TaxTMI 
TaxTMI 
2025 (3) TMI 2286
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....ower loom Industry and Export, development of Trade, Commerce and Industry being a charitable object, Appellant is entitled to exemption u/s 11 of the Act. 3. Ld. CIT(A) erred in confirming Assessing Officer's action to deny exemption by applying sec 2(15) without appreciating that appellant has not earned any profit in the Activity of Exhibitions. Ld. CIT(A) erred in not considering the fact that expenses incurred in holding Exhibitions, Buyer-Seller Meets is higher to contribution received from participants and such activities are intrinsic part of Objects of the Appellant. 4. Appellant pray that Appellant be granted exemption u/s 11. 5. Appellant crave your Honour's leave to add, alter or amend any ground of appeal at the time of hearing or before." Brief facts of the case are as under: 2. The assessee is Company Registered u/s. 25 of the Companies Act and obtained registration u/s.12 of the Act since, 21/10/1996, subsequently fresh registration was granted to assessee with effect from 28/05/2021 for Assessment Year 2022-23 to 2026-27. It is a fact that the assessee is prohibited from distributing any dividend/profit amongst its members b....
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..... In response to the show cause notices issued, the assessee submitted that, if being Section 25 company under the Companies Act, 1956, and governed u/s. 11 and 12 of the Act, the income generated from investment made as per provision of Section 11(5) are to be taxed as per normal provisions. It was submitted that, the said provision for investment u/s.11(5) are provided to grant exemption from payment of tax. It was submitted that, the assessee made investment out of the fund accumulated being the standard deduction at 50% and investment in the manner prescribe u/s. 11(5) of the Act. 2.5. It was submitted that the interest income is earned from the property held under the trust and therefore, income derived from such property is eligible for exemption u/s. 11(1) of the act. He placed reliance on the decision of Hon'ble Supreme Court in case of CIT vs Bankipor Club Ltd. reported in (1997) 92 taxman.com 278, wherein it was held that, if the members contribution was invested, then the income earned from the such investment would be exempt on ground of mutuality. He also placed reliance on following decision in support of the concept of mutuality that no one can make profit out of ....
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....participation fees for exhibitions organized only as part recovery of past incurred and not earning any profit. Deficit of the activity is met out of government fund. No surplus is generated. Circular no.11 of 2008 has specifically mentioned that an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which should be decided based on the nature, scope, extent and frequency of the activity. In the case of the appellant it has in its object "the advancement of any other object of general public utility" is a question of fact. The appellant is engaged in the activity in the nature of trade, commerce or business or renders service in relation to trade, commerce or business as submitted by the appellant in its own submission. Therefore, the organization of the appellant will not be entitled to claim that its object is charitable purpose. Hence, the AO's decision of declining exemption u/s.11 of the IT Act is sustained. Apart from that AO also observed that principle of mutuality is not followed in the appellant's case with respect to interest income on which it was claiming exemption. The appellant has earned interest income from t....
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....at, merely a fee charged or even a small surplus retained, will not disentitle assessee from the benefit of Section 11. He placed reliance on following decision in support of this contention a. "Cotton Textile Export Promotion Council 67 ITR (TRI) 539/44 taxman.com 168 BOM b. Fertilizers Association of India 399 ITR 209(DEL) Department SLP rejected 408 ITR 54 (ST). c. Apparel Export Promotion Council 60 ITR (T) 321 (DEL) d. Association of Corporation & Apex Societies of Handloom 58 CCH 229 DEL(TRI)/185 ITD 65 (del) e. ALL INDIA SKIN & HIDE TANNERS & MERCHANTS ASSOCIATION 1240/MDS/16 &1851/MDS/2017 dt.Oct.6,2017 f. NATIONAL ASSOCIATION OF SOTWARE & SERVICES 345 ITR 362 DEL g. EMPLOYERS FEDERATION OF SOUTH INDIA 277 TAXMAN 266 MAD h. CONFEDERATION OF INDIAN TEXTILE INDUSTRIES 2435/MUM/19 DATED 17-07-20 i. THE ASSOCIATION OF PHYSICIANS OF INDIA 2623/MUM/19 DATED 3-03-20" 4.3. The Ld. AR drew our attention to the audited accounts placed at page 32 to 56 of the annual report. He submitted that, the income consists of interest, office rent, grant, received from government, miscellaneous and prior period r....
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.... Deposits Forfeited 70,000 Total 45,47,188 4.7. In respect of the interest received from bank on fix deposited, the Ld. AR relied on the provisions of Section 11(5) to submit that, the deposits are made as per the requirement of the said Section and any interest received there from is entitled for Exemption u/s. 11. In support he relied for following case laws: a) Calcutta cricket & Football Club 177 TTJ 589 (Calcutta). b) Bombay Presidency Golf Club Ltd. 69 Taxmann.com 208 (Mumbai). c) Chembur Gymkhana 164 ITD 279 (Mumbai). d) Council for Leather exports 70 SOT 574 (Madras). e) CONFEDERATION OF REAL ESTATE DEVELOPERS ASSOCIATION OF INDIA 185 ITD 0090 (Mumbai-Trib) 4.8. The Ld. AR emphasised that, the assessee during the year under consideration, did not generate any surplus out of the activities of exhibitions but earned deficit which is met out of the Government grant. Placing reliance on the provisions of Section 2(15) as it was applicable for the relevant period read with Section 11, the Ld.AR submitted that, the contribution being only Rs. 11,38,970/- is lower than Rs. 25 lacs. He thus submitted that, the second pro....
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....rom non-members. It is not difficult to conceive of cases where the same concern may indulge in activities, which are mutual and non-mutual. True, keeping in view the principle of mutuality, the surplus accruing to members from the subscription charges received from its members cannot be said to be income within the meaning of the Act. However, if such receipts are from sources other than members then no exemption can be claimed in respect of such receipts on the plea of mutuality. vi. The careful examination of the assessee's actual activities as well as the perusal of objects and objects incidental or ancillary to the attainment of the main objects show that the dominant or rather the predominant object of the assessee is to provide benefit to its members. 10. In view of the facts mentioned above, the assessee is a mutual association and not a charitable one. The assessee is an organization, which is limited to the benefits of its members by virtue of which principle of mutuality applies. Respectfully, following Apex Court decision in the case of CIT vs. Bankipor Club Ltd. 226 ITR 97 and applying the doctrine of mutuality, assessee's receipts from non-me....
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....colour to all the three expressions." 5.2. Hon'ble Supreme Court further categorically held that merely because there is surplus/profit from the activities carried out, would not mean that the trust is not carrying out any charity and that, pure charity in the sense of performance of an activity without consideration is not envisioned under the Act. The Ld. AR at the time of argument compared the amendment made to Section 2(15) and the proviso wherein the legislature limited the profits not to exceed 20% of the overall receipts, vis-a-vis the pre amended provision (applicable to the facts of the present case). It is noted that as per the provisions applicable to the year under consideration the second proviso to Section 2(15)., can be invoked if the receipts from exhibition exceeds Rs. 25 Lac. 5.3. He thus submitted that, under both the circumstances the case of the assessee fall within the specified limit, and assessee will not be hit by second proviso section 2(15). It is also noted that, the assessee did not charge significantly towards subscription or participation fees, for conducting exhibitions etc. In any event, surplus/deficit is determined only after meeting the cos....
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....entitled for exemption u/s.11 for these years. 18. This issue of proviso to Section 2(15) in the case of institutions carrying out object of general public utility has been discussed in detail by the Hon'ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra). Certain relevant paragraphs of the Hon'ble Supreme Court for the sake of ready reference are reproduced hereunder: - "167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity's object. Thus, the test of the charity being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which coul....
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....ion 10(23C). Whereas section 2(15) is the definition clause, section 10 lists out what is not income. Section 10(23C) by sub-clauses (iv) and (v) exempt incomes of charitable organisations. Such organisations and institutions are not limited to GPU category charities but rather extend to other types of charities (i.e. the per se kind as well). The controlling part of section 10(23C) along with the relevant clauses (iv) and (v) seek to exclude income received by the concerned charities. However, the provisos hedge such exemption with conditions. The seventh proviso much like section 11(4A) and the definition - carve out an exception, to the exemptions such that income derived by charities from business, are not exempt. The seventh proviso virtually echoes section 11(4A) in that business income derived by a charity (in the present case, the GPU charities) which arises from an activity incidental to the attainment of its objective is not per se excluded. 170. Classically, the idea of charity was tied up with eleemosynary. However, "charitable purpose" - and charity as defined in the Act have a wider meaning where it is the object of the institution which is in focus. Thus, th....
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....s, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from those who can afford to pay, by providing extra services, far above the cost-plus nominal markup) such activities are in the nature of trade, commerce, business 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). 200. Surat Art Silk (supra) and other decisions, had ruled that as long as the objects of trade promotion bodies were for general public utility wherein 'trade promotion in itself, was held to be a GPU the fact that incidentally these bodies carried on some commercial activity, leading to profit, did not preclude them from claiming to be driven by charitable purpose. As observed earlier, the enunciation of those principles were in the context of the unamen....
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....Export Promotion Council (AEPC). The objects of AEPC, which was set up in 1978- include promotion of ready-made garment export. To achieve that end, its objects include providing training to instil skills in the workforce, to improve skills in the industry, guide in sourcing machinery, to serve as a body advising. providing information on market or technical intelligence, assisting the concerned industry in obtaining import licenses, showcase the best capabilities of Indian garment exports through the prestigious "India International Garment Fair" organised twice a year by AEPC, etc. These fairs host over 350 participants who exhibit their garment designs and patterns. Other functions are to provide information, and to provide market research. AEPC also assists in developing new design patterns and garments and to perform promotional activities in individual foreign markets. Further, AEPC sends missions and trade delegations abroad, who participate in international fairs, and conduct surveys to gather information on potential export of readymade garments. 204. As part of its functioning, it also books bulk space, which is then rented out to individual Indian exporters, who....
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....ure of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective; and equally important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit. ? The Hon'ble Apex Court has further held that the idea of providing services or goods at no consideration or at cost may not be relevant factor as it has to be given a wider meaning. But now there is an inhibition against making profit though there may be a little surplus left over the end of the year. Thus, concept of pure charity i.e. the performance of an activity without consideration is not envisioned under the Act, however, as long as GPUs object involves activities which also generates profits, it can be granted exemption provided the quantitative limit under second proviso to section 2(15) for receipts from such profits, is adhered to. ? In para 171, it has been stated that if the charity involves itself in activities that entail chargi....
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....ing on" the GPU activity or not. In such a case, for each year, the question would be whether the quantum from these receipts, and other such receipts are within the limit prescribed by the sub-clause (ii) to proviso to section 2(15). If they are within the limits, AEPC would be for that year, entitled to claim benefit as a GPU charity. Thus, judgment of the Hon'ble Supreme Court has clarified the law post insertion of the proviso to Section 2(15). 22. The sequitur of the judgment of the Hon'ble Apex Court interpreting the Section 2(15) read with first and second proviso is that, if an institution or a trust or a body has been recognised for carrying out charitable purposes for the object of general public utility, then benefit of Section 11 is available and if it carries out activity which is by nature of trade, commerce or business, then activity should be intrinsically linked to or part of the GPU. Further, if any consideration is received by way of fees, cess or any other consideration from such activity, then it should not exceed the quantitative limit. It has further held that though the consent of pure charity i.e. performance of activity without considerati....
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.... or body should not cross the threshold at all. If that is the purport, then activity per se does not qualify under main section 2(15). In our view, this cannot be the true purport of the section or the judgment of the Hon'ble Supreme Court. What needs to be examined, if there is any activity which is hit by proviso, then only benefit can be denied. Another view of looking into the proviso is that, during the course of carrying out activity of objects of GPU, it undertakes any activity which falls into the nature of trade and commerce and receipts from such activity should not cross the threshold, then perhaps it makes some sense. The law which has been explained by the Hon'ble Supreme Court, then can it be interpreted that the main activity per se has to be seen from the angle, whether it is in the nature of trade, commerce or business; and other factors of low margin or very low profit coupled with conditions provided in the proviso; or one has to see, is there any other activity falling into ambit of proviso and examine the benefit u/s.11. 24. If one takes a view that the very activity for which it has been granted registration for carrying out object of GPU, th....
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....2 wherein they have held that if the trade promotion's main activity is organizing meetings, disseminating information through publication, holding awareness camps and events would be broadly covered by trade promotion for which it is recognized for GPU. However, only when trade promotion body provides individuals or specialized services which have been elaborated therein and if such receipts are in the nature of fee or other consideration, then it is reckoned to be providing service in relation to trade, commerce or business. The activities carried out in that case which were in the nature of individuals and specialized services, the Hon'ble Supreme Court held that its functioning involved element of trade, commerce or business and therefore, for such services whether the quantum for these receipts are within the limit prescribed has to be examined year to year. 26. While deciding the issue, whether the nature of receipts of income garnered by the trust in the course actually carrying out these activities of publishing newspaper can be characterized as in the nature of trade, commerce or business for the consideration, normally Apex Court observed and held as unde....
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....ich it has been granted registration u/s.12A itself per se falls in the category of carrying of any activity in the nature of trade, commerce or business. Only if it carries any other activity which falls in such nature, then only proviso to Section 2(15) would be applicable. 28. Accordingly, we remit this issue to the file of the AO to decide this issue in line with judgment of Hon'ble Supreme Court and the principles laid down therein, whether any activity carried out by the assessee falls in the nature of trade, commerce or business or service for which any fees or cess or consideration has been received. 29. In so far as assessee's contention, its activities from members alone should be treated as general public utility and only nominal revenue from non-members should be treated as activity in the nature of trade, commerce or business cannot be accepted. Because, even if it is with the members, what is to be seen is whether the activity per se is in the nature of trade, commerce or business or not. How a distinction can be made only for non-members and the subscription revenue from them alone has to be treated as in the nature of trade, commerce or bus....