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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO
PER SHRI GEORGE MATHAN, JUDICIAL MEMBER:
ITA Nos. 2006, 2007 & 2008/Chny/2014 & :- 2 -: ITA Nos.2006, 2007 & 2008/Chny/2014 are appeals filed by the Revenue against the order of the learned Commissioner of Income Tax (Appeals)-VII, Chennai (hereinafter called as ‘CIT(A)’) in appeal Nos. 249/12-13 & 1080/13-14 dated 28.03.2014 for the assessment year 2009-10 to 2011-12. order of the learned Commissioner of Income Tax (Appeals)-17, Chennai in I.T.A No.126/2016-17 dated 30.05.2018 for the assessment year 2014-15.
Ms. R. Anitha, JCIT represented on behalf of the Revenue and Shri S.
Sridhar, Advocate represented on behalf of the Assessee.
As the issue in all the four appeals are identical, the appeals are being disposed of by this common order. At the time of hearing, it was fairly agreed by both the sides that the appeal of the Revenue was hit by tax effect and in view of the Circular issued by the CBDT circular No.17/2019 in F.No.279/Misc.142/2007-ITJ(Pt) dated 8th August, 2019 which has been discussed in depth in the case of The Commissioner of Income Tax-5,New Delhi Vs. Keshav Power Ltd., in SLP No.21497/2019 dated 16.08.2019 reported in 2019(8)TMI 811(SC), the appeals are liable to be dismissed on account of tax effect.
As the issues are identical as raised in the Revenue’s appeal as also in the appeal of the assessee, though the appeals of the Revenue are liable to be dismissed on account of tax effect and is ITA Nos. 2006, 2007 & 2008/Chny/2014 & :- 3 -: also consequently dismissed on account of tax effect, the assessee’s appeal is also heard together and the issue is being adjudicated on merits.
Shri S. Sridhar, Advocate represented on behalf of the Assessee and Ms. R. Anitha, JCIT represented on behalf of the Revenue.
It was submitted by the learned Authorized Representative that the assessee is a Public Charitable Society registered under the Societies Registration Act, 1860 u/s.12AA of the Act. The main object of the assessee as per its by-laws is “To ensure the proper growth of economy in the country and the availability of standard goods at reasonable prices to the public, to encourage exports with a view to improve the foreign exchange earnings and reserves of the country and to secure a pride of place for India in the international trade relating to leather and leather products and to secure the aforesaid ends”.
The objects of the assessee is controlled by the Proviso thereunder which specifies as under:
Provide that:- a) None of the activities carried on shall be with the intention of earning profits and b) None of the activities carried on above said, shall be carried on outside India.
The assessee in compliance with the objects was engaged in importing and distributing “WATTLE extracts, solid and powder”. The said imported product was a substitute for the chemicals used in the tanning process. It was ITA Nos. 2006, 2007 & 2008/Chny/2014 & :- 4 -: a submission that the imported goods were distributed amongst the members of the assessee’s association and not to outsiders and this was also the accepted fact as recorded in Page No.1 of the assessment order for the Assessment Year 2014-15. For the Assessment Year 2014-15, the total Wattle extracts so distributed was to an extent of Rs.8.47 crores and the profit on surplus generated out of the said sale was about 25.00 lakhs, i.e. nearly 3% margin. The said surplus which was generated was also used for other charitable activities as per the by-laws. It was a submission by the learned Authorized Representative that the said Wattle extracts which was imported was an organic substitute to the chemicals used in the tanning process and the said product could not be purchased in small quantities, more so imported in small quantities and consequently it was not feasible for the small members.
Consequently, the assessee had done the import on behalf of all the members.
It was further a submission that the assessee had also taken upon itself the social responsibility of seeing to it that the nature was not polluted by chemical pollutants used in the tanning industry and that its members used non-polluting materials like the Wattle extracts. It was a submission that the Wattle extracts is not available in the open market anywhere in the country and the same is to be imported only. Wattle extracts is not possible to be imported in small quantities and consequently if the said Wattle extracts were not available, the member tanneries would resort to using chemicals in the tanning process which would be harmful for the natural resource itself. It was a submission that at the outset there was no intention of profit. Whatever meager surplus that ITA Nos. 2006, 2007 & 2008/Chny/2014 & :- 5 -: was generated was also used only for charitable purposes as provided in the objects. Even if the surplus is said to have generated, it was about less than 3% of its turnover.
The assessee had been complying with the social objective of seeing to it that nature was not damaged by using chemicals in the process of tanning and that its members use the substitute to the chemicals which otherwise would pollute the natural environment. The assessee has not distributed the Wattle extracts to any outsider but has only provided the same to its members and the purchase and distribution of the Wattle extracts was in line in the primary objects of the assessee’s Society. It was a submission that the Assessing Officer denied the assessee the benefit of deduction u/s.12AA and u/s.11 in respect of the income generated, if any, from the import and distribution of the Wattle extracts. It is a submission that the Assessing Officer may be directed to grant the assessee benefit of exemption u/s.11 of the Income Tax Act, 1961.
In reply, the learned Departmental Representative vehemently supported the order of the Assessing Officer and the Commissioner of Income Tax (Appeals). It was a submission that the import and sale of the Wattle extract fall within the Proviso of Section 2(15) of the Act and was to be treated as business operation and consequently the assessee was held not to be eligible u/s.11 of the Income Tax Act, 1961.
ITA Nos. 2006, 2007 & 2008/Chny/2014 & :- 6 -: 9. We have considered the rival submission and perused the materials available on record.
At the outset, the perusal of the objects supra clearly show that the main objects of the assessee is to assist in the international trade relating to leather and leather products and to secure objectives towards the said needs. The objects are also specifically controlled with the clear Proviso that there shall be no intention of earning profits nor are the activities to be carried on outside India.
Admittedly, it is a fact that the Wattle extracts is not available for sale in India. Wattle extracts are basically solid mimosa extracts. The said product is an organic product with high quantity of bio-degradable vegetable tanning completely soluble in water. Thus, the assessee herein admittedly procured the said Wattle extracts and has distributed the same only to his members.
There is no outsider dealings in respect of the assessee. Admittedly, one cannot do business with one’s own members.
This being so, the primary condition of the Proviso to Section 2(15) which talks of “carrying on any activity in the nature of trade, commerce or business” itself fails. The assessee is not doing any trade, commerce or business in dealing with the Wattle extracts. It imports the products for its members and distributes the same for its members in the course of which minor surpluses are generated. This surplus is also not used for any other purposes but for doing charitable activities as permitted in the by-laws.
ITA Nos. 2006, 2007 & 2008/Chny/2014 & :- 7 -: Further, the assessee has been granted registration u/s.12AA after considering the main and primary objects of the assessee which has been extracted above. 12. This being so, it cannot be said that the activity of the assessee in importing or procuring the Wattle extracts and distributing the same within its members is an activity which is hit by the Proviso to Section 2(15) of the Income Tax Act, 1961.
In the circumstances, the Assessing Officer is directed to grant the assessee the benefit of exemption u/s.11 of the Income Tax Act, 1961 in respect of the excess of income over expenditure as generated by the assessee.
In the result, the appeal of the assessee is allowed and in respect of the appeals filed by the Revenue, though even on merits, the issue is liable to be held in favour of the assessee on account of tax effect also, the appeals of the Revenue are dismissed.
Order pronounced on the 25th day of November, 2019 in Chennai.