DCIT(E), CIRCLE-2, AHMEDABAD, AHMEDABAD vs. GUJARAT HIRA BOURSE, SURAT

The brief facts of the case are that the assessee is a company registered u/s 25 of the Companies Act, 1956 and also registered u/s 12AA of the Act. It is engaged in developing and maintaining a diamond bourse for promotion of trade in diamonds and jewellery, primarily for its members. The case was selected for complete scrutiny under CASS. During the course of assessment proceedings, the Assessing Officer observed that though the case was selected for verification of sale of immovable property, no such sale had taken place during the year and the amount reflected was on account of transfer of occupancy rights to a member. The Assessing Officer further observed that the assessee had shown gross receipts of Rs.5,51,96,056/- comprising mainly maintenance charges received from members along with interest and other income. Since the assessee spent more than 85% of its income, including administrative and capital expenses, and therefore declared its income as Nil. However, the Assessing Officer held that the activities of the assessee are in the nature of trade, commerce or business and therefore the proviso to section 2(15) of the Act is attracted. Consequently, in view of section 13(8), the exemption u/s 11 and 12 was denied. The Assessing Officer further disallowed the accumulation claimed u/s 11(1)(a) amounting to Rs.57,98,543/- and also disallowed the capital expenditure of Rs.2,59,73,435/-. The income of the assessee was accordingly assessed at Rs.3,17,71,978/- treating the assessee as an AOP.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), after considering the submissions of the assessee and following the decisions of the Tribunal in assessee’s own case for earlier years, i.e. AYs 2010-11 to 2013-14, in ITA No. 897/Ahd/2017, held that - 3– the activities of the assessee are not hit by the proviso to section 2(15) and that the assessee is entitled to exemption under sections 11 and 12 of the Act. The relevant observation of the Ld. CIT(A) is reproduced hereunder:- “4. It is seen that the Income Tax Appellate Tribunal, Surat Bench has adjudicated the appellant's case for AYs 2010-11, 2012-13 and 2013-14 on identical issue vide order in ITA No.897/AHD/2017 wherein it was held that, it can be seen from the facts discussed by assessing officer as well as assessee that the assessee organization is based on the principle of mutuality. It is clear from the facts that assessee has been allotting the plots and collecting contributions from its members only and there is complete identity between the persons who contribute the amounts to the assessee trust and beneficiaries of assessee's activities. It is also established from the facts that assessee deals/transacts only with its members strictly for the fulfillment of its objects. 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 abundantly members and it does not pay higher remuneration to its employees. It is clear that the income of the mutual concern falls outside the ambit of charging section 4 of the Income Tax Act and, therefore, outside section the tax net. The net effect of applicability of exemption provision in 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 of Council of Maharashtra (1981) 130 ITR 28 (SC), that if the primary object an entity like "Chamber of Commerce, professional association, a bar council, etc." is the promotion of any trade, industry, profession, etc. the fact that the business community or the profession as the case may be would be benefit therefrom, would not take away the object from the realm of object of general public utility and, therefore, they would be held established for a charitable purpose. In view of the above factual and legal position, it is quite clear that the object of the assessee is of general public utility and does not hit by first proviso to section 2(15) of the Act. Respectfully following the decision of juri ictional ITAT in appellant's case on identical facts, grounds 2, 3, 4, 5 and 6 are allowed.”

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

The Ld. DR relied upon the order of the Assessing Officer and submitted that the assessee is engaged in commercial activities and hence the proviso to section 2(15) is applicable.

The Ld. AR, on the other hand, supported the order of the Ld. CIT(A) and submitted that the issue is squarely covered in favour of the assessee by the orders of the Tribunal in assessee’s own case for earlier years. The Ld. AR submitted that the assessee is a non-profit organization, its activities are confined only to members and there is complete identity between contributors and participants. The Ld. AR thus contended that neither the proviso to section 2(15) is applicable nor the activities can be regarded as commercial in nature. Reliance was also placed on judicial precedents including the decision of the Hon’ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority, 449 ITR 1 (SC), wherein it was held as under:-

We have heard the rival submissions and perused the material available on record. The primary issue for our consideration is whether the activities of the assessee are hit by the proviso to section 2(15) of the Act so as to deny exemption u/s 11 and 12 of the Act.

1 It is an undisputed fact that the assessee is registered under section 12AA of the Act and its objects fall under the category of advancement of any other object of general public utility. The Assessing Officer has denied exemption primarily on the ground that the assessee is engaged in activities in the nature of trade, commerce or business. However, from the facts on record, it is evident that the assessee is a non-profit company engaged in development and maintenance of infrastructure facilities for its members and the receipts are primarily from members. There is no material brought on record by the Revenue to demonstrate that the assessee is carrying on any activity with profit motive or is engaged in commercial activities with non-members. It is further noted that the identical issue has been considered by the Coordinate Bench of the Tribunal in assessee’s own case for earlier assessment years (ITA Nos. 2917/Ahd/2014, 1967/Ahd/2016, 897/Ahd/2017), wherein it has been held that the proviso to section 2(15) is not applicable to the assessee. The Revenue has not brought on record any distinguishing facts for the year under consideration. Therefore, respectfully following the decisions of the Tribunal in assessee’s own case, we uphold the finding of the Ld. CIT(A) that the assessee is entitled to exemption u/s 11 and 12 of the Act. Accordingly, the appeal of the Revenue on this ground is dismissed.

2 With regard to Ground No.2, the Ld. AR submitted that the issue, whether the assessee qualifies as a mutual concern, is covered in favour of the assessee by the decision of the Tribunal in assessee’s own case in ITA Nos. 2917/Ahd/2014, 1967/Ahd/2016, 897/Ahd/2017, 189/Srt/2020 & 190/Srt/2020, wherein the Tribunal has accepted the applicability of the - 6– principle of mutuality. In absence of any contrary material, in the specific facts of the instant case, we find no reason to interfere with the findings of the Ld. CIT(A) on this issue. The appeal of the Revenue on this ground is thus dismissed.

In the result, the appeal of the Revenue is dismissed.

""थ"/ The Respondent. 3. संबंिधतआयकरआयु"/ Concerned CIT 4. आयकरआयु"(अपील) /The CIT(A)- 5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण, अहमदाबाद/ DR, ITAT, Ahmedabad 6. गाड"फाईल /Guard file. आदेशानुसार/ BY ORDER,सहायकपंजीकार (Dy./Asstt.