BUILDERS ASSOCIATION OF INDIA,MUMBAI vs. INCOME TAX OFFICER (EXEMPTIONS)-1(1), MUMBAI

ITA Nos. 5590 & 5591/Mum/2019 A.Ys. 2013-14 & 2014-15 1 Builders Association of India Vs. Income Tax Officer (Exemptions)-1(1)

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “B” MUMBAI BEFORE SHRI M. BALAGANESH (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA Nos.5590 & 5591/MUM/2019 (Assessment Years: 2013-14 & 2014-15) Builders Association of India, Income Tax Officer 7th Floor, Commerce Centre, Vs. (Exemptions)- 1(1), Tardeo Road, Piramal Chambers, Mumbai – 400034 Lalbaug, Parel, Mumbai - 400012 PAN No. AAATB0212F (Assessee) (Revenue)

Assessee by : Shri Vipul Joshi, A.R Revenue by : Shri Tharian Oommen, D.R Date of Hearing : 01/03/2021 Date of pronouncement : 08/03/2021

ORDER PER RAVISH SOOD, J.M: The captioned appeals filed by the assessee are directed against the consolidated order passed by the CIT(A)-3, Mumbai, dated 31.037.2019, which in turn arises from the respective orders passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 09.03.2016 and 22.08.2016 for A.Y. 2013-14 and A.Y. 2014-15, respectively. As common issues are involved in the captioned appeals, the same, thus, are being taken up and disposed off together by way of a consolidated order. We shall first take up the appeal of the assessee for A.Y. 2013-14 wherein the impugned order has been assailed on the following grounds of appeal before us: “1(a). The appellant submits that the Hon'ble Commissioner of Income-tax (Appeals)-3, Mumbai (hereinafter referred to as "the CIT(A)") erred in denying exemption under section 11(1)(a) of the Act by up-holding that the appellant carries-on 'activities in the nature of trade, commerce or business" within the meaning of proviso to section 2(15) of the Act.

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(b). The appellant prays that based on the facts and circumstances of the case as well as in law, the proviso to section 2(15) of the Act is not applicable in the instant case and therefore the appellant is eligible for exemption under section 11(1)(a) of the Act. (c) The appellant prays that order of the Hon'ble CIT(A), being contrary to the facts and circumstances of the case, as well as in law, be set aside and the appellant be allowed exemption as claimed u/s 11(1)(a) of the Act. 2. The appellant prays for appropriate relief. 3. The appellant craves leave to add, alter or amend the grounds of appeal at the time of hearing.” 2. Briefly stated, the assessee which is a trust registered under Sec. 12A of the Act, vide Registration No. INS/25048 dated 24.04.1989 had filed its return of income for A.Y. 2013-14 on 30.09.2013, declaring a net deficit of Rs.(9,65,852/-). As is discernible from the records, the DIT(exemption), Mumbai, vide his order dated 03.12.2011 had cancelled the registration of the assessee trust under Sec. 12A, which however was restored by the Tribunal vide its order passed in ITA No. 550/Mum/2012, dated 12.01.2015. However, the department had assailed the aforesaid order of the Tribunal by preferring an appeal under Sec. 260A before the Hon‟ble High Court of Bombay. 3. The case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. On a perusal of the details, it was observed by the A.O that the assessee had claimed exemption under Sec. 11 of the Act. After deliberating on the objects of the assessee trust, the A.O held a conviction that it existed for the purpose of development of contractors and services to construction industries in India. As noticed by the A.O the primary objects of the assessee trust was to promote and foster feelings of unity, cooperation and mutual help with a purpose to eliminate unhealthy competition and unfair trade practices amongst the contractors and the allied operators. As observed by the A.O the assessee had claimed that its activities were charitable in nature on the ground that it was engaged in advancement of an object of a general public utility. However, the A.O was not persuaded to subscribe to the aforesaid claim of the assessee. It was observed by the A.O that as per the post-amended Sec. 2(15) of the Act i.e after 01.04.2009, any activity of rendering any services in relation to any trade, commerce and business for a cess or any other consideration, irrespective of the nature of use or application or retention of the income from such activity would not fall within the purview of charity. Observing, that in the case before him the assessee was rendering services to its members in order to facilitate them to carry out their business/professional activities, the A.O was of the

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view that its activities would directly come within the sweep of services rendered in relation to the trade, business and commerce. Backed by his aforesaid conviction, the A.O was of the view that as the assessee could not be considered as a charitable organisation therefore, its claim of exemption under Sec.11 of the Act did not merit acceptance. On the basis of his aforesaid deliberations the A.O called upon the assessee to explain that as per the post-amended definition of the term „charitable purpose‟ in Sec 2(15) of the Act (w.e.f A.Y. 2009 -10 onwards), as to why its claim for exemption under Sec.11 may not be denied for the reason that it was involved in carrying out activities in nature of business and commerce and also provided services in relation to business for fee or other consideration. In reply, the assessee tried to impress upon the A.O that as the „proviso‟ to Sec. 2(15) of the Act was not applicable to its case thus, its claim for exemption under Sec. 11 was in order. Apart from that, it was submitted by the assessee that as its registration under Sec. 12AA had been restored therefore, there was no restriction in granting exemption under Sec. 11 of the Act. However, the A.O did not find favour with the aforesaid claim the assessee. Insofar the claim of the assessee that its registration under Sec.12AA(3) had been restored by the Tribunal vide its order dated 12.01.2015 was concerned, the A.O, observed, that the department had not accepted the said order and had filed an appeal under Sec. 260A of the Act before the Hon‟ble High Court. It was, thus, observed by the A.O that in order to keep the issue alive the assessee‟s claim for exemption under Sec. 11 could not be accepted. Adverting to the income and expenditure account of the assessee for the year under consideration, it was observed by the A.O that the receipts therein reflected by the assessee viz. membership subscription; collections for meetings and functions; collection from exhibitions seminar and conventions; income from sale of diaries/calendars/magazines and miscellaneous receipts etc. were in the nature of trade, commerce or business and services to its members in relation to trade, commerce and business for a consideration, which irrespective of the nature of use or application or retention of the income from such activity could not be brought within the purview of charity. Accordingly, the A.O referring to the post amended „proviso‟ to Sec. 2(15) of the Act observed that the objects of the assessee trust and its activities were in the nature of trade, commerce or business (including any activities of rendering any services 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). Accordingly, on the basis of his

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aforesaid observations the A.O concluded that as the assessee‟s activities did not fall within the realm of the definition of „charitable purpose‟ within the meaning of the amended provisions of Sec. 2(15) thus, its claim for exemption under Sec. 11 did not merit acceptance. 4. Alternatively, the A.O observed that the assessee had claimed an amount of Rs.88,12,907/- as accumulation under Sec. 11(1)(a) i.e 15% of its gross receipts of Rs.5,87,52,715/- and had also claimed a deficit of Rs.(9,65,852/-). However, the A.O was of the view that the accumulation under Sec. 11(1)(a) was liable to be restricted to the extent of the surplus of Rs.78,47,055/- that was available with the assessee trust. Accordingly, backed by his aforesaid conviction the A.O was of the view that the question of notional accumulation of Rs.9,65,852/- under Sec. 11(1)(a) would not be available to the assessee. As such, the assessee‟s claim of accumulation under Sec. 11(1)(a) of Rs.78,47,055/- was restricted by the A.O to the amount of surplus available. Also, it was observed by the A.O that carry forward of excess application of funds in commercial principle could not be allowed as per the provisions of the Act, which would otherwise result in notional application of income in the subsequent year. Backed by his aforesaid observations, the A.O declined the assessee‟s claim for carry forward of deficit of Rs.(9,65,852/-) for adjustment in the subsequent years. Lastly the A.O being of the view that expenses of Rs.5,61,506/- claimed as deduction by the assessee not having being incurred wholly and exclusively for its business purpose as per the provisions of Sec. 37(1) of the Act thus, disallowed the same. In the backdrop of his aforesaid deliberations the income of the assessee trust was assessed by the A.O vide his order passed under Sec. 143(3), dated 09.03.2016 at Rs.84,08,560/-. 5. Aggrieved, the assessee assailed the assessment order in appeal before the CIT(A). It was observed by the CIT(A) that his indulgence was sought for adjudication of two issues, viz.(i). whether the activities of the assessee trust could be considered as for „charitable purpose‟ within the meaning of Sec. 2(15) of the Act; and (ii) whether activities of the trust would be hit by the 1st and 2nd proviso to Sec. 2(15) of the Act. After necessary deliberations, it was observed by the CIT(A) that the assessee had failed to demonstrate by placing on record any documentary evidence that its activities were of a non-commercial nature and without a profit motive. As regards carrying on of activities in the nature of trade, commerce or business, it was observed by the CIT(A) that the assessee was carrying out regular activities which were

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in the nature of business by way of arranging seminars, collecting participation fees from participants, interest income and sale of publications. Accordingly, the CIT(A) was of the view that as the assessee was carrying on activities in the nature of commerce thus, its objects could not be considered as for „charitable purpose‟. After referring to the Finance Bill, 2008 as per which Sec. 2(15) of the Act was amended, the CIT(A) was of the view that pursuant to the aforesaid amendment where the assessee trust carried out business mainly with the objective of earning profit than to carry out charitable work, it would be hit by the proviso to Sec. 2(15) of the Act. As regards the reliance placed by the assessee on the orders passed by the Tribunal in its own case for A.Y. 2010-11 and A.Y. 2011-12, the CIT(A) held a conviction that the aforesaid orders were not only distinguishable on facts but in fact had been passed without considering the judgment of the Hon‟ble Supreme Court in the case of Sole Trustee Loksikshan Trust Vs. CIT (1975) 101 ITR 234 (SC). Backed by his aforesaid conviction, the CIT(A) was of the view that the assessee‟s claim under Sec.11 was not allowable for the year under consideration. Insofar the claim of the assessee that the A.O had erred in disallowing its claim for donation of Rs.5 lac to Chief Minister relief fund, the CIT(A) finding favour with the assessee‟s claim that sufficient opportunity was not afforded to it to substantiate its aforesaid claim by producing the supporting receipt thus, restored the issue to the file of the A.O with a direction to readjudicate the same after necessary verification. 6. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „D.R‟) relied on the orders of the lower authorities. 7. Per contra, the ld. Authorized Representative (for short „A.R‟) for the assessee submitted that the issue involved in the present appeal was squarely covered by the order of the Tribunal in the assessee‟s own case for A.Y. 2009-10 in ITA No. 550/Mum/2012, dated 12.01.2015 (copy placed on record). It was submitted by the ld. A.R that the Tribunal vide its aforesaid order had concluded that neither the assessee‟s case was hit by the „proviso to Sec. 2(15)‟ of the Act nor its registration granted earlier could be cancelled as per Sec. 12AA(3) of the Act. It was further averred by the ld. A.R that the aforesaid order of the Tribunal for A.Y. 2009-10 was thereafter followed by the Tribunal in the assessee‟s own case for A.Y. 2010-11 (assessee‟s appeal) in ITA No.2266/Mum/2015 and that for A.Y.2011-12 (revenue‟s appeal) in

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ITA No. 4694/Mum/2015, vide its consolidated order dated 10.08.2017. In the backdrop of his aforesaid contentions it was submitted by the ld. A.R that as the fact situation in the case of the assessee had not witnessed any change during the year in question i.e A.Y. 2013-14 thus, the issue herein involved was squarely covered by the aforesaid orders of the Tribunal. 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Admittedly, the issue as to whether the activities of the assessee trust would fall within the realm of trade, commerce or business etc. and thus would be hit by the „proviso to Sec. 2(15)‟ of the Act, had been looked into by the Tribunal in the assessee‟s own case for A.Y. 2009-10 in ITA No. 550/Mum/2012, dated 12.01.2015. After exhaustive deliberations as regards the nature of activities of the assessee trust and its receipts in the backdrop of the observations of the lower authorities, the Tribunal had observed that the assessee‟s case would not be hit by the „proviso‟ to Sec. 2(15) of the Act, observing as under : “7. We have heard the rival submissions, and perused the relevant finding given in the impugned order and the material placed on record. Assessee is an association of builders which has been registered under the Societies Registration Act, 1860 and also under Bombay Public Trust Act, 1950. Looking to its object, which were mainly for advancement of general public utility, it was granted registration u/s 12, vide certificate dated 24.04.1989. The solitary reason for cancelling the registration u/s 12AA(3) by the Ld. DIT is that, in view of proviso to section 2(15) brought in the statute w.e.f. A.Y. 2009-10, the registration granted earlier should be cancelled, because some of the receipts of the assessee are in the nature of trade, commerce, or business. Under the provisions of section 12AA(3), registration granted earlier u/s 12A or u/s 12AA can be cancelled only if the CIT or DIT is satisfied that firstly, the activities of such trust or institution are not genuine or secondly, are not being carried out in accordance with the objects of the trust or institution. Thus, power to cancel registration can be exercised only under these two conditions. From the perusal of the impugned order, it is seen that Ld. DIT has not recorded any satisfaction that assessee activities is either no genuine or are not being carried out in accordance with the objects for which it was granted registration u/s 12A. The nature of receipts as highlighted by the Ld. DIT, that is, membership subscription, contribution by members for holding exhibition and conference contribution for programs, seminars and awards, etc., sponsorship and training, distribution of calendar, diary and journal and others, it is seen that the assessee has carried out these activities as per its objects only which is evident from the objects incorporated above. Most of the receipts have been received from the members either in the way of subscription or contribution for holding exhibition, conferences, seminars, training and sponsorship programs etc. It is not the case of the Ld. DIT that these activities were carried out for the outsiders and that to be for the commercial purpose solely to earn business receipts. Even the small amount of rental income is mainly to augment the financial resources to meet the cost of the assessee. To be hit by proviso to section 2(15), the dominant object of general public utility should be in the nature of trade, commerce or

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business. Herein this case, none of the activities like holding conferences, seminars, publishing journals for its member etc. can be held to be in the nature of business trade or commerce. All its activities are for its members only as a part of its objects. 8. The effect of proviso to section 2(15) inserted w.e.f. 01.04.2009 has been subject matter of judicial scrutiny by various Tribunals. The Hon‟ble Delhi High Court in the case of Institute of Chartered Accountants of India Vs. DGIT (E) reported in (2011) 245 CTR (Del) 541 has discussed and analyzed the effect of proviso to section 2(15) in great detail, wherein it was held and observed as under:- "2. As the first proviso was introduced with effect from 1st April, 2009, the scope and ambit of the said proviso to section 2(15) of the Act has to be examined and considered. Earlier orders under section 10(23C)(iv) are not relevant and are inconsequential, as they have not examined the scope and ambit of the first proviso. The proviso applies only if an institution is engaged in advancement of any other object of general public utility and postulates that such an institute is not "charitable" if it is involved in 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. The second part, "any activity of rendering any service in relation to any trade, commerce or business" obviously intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity must be for a cess or fee or any other consideration. The last part states that the proviso will apply even if the cess or fee or any other consideration is applied for a charitable activity/purpose. The proviso has to be given full effect to. Thus, even if cess, fee or consideration is used or utilized for charitable purposes the proviso and the bar will apply. An institution not be regarded as established for charitable purpose/activity under the last limb, if cess, fee or consideration is received for carrying on any activity in nature of trade, commerce or business or for any activity of rendering of any service in relation to any trade, commerce or business, even if the consideration or the money received is used in furtherance of the charitable purposes/activities. In view of the first proviso, the decisions that the application of money/profit is. relevant for determining whether or not a person is carrying on' charitable activity, are no longer relevant and apposite. Even if the profits earned are used for charitable purposes, but fee, cess or consideration is charged by a person for carrying on any activity in the nature of trade, commerce or business or any activity of rendering of any service in addition to any trade, commerce or business, it would be covered under the proviso and the bar/prohibition will apply. 14. The most material and relevant words in the proviso are 'trade, business or commerce ". The activities which are undertaken by the activity of rendering any service in relation to any trade, commerce or business." Thereafter the Hon'ble High Court referred and analyzed the meaning of trade, business, commerce which have been elaborated by the Constitutional Bench of Hon'ble Supreme Court in the case of Addl. CIT vs. Surat Art and Silk Manufacturers Association 121 CIT 1, and other Supreme Court decisions; Sole Trustee Loka Shikshan Trust 101. ITR 234, State of Punjab vs. Bajaj Electrical Ltd. (1968) 2 see 536, Khodey Distillary Ltd. vs. State of Kerala (1975) 1 see 574 and CST vs. Sai Publication Fund (2002) 4 see 57 and also referred to various other dictionary meaning and commentary and held that: "18. The word "business" is the broadest term and it encompasses trade, commerce and other activities. Sec. 2(13) of the IT Act defines the term „business‟ as under "2 Definition- "(13) "business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."

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ITA Nos. 5590 & 5591/Mum/2019 A.Ys. 2013-14 & 2014-15 9 Builders Association of India Vs. Income Tax Officer (Exemptions)-1(1)

trade or commerce, unless there is some intention to carry out business, trade or commerce on a permanent basis or for a reasonable continuity. The LD. DIT has not brought any evidence or material on record to show that the assessee was carrying out the activities on business or commercial principle or outside its objects. Thus on the facts of the present case it cannot be held that assessee's case is hit by proviso to section 2(15) or the registration granted earlier can be canceled within the ambit of section 12AA(3). In view of our aforesaid findings, we are not adjudicating the alternative plea raised by the assessee. Thus, the appeal of the assessee is allowed.” As the facts and the issue involved in the case of the assessee for the year in question before us i.e A.Y. 2013-15 remains the same as was there before the Tribunal in its aforesaid case for A.Y. 2009-10, we, thus, respectfully follow the same. Accordingly, we herein set aside the order of the CIT(A) and direct the A.O to allow the assessee‟s claim for exemption under Sec.11 of the Act. The Ground of appeal No. 1 is allowed.

ITA No.5591/MUM/2019 (Assessment Year: 2014-15)

“1(a). The appellant submits that the Hon'ble Commissioner of Income-tax (Appeals)-3 Mumbai (hereinafter referred to as "the CIT(A)") erred in denying exemption under section 11(1)(a) of the Act by up-holding that the appellant carries-on „activities in the nature of trade, commerce or business‟ within the meaning of proviso to section 2(15) of the Act. (b). The appellant prays that based on the facts and circumstances of the case as well as in law, the proviso to section 2(15) of the Act is not applicable in the instant case and therefore the appellant is eligible for exemption under section 11(1)(a) of the Act. (c). The appellant prays that order of the Hon'ble CIT(A), being contrary to the facts and circumstances of the case, as well as in law, be set aside and the appellant be allowed exemption as claimed u/s 11(1)(a) of the Act. 2. The appellant prays for appropriate relief. 3. The appellant craves leave to add, alter or amend the grounds of appeal at the time of hearing.”

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assessee‟s claim for exemption under Sec. 11 of the Act. Accordingly, on the basis of his observations recorded in the assessment order the A.O vide his order passed under Sec. 143(3), dated 22.08.2016 assessed the income of the assessee trust at Rs.64,61,890/-. 12. Aggrieved, the assessee assailed the assessment order before the CIT(A). However, the CIT(A) not finding favour with the claim of the assessee as regards its entitlement for exemption under Sec.11 of the Act upheld the assessment framed by the A.O and dismissed the appeal. 13. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as was there before us in the assessee‟s appeal for the immediately preceding year i.e A.Y. 2013-14 in ITA No. 5590/Mum/2019 thus, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal. Accordingly, in terms of our observations and the reasoning given while disposing off the assessee‟s appeal for A.Y. 2013- 14 in ITA No. 5590/Mum/2019 the present appeal of the assessee for A.Y. 2014-15 in ITA No. 5591/Mum/2019 is allowed. 14. The appeal of the assessee is allowed. 15. Resultantly, the appeal of the assessee for A.Y. 2013-14 in ITA No. 5590/Mum/2019 and A.Y.2014-15 in ITA No. 5591/Mum/2019 are allowed in terms of our aforesaid observations. Order pronounced in the open court on 08.03.2021

Sd/- Sd/- M. Balaganesh Ravish Sood (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) Mumbai, Date: 08.03.2021 PS: Rohit

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Copy of the Order forwarded to : 1. Assessee 2. Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. DR “B” Bench, ITAT, Mumbai 6. Guard File BY ORDER, Dy./Asst. Registrar ITAT, Mumbai