TaxTMI 
TaxTMI 
2022 (1) TMI 410
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....ated as 'lead' appeal:- "1. Whether on the facts and circumstances of the case and in law, is the ld. CIT(A) justified in not appreciating that the activities of the assessee are covered by proviso to section 2(15) of the Income-tax Act, 1961 and, thus, the assessee is not entitled to exemption under sections 11 and 12 of the Act in view of the provisions of the section 13(8) of the Act. 2.Whether the Ld. CIT(Appeals) has erred in law and on facts and in the circumstances of the case in allowing the claim of capital expenditure of Rs. 1,93,18,564/- when the assessee is clearly covered under the proviso to section 2(15) r.w.s. 13(8) of the Act and thereby not eligible for claim of exemptions. 3. Whether, the Ld. CIT(Appeals) has erred in the law and on facts and in the circumstances of the case in allowing the claim of accumulation of Rs. 41,74,368/- u/s 11(1)(a) when the assessee is clearly covered under the proviso to section 2(15) rws 13(8) of the Act and thereby not eligible for claim of exemptions" 2. At the outset of hearing Ld. Authorized Representative (AR) for the assessee submits that grounds of appeal raised by Revenue in both the years are s....
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....nstant lis, which is, whether the assessee trust ( A section 25 company, as per old Companies Act, 1956), 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 ....
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....oms House and Administrative Building and Gem and Jewellery Parks for export of diamonds, the assessee receives contribution 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 ....
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.... be affected by the amendment and their activities would continue to be regarded as "advancement of any other object 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 co....
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....s any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed 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 ....
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....ond Bourse Vs. Income-Tax Officer [1999] 105 Taxman 344 (Mumbai)(MAG.) wherein I.T.A.T. inter alia, observed as under : "........ 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 s....
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....ion on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of 'charitable purpose'. Therefore, section 2(15) was amended vide Finance Act, 2008 by adding a proviso which states that the 'advancement 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 '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 an activity ....
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.... that facts of the assessee's case are similar to that of Ambur Economic Development Organization Ltd(supra) and, therefore, 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/s25 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 ....
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.... owing to the principle of mutuality. In the present case of the assessee, it is undisputed fact that the amount received from members is 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 requ....
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..... The bye laws of assessee`s organization restrict the allotment of plots and receiving contributions from anyone other than members. It is 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....