section 25 company i....
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....6), is charitable institution or not. We note that in the instant case the assessment order u/s 143(3) was passed on 28.03.2013 determining total income at Rs. 3,54,82,267/- by making following additions: (i) Amount applied to Charitable Purpose treated as business income Rs. 30,81,12,572/- and (ii) Withdrawal of exemption claimed under section 11 and 12 of income from other sources to the tune of Rs. 1,31,94,745/-. Regarding (ii) addition, that is, withdrawal of exemption claimed under section 11 and 12 of income from other sources to the tune of Rs. 1,31,94,745/- is concerned, Shri Tushar Himarni, Sr. Advocate, invited our attention to page No. 16 of assessee`s paper book wherein "Income and Expenditure Account" of the assessee is placed. Total income of the assessee trust is Rs. 2,22,87,522/- and total expenditure is at Rs. 90,92,777/. Thus, resulted surplus is at Rs. 1,31,94,744/- (Rs. 2,22,87,522- Rs. 90,92,777). Once the gross interest income is added and again gross excess income over expenses ( Rs. 2,22,87,522 - Rs. 90,92,772), Rs. 1,31,94,745 is added, then it resulted in double addition/disallowance to that extent. Thus, Rs. 1,31,94,745/- is double....
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....ontribution from its members being well known gem and jewellery exporters. After development of plot as gem and jewelry park respective plots are being allotted to the respective members only. The assessee is not dealing with any outsider other than its members for the purpose of receipt of funds and utilization thereof (complete identity between contributor and participators to fund exist). The case of the Assessing officer is that in view of the First Proviso to Section 2(15), which is inserted by Finance Act, 2008, the assessee is carrying out activities in the nature of trade, commerce or business and consequently it cannot be regarded as charitable organization and therefore the exemption under sections 11 and 12 should not be allowed to the assessee. We note that the main object of the assessee trust is to develop the world class gems and jewellery park to provide common facilities required to promote exports of diamonds from India and for this purpose to establish utilities at a central place. For this purpose, contributions from the members being well known gems and jewellery exporters have been received and facilities have been provided exclusively to them. As per ld Co....
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.... of general public utility". The ld Counsel states that in consonance with such assurance given by the Hon'ble Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment, which are reproduced below: "3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' ie., the fourth limb of the definition of ' charitable purpose' contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place bet....
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....d at excluding the genuine charitable trusts of general public utility but is aimed "at excluding activities in the nature of trade, commerce or business which are masked as ' charitable purpose'. In this connection, Ld Counsel states that the activities of the development of gem and jewellery park for its members cannot be regarded as activity in nature of trade, commerce or business on the following grounds: (a) The assessee is a non-profit making company incorporated under section 25 of the Companies Act, 1956 (b) The assessee obtained registration u/s 12AA of the Income Tax Act, with regard to claiming income from property held for charitable or religious purpose, specifically under the head 'General public utility' (c) Its object is to establish a bourse for promotion of exports of diamond, gems, pearl and jewellery from India and provide for this purpose infrastructure and other facilities in India for Indian and overseas buyers and sellers of diamonds, gems, pearls and jewellery. Within its objects the assessee has taken the activity of developing gem and Jewelry Park. (d) In assessee's case, the facts are well covered ....
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.... "........ With regard to the department's argument that the assessee-trust had been formed for the purpose of earning profits, the Memorandum of Association as well as Articles of Association clearly showed that the subscribers were desirous of being formed into a company not for profit and that the income and property of the company shall be applied solely for the promotion of its objects set forth in the Memorandum. Further, on working out the deficits for the years 1986-87 to 1997-98, by deducting from the income of the trust the expenditure incurred for the purposes of the trust and the acquisition of the fixed asset, it was found that consistent earning of profits had been only with a view to applying the same for charitable objects. Thus, relying on the observations made by the Supreme Court in Surat Art Silk Cloth Mfrs. Association's case (supra) that a charitable trust would not lose its character of charitable purpose if the predominant object of the activity is to carry out the charitable purpose and not to earn profits and if some profit arises from the activity, it would be difficult to hold that all pervading motive of the activities carried on....
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....he definition of 1charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 1advancement of any other object of general public utility' shall not be a charitable purpose if it involves the carrying on of- (a) Any activity in the nature of trade, commerce or business; or (b) Any activity of rendering any service in relation to any trade, commerce or business; For a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity 3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' i.e., the fourth limb of the definition of 1charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequ....
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....erefore, ratio decidendi of that case can be applied in the present case. The assessee is also carrying out the activity of development of infrastructure for world class gem and Jewellery Park for its members. The assessee is also incorporated as non-profit making company u/s 25 of the Companies Act, 1956 and does not allow distributing either any part of its profits to members. The said fact is given at Note No. 7 of Schedule K, "Significant Accounting Policies" to Audited Annual Accounts for the year under consideration. 22. Reliance is also placed on the decision of Coordinate Bench of Chandigarh in the case of Himachal Pradesh Environment Vs. CIT (I.T.A.T. Chandigarh), ITA No. 74/ Chd/ 2009 wherein it is inter alia held that the proviso to section 2(15) can apply only to entities whose purpose is "advancement of any other object of general public utility". It is also observed that profit motive is the essence of trade, commerce or business, and where the services are rendered without a profit motive, such services will not have anything in common with trade, business or commerce. Accordingly, to fall within the second limb of the Proviso to section 2(15), 'rendering o....
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....s utilized solely for the benefit of the members only. It is also an admitted fact that there is a complete identity between contributors and participators to the fund of the assessee. In view of the same, it can be said that the assessee is not carrying out any activity in the nature trade, commerce or business. It is well settled law that no one can trade with himself or derive profit from him. For that we rely on the judgment of Hon'ble Supreme Court, in the case of CIT vs. Bankipur Club Ltd 226 ITR 97 (SC), wherein the Hon'ble Apex Court held as under: "Under the IT Act, what is taxed is, the income, profits or gains earned or "arising", "accruing" to a "person". Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators. If these requirements are fulfilled, it is immaterial what particular form the association takes. Trading between persons associating together ....
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....s also established that all the contributors as well as beneficiaries of the assessee are its members only and there is complete identity between the contributors and participants. It is further shown from the records that the assessee trust is not providing any services to the persons other than its registered members. The assessee trust does not distribute its profits among members and it does not pay higher remuneration to its employees. It is abundantly clear that the income of the mutual concern falls outside the ambit of charging section 4 of the Income Tax Act and, therefore, outside the tax net. The net effect of applicability of exemption provision in section 11 is also just the same. It was also laid down in CIT vs. Andhra Chamber of Commerce (1981) 130 ITR 184 (SC), Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association 121 ITR 1 (SC) and in CIT vs. Bar Council of Maharashtra (1981) 130 ITR 28 (SC), that if the primary object of an entity like "Chamber of Commerce, professional association, a bar council, etc" is the promotion of any trade, industry, profession, etc. the fact that the business community or the profession as the case may be would be benefit therefro....