NEIA TRUST,MUMBAI vs. ASST CIT (E) II(2), MUMBAI

1 Aforesaid appeals by assessee for Assessment Years [in short referred to as ‘AY’] 2011-12 & 2012-13 contest separate orders of learned

Applicability of Section 11 of the Income Tax Act, 1961 (the Act): The Ld. C.

T. (Appeals) in the facts and circumstances of the case of the appellant and in law ought to have held that- (a) The objects of the appellant are "Charitable Purpose" as defined in Section 2(15) of the Act keeping in view the definition of "Charitable Purpose" in said sub-section being "Inclusive" and accordingly the provisions of Section 11 of the Act, have to be applied in assessment of its income. Without prejudice to the above and in the alternate (b) Though the objects of the appellant fall in the last limb of "advancement of any other objects of general public utility", the first Proviso to Section 2(15) of the Act cannot be applied to the activities carried on by the appellant keeping in view the objects of the Trust and accordingly, the objects of the appellant have to be considered as Charitable Purposes and the provisions of Section 11 of the Act have to be applied in assessment of its income.

Re. Rs. 150 Crores received during the year from the Central Government of India accounted inadvertently as Corpus Contribution: The Ld. C.I.T. (Appeals) in the facts and circumstances of the case of the appellant and in law ought to have held that- (a) Rs. 150 Crores received from the Government of India as per the terms stipulated vide letter dated 18th June, 2010 bearing No.6/51/2009-E&MDA for release of the said amount does not represent contribution towards corpus, but represents grant-in-aid refundable to the extent of unspent balance for the objects of the Trust and hence is to be treated as liability and accordingly ought to have held that the said amount cannot be assessed as income for the year under any of the applicable provisions of the Income Tax Act, 1961. Without prejudice to the above and in the alternate (b) Rs.150 crores received from the Government of India cannot be assessed as Income by resorting to the definition of "Income" as contained in Section 2(24)(iia) of the Act in the event the objects of the Trust are not accepted as "Charitable Purposes" as defined U/s.2(15) of the Act.

It is humbly prayed that the reliefs as prayed for hereinabove and/ or such other reliefs as may be justified by the facts and circumstances of the case and as may meet the ends of justice should be granted.

The appellant craves leave to amend or alter any ground, or add a new ground which may be necessary “.

The same read as under: - The Ld. CIT(Appeals) in the facts and circumstances of the case of appellant and in law ought to have held that as the appellant is holding certificate of registration from the Chief Commissioner of Income Tax u/s 12AA of the Act, the provisions of Section 11 of the Act have to be applied in the assessment of its income.

2 The prime objects of the trust are to implement the NEIA scheme through ECGC for the benefit of medium and long-term exports. The assessee endeavor to promote exports from India and to protect the payment risks for transactions for which ECGC is unable to provide cover owing to lack of capacity or commercial consideration. In other words, the assessee is to provide insurance cover to promote exports from India and to protect payments risks. The assessee also aim at meeting the cost of insurance which ECGC would levy for project exports in certain circumstances. The assessee is required to implement such other schemes and programs as the Government of India may frame in this regard and ITA Nos. 5818-19/Mum/2015 NEIA Trust Assessment Years: 2011-12 & 2012-13 undertake its activities as per the directions of Government of India. It has been submitted that such activities would normally be not undertaken by commercial enterprises for the reason that ultimately the claims devolving upon the assessee would be far in excess of insurance premium, as may be charged by the assessee. Further the insurance coverage provided by the assessee would be as per the directions of Central Government, which is to meet with national interest of the Government of India and are of such nature which would normally be not provided by any commercial enterprises.

3 The perusal of quantum assessment order u/s 143(3) dated 25/03/2014 would reveal that exemption u/s 11 has been denied to the assessee since the assessee, in the opinion of Ld. AO, was hit by first proviso to Section 2(15) of the Act as it was carrying out activity in the nature of trade, commerce and business which would oust the assessee to claim its activities to be charitable in nature irrespective of the fact that such activities had profit motive or not. The said opinion was formed in view of the fact that the assessee had received policy premium aggregating to Rs.111.33 Lacs from three entities and paid claims of Rs.349.24 Lacs to various export parties. However, the assessee was also in receipt of interest income for Rs.78.23 Crores and had reflected surplus of Rs.79.24 Crores. Out of this surplus, the assessee claimed 15% of its receipts as exempt u/s 11(a) of the Act whereas the balance amount was set aside u/s 11(2) of the Act for utilization in subsequent years. The assessee had ITA Nos. 5818-19/Mum/2015 NEIA Trust Assessment Years: 2011-12 & 2012-13 accumulated aggregate surplus of Rs.206.73 Crores at the end of this financial year.

4 The Ld. AO, noticing that the objects of the trust would fall under the last limb i.e. advancement of any other object of general public utility, concluded that the assessee was hit by first proviso to Sec. 2(15) since its activities involve carrying out of an activity in relation to any trade, commerce or business and accordingly, proceeded to deny the exemption as claimed by the assessee.

5 During the course of assessment proceedings, it was also noted that the assessee was in receipt of Rs.150 Crores as Corpus Contribution during the year which was claimed to be exempt u/s 11(1)(d) of the Act. However, as per Ld.AO, the assessee could claim this exemption only if it was eligible for exemption u/s 11 of the Act otherwise all contributions including corpus contributions would form part of total income of the assessee as per Section 2(24)((iia).

6 The assessee defended its stand by drawing attention to its main objectives and submitted that since the objects were charitable in nature, the assessee was eligible to claim the said exemption which was further supported by the fact that the assessee was holding valid certificate of registration u/s 12AA of the Act.

7 The assessee also contested the stand of Ld. AO in invoking the provisions of Sec. 2(24)(iia) with respect to corpus contributions. For the same, the attention was drawn to terms of sanction letter dated 18/06/2010 bearing no. 6/51/2009-E&MDA to submit that the grant of Rs.150 Crores

8 However, the assessee’s submissions could not convince Ld. AO, who ultimately concluded that the assessee was hit by proviso to Sec. 2(15) of the Act and the fact that it had valid registration during the year, would be immaterial. For the reason that the assessee was not eligible for exemption u/s 11, the corpus contribution would become taxable as per Sec. 2(24)(iia) of the Act. Accordingly, the exemption u/s 11 & 12 was denied to the assessee against surplus of Rs.79.24 Crores and the corpus contribution of Rs.150 Crores was also brought to tax, which resulted into determination of total income at Rs.229.24 Crores.

9 Although the assessee reiterated its stand before learned first appellate authority, however, Ld. CIT(A), relying upon the order of its predecessor for AY 2010-11, chose to confirm the stand of Ld. AO. Aggrieved, the assessee is under further appeal before us.

We have duly considered the rival submissions, perused relevant material on record including decision rendered by the Tribunal in assessee’s own case in earlier year. We have also deliberated on various judicial pronouncements as cited before us. Upon careful consideration of ITA Nos. 5818-19/Mum/2015 NEIA Trust Assessment Years: 2011-12 & 2012-13 factual matrix as enumerated in preceding paragraphs, it is quite evident that learned first appellate authority dismissed assessee’s claim primarily by relying upon the order of its predecessor for AY 2010-11, since facts were found to be identical. The material on record would establish that the assessee assailed the denial of exemption for AY 2010-11 before this Tribunal vide ITA No. 544/Mum/2014 order dated 18/01/2019 wherein the matter was concluded in assessee’s favor by the coordinate bench with following findings / observations: - ISSUE NO. 1

We have heard the argument advanced by the Ld. Representative of the parties and by perusing the record. We noticed that the AO applied the first proviso to Section 2(15) of the Act, 1961 and declined the claim of the assessee u/s 11/12 of the Act. The object of the assessee has been given in para no. 5 of the trust deed at page no. 11 which is hereby mentioned below:- (i) To implement the NEIA Scheme through ECGC (Export Credit Guarantee Corporation of India) for the benefit of medium and long term exporters (b) To implement such other schemes and programmes for the benefit of medium and long term exporters as the Government of India mainframe from time to time and direct the trust implement.

The assessee trust received policy premium payments from the following parties (i) Apar Industries Ltd. Rs.1,86,12,015/- (ii) ONGC Videsh Ltd Rs.2,06,32,870/- (iii) Hindustan Aeronautics Ltd. Bangalore Rs.17,34,159/- total to the tune of Rs.4,09,79,044/-. The assessee also paid the claim of various exporters under the scheme in sum of Rs.32,12,724/- during the year. The claim of the assessee was declined in view of the exception of provision u/s 2(15) of the Act specifically on the grounds of that the object of the assessee is in nature of business, trade and commerce. No doubt, the said provision was introduced. The assessee trust was formed with a view to facilitate Immediate and long-term exports and to consider the limitations of export credit guarantee corporation in providing adequate cover on its own and non-availability of reinsurance cover to such exporters. The Government of India Ministry of Commerce and Industries Department of Commerce vide the resolution dated 7.03.2006 decided to establish the national Exporter Insurance Account (NEIA) Scheme to be maintained and operated by a Public Trust. NEIA Trust was, thus, set up in terms of this Government Resolution vide the Trust Deed dated 21.3.2006, the President of India, acting through the Joint Secretary, Department of Commerce, Ministry of Commerce & Industry, Government of India being the settler of the Trust. The object of the assessee trust was the same which is for the benefit of medium- and long-term exporters. There is no change in the object of the ITA Nos. 5818-19/Mum/2015 NEIA Trust Assessment Years: 2011-12 & 2012-13 trust. Here it is important to mention that the assessee trust was registered u/s 12AA of the Act which was not withdrawn by authority who granted the registration. The Ld Representative of the Assessee has contended that AO has no right to withdraw the claim of exemption by discussing the provisions of Section 2(15) of the Act. Section 2(15) is hereby reproduced 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 of application, or retention, of the income from such activity”

Subsequently, the said amendment was explained and interpreted by the CBDT Circular No.11/2018 dated 19.12.2008 in which trade, commerce and business is required to be decided on the basis of the nature, scope, extent, frequency of activities. Accordingly, the nature of the trust is hereby specified that the trust is to provide credit insurance cover to Indian Exporters keeping in view the national interest. The Trust is sponsored and the nature of activities of the trust is to provide credit insurance cover to Indian Exporters keeping in view of the national interest. The Trust is sponsored by Govt. of India with the objective to promote exports, improve competitiveness of Indian exports and to implement schemes formulated by the Govt. of India for the benefits of medium and long term exporters in national interest. Certainly, none of the above objectives are tainted with motive of trade, commerce or business as Govt. of India is not into business of providing Credit Insurance. Wherever, it has intended to do so, it has been done through Corporate structure e.g. ECGC of India Ltd. (Export Credit Guarantee Corporation) which does the credit insurance activity on commercial basis with Govt. of India as the sole shareholder with a premium and other income of Rs.1020 crores (appx) and a net surplus of Rs.171 (approx) for FY 2012-13. On the basis of the above, NEIA’s activity cannot and should not be considered to be in nature of trade, commerce or business.

The Trust scope of activity is primarily to implement schemes formulated by Govt of India. Ministry of Commerce, Govt. of India, is the settler of the Trust and the Trust is not empowered to carry out any other activity.

Further, even the project / exports which require credit insurance has to meet the criteria stipulated in clause 12 of the Trust Deed. Criteria No.(ix) and (xi) specifically require the project to be of “importance of such project export from national point of view” and “other factors like the current economic development in the project country and related issues”. Therefore, the Trust does not even evaluate the project from the perspective of premium viability or profitability. Once the project export fulfills the criteria mentioned in clause 12, the trust will provide credit cover. In view of the above said activities we noticed that there is no intension of the assessee to earn the profit.

The facts of the present case is quite similar to the facts of the case titled as India Trade Promotion Orgaization (supra). Therefore, finding of the said cases is quite applicable to the facts of the present case. Since the dominant and prime object of the assessee is not to earn the profit in relation to trade, commerce and business, therefore, the exemption u/s.11 & 12 is not liable to be declined. Accordingly, we set aside the finding of the CIT(A) in this issue and allowed the claim of the assessee.

The appeal stands allowed in terms of our above order. ITA No. 5819/Mum/2015, AY 2012-13

In this AY, the assessment was framed u/s 143(3) on 21/02/2015 wherein the assessee was denied exemption u/s 11 & 12, in similar manner and surplus of Rs.119.37 Crores was brought to tax by the revenue. The learned CIT(A), relying upon the stand of its predecessor for AY 2010-11, confirmed the action of Ld. AO. Aggrieved, the assessee is under further appeal before us with similar grounds of appeal. The only issue under appeal is assessee’s claim of exemption u/s 11 & 12 which is similar to Ground Nos. 1 & 5 of AY 2011-12. Facts being pari-materia the same, taking the same view, we direct Ld. AO to allow the exemption u/s 11 & 12 as claimed by the assessee. Accordingly, the appeal stands allowed.

Both the appeals stand allowed in terms of our above order.