TaxTMI 
TaxTMI 
2025 (3) TMI 759
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....ters in India came together and formed Diamond Exporters Association for facilitating export of diamond. Subsequently, the diamond exporters found that there was need for setting up a diamond bourse in Bombay with customs clearance facilities for facilitating export of diamond and make trade more competitive in the international market. After deliberating on the request made by the Diamond Exporters Association, the Central Government, in 1984, accepted the proposal to set up a diamond bourse in Bombay. The Minerals and Metals Trading Corporation of India Ltd. (MMTC), a Central Government undertaking, agreed to coordinate the administrative steps. As per the suggestion of the Ministry of Commerce, Government of India, the bourse was named as 'Bharat Diamond Bourse'. Thus, a decision was taken by the Government of India in the Ministries of Finance and Commerce to set up 'Bharat Diamond Bourse' with the object of encouraging and increasing the export of polished diamond from India. 4. Mumbai City (erstwhile Bombay), traditionally had been the headquarters of diamond trade and exports. However, the main business center for diamond trade was located in a congested locality. Whereas....
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....o be returned with interest at 6 percent per annum. 6. Thus, the assessee was set up as a non-profit company with the principal object of facilitating diamond export so that maximum revenue could be earned by way of foreign exchange and also can make diamond trade more competitive at the international level. Subsequently, on 15.12.1986, an agreement was entered between MMTC and the assessee, under which, it was agreed that from 1st April, 1988 the activities of the Bourse would be carried out by the assessee and no more by MMTC. After taking over the operations from MMTC, to meet the expenditure relating to payment to be made to the Chief Executive, staffs and other expenditure connected with activities of Bourse, including, that of Customs Clearance Centre, storage, transportation and delivery of import and export parcels, it was decided, the assessee shall recover service charges on cost basis from members/non-members. As per the agreement, these reimbursements are to be deposited in a separate Bank account and the assessee will maintain separate books of account and get them audited. In terms with the agreement, the assessee issued a circular on 14.09.2001indicating the cost ....
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....see, vide order dated 27.12.2011, with retrospective effect on the ground that the activities of the assessee are hit by the proviso to Section 2(15) of the Act, hence, the objects of the assessee do not fall within the ambit of 'charitable purpose'. Based on the order cancelling registration u/s. 12A of the Act, the AO passed assessment orders for A.Ys 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10, rejecting assessee's claim of exemption u/s. 11 of the Act. 11. Against such decision of the AO, as well as, challenging the cancellation of registration u/s. 12A of the Act, assessee ultimately came in appeal before the Tribunal. In a consolidated order passed on 30.03.2017 in ITA No. 884/Mum/2012 and others, the Tribunal set aside the order passed by the DIT(E) cancelling assessee's registration, while restoring the registration granted earlier u/s. 12A of the Act. Further, the Tribunal directed the AO to verify whether the objects of general public utility carried on by the assessee would be hit by the proviso to section 2(15) of the Act brought into statute w.e.f. 01.04.2009. 12. In pursuance to the directions of the Tribunal, the AO took up the assessment proceedings for the....
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....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 cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity;" ii. The Memorandum explaining the provisions of the Finance Bill, 2008 lays down the legislative intent for insertion of Proviso to Section 2(15) of the Act. The relevant part of the Memorandum reads as under: "Streamlining the definition of "charitable purpose" Section 2(15) of the Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. It has been noticed that a number of entities operating on commercial lines are claiming exemption on their income either under section 10(230) or section 11 of the Act on the ground that they are charitable institutions. This is based on the argument that they are engaged in the "advancement of an object of gener....
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.... with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. The attempt was to remove the masks from the entities, which were purely trade, commerce or business entities, and to expose their true identities. The object was not to hurt genuine charitable organizations and, this was also the assurance given by the Finance Minister while introducing the Finance Bill 2008. 20) 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 determine whether the same is business or not. The purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose but are conducting some activities for a consideration or a fee. The object of introducing the fi....
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....es, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. 22) The purpose for which the Appellant Assessee is established and the scope of activities carried out by the Appellant Assessee is discussed in detail in the foregoing para's. On going through the same and the Memorandum of Association of the Appellant Assessee (Refer page 275 of the Paper Book), it is amply clear that the Appellant Assessee is established for the promotion of exports of Gem & Jewellery from India and to provide for this purpose infrastructure and other facilities in India for Indian and overseas buyers and sellers of Gem and Jewellery and for the fulfilment of its object, it receives by way of reimbursement, the cost of carrying activities mentioned in its object clause. 23) The Appellant has been consistently following the same set of object year on year basis since its inception. 24) The Hon'ble ITAT, Hon'ble High Court and H....
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....on 2(15), as now the very same activities is to be seen keeping in mind proviso to section 2(15). Once that is done, it is amply clear that the Appellant Assessee is not hit by the proviso to section 2(15). 29) The judgement of the Hon'ble Apex Court in the case of ACIT(E) vs Ahmedabad Urban Development Authority [2022] 449 ITR 1(SC) has specifically dealt with the aspects relating to the advancement of General Public Utility ("GPU") with respect to trade promotion bodies. The Hon'ble Supreme Court has held that in case of advancement of GPU by trade promotion bodies, the activities cannot fall under the ambit of trade, commerce, business. In other words, such trade promotion bodies should be operating on a not-for- profit basis. The Hon'ble Supreme Court has further held that in order to ascertain the advancement of GPU as not for profit basis, it is important to look at the object clauses of the Memorandum of Association and identify if any clause falls within the ambit of trade, commerce or business. The Hon'ble Supreme Court has also held that where any services are provided at cost basis or nominally above cost, in such situations, the rigors of provis....
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....nts in New York Life Insurance Co. v. Styles (Surveyor of Taxes) [1889] 2 TC 460 thus: "When a number of individuals agree to contribute funds for a common purpose... and stipulate that their contributions, so far as not required for that purpose, shall be repaid to them. I cannot conceive why they should be regarded as traders, or why contributions returned to them should be regarded as profits." The proposition of law is restated in Bankipur Club (supra) and Bangalore Club (supra) by placing reliance upon the following extract from Simon's Taxes Simon's Taxes, Volume B, 3rd Edition, Pgs. 159, 167: "... it is settled law that if the persons carrying on a trade do so in such a way that they and the customers are the same persons, no profits or gains are yielded by the trade for tax purposes and therefore no assessment in respect of the trade can be made. Any surplus resulting from this form of trading represents only the extent to which the contributions of the participators have proved to be in excess of requirements. Such a surplus is regarded as their own money and returnable to them. In order that this exempting element of mutuality should exi....
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....within the meaning of Section 2(15) of the Act and accordingly granted registration u/s. 12A of the Act. Though, the said registration was cancelled by learned DIT(E) for a brief period, however, ultimately, was restored by the Tribunal while setting aside the order of cancellation. Thus, factually, as on date, registration granted u/s. 12A of the Act recognizing the assessee as a charitable institution/organization is intact. It is a fact on record that the AO had made an attempt to deny claim of exemption u/s. 11 of the Act to the assessee in AYs 1989- 90 and 1990-91 on the reasoning that the assessee does not have charitable objects as it has generated income from business activity. However, higher appellate authorities, such as, the Tribunal, Hon'ble jurisdictional High Court and Hon'ble Supreme Court, while reversing the decisions of the Departmental authorities, have unequivocally held that not only the assessee's objects are of charitable nature coming within the ambit of any other object of general public utility but it does not carry out any commercial activity, hence, entitled to exemption u/s. 11 of the Act. In this context, it will be relevant to look at the following o....
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....the same day, another notification was issued under Section 45(1) of the Customs act approving MMTC as the Custodian of the imported cargo of such goods until their clearance in accordance with the provisions of the Customs Act. It was also notified that MMTC would be the custodian with regard to the export cargo until they are trans-shipped and handed over to the airlines at Sahar International Airport, Bombay. When MMTC was appointed as the custodian, it had incurred expenditure on behalf of the Bharat Diamond Bourse to the extent of about Rs. 81 lakhs for setting up of the bourse. On 31st August, 1984 the Managing Committee of the assessee resolved to treat the expenses incurred by MMTC as a loan which was to be returned with interest @ 6% per annum. MMTC had taken certain premises on lease in the Diamond Plaza which was sub-leased to the assessee on the same terms and conditions except for the deposit. The principal object of establishment of the bourse was to facilitate the diamond trade so that maximum revenue could be earned by way of foreign exchange and also to make the diamond trade more competitive at the international level. 8. On 15th December, 1987 an agreeme....
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....h of this Court in Additional Commissioner of Income Tax, Gujarat, Ahmedabad v. Surat Art Silk Cloth Manufacturers' Association, Surat really clinches the issue. The assessee in Surat Art Silk case was an association established to promote commerce and trade in Art Silk Yarn, Raw Silk, Cotton Yarn Art Silk Cloth, Silk Cloth and Cotton Cloth. Its objects, as evidenced from the memorandum of association, included, inter alia, carrying on business in Art Silk Yarn, Raw Silk, Cotton Yarn, Art Silk Cloth, Silk Cloth, Silk Cloth and Cotton Cloth belonging to and on behalf of its members as well as buying and selling and dealing in all kinds of cloth and yarn belonging to and on behalf of this members. The Constitutional Bench of this Court held that, if there are several objects of the institution, some of which are charitable and some non-charitable and the trustees or the managers in their discretion may apply the income of the institution of those objects, the trust or institution would not be liable to be regarded as charitable and no part of its income would be exempted from tax. Where the main or primary objects are distributive, each and every one of the object must be charita....
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....ditions. (ii) To establish and promote effective liaison between diamond trade and industry in India and abroad with a view to promoting their sales from India in International market. (iii) To promote, advance, protect and develop trade, commerce and industry in India relating to exports and imports of diamonds and (iv) To develop India as Modern and sophisticated diamond market by establishing and maintaining an international trading center in India for all those engaged as manufacturers, traders, exporters and importers, brokers/commission agents of diamonds." 15. These being the pre-dominant objectives, we agree with the view taken by the Tribunal as well as the High Court that the assessee was rightly registered under Section 11 by treating it as an institution established for charitable purpose within the meaning of Section 2(15) of the Act." 17. It is an undisputed fact on record that the main objects of the assessee based on which registration was granted u/s. 12A of the Act and, which objects have been accepted to be of charitable nature up to the stage of Hon'ble Supreme Court in assessee's case, have not undergone any change till da....
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....rstood in their ordinary sense and as known in common parlance. The word 'trade' would mean exchange of goods for goods or for money. The word 'business', though, has been defined under section 2(13) of the Act, however, it is generic. 'Business' in its ordinary sense would mean an occupation, or profession which occupies time, attention or labour of a person and is generally undertaken with a profit motive. The word 'commerce' again is of same connotation as 'trade' or 'business'. 20. As could be seen from the main objects of the assessee, it is not in any manner involved in any activity of trade, commerce or business. There cannot be any doubt regarding this fact. Therefore, it is necessary to see whether the second condition of any activity of rendering any service in relation to any trade, commerce or business is applicable. Since the assessee itself is not carrying on any trade, commerce or business, it cannot be said that it is involved in any activity of rendering service in relation to any trade, commerce or business. The assessee merely provides a platform to importers/exporters of diamonds and precious stones to facilitate import/export activity seamless and less cumbe....
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....tute intended for genuine charitable institutions/organizations, the proviso was introduced. As could be seen from the main objects of the assessee and the actual activity carried on, the assessee was set up as no profit company only for the purpose of promotion of import/export of diamond/gems in India and to provide infrastructure and other facilities including customs clearance for Indian diamond exporters and importers. It cannot be denied that not only the assessee came into existence with the concurrence of the Government of India in the Ministries of Finance and Commerce but initially activities now carried on by the assessee were carried on by MMTC. It is also a fact on record that assessee has been recognized as a charitable organization with charitable purpose by Highest Court of the country. It cannot be denied that the activities of the assessee have remained as it is since inception. 23. It is further relevant to observe, as per the proviso to Section 2(15) of the Act, the activity of trade, commerce or business or service related to trade or commerce or business must be for a cess or fee or any other consideration. In the facts of the present appeal, admittedly the....
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..... It is relevant to observe, in a recent decision in case of ACIT vs. Ahmedbad Urban Development Authority [2022] 143 taxmann 278 (SC), the Hon'ble Supreme Court was seized with the issue of interpretation of the proviso to Section 2(15) of the Act. While concluding, the Hon'ble Supreme Court has observed as under: "253. In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act. A. General test under Section 2(15) A.1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration"); A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or bus....
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.... development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra). B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act. B.3. In clause (b) of Section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce, business" in Section 2(15) of the IT Act. Therefore, sums charged ....
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....f purely advocating for, coordinating and assisting trading organisations, can be said to be involved in advancement of objects of general public utility. However, if such organisations provide additional services such as courses meant to skill personnel, providing private rental spaces in fairs or trade shows, consulting services, etc. then income 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. E. Non-statutory bodies E.1. In the present batch of cases, non-statutory bodies performing public functions, such as ERNET and NIXI are engaged in important public purposes. The materials on record show that fees or consideration charged by them for the purposes provided are nominal. In the circumstances, it is held that the said two assessee's are driven by charitable purposes. However, the claims of such non- statutory organisations performing public functions, will have to be ascertained on a yearly basis, and the tax authorities must discern from the records, whether the fees charged are nominally above t....
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....antitative limit. The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the assessee's activities amount to "trade, commerce or business" based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of "trade, commerce or business", then it must be examined whether the quantified limit (as amended from time to time) in proviso to Section 2(15), has been breached, thus disentitling them to exemption." 26. As could be seen from the aforesaid observations of the Hon'ble Supreme Court, charging of any amount towards consideration for any activity relating to the object of general public utility, which is on cost basis or with nominal amount above the cost, cannot be considered to be trade, commerce or business or any services in relation thereto. Hon'ble Supreme Court has further observed that only when the charges are markedly or significantly above the cost incurred, then they would fall within the mischief of cess or fee or any other consideration towards trade, commerce or business. These observations of Hon'ble Supreme Court apply to ....