ASSTT. CIT (E)-1(1), MUMBAI vs. ALL INDIA RUBBER INDUSTRIES ASSOCIATION , MUMBAI

Brief facts are, the assessee is a company registered under section 25 of the Companies Act, 1956. Additionally, the assessee has also been granted registration under section 12A of the Act by the Director of Income Tax (Exemp.), Mumbai, vide order dated 12th December 1985. For the assessment year under dispute, the assessee filed its return of income on 30th September 2015, declaring nil income after claiming exemption under section 11 of the Act. In course of the assessment proceedings, the Assessing Officer, on verifying the material on record noted that the assessee is a mutual trade association having the main object to safeguard the interest of the industry and trade amongst persons, companies, factories and firms engaged as manufacturer of rubber products made out of natural rubber, synthetic rubber and latex in India. According to the Assessing Officer, the assessee is a mutual trade association receiving membership contribution and, in turn, members are provided a common platform to avail the facilities provided to the rubber trade. He observed, though, the assessee has claimed itself to be a charitable institution, however, during the year under consideration, it has provided certain services including arranging of exhibition/seminar, etc., on receipt of fees to both members and non– members who are mainly in the business/trade associated to the rubber industry. Being of the view that the receipts from non–

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) found that while deciding identical nature of dispute in assessee’s own case in assessment years 2011–12, 2012–13 and 2013–14, the Tribunal has allowed assessee’s claim of exemption under section 11 of the Act. Therefore, following the aforesaid decision of the Tribunal, learned Commissioner (Appeals) allowed assessee’s claim of exemption under 4 All India Rubber Industries Association section 11 of the Act, thereby, deleting the addition made by the Assessing Officer.

At the outset, Ms. Aarti Vissanji, learned Counsel for the assessee submitted that the issue is squarely covered by the decision of the Tribunal in assessee’s own case in assessment years 2011–12, 2012–13 and 2013–14.

Shri Michael Jerald, the learned Departmental Representative, though, agreed that the issue is covered by the decision of the Tribunal in the preceding assessment years, however, he relied upon the observations of the Assessing Officer.

We have considered the rival submissions, perused the orders of the authorities below and the material placed on record. Undisputedly, the dispute in the present appeal is with regard to assessee’s claim of exemption under section 11 of the Act. Undisputedly, the Assessing Officer has rejected such claim on the reasoning that the assessee is a mutual concern, hence, the receipts from non–members are taxable. While doing so, he has relied upon the observations made in the assessment orders passed for the preceding assessment years. Notably, similar claim of exemption made by the assessee in assessment years 2011–12, 2012–13 and 2013–14 was rejected by 5 All India Rubber Industries Association the Assessing Officer while framing assessment for those assessment years. However, when the dispute ultimately reached before the Tribunal, the Co–ordinate Bench in order dated 12th October 2018, passed in ITA no.3994/Mum./2016, ITA no.1368/Mum./2016 and ITA no.247/Mum./2017 respectively for the assessment years 2011–12, 2012–13 and 2013–14 after examining all aspects of the issue and taking note of the submissions made by the parties ultimately concluded that the assessee is eligible to avail exemption under section 11 of the Act. The observations/finding of the Co–ordinate Bench in this regard is extracted hereunder in extenso for better clarity:–

The Memorandum of Association also prescribes by way of clause 4 that income and property of the association whensoever derived shall be applied solely towards the promotion of the objects of the Association as set forth in this Memorandum of Association and no portion thereof shall be paid or transferred directly or indirectly to the members of the Association except, of course, for payment of remuneration to the employees of the association. Clause 7 of the Memorandum of Association also brings out that upon winding up or dissolution of the Association, the surplus remaining after satisfaction of all debts and liabilities, if any, shall not be paid or distributed amongst the members of the Association but shall be given or transferred to some other Association or Institution having similar objects.

We are only referring to the aforesaid features of the assessee association to point out that the objects of the assessee-association are primarily revolving around promotion and safeguarding the interests of Rubber trade and industry. In fact, clause 3(a) specifically rules out making or supporting any regulation or restriction, which would make the assessee association a trade union. A perusal of the objects does lead to an inference that it is formed with the objects of promoting or protecting the interests of Rubber industry. Notably, assessee continues to be registered u/s 12A of the Act, and in that regard, its objects can be stated to be in the realm of „advancement of objects of general public utility‟. The Assessing Officer has made out a case that since the objects are not for the benefit of general public at large, but are for a section of public inasmuch as the benefits are limited to the members of the assessee- association, therefore, the same is not charitable. In our view, the aforesaid approach of the Assessing Officer is contrary to the accepted legal position on this subject, and more so, considering that in assessee‟s own case for Assessment Year 1997-98, the Tribunal in dated 14.01.2002 had considered an identical controversy. At the time of hearing, the learned representative had referred to the order of the Tribunal dated 14.01.2002 (supra) in this regard, whose relevant portion reads as under :- “4. It is to be noted that when an object seeks to promote or project the interest of a particular trade or industry, that object becomes an object of public utility, but not so, if it seeks to promote the interest of those who conduct the said trade or industry. The distinction between projection of the interest of an individual and projection of the interest of an activity which is of 8 All India Rubber Industries Association general public utility goes to the root of the whole problem. The advancement of an object of benefit to the public or a section of the public is distinguished from an individual or a group of individual would be of charitable purposes. This view was taken in the case of CIT vs Ahmedabad Rana Cast Association 140 ITR 1 (SC). The expression “object of general public utility” in sec. 2(15) prima facie includes all objects which permits the welfare of the general public. It cannot be said that a purpose would cease to be charitable if it includes taking of steps for the promotion of trade, commerce or manufacture. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object must benefit the whole of mankind. It is sufficient if the intention is to benefit a section of the public. This view was taken by the jurisdictional High Court in the case of CIT vs Western India Chambers of Commerce Ltd. 13 ITR 67 (Bom.). The decision of the Gujarat High Court relied upon by the revenue authorities is not relevant in the facts of the present case. In that case distribution of property amongst members was permitted. Whereas in the present case it is not permitted. In my opinion, facts of the present are covered by the decision of the jurisdictional High Court rendered in the case of Western India Chambers of Commerce (supra). Respectfully following the precedent, I decide this issue in favour of the assessee and against the revenue. [underlined for emphasis by us]”

Therefore, in our considered opinion, there is no justification for the Assessing Officer to hold that since the objects of the assessee seek to promote and protect the interests of a particular trade, industry, the same loses the character of being charitable.

The other and more substantive point made out by the Assessing Officer is based on the proviso to Sec. 2(15) of the Act which has been inserted by the Finance Act, 2008 w.e.f. 01.04.2009. In this context, the amended Sec. 2(15) of the Act as on the statute w.e.f. 01.04.2009 reads as under :- “(15) “Charitable purpose” includes relief to the poor, education, medical relief and the advancement of any other object of general public utility”

The impact of the aforesaid proviso inserted w.e.f. 01.04.2009 is that “advancement of any other object of general public utility” would no longer be considered as a charitable purpose if it involved 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 a fee or for any other consideration irrespective of the nature of use or application or retention of such income from such activity. The aforesaid proviso has been invoked by the Assessing Officer to say that as assessee‟s objects were of general public utility, and since in the course of carrying on its objects, it was receiving charges from its members as well as nonmembers, the activities could no longer be treated as charitable. In this context, one has to examine the import of the proviso inserted to Sec. 2(15) of the Act. Pertinently, the assessee continues to enjoy recognition u/s 12A of the Act; and, in any case, de hors the proviso to Sec. 2(15) of the Act, there is no dispute by the Revenue that the objects of the assessee fall within the scope of Sec. 2(15) of the Act on account of the same being in the nature of “advancement of any other objects of general public utility”. Therefore, one has to examine as to whether the insertion of proviso to Sec. 2(15) of the Act would render the activities of the assessee to be of noncharitable purpose. The Hon'ble Delhi High Court in the case of India Trade Promotion Organisation (supra) as well as in the case of Institute of Chartered Accountants of India (supra) have extensively examined the nature and scope of the proviso to Sec. 2(15) of the Act. At this point, we may note that a similar issue came-up before our coordinate bench at Kolkata in the case of Indian

From the perusal of the aforesaid, what stands out is that in order to invoke the proviso to Sec. 2(15) of the Act, it is imperative for the Revenue to establish that there is an element of profit motive in the activities of the assessee. Notably, the fact that some of the activities carried out by an entity involving charging of fee, etc. have resulted in a surplus could not ipso facto be determinative of the fact that there was an element of profit motive.

At this point, we may also refer to the judgment of the Hon'ble Bombay High Court in the case of Shree Nasik Panchvati Panjrapole (supra). Though the said judgment is with regard to the registration u/s 12A of the Act, but the parity of reasoning laid down by the Hon'ble Bombay High Court in context of proviso to Sec. 2(15) of the Act is very eloquent. In the case before the Hon'ble Bombay High Court, the dominant activity being carried out by the assessee-trust for over 130 years was to take care of old, sick and disabled cows. An incidental activity of selling milk was being carried out, which resulted in receipt of money on the sale of milk. The contention of the Revenue was 13 All India Rubber Industries Association that the activity of selling milk obtained from the cows was in the nature of trade, business or commerce and thus the charitable status was hit by the proviso to Sec. 2(15) of the Act. The aforesaid proposition advanced by the Revenue was squarely negated by the Hon'ble High Court. As per the Hon'ble High Court, the incidental activity of obtaining milk while taking care of the cows would not be hit by the proviso to Sec. 2(15) of the Act because selling of milk by itself could not be construed to be an activity in the nature of trade, commerce or business having regard to the facts of the case. It was noted that the dominant activity being carried out by the assessee was to take care of the old, sick and disabled cows, which fell within the purview of Sec. 2(15) of the Act and any incidental activity carried out, which resulted in receipt of money would not attract the proviso to Sec. 2(15) of the Act unless there was a profit motive. Quite clearly, in the factsituation before the Hon'ble High Court, the motive and the purpose of the activities was to take care of old, sick and disabled cows and not to earn profit by selling milk, which was only an incidental activity; and, accordingly, the assessee was found eligible for registration u/s 12A of the Act.

In this background, if we are to examine the case made out by the Revenue in the instant, we do not find any finding at all by the Assessing Officer or even by the CIT(A) that any of the activities of the assessee are with a profit motive so as to attract proviso to Sec. 2(15) of the Act. The stream of incomes noted by the Assessing Officer in para 10 of the assessment order on account of advertisement and subscription income, seminar income, sale of books and periodicals, etc. are not shown to be carried out with any profit motive and rather, the explanation consistently advanced by the assessee has been to the effect that such activities are only incidental to its object of promoting and safeguarding rubber industry. In fact, in para 6 of the assessment order, a portion of the submissions furnished by the assessee have been reproduced wherein assessee specifically asserted that dissemination of information and publication of magazine relating to Rubber industry in India and developments abroad was a substantive activity carried out, which was for the charitable purpose of promoting the interests of Rubber industry and trade. Therefore, in view of the aforesaid discussion, in our view, the Assessing Officer erred in invoking proviso to Sec. 2(15) of the Act to treat the activities of the assessee as being non-charitable specifically considering the fact that no material or evidence has been led to show that there was any profit motive in carrying out such activities. Pertinently, there is no rebuttal at any stage to the assertions of the assessee that its 14 All India Rubber Industries Association activities in the instant years are similar to the activities in the past years.

Therefore, in view of the aforesaid discussion, we set-aside the order of CIT(A) and direct the Assessing Officer to allow the exemption u/s 12A of the Act to the assessee.

Before parting, we may also advert to the stand of the Assessing Officer that assessee was a mutual association as it was intended for the benefits of its members who were involved in rubber trade and industry. Being a mutual association, as per the Assessing Officer, it was entitled to the benefits of Principle of Mutuality and, therefore, any surplus remaining from the dealings with the members was exempt. Therefore, according to the Assessing Officer, such an institution could not be eligible for the benefits of Sec. 11/12 of the Act as it was a mutual association existing for promotion of interests of its members. In our considered opinion, the said approach of the Assessing Officer is clearly misguided. In this context, it would suffice for us to reproduce hereinafter the following extract from the judgment of the Hon'ble Delhi High Court in the case of PHD Chamber of Commerce & Industry (supra) :- “16. A survey of the decided cases shows that trade and professional associations have been held entitled to the exemption under Section 11. An association of businessmen who sold goods on hire purchase [Add. CIT vs. South India Hire Purchase Association [1979] 116 ITR 793 (Mad.), an association of traders dealing in photographic and connected trades [CIT v. South Indian Photographic & Allied Trades Association [1987] 166 ITR 166/[1986] 26 Taxman 485 (Mad.) and an association consisting of Kirana Merchants (Madras Kirana Merchants Association v. CIT [1978] 111 ITR 156) were held by the Madras High Court to be eligible for the exemption under Section 11 notwithstanding that some of the associations charged their members fees for specific services rendered. Other cases on similar lines are:

In fact, the Hon'ble Delhi High Court specifically considered the receipts derived by a Chamber of Commerce and Industry for performing specific services to its members. The following discussion in the order of the Hon'ble Delhi High Court would show that such income was found to be entitled for benefits of Sec. 2(15) r.w.s. 11 of the Act provided, of course, there was no profit element in such services. “15. CIT vs. Andhra Commerce of Chamber (supra) introduced the possibility of some of the trade, professional or other similar association being entitled to the exemption under Section 11. It seems to us that all that Section 28(iii) does is to constitute certain income of the association to be business income without affecting the scope of the exemption under Section11. Section 2(15) which incorporates the definition of “charitable purpose” as including relief of the poor, education, medical relief and the advancement of any other object of general public utility, on the lines of what Sir Samuel Romilly suggested to the Court in Morice v. Durham, Bishop of Durham (1805) 10 Ves Jr. 522, shows that several mutual associations may also fall within the definition. On this basis, a Gymkhana Club formed to promote physical fitness, sports and games and social intercourse amongst the members has been held entitled to the exemption under Section 11 by the Madras High Court in Commissioner of 16 All India Rubber Industries Association Income-tax v. Ootacamund Gymkhana Club (1977) 110 ITR392; an association formed for the general benefit of the members of the legal profession was held eligible for the exemption by the Supreme Court in Commissioner of Income-tax v. Bar Council of Maharashtra, (1981) 130 ITR 28; a public utility undertaking such as a State Road Transport Corporation was held eligible for the exemption by the Supreme Court in Commissioner of Income-tax v. Andhra Pradesh State Road Transport Corporation 159 ITR 1. In all these cases the common thread which was noticed to run through was the absence of any motive of private profit. These decisions do establish that the receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii) would still be entitled to the exemption under Section 2(15) read with Section 11, provided there is no profit motive.”

Therefore, so far as the Principle of Mutuality is concerned, the same is with reference to the services vis-a-vis the members and qua the income received by assessee from non-members, the other provisions of the Act would govern. In any case, an entity cannot be denied charitable character merely because some element of its income is exempt from the Principles of Mutuality. Thus, on this aspect also, we find no reason to uphold the stand of the Revenue.

In the result, we hereby set-aside the order of CIT(A) and the Assessing Officer is directed to allow the benefit of Sec. 11/12 of the Act to the assessee and thereafter recompute the income, as per law.”

In fact, learned Commissioner (Appeals) following the aforesaid decision of the Tribunal has allowed assessee’s claim of exemption. There being no difference in material facts in the impugned assessment year, therefore, respectfully following the decision of the Co–ordinate Bench in assessee’s own case as referred to above, we uphold the decision of learned Commissioner (Appeals) by dismissing the ground raised by the Revenue.

In the result, appeal is dismissed. Order pronounced through notice board under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963, on 17.09.2020