TaxTMI 
TaxTMI 
TaxTMI 
2022 (11) TMI 1028
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....imilar facts and circumstances in the present appeals, the appeals were heard together and are being disposed by way of a common order. For the sake of convenience, we would discuss the facts pertaining to appeal for Assessment Year 2011-12. ITA No.5762/Mum/2015 (Assessment Year 2011-12) 3. The Assessee has raised the following grounds of appeal: 1. "The learned Commissioner (Appeals) erred in confirming the order of the learned Assessing Officer on denial of exemption u/s 11 and 12 to your appellants. 2. The learned Commissioner (Appeals) was not justified in upholding the view of the Assessing Officer that the first proviso to section 2(15) applied to your appellants. 3. The learned Commissioner (Appeals) was not correct in taking the view that your appellant was carrying on an activity in relation to trade, commerce or business. 4. The learned Commissioner (Appeals) erred in stating that your appellant had not brought on record any documentary evidence-in support of its claim that it had rendered services to the public at large, and in ignoring the indirect benefit to the public provided by your appellants. 5. The learned Commissions (Appeals) has erred in upholding ....
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....from non-member amounting to INR 4,78,98,410/-. The Assessing Officer observed that where industry or trade association claims to be, both, charitable institution and mutual organization, their claim to be charitable organizations would be governed by the provisions contained in First Proviso to Section 2(15) of the Act as regards their dealings with non-members are concerned. The Appellant is predominantly a mutual association where members contribute only for the purpose of their own benefit and therefore, the Appellant is not a charitable institution since a charitable institution is for the benefit of public and not for the mutual benefit of the contributors to the common funds. Accordingly, the Assessing Officer treated the Appellant as a mutual association and did not tax the receipts from its members. However, the Assessing Officer denied exemption under Section 11 read with Section 2(15) of the Act and brought to tax gross receipts from non-members without allowing any deduction for expenditure incurred. 5. Being aggrieved, the Appellant went in appeal against the Assessment Order before the CIT(A) and filed detailed submissions highlighting the objects of the Appellant an....
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....d by Central Board of Direct Taxes (CBDT), the CIT(A) concluded that even the aforesaid circular provided that where a trade or industry association claimed to be both charitable institutions or mutual organization and there activity are restricted to contributions from and participation of only its members, the same would not fall with the purview of proviso to Section 2(15) of the Act on account of principle of mutuality, however, their dealings with non-members would be governed by the additional conditions contained in proviso to Section 2(15) of the Act. The CIT(A), thus, vide order dated 26.10.2015 dismissed the appeal filed by Appellant. 6. Being aggrieved, the Appellant/Assessee is in appeal before us. 7. The Learned Authorised Representative for the Appellant took us through the objects of the Appellant and the submission filed before CIT(A) to impress upon us that the fact that the Appellant is engaged in charitable activities undertaken for the benefit of public at large and not just its members. The primary contention advanced by him was that the Appellant was granted registration under Section 12A/12AA of the Act after examination of its objects which were held to be....
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....al Representative relied upon the order passed by the lower authorities and reiterated the reasoning given by the Assessing Officer and CIT(A) for denying Appellant's claim for exemption to the Appellant under Section 11 of the Act summarized in paragraph 4 and 5 above. 9. We have heard the rival submissions and perused the material on record including the judicial precedents relied upon by the parties during the course of hearing. The case of the lower authorities is that after the insertion of First Proviso to Section 11 of the Act, the activities of the Appellant which earlier qualified as charitable were, on account of amendment to Section 2(15) of the Act effective from 01.04.2009, were rendered non-charitable. Whereas the contention of the Appellant is that the objects of the Appellant continue to be charitable as there is no change in the objects/activity of the Appellant. Further, since the Appellant is not engaged in any activity in the nature of trade, commerce or business, the provisions of First Proviso to Section 2(15) of the Act are not attracted leaving intact the exemption under Section 11 of the Act hitherto enjoyed by the Appellant. 10. Section 11 of the Act pro....
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.... the object of 'general public utility' is only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Since no generalization was possible, each case would be decided on its own facts. The relevant extract of which reads as under: "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 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 ....
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.... be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility would cease to be a charitable purpose. But where the predominant object of the activity is to any out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity......' (Emphasis Supplied) Thus, the Hon'ble Supreme Court had laid down the test of predominant object to examine whether the activities of an assessee would qualify to be charitable. 14. In the case of Institute of Chartered Accountants of India vs Director General Income-Tax (Exemptions), Delhi: [2013] 358 ITR 91 (Delhi), while dealing with provision of Section 2(15) of the Act as amended by the Finance Act, 2008, the Hon'ble Delhi High Court, after taking note of the above judgment of the Hon'ble Supreme Court, held that the test of predominant object would continue to apply to determine whether an assessee is carrying on bu....
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....h is as under:- '......."Charitable purpose" includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under "charitable purpose". Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.' The expressions "business", "trade" or "commerce" as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organisation is charitable any incidental activity for furtherance of the object would not fall within the expressions " business", "trade" or "commerce". 68. xx xx 69. In the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC), the Supreme Court held as under: "The test which has, therefore, now to be applied is whether the predominant ob....
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....tioner is not carrying on any business." (Emphasis Supplied) 15. The above judgment of the Hon'ble Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (supra) and the judgment of Hon'ble Delhi High Court in the case of Institute of Chartered Accountant of India (supra) were quoted with approval by the Hon'ble Bombay High Court in the judgment in the case of Director of Income Tax (Exemptions) vs. Shree Nashik Panchvati Panjrapole: [2017] 397 ITR 501 (Bombay) which was cited by the Ld. Authorised Representative for the Appellant. The relevant extract of the aforesaid judgment read as under: "18. We may also refer to another decision of the Delhi High Court in ICAI v. DGIT (Exemption) [2013] 358 ITR 91 (Delhi), where the Court observed at para 67 thereof as under :- 'The expressions "trade", "commerce" and "business", as occurring in the first proviso to section 2(15) of the Act, must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organised manner. The purpose and the dominant object for which an institution carries on its activities is material to d....
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....idend to its members. In the present case, there is no dispute regarding the nature of activities undertaken by the Appellant. The genuineness of the activities undertaken by the Appellant has not been doubted by the Revenue. It is not the case of the Revenue that the activities of the object of 'general public utility' carried on by the Assessee in the present case is only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. For the preceding assessment years the activities undertaken by the Appellant were accepted as being for the benefit of general public and therefore, for advancement of general public utility. However, for the relevant assessment year the Revenue has taken a stand that the activities undertaken by the Appellant are for the benefit of members resulting in indirect benefit to the general public even though, admittedly, there has been no change in the facts as compared to preceding assessment years. The case of the Revenue is that on account of amendment to Section 2(15) of the Act the objects/activities of the Appellant have become non-charitable even ....