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2024 (8) TMI 501
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....d in dismissing appeal by rejecting the appellants claim of exemption u/s 10(23C)(iv). 3.1 The Commissioner of Income tax (NFAC) ought to have appreciated that the appellant's activities are not in nature of trade, business or commerce nor renders any service in relation to trade, business or commerce. He ought to have appreciated that in assessee's own case for the assessment year 2010-11 and 2012-13 the Hon'ble ITAT has allowed the appeal of the assessee. 3.2 The Commissioner of Income tax (NFAC) ought to have appreciated that the decision of Hon'ble Apex court in the case of ACIT Vs. Ahmedabad Urban Development Authority, Reported in 449 ITR 1 (SC) is not applicable to fact of the appellant case. 3.3 Without prejudice the Commissioner of Income tax (Appeals) (NFAC) should have appreciated that the entire certification was only for the members of the council and therefore the entire income from certification is exempt from tax section on account of mutuality. 3.4 The Appellant relies on the circular number 11/2008 Dated 19.12.2008 issued by the CBDT wherein it has been clarified that: 3.1 There are industry and trade as....
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....ot invest or deposit its fund (other than voluntary contribution received and maintained in the form of jewellery, furniture, etc) for any period during the previous year's relevant to the assessment years mentioned above otherwise than in any one or more of the forms or modes specified in sub-section (5) of the section 11; c) this notification will not apply in relation to any income being profits and gains of business unless the business is incidental to the attainment of the objectives of the institution and separate books of account are maintained in respect of such business; d) the institution will regularly file its return of income before the income tax authority in accordance with the provisions of the income tax Act 1961. e) that in the event of dissolution of the institution, its surplus and assets will be given to an organization with similar objectives. f) The institute will get its accounts audited by an accountant as defined in Explanation below sub section (2) of section 288 and furnish along with the return of income. The report of such audit in the prescribed form duly signed and verified by such accountant and setting forth ....
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.... general public utility', since, the case cannot fit into any of the other limbs of 'charitable purpose', viz., 'relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest'. The gross receipts of the assessee for the assessment year from the activity of issuance of certificate is also seen to be Rs. 7,3,51,961/-. Therefore, the exception to the first proviso, given in the second proviso to Sec.2(15), also does not apply in the assessee's case, inasmuch as, the aggregate value of the receipts from the above mentioned two activities, for the relevant previous year, has exceeded. For easy reference, both the aforesaid provisos [first and second provisos to Sec.2(15)] are reproduced hereunder "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cessor fee or any other ....
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....lowed. No doubt, the Hon'ble ITAT Chennai has held that the assessee is eligible to claim exemption u/s 10(23)(iv). However, this order of the Hon'ble ITAT has not attained finality and further appeal before the Hon'ble Madras High Court has been preferred. In such circumstances, to keep alive the issue of denial of exemption u/s 10(23)(iv), the assessee is not granted the relief u/s 10(23)(iv) for this assessment year also. Nonetheless, as the decision of the jurisdictional Hon'ble Tribunal is in favour of the assessee on the issue under consideration, the tax demand arising out of the said issue will not be recovered until there is a change which alters the present situation. Subject to the above, the taxable income of the assessee and tax payable, thereon, is computed below: Net surplus as per the income & expenditure 7,62,60,796 Total taxable income (rounded off) 7,62,60,800 Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A), NFAC, Delhi. 4. The Ld.CIT(A) confirms the order of the AO by passing an order dated 21/07/2023 holding as under : "5.8.4 The appellant's aggrega....
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.... and the proviso to Sec. 2(15) will not apply to the assessee. For the current year the AO has held that total receipts of the Assessee is Rs. 13,25,33,668/- (Taking only Sum of Membership Fee of Rs. 5.14 Crores and Certification fee of Rs. 8.22 Crores and ignoring other receipts - Page 61 of PB) and the surplus of Rs. 7.62 crores is in excess of 20% of the receipts and hence is liable to tax, but has held that tax will not be demanded as the exemption has been granted for the earlier years and the issue is before the High Court. On appeal, the CIT(A) has applied the ratio of the Apex Court decision in the case of ACIT v Ahmedabad Urban Development Authority (449 ITR 1) and has held (@ Para 5.8.4) that the surplus amount shows that the Appellant has charged at a high markup and hence the surplus is taxable as per Proviso 2 to sec. 2(15), which reads as under: "Further, the advancement of any other object of general public utility shall not be considered as charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee ....
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....ill have to be aggregated as numerator, while determining the compliance of the 20% limit of the total receipts. In that connection, the Apex Court has distinguished between the receipt in carrying out the charitable objects, or activities for which the Trust charges only the cost or marginal mark up, for complying with the proviso to Section 2(15), only profits from activities should be taken into account in the Numerator. Para 171 to 173 of the Apex Court order of the order(as reported in 449 ITR 001 ). "171 Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act If one keeps his in mind, what Section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental, or in other words, white actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to. 172 Yet another manner of looking at the definition together with Sections 10 (23) and 11 is that....
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....irs, Appellant charges/ collects only the actual expenditure from Govt as grant and members as participation charges. (Receipts Rs. 24,07,51,794/- and expenditure Rs. 24,76,65,706/-). Therefore, in respect of these activities which is in furtherance of the objective of the Appellant as per Para 171 of the Apex order referred to above, while the receipts are Rs. 24.07 Crores only the profit (here a loss of Rs. 80,57,912) can be considered for Numerator for the purpose compliance of second Proviso to sec. 2(15). As per second proviso to sec. 2(15) these profits has to be less than 20% of the Total receipts of the Institution. The total receipts and which has to be considered for the second proviso is given as under: (Rs. in crores) Receipts Profits 1. Membership fee Rs. 5.14 2. Certificate fee Rs. 8.11 3. Interest from banks Rs. 4.74 4. Sale of magazine Rs. 0.17 5. Grant for capital expenditure Rs. 0.09 6. Receipt for participating in trade Fairs 7. From Government Rs. 11.72) 8. Contribution from members Rs. 12.....
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....cision of the Hon'ble Supreme Court and the orders of lower authorities below. the assessee is a non-profit organization sponsored by the Ministry of Commerce and registered under Section 25 of the Companies Act and it is approved u/s. 10(23C)(iv) of the Act, vide order No. F.No. 197/143/2006-ITA-I, in notification No.23/2007 from the A.Y. 2004-05 and onwards. The main activity of the council is to promote exports of leather industries. It is facilitating the participation of its members in Trade fairs. About 2,850 exporters of leather, leather products and footwear spread all over India are members of this council. The Council serves as a bridge between Indian exporters and overseas buyers on one hand and between Government and industry on the other hand. 12.1 The assessee has been granted exemption u/s. 10(23C)(iv) of the Act, for the earlier Assessment years upto 2015-16 based on the ITAT order on the ground that, Council is not carrying out any activity of business, trade or commerce and proviso to Sec. 2(15) will not apply. 12.2 It is noted that, for the Assessment year 2016-17 the AO has held that total receipts of the Assessee is Rs. 13,25,33,668/- (Taking only Sum of ....
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.... or receipts from such activities, would be business or commercial in nature In that event, the claim for tax exemption would have to be again subjected to the rigors of the proviso to Section 2(15) of the IT Act." 12.5 Thus as the assessee provides for rental space in Fairs and Trade shows receipts from such activity should also be considered for the purpose of complying with the limit of 20% of total receipts of the Council. 13. The next issue is while total receipts is to be taken as the denominator for the second proviso, whether total receipts from different activities has to be aggregated or only the profit element alone has to be taken into consideration as Numerator, for complying with the condition under second proviso. 13.1 In this connection the Hon'ble Apex court has further clarified as to in what manner and to what extent the individual receipts which will have to be aggregated as numerator, while determining the compliance of the 20% limit of the total receipts. 13.2 In that connection, the Hon'ble Apex Court has distinguished between the receipt in carrying out the charitable objects, or activities for which the Trust charges only the cost or marginal ma....
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....ness or service in relation to them In such case, the receipts from such latter kind of activities where higher amounts are charged, should not exceed the limit indicated by proviso (ii) to Section 2(15)." 13.3 We, find that, from the above it is clear that in respect of activities incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated, it can be granted exemption provided the quantitative limit of not exceeding 20% under second proviso to Section 2(15) for receipts from such profits, is adhered to. 13.4 Therefore, if some profits (nominal) is earned in carrying out the objectives, then only the profits from such activities (and not the entire receipt) should be considered whether it is below the limit of 20% of the entire receipts of the institution. 13.5 It is noted that, from the financials of the activities given in Pages 61 to 64, in respect of participation in Trade fairs, Appellant charges/collects only the actual expenditure from Govt as grant and members as participation charges.(Receipts Rs. 24,07,51,794/- and expenditure 24,76,65,706/- = Loss of Rs. 80,57,912/-). Therefore, in respect of these activities whi....