ALL INDIA LIQUID BULK IMPOERTERS & EXPORTERS ASSSOCIATION,MUMBAI vs. ADIT(E)-II(2), MUMBAI, MUMBAI

O R D E R

PER PAVAN KUMAR GADALE JM:

I. CONFIRMATION OF TREATMENT OF THE NON-PROFIT ORGANISATION AS A MUTUAL CONCERN AND DENYING EXEMPTION U/S 11:

1. The Learned C1.T(A) erred in confirming treatment of the All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 2 - appellant as a mutual association created exclusively for the benefit of its members. 2. The Learned CIT(A) failed to appreciate the fact that the basic conditions of the concept of mutuality are not satisfied, hence the same is not applicable to the appellant.

3. The concept of mutuality should not be applied and the appellant requires to be considered as a charitable trust, eligible for benefits 11 of the Income Tax Act, 1961,

IL CONFIRMATION OF ADDITION OF ANNUAL MEET COLLECTION OF RS. 6,60,000 RECEIVED FROM NON- MEMBERS AS TAXABLE INCOME 1, The Learned C1T(A) has erred in considering the gross annual meet collection (donation) received from non members of Rs. 6,60,000/- as taxable on mutuality concept basis out of total collection of Annual Meet Collection of Rs. 30,00,0000/-, 2. The addition of Rs. 6,60,000/- being annual meet collection from non members as taxable income required to be deleted.

3. Without prejudice to the above, the direct expenses incurred in relation to annual meet are Rs. 28,99,366/- which requires to be allowed against the collection of Rs. 6,60,000/- from non members III.CONFIRMATION OF ADDITION OF BANK FIXED DEPOSIT INTEREST INCOME OF RS. 11,375/- AS TAXABLE INCOME: 1, The Learned CIT(A) erred in treating the Interest Income on Bank Fixed Deposit of Rs. 11,375/- as taxable income on mutuality concept basis.

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 3 -

2. The addition of interest income of Rs. 11,375/- as taxable income requires to be deleted. The appellant craves leave to add amend, alter or modify the ground or grounds of appeal before the hearing.

At the time of hearing, the Ld.AR submitted that there is a delay of 69 days in filing the appeal. The assessee has filed the application for condonation of delay . We found the facts mentioned are reasonable and the delay is neither willful nor wanton, accordingly we condone the delay and admit the appeal. Contra, Ld. DR has no specific objections.

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 5 - registration u/s 12AA of the Act. Further the test of mutuality requires the contributors to the common fund and the participations in surplus or identical and relied on the judicial decisions. The A.O. was not satisfied with the explanations and objects of the trust and observed at Para 5.i to 5.ix of the order as under:

“5.1 The above submission of the assessee is considered but the same is not accepted because of following reasons: I. The assessee has described its objects incidental or ancillary to the attainment of the main objects in its memorandum of association in details at VI. B. from point No. 1 to 16. However, none of points mentioned in its ancillary objects or in the main objects mention that it is for the person who is non member or general public at large. Thus, the benefit of the Company is not utilized by all the persons of the society. It is benefited to limited person i.e. Members of the assessee Company only. II. The cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and all the participators in the surplus must be contributors to the common fund; in other words, there must be complete identity between contributors and the participators and this fact is also mentioned by the assessee in its submission dated 1403-2014. If this requirement is satisfied, the particular form which the association takes is immaterial In other words if all the participators to the common fund are also contributors and their identity is established then the test of mutuality is satisfied. III. The contributors to the common fund and the participators in the surplus must be an identical body. That All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 6 - does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus. It is immaterial whether the surplus is paid back to the members in cash or put to reserve with the activities in appropriate cases be separated and the profits if any from the members can be taken for exemption on the basis of actnal from the accounts or at any rate by estimate if it should become necessary (CIT Vs madras Race Race Club 105 ITR 433 Madras) and the profits derived from non members can be brought to tax (Sports Club of Madras Ltd. v./ s CIT 171 rat 504). CIT Vs. Ranchi Club Ltd 196 ITR 137 (Patna Full Bench), Spl Vi. Leave pdration granted by the Supreme Court 194 ITR (ST) 236 (SC). The s---rplus receipts of members over its expenses have been sought to be from Income tax on the principle of Mutuality. This principle is based on the premise that no men can make profit out of himself, but this principle cannot have any application in respect of the surplus received from non- members. It is not difficult to conceive of cases where one and the same concern may indulge in activities which are partly 'mutual and partly 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. But, 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. V. 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 object show that the dominant or rather the predominant object of the assessee is to provide benefit to its members Vi. It is pertinent to make mention here the famour case of All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 7 -

Cricket Club of India Bombay. The CCI has been conducting world clas matches, test matches and Ranji Trophy Matches and other similar tournaments, from generations. The CCI is also registered u/s Companies A and was earlier assessed to tax in this Range only and it w as a] claiming Exemption u/ s. 11 & 12 of the Income Tax Act, 1961. in case, it has been held by the Honb1e Supreme Court that it is mutual organization (refer the case of Bankipur Club Ltd. 226 ITR 97 wherein the CCI Club was also a party). The object to promote or manage or assist in the promotion or management for the development of trade and commerce for its members clearly show that the dominant object of the assessee is to provide amenities and facilities to the members of the assessee Company only. It is, therefore, held that the assessee is a mutual organization. vii. The assessee is predominantly a mutual association. The charitable objects and the object of mutual benefits are contradictory to each other. It must be appreciated that Exemption u/s. 11 as a charitable trust and principles of mutuality are mutually exclusive of each other. In the mutual association the members subscribe for the primary purpose of benefiting themselves, while in a charitable institution people subscribe for charitable object without any expectation in return. In the case of the assessee, the members have contributed only for the purpose of their own benefit and for acquiring certain benefits. Therefore, the assessee is treated as mutual association and not as charitable institution. Viii. It may also be stated that the concept of charity is necessarily altruistic in nature an dinvolves the idea of benefit to others. The essence of charity is that the persons doing charity exclude themselves from benefits of the charity. Non exclusion of contributors to charity fund from the benefits arising out of that is nothing but serving the interest of self in an organized manner. In fact the entire scheme of Sec. 11 to 13 and particularly sec 13(1)(c) and 13(3) is based on this basic principle or essence of 'charity'. Thus in a case of even

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 8 - charitable institution, ifbenefit is proved to be for certain categories of people referred to in sec.13(3) the Exemption u/s. 11, 12 is not admissible. Therefore, the question of granting benefit to such Institution where the objects themselves are not charitable and are for the benefit of its members, cannot be considered as charitable objects. The concept of charity and mutuality are mutually exclusive of each other. A charitable Institution is for the benefit of the public and not for the mutual benefit of the contributors to the common fund. To quote from Kamp. 86 Palldaivala. "The Law and Practice of Income-tax" Vol-1 Eighth Edition, Page 381. Xi "Such a mutual association is held non charitable for two reasons, as Baron Pollock pointed out in Linen 8s Wollen Drapers Institution VIR, first, although a member, according to his poverty or misfortune, might share in the funds held by the society for the mutual benefit of the subscribing members, it cannot be said that he had subscribed for a charitable purpose, whereas in the trust he had subscribed for the primary purpose of protecting himself or his family in periods of age, sickness or distress. Secondly, in a mutual society a member can claim benefits as of right in return for his own and his considered-member's subscription. Charity must be by way of bounty, it cannot be by way of bargain. Under this act a mutual association would be non charitable on the further ground that the benefit of the subscribing members is not public benefit, whereas the definition in sec. 2(15) requires charity to be a public character."

, submissions of the assessee and findings of the A.O and dealt on the ground of appeal No. 1, 2 & 3 with respect of denying of exemption u/s 11 of the Act and addition of annual meet collections from non members and bank interest income has observed at page

9. Para 4.2 of the order read as under:

4.2 Decision on ground nos.1, 2 and 3: I have carefully considered the facts of the case, AO's contentions, submissions of the appellant as well as the case laws relied upon by the appellant. The facts of the case are that the appellant is a company u/s 25 of the Companies Act, 1956 and registered with the Director of Income Tax (Exemption), Murnbai u/s 12A of the Act, In this case, return of income has been filed on 30.09.2011 at NIL total income. Assessment order u/s 143(3) was completed on 27.03.2014 assessing total income at Rs.6,71,375/-. The main object of the assessee is to work towards Health and orderly growth of the Country's trade (including import & export) in liquid Bulk Cargoes in general and to work towards the growth of country's Economy by promoting Unity, Unanimity and mutual Cooperation among all the players in the logistic chain with All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 10 - the object of promoting, safeguarding and securing the interest of importers, exporters and service providers at the micro and macro level. During the course of assessment proceedings, the AO asked the assessee to explain as to why the doctrine of mutuality should not be applied as the assessee's activity is based on mutual cooperation. In response the assessee stated that mutuality concept is not applicable as it is a non-profit organization u/s 25 of the Companies Act and also registered u/s 1 2AA of the Act. The assessee also stated that the test of mutuality required that the contributors to the common fund and participators in the surplus are identical. The A.O has considered and common fund. If this requirement is satisfied, the particular form which the association takes is immaterial. In other words if all the participators to be common fund are also contributors and their identity is established then the test of mutuality is satisfied. It is immaterial whether the surplus is paid back to the members in cash or put to reserve with the Company for its development and for providing benefits to its members. The surplus receipts of members over its expenses have been sought to be exempted from Income Tax on the principle of Mutuality. This principle is based on the premise that no man can make profit out of himself, but this principle cannot have any application in respect of the surplus received from non-members. 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. But, 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. The AO relied on the famous case of Cricket club of India, Bombay where CCI has been conducting world class matches. test matches and Ranji Trophy Matches and other similar tournaments from generations. The CC! is also registered u/s 25 of the Companies Act and it was also claiming exemption u/s 11 and 12 of the Act. In this case, it has been held by the Honble Supreme Court that it is mutual organization. In the case of All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 11 - the assessee, the members have contributed only for the purpose of their own benefit and for the acquiring certain benefits. Therefore, the assessee is treated as mutual association and not a charitable institution. Further the AO noted that the interest income can by no stretch of reasoning and imagination be said to have been received from the members. Having regard to full facts of the case I find myself in agreement with the AO that on the facts of the present case the income derived by the appellant in the form of interest income of Rs. 11,375/- and from the annual meet collection from non members of Rs. 6,60,000/- was not eligible to the exemption claimed on these u/s 11 of the Income Tax Act 1961. The action of the AO in bringing these income to tax is upheld and the grounds of appeal in this regard are dismissed. In respect of the other grounds of appeal, the CIT(A) has granted partial relief and partly allowed the assessee appeal. Aggrieved by the CIT(A)order, the assessee has filed an appeal before the Hon’ble Tribunal.

6. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the action of the A.O. denying the exemption U/sec 11 of the Act and taxing the annual meet collections from non members and interest income as taxable applying the concept of mutuality association. The CIT(A) has not considered the facts on non applicability of concept of mutuality and the charitable activities of the All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 12 - assessee. The Ld. AR substantiated the activities of the trust and the nature of work filed in the paper book. On the other issues with respect to annual meet collections from non members and interest income from fixed deposits are made taxable on the principle of mutuality is bad in law. The Ld. AR substantiated the submissions with the judicial decisions and paper book and prayed for allowing the appeal. Contra, the Ld. DR relied on the orders of the CIT(A).

7. We heard the rival submissions and perused the material on record. The first disputed issue is with respect to concept of mutuality were both the authorities A.O and the CIT(A) has treated it as a mutuality of members and applied the principles of mutuality. The Ld. AR substantiated the submissions on the applicability of exemption u/sec11 of the Act and referred to the main objects at VI.A.(a) and incidental objects -B at page 13 to 15 of the paper book and emphasized on the main object of the trust and other objects-C-Nil and the objects shall extend the whole of India. The Ld. AR emphasized and All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 13 - demonstrated the activities/achievements at page 29 to 48 of the paper book. The Ld. AR highlighted the achievements (i) major breakthroughs in octroi (ii) customs (iii) port (iv) state government and (v) police at page 33 & 34 of paper book read as under:

Major breakthroughs in Octroi • The current 168 hours (i.e. 7 days) of free time for movement of goods out of octroi limits is now enhanced to 6 months. • - The issue of Less Charge demands, against some of our members, was taken up with the octroi officials, resulting in amicable solutions. • Constant interaction with Octroi authorities to minimise / eliminate hurdles and facilitate smooth passage of tankers has been made possible. • Removal of Bank Guarantee for Import of Edible Oils, with AILBIEA's undertaking, exclusively for all our members. Customs Constant interaction with Custom authorities has been made possible, at JNPT and Mumbai, to discuss issues on procedures and EDT systems, for Liquid Bulk Consignments. • Simplifying Bonding Procedures • Introduction of Discharge Permission, in lieu of documents at Pirpau jetty, for all Imports • Introduction of Discharge Permission, in lieu of documents at Mumbai's commercial docks, for Clearance in Tank Lorries for bonded consignments • Systematizing Joint Bonding and other related procedures • Representing various issues on Edible Oil imports and imports of other Chemicals, Petrochemicals and Alcohols

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 14 -

Port • Regularizing of stream discharge issues, vis-a-vis Barges • Regular meetings and interactions with Port officials, discussing issues relating to Liquid Bulk Imports • Follow-up with Port for Third Liquid Chemical Jetty at Pirpau • Regular follow-up with TAMP for issues related to Port Tariffs • Taking-up of security issues, with regards to movement of tankers inside the Port State Government • Made a forceful representation to the Hon'ble Finance Minister of Maharashtra Shri Jayant Patil, raising and highlighting issues relating to Stamp Duty, APMC Cess, Encroachments on P.D'Mello Road etc. • Persisting with Government on issues relating to Stamp Duty and APMC Cess. • Met with a fair degree of success in clearing of major impediments and illegal hutments on P. D'Mello Road Police • Representing complaints of members with Jt. Commissioner of Police (Crime) 8. The contentions of the Ld. AR are that the concept of mutuality does not apply considering the role of the assesse in the society. Further, the transactions/activities of the assessee are for the All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 15 - benefit of the society at large but the A.O has denied the exemption u/sec11 of the Act and applied principle of mutuality and has not made any observations in respect of provisions of Sec. 2(15) of the Act. Further, in the ground of appeal no 2 & 3 the A.O has treated the annual meet collections from the non members as income and also interest income from bank deposits are treated as taxable. But the fact remains that though the A.O. has treated collections as income attributed towards the non members. Without prejudice the Ld. AR submitted that even the deduction has to be granted to that extent. We find the submissions of the Ld. AR are prima-facie on the nature of activities and duly supported with the audited financial statements and Audit report in form 10B for the F.Y.2010-11 i.e A.Y.2011-12.

9. We find the Hon’ble Tribunal in the case of Bombay Chambers of Commerce & Industries Vs. ITO (Exemp) dated 30.09.2021 where the similar issue of concept of mutuality and exemption under section 11 of the Act was considered and All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 16 - observed at page 75 Para 9 to 14 of the order read as under:

9. From the reading of the aforesaid clauses, it is clear that the members of the assessee chamber do not stand to gain personally since no portion of the income or property is paid or transferred directly or indirectly by way of dividend or bonus or otherwise. Further, even on winding up, the members cannot claim any share in the surplus assets. These facts highlight the fundamental fact that the assessee by and large strives to promote and protect the trade, commerce and manufacturers of India without seeking to make profits for its members.

10. Now, we have gone through the amended definition of the term 'charitable purpose' under section 2(15) of the Act by the Finance Act, 2008 w.e.f. 1 April 2009, reads as under: "charitable purpose includes 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, and the advancement of any other object of' general public utility: 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 cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year". 11. Further, learned counsel for the assessee invited our attention to the speech of Finance Minister and the relevant extract of the speech is reproduced hereunder:-

"180. 'Charitable purpose' includes relief of the poor, education, medical relief and other object of general public utility. These activities are tax exempt, as they should be.

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 17 -

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 the Parliament and, hence. I propose to amend that law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on 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. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as ―advancement of any other object of general public utility‖ (Emphasis supplied,)‖ 12. From a perusal of the FM's speech it is apparent that the intent behind the amendment was that only such entities which are carrying on regular trade, commerce or business would not fall within the definition of the term 'charitable purpose. It was never intended to affect genuine charitable organizations in any way. The learned Counsel for the assessee stated that as discussed above, the terms "trade", "commerce" and "business" imply carrying on an activity for profit since no trader/businessmen would like to carry on its activities at a loss. The definition of the term "charitable purpose" was practically the same as was contained in the last para of section 4(3) of the 1922 Act except for the addition of the words "not involving the carrying on of any activity for profit" at the end. Section 2(15) read as under: 'charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility not involving the carrying on of any activity for profit".

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 18 -

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 19 -

"Thai on the facts and circumstances of the case of the appellant, the Ld. CIT(A) erred in confirming the allegation of the Ld. AO that the appellant was hit by the proviso to section 2(15) of the Income-tax Act inserted w. e.f. 01.04.2009, in as much as the appellant was allegedly involved in the rendering of service in relation to trade, commerce or business, for cess or fee or any other consideration ". The Tribunal in para 32 stated as under: "We have already discussed the facts above in for AY 2008-09, which are unchanged in this appeal also i.e. for AY 2009-10 but in view of amendment in Section 2(15) of the Act vide Finance Act 2008, w.e.f 01/04/2009, whereby new proviso was inserted and according to lower authorities the activities of assessee association of conducting Environment Management Centres, meetings, conferences & seminars and issuance of certificate of origin were all in the nature of "rendering of service in relation to business, for consideration" and falling under the last limb of charitable purpose, i.e. "advancement of any other object of general public utility", thus covered by the proviso to section 2(15) of the Act. In connection to the above it would be relevant to know the amended section 2(15,) of the Act in view of legislative intent behind such amendment.........................

20.We noted that the tribunal after considering the provisio to section 2(15) of the Act and the CBDT circular No11/2008 dated 19-12-2008(which was issued pursuant to the provisio being inserted in the Act) held in para 38 that the definition of the term “charitable Purpose” remained unaltered even on amendment in the section 2(15) of the Act w.e.f 01-04-2009 though the restrictive first provisio was inserted therein.Hence the assessee was not hit by newly inserted provisio to section 2(15) of the Act.

All Inida Liquid Bulk Importers & Exporters Association, Mumbai. - 20 - under section 2(15) of the Act and the assessee is entitled for exemption under section11 of the Act. We direct accordingly.

in favour of the assessee.

12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 14.02.2022.