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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
M/s. Tool and Gauge Manufacturers The Income Tax Officer Association of India, (Exemptions), vs. 23/24, II Phase, Peenya Ward – 2, Industrial Area, Bangalore. Bangalore – 560 052. PAN: AABTT4782F APPELLANT RESPONDENT Appellant by : Smt. Swapna Das, Addl. CIT (DR) Respondent by : Smt. Kavitha .P, CA Date of hearing : 12.11.2018 Date of Pronouncement : 16.11.2018 O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the revenue and the same is directed against the order of ld. CIT(A)-14, Bangalore dated 03.10.2017 for Assessment Year 2012-13.
The grounds raised
by the revenue are as under. “Whether, in the given facts and circumstances of the case, the C1T (A) is right in holding that the provisions of section 2(15) are not applicable in the assessee's case?”
3. The ld. DR of revenue supported the assessment order. She also submitted that the order of ld. CIT(A) is very cryptic and he has decided the issue in favour of the assessee without addressing the various objections raised by the AO in the assessment order. As against this, the ld. AR of assessee supported the order of CIT (A). She also submitted that as per para 14 of assessment order, this is the allegation of the AO that the assessee was established for the purpose of promoting Indian Industry and trade and to enhance its global competitiveness by conducting and participating in Industrial trade fairs and exhibitions Indian and abroad. She submitted that as per the objects of the assessee as reproduced by AO in para 4 of the Page 2 of 18 assessment order, the assessee was incorporated with the main objects such as to promote, training and the diffusion of knowledge to standards in the manufacture of Tools and Gauges to improve the standards or the connected trade therewith or with allied industries and to impart relevant and appropriate training to all those engaged in the manufacture of tool and gauge manufactures. At this juncture, this was a query put forward by the bench as to what are the actual activities taken by the assessee and what are the expenses incurred for such activities and what are the receipts if any from such activities. In reply, it was submitted by ld. AR of assessee that the assessee has submitted the audited accounts of the assessee in the paper book and as per the same, the income of the assessee in the present year is mainly from Stall space charges of Rs. 4,82,47,599/- and power Rs. 18.99 Lakhs along with Rs. 4,74,305/- from Directory, total Rs. 506,20,904/-. She also submitted that the assessee has called various experts from outside country for giving lectures etc. and when this query was raised by the bench as to what are the expenses incurred for this purpose, she pointed out that the details of expenses for the present year are available in schedule 22 of the audited accounts which include Hall Rent -Rs. 125 Lakhs, Publicity -Rs. 13,11,538/-, Marketing-Rs. 6,82,868/-, Office Expenses – Rs. 1,95,273/-, Printing and Stationery – Rs. 3,32,995/-, Postage – Rs. 1,66,950/-, Bank Charges – Rs. 35,359/-, Conveyance – Rs. 3,400/- and Telephone/Fax – Rs. 49,022/-. The bench pointed out that from this detail of expenses, it is seen that there is no expenses incurred for calling any expert from outside the country or in respect of travelling and boarding / lodging of such experts if any. In reply, it was submitted that such events are organized every two years in the month of April and since no such event was organized in the present year, no such expenses is incurred in the present year.
We have considered the rival submissions. We find that the issue in dispute was decided by ld. CIT(A) as per para nos. 5 to 13 of the impugned order passed by ld. CIT(A) and for the sake of ready reference, these paras are reproduced hereinbelow.
Page 3 of 18 5. Ground numbers 1 to 10 deal with the issue of non-applicability of proviso to Sec.2(15) to the facts of the case of the assessee. a. During the course of appeal hearing, the assessee's representative contended that the conclusion drawn by the AO that proviso to Sec.2(15) is applicable to the facts of the case of the assessee is not proper in view of the facts and circumstances of the assessee. In support of this, the assessee's representative drew the attention of the undersigned to the main objects of the assessee. b. It was further contended that none of the objects of the Assessee are in the nature of carrying out any trade or commerce. Therefore, the conclusion drawn by the AO in para 9.2 of the assessment order to the fact that the assessee has come into existence to promote, organize and participate in industrial trade, other fairs and exhibitions in India and abroad and to take all measures incidental thereto for promoting Indian industry, trade and enhance its global competitiveness is not correct. It was contended that this object is not there in the objects for which the assessee trust came into existence.
The submission made by the assessee has been examined with reference to the objects of the assessee trust and it is found that the object mentioned above does not figure in the list of objects for which the assessee trust have come into existence. c. It was also contended by the assessee that the observation made by the AO at para 10.2 of the assessment order is factually inaccurate. In so far as the assessee does not do anything to boost expert potential for local industry. d. The assessee representative also drew attention to para 14 of the assessment order where it was mentioned by the AO that the assessee owns a exhibition hall and it was proved by the AR with reference to the depreciation statement filed by the assessee that no such exhibition hall is owned by the assessee.
Ground numbers 11,12 and 13 deal with the Factually incorrect statements made in the Assessment order by the Assessing Officer. It was emphasized by the AR that there are a number of incorrect and factually inaccurate statements made by the AO in the body of the assessment order to come to conclusion that proviso to Sec.2(15) is applicable to the facts of the case of the assessee.
8. The submissions made have been examined and it appears that the plea of the assessee regarding factual inaccuracies, incorrect statements in the assessment order appears to be correct.
9. The substance of all the grounds of appeal basically deals with whether the assessee is entitled for exemption u/s.11 or whether Page 4 of 18 proviso to Sec.2(15) gets attracted to the facts of the case of the assessee.
10. In the submissions made at the time of appeal hearings, reliance was placed on the decision of the ITAT, Delhi Bench in the case of Society of Indian Automobile Manufacturers Vs. ITO(Exemption)(2016) 71 Taxmann.com 138(Delhi Trib). The facts of this case are same as the facts of the cited decision. Reliance was also placed on the decision of ITAT, Chennai Bench in the case of The Association of Surgeons of India Vs. DDIT(Exemptions). Here again, the facts appear to be similar with the facts of the cited decision. In both the cases which were cited, it has been held by the Hon'ble Tribunal that the assesses are eligible for exemption u/s.11 and in the case of Indian Automobile Manufacturers, it has been categorically held that provision to Sec.2(15) is not applicable on the ground that the receipts which were declared did not partake the character of any income relatable to trade.
The income declared by the assessee in the Income & Expenditure account is examined and it is found that the receipts during the year are as under : Income (Rs.) Heads Membership subscription (ordinary) 1,239,752 Interest from Bank 6,050,870 TAGMA Times Receipts 2,707,029 TAGMA Times - Re-imbursement 2,000 DMI Exhibitioin - 2012 Income 50,620,904 Pocket Diary Receipts - 260 DMI Exhibition - 2010 Income Indian Tooling Industry Survey 2008 Income 5,500 DMI Exhibition - 2011 Income 1,411,005 Website 45,645 Interest on Income Tax Refund . 69,560 Euromold 2011 Exhibition 30,000 Miscellaneous Receipts 91,096
12. From the perusal of the above receipts, it is clear that the same cannot beheld as having been received on account of any trade or commerce.
13. In view of the above reasoning, following the decision of ITAT, Delhi Bench in the case of Indian Automobile Manufacturers, it has to be held that the conclusion drawn by the AO that provisions of Page 5 of 18 Sec.2(15) are applicable to the facts of the assessee is not a proper conclusion. Accordingly, the assessee is held to be entitled for exemption u/s.11. The AO is directed to re-compute the income of the assessee considering that the assessee is entitled for exemption u/s.11.”
From these paras reproduced from the order of CIT (A), it is seen that ld. CIT (A) has reproduced the submissions of the ld. AR of assessee in Para 5 of his order and thereafter, he has given a finding in Para 6 of his order that the objects mentioned by the AO in para 9.2 of the assessment order do not figure in the list of objects for which the assessee trust have come into existence. But we find that in para 9.2 of the assessment order, the AO is not discussing about the objects of the assessee. In this Para, the AO is discussing about the activities and hence, for the sake of ready reference, we reproduce Para 9.2 from page 8 of the assessment order. The same is as under. “9.2 In the given facts and circumstances, wherein it is seen that the assessee is involved in providing/letting out space to industries for organizing exhibition and related events on license fee/rental basis, the assessee's case would fall under the sixth limb of the definition of 'charitable purpose' contained in Section 2(15) i.e. 'the advancement of any other object of general public utility'. Therefore, the newly inserted first proviso to Section 2(15) will squarely apply to applicant's case. In view of this, it is required to examine whether the applicant is involved in carrying on any activity of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fees or any other consideration. As seen from the Memorandum of Articles and Association of the applicant's company, the applicant has come into existence with the main objects of "to promote, organize and participate in Industrial trade, other fairs and exhibitions in India and abroad and to take all measures incidental thereto for promoting Indian Industry, trade and enhance its global competitiveness". As per the objectives of the assessee trust and as mentioned in the activities followed by it, it is seen that assessee is involved in providing space for business organizations for promoting their trade and commerce.”
6. When we examine the stand of the AO as per Para 9.2 of the assessment order reproduced above with the income and expenditure account of the assessee available in the paper book, we find that major income of the assessee in the present year is on account of Stall space charges of Rs. 482.48 Lakhs and major expenses is also on Hall Rent of Rs. 125 Lakhs. Nothing else has been brought on record in support of this contention that Page 6 of 18 the assessee has carried out any activity for imparting any training or diffusion of knowledge as stated in the main objects of the assessee reproduced by the AO in para 4 of the assessment order. Moreover in Para 7 of the impugned order, ld. CIT(A) has reproduced the submission of the assessee before him as per which it was stated by the assessee that there are a number of incorrect and factually inaccurate statements made by the AO in the body of the assessment order to come to conclusion that proviso to section 2(15) is applicable to the facts of the case of the assessee and in para 8 of the impugned order, the CIT(A) has come to the conclusion that the submissions made by ld. AR of assessee have been examined and it appears that that the plea of the assessee regarding factual inaccuracies, incorrect statements in the assessment order appears to be correct without giving any basis for coming to this conclusion and particularly, when we examine the income and expenditure account of the assessee available in the paper book, we find that only activity undertaken by the assessee in the present year is taking a hall on rent by paying hall rent of Rs. 125 Lakhs and earning income of Rs. 482.48 Lakhs as stall space charges. Moreover as per paras 11 and 12 of the order of CIT(A) as reproduced above, the CIT(A) has reproduced various incomes declared by the assessee in the income and expenditure account which includes DMI Exhibition -2012 income of Rs. 506.20 Lakhs and DMI Exhibition -2011 income of Rs. 14.11 Lakhs in addition to income of Rs. 60.51 Lakhs as interest from bank and thereafter, he has come to the conclusion as per para 12 of the order of CIT(A) that from the perusal of these receipts, it is clear that it cannot be held as having been received on account of any trade or commerce without giving any reason for coming to this conclusion.
7. The ld. AR of assessee has placed reliance on various judicial pronouncements copy of which has been submitted by her in the paper book. The first judgement cited before us is the judgement of Hon’ble Delhi High Court rendered in the case of India Trade Promotion Organization Vs. DGIT(E) as reported in 371 ITR 333 (Delhi). Para 5 of this judgment is relevant and hence, the same is reproduced hereinbelow. “5. The petitioner gave a detailed explanation regarding the nature of its activities. With regard to space rent, it was pointed out that in Page 7 of 18 order to enable the petitioner to fulfill its objectives, the Union Cabinet in its meeting held on 27.04.1976, deemed it fit to allot the Pragati Maidan Complex to the petitioner, which was spread over an area of 123.50 acres at a nominal ground rent of Re 1 per annum for the initial 5 years, which was subsequently revised to Rs 6 lakhs (approximately) per annum and the same ground rent continues till date. The Central Government did not change the market rate or commercial rate of the premium land. It was pointed out that this special nature of the government lease, as compared to the commercial rates that could have been charged by the government, had enabled the petitioner to provide space for exhibitions, seminars, conferences and other trade promotion activities to various participants at economically viable rates. It is because of this that the petitioner was generating surplus even after providing space to the trade and industry at much lower rates than the prevailing market rates. Furthermore, it was pointed out that, although the intent behind establishing the petitioner as a company under Section 25 of the Companies Act, 1956 was to apply its surplus in furtherance of its objectives, the surplus generated by the company over the years got accumulated as the petitioner could not undertake major infrastructural additions and improvements in Pragati Maidan Complex due to non- execution of the lease deed in its name. This was a condition precedent before which the various government authorities could approve renovation projects. It was further pointed out that the lease deed in respect of Pragati Maidan Complex came to be executed in favour of the petitioner only in March 2011. There was, however, yet another impediment in undertaking the renovation projects of Pragati Maidan Complex and that was the requirement of change in land use in the records of DDA to be formally notified. It was also pointed out that only recently, the government had issued directives to the petitioners to construct a state of the art convention- cum-exhibition centre in Pragati Maidan in place of the old infrastructure which was constructed about four (4) decades back. According to the petitioner, the corpus of funds available with the petitioner may not be sufficient to meet the cost of the new project.”
From the above Para no. 5 of this judgement of Hon’ble Delhi High Court, it is seen that in that case, Pragati Maidan Complex was allotted by Govt. of India to the assessee at a nominal ground rent of Re 1 per annum for the initial 5 years which was subsequently revised to Rs. 6 Lakhs (approximately) per annum and same ground rent continues till the relevant year and because the assessee obtained such premium land from Govt. of India at a nominal ground rent, as compared to the commercial rates that could have been charged by the government, it had enabled the assessee to provide space for exhibitions, seminars, conferences and other trade promotion activities to various participants at economically viable rates. In Page 8 of 18 the present case, this is not the case of the assessee that any premium land was provided by Govt. of India or State Government at a cheaper rate and the same was provided by the assessee to various persons / entities for exhibitions, seminars and conferences etc. at economically viable rates because in the present case, it is noted that the assessee obtained a hall for rent of Rs. 125 Lakhs and the assessee realized an amount of Rs. 482.48 Lakhs as stall space charges. Under these facts, it cannot be said that the assessee obtained the hall at a nominal rate and provided the same to exhibitors at economically viable rates as in that case and therefore, in our considered opinion, this judgment of Hon’ble Delhi High Court is not applicable in the facts of present case.
The second judgment cited before us is the Tribunal order of Kolkata Bench rendered in the case of Indian Chamber of Commerce Vs. ITO(E) as reported in [2014] 52 taxmann.com 52. Para no. 38 of this Tribunal order is relevant and hence, the same is reproduced hereinbelow. “38. In view of the above discussion, we are of the considered view that in the given facts and detailed reading of the various judicial decisions through the years, interpreting the definition of "charitable purpose" as laid out in section 2(15) of the Act and also the definition of "business" in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was "charitable" in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be "charitable" in nature. Hon'ble Apex Court in theearliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view the basic principle underlying the definition of "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 proviso was inserted therein. Accordingly, in the given facts of the case as discussed above in detail, the assessee association's primary purpose was advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act. This issue of assessee's appeal is allowed.”
From the above para reproduced from this Tribunal order, it is seen that the basis of decision in this case is this that where the main object of the institution was “charitable” in nature, then the activities carried out towards the achievement of the said main object, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be “charitable” in nature. In the present case as per the main object of the assessee, it is stated to promote, training and the diffusion of knowledge to standards in the manufacture of Tools and Gauges but it is seen that the said main object is not carried out by assessee because the assessee is neither in receipt of any amount for carrying out this activity nor any expenditure has been shown in the present year for carrying out this activity because we have seen that the main receipt is on account of stall space charges of Rs. 482.48 Lakhs in present year and the main expenses is payment of Hall Rent of Rs. 125 Lakhs in the present year and nothing has been brought on record to show that such main activity of promoting, training or diffusion of knowledge was undertaken by assessee in the present year. Hence in the facts of present case, this Tribunal order is also not applicable in our considered opinion.
11. The next judicial pronouncement relied upon is the decision of the Delhi Bench of the Tribunal rendered in the case of Society of Indian Automobile Manufacturers Vs. ITO (E) as reported in [2016] 159 ITD 659. The ld. CIT(A) has also referred to this Tribunal order in Para 10 of his order as reproduced above. Now we examine the applicability of this Tribunal order in the present case. Para no. 11 of this Tribunal order is relevant and hence, the same is reproduced hereinbelow. “11. Coming back to the factual matrix of the case, we find that the assessee society was set up with the object of promoting the growth of automobile industry in India and also to improve and protect the environment which is nothing, but, an object of general public utility which is otherwise charitable within the main provision of section 2(15). The Revenue has also accepted such objects as charitable in nature and granted registration in the year 1998. However, it needs to be examined as to whether or not the activities undertaken by the assessee during the year amount to carrying on any activity in the nature of business, trade or commerce or rendering of services in business, trade or commerce so as to attract the proviso to section Page 10 of 18 2(15). For that we will venture to examine the actual activities carried out by the assessee during the year, which can be traced from the income side of the assessee’s Income and expenditure account, a copy of which is available on page 59 of the paper book. First item is Annual membership subscription amounting to Rs.1.81 crore. This comprises of annual membership subscription and admission fees. The ld. AR submitted that the assessee has 46 regular members who pay annual fees of Rs.7.50 lac and there are roughly 350 temporary members who pay @ Rs.50,000/- per annum. No carrying on of any business can be inferred from receipt of annual membership subscription by the assessee, which is a regular feature ab initio. Next item is Technical literature publications receipt amounting to Rs.1.93 lac. This was stated to be receipt of some amount for bringing out publications in relation to the automobile industry etc. This amount received for publication of some technical literature concerning the automobile industry cannot be considered as carrying on of any trade, business or commerce. The next item is interest received amounting to Rs.1.60 lac, which has been earned from banks, bonds, etc. This receipt also cannot be considered as arising from carrying on of any trade, commerce or business. The next important receipt is Rs.1 crore from Auto Expo 2008. The AO has also accentuated on this amount to hold that the assessee was carrying out business. The assessee is annually organizing Auto Expo, which is a trade fair confined to automobile industry. The automobile manufacturers give advertisements of their products which is the major source of receipts from Auto Expo apart from sale of tickets. Since all the manufacturers of automobiles are the members of the assessee society and the Auto Fair is organized displaying various products of automobiles, being the object for which the assessee was set up, it cannot be described as carrying on business, trade or commerce. The next major item is Seminars and conferences against which receipt of Rs.1.85 crore has been shown. The assessee held four seminars/conferences, namely, SIAM Annual Session, Technical seminar, AOTS – Kaizen/MTP Programme and WHTC-August, 2009. Total receipts from these four conferences/seminars has totaled to Rs.1.85 crore. The major item of receipt is Rs.1.59 crore from ‘SIAM Annual Session’, the details of which are available on page 89 of the paper book. When we peruse these receipts, it emerges that these are largely sponsorship amounts received from automobile companies. Details of expenses incurred on seminars and conferences have been set out on page 106 of the paper book. These details reveal that for some conferences, income is higher than the expenses, while for others, it is vice versa. Above narration of the activities actually undertaken by the assessee transpires that these are aimed at the overall promotion of the automobile sector. Even if there has resulted some surplus in organizing these conferences and seminars etc., it cannot be said that the assessee carried out any trade, commerce or business or rendering any service in relation to any trade, commerce or business. It is manifest that none of the activities undertaken by the assessee was pursued with the prior object of earning income. Au Page 11 of 18 contraire, all such activities were performed with the prior object of promotion of growth of the automobile industry in India which is an object of general public utility. The activities of the assessee in organizing seminars and conferences, etc. can be seen de hors its main object of general public utility so as to bring the case within the ambit of first proviso to section 2(15). Even if there has generated some excess of receipts over expenses in doing these activities, the same is a normal incidence of the activity of promotion of automobile industries and cannot be characterized as doing any business etc. or rendering of any services in connection with business etc. Since the AO has denied the benefit of sections 11 and 12 on the ground that the assessee did not fall within the scope of charitable purpose defined in section 2(15) of the Act because of carrying on or rendering of any services in business, trade and commerce, which in our considered opinion is not a correct interpretation of the provision, we direct to grant such benefit to the assessee. The impugned order is overturned pro tanto.”
From the above Para 11 of this Tribunal order, it is seen that in that case, Rs. 1 Crore was received by that assessee from organizing Auto Expo 2008. This is also noted that the automobile manufacturers give advertisements of their products which is the major source of receipts from Auto Expo apart from sale of tickets. Apart from this, in that case, the major receipt was of Rs. 1.85 Crores for seminars and conferences. In the present case, there is no receipt from seminars or conferences and no expenditure for organizing any seminar or conference and there is no receipt from any expo and the receipt in the present case is hire charges of the hall. Hence in our considered opinion, this Tribunal order is also not applicable in the facts of present case.
The next judgment cited before us is the Tribunal order of Mumbai Bench rendered in the case of Fragrance &Flavours Association of India Vs. DDIT (E) as reported in [2018] 170 ITD 312. In para 3 of this Tribunal order, the Tribunal has reproduced paras 9 to 14 of the earlier Tribunal order in the case of the same assessee and as per para 12 of such earlier Tribunal order reproduced by the Tribunal, it is seen that in that case, the assessee has organized a seminar at Bangalore and the other activities of the assessee trust, viz. receipt of subscriptions from the members, sale of publications, Fafai Journal, holding of workshops & conferences, directory receipts etc. whereas in the present case, the major receipt is on account of stall space charges apart from a small amount of Directory and hence in our Page 12 of 18 considered opinion, in the facts of present case, this Tribunal order is also not applicable.
The next decision cited before us is the Tribunal order of Chennai Bench of the Tribunal rendered in the case of Association of Surgeons of India Vs. DDIT (E) as reported in [2016] 50 ITR(T) 478. In that case, it is found that the income generated from letting out of auditorium held under trust was exempt under section 11 of IT Act because it was applied for objects of the trust and under these facts, it was held that such income is exempt u/s. 11 of IT Act. In the present case, it is seen that out of gross income received of Rs. 5,68,63,689/-, total application of income is Rs. 2,64,80,802/- which included Rs. 125 Lakhs being expenditure on hall rent, Rs. 13,11,538/- for payment on Publicity and other administrative expenses and it is not shown that any amount of expenses was incurred for meeting the objects of the assessee trust being the activity of promoting, training or diffusion of knowledge etc. As per the assessment order page no. 18, the AO has assessed the income of the assessee on this basis that there is gross income of Rs. 6,22,73,671/- and the AO has reduced total expenditure including depreciation of Rs. 2,81,01,449/- and taxed the net income at Rs. 3,41,72,222/- only and since this net income of Rs. 3,41,72,222/- was not applied by assessee for charitable purpose or the objects of the assessee trust, in our considered opinion, under these facts, this Tribunal order is also not applicable in the facts of present case.
The next decision cited before us is the judgement of Hon’ble Delhi High Court rendered in the case of GS1 India Vs. DGIT (E) as reported in [2014] 360 ITR 138(Delhi). In this case, the dispute was regarding assessee’s eligibility for registration u/s. 10(23C)(iv) and not regarding exemption u/s. 11 of IT Act and hence, in our considered opinion, this judgment is not applicable in the facts of present case.
Moreover, Para nos. 20 to 27 of this judgement are relevant and the same are reproduced hereinbelow for the sake of ready reference. “20. In the present case, “the business” is not held in trust and neither is “the business” feeding the charity. The very “act or activity of charity” as claimed by the petitioner is regarded by the revenue as nothing but business, trade or commerce. Money received, of course is used and utilized for the charitable activities. Four reasons are Page 13 of 18 elucidated and propound in the impugned order to state that the petitioner is engaged in business, trade or commerce and aforesaid encapsulated in the impugned order. Petitioner has acquired intellectual property rights, receives fee from third parties, which is nothing but payment of royalty, there is huge surplus of receipts over expenditure (refer table reproduced in paragraph 7 above) and payment is made by the petitioner to GS1 Global Services, Belgium.
Can it be said that the petitioner is engaged in activities which constitute business, commerce or trade? As observed above, legal terms “trade, commerce, or business” in Section 2(15), means activity undertaken with a view to make or earn profit. Profit motive is determinative and a critical factor to discern whether an activity is business, trade or commerce.
22. Business activity has an important pervading element of self- interest, though fair dealing should and can be present, whilst charity or charitable activity is anti-thesis of activity undertaken with profit motive or activity undertaken on sound or recognized business principles. Charity is driven by altruism and desire to serve others, though element of self-preservation may be present. For charity, benevolence should be omnipresent and demonstrable but it is not equivalent to self-sacrifice and abnegation. The antiquated definition of charity, which entails giving and receiving nothing in return is outdated. A mandatory feature would be; charitable activity should be devoid of selfishness or illiberal spirit. Enrichment of oneself or self- gain should be missing and the predominant purpose of the activity should be to serve and benefit others. A small contribution by way of fee that the beneficiary pays would not convert charitable activity into business, commerce or trade in the absence of contrary evidence. Quantum of fee charged, economic status of the beneficiaries who pay, commercial value of benefits in comparison to the fee, purpose and object behind the fee etc. are several factors which will decide the seminal question, is it business? 23. The petitioner charges an initial registration fee of Rs.20,000/- plus annual fee of Rs.4,000/-, enhanced to Rs.5,000/- from financial year 2006-07 onwards from third parties, who become subscribing members and are entitled to use the coding system, GS1. Revenue acknowledges that the petitioner enjoys monopoly and has exclusive rights to issue global bar coding system GS1 in India. However the petitioner is not dealing or treating the prized rights as a right, which is to be exploited commercially to earn or generate profits. A coding system of this nature if marketed on commercial lines with profit motive would amount to business but when the underlying and propelling motive is not to earn profits or commercially exploit the rights but “general public good” i.e. to promote and make GS1 coding system available to Indian traders, manufacturers, government etc, it will fail the test of business and meets the touchstone of charity. The petitioner is not directly or indirectly subjecting their activity to Page 14 of 18 market mechanism/ dynamics (i.e. demand and supply), rather it is motivated and prompted to serve the beneficiaries. This is not a case of commercial exploitation of intellectual property rights to earn profits but rather a case where a token fee has been fixed and payable by the user of the global identification system.
The petitioner does not cater to the lowest or marginalized section of the society, but Government, public sector and private sector manufacturers and traders. No fee is charged from users and beneficiaries like stockiest, whole sellers, government department etc. while a nominal fee is only paid by the manufacturer or marketing agencies i.e. the first person who installs the coding system which is not at all exorbitant in view of the benefit and advantage which are overwhelming. Any one from any part of the world can access the database for identification of goods and services using global standard. The fee is fixed and not product specific or quantity related i.e. dependent upon quantum of production. Registration and annual fee entitles the person concerned to use GS1 identification on all their products. Non levy of fee in such cases may have its own disadvantages and problems. Charging a nominal fee to use the coding system and to avail the advantages and benefits therein is neither reflective of business aptitude nor indicative of profit oriented intent.
Having applied the test mentioned above, including the criteria for determining whether the fee is commensurate and is being charged on commercial or business principles, we find that the petitioner fulfills the charitable activity test. It is apparent to us that Revenue has taken a contradictory stand as they have submitted and accepted that the petitioner carries on charitable activity under the residuary head “general public utility” but simultaneously regards the said activity as business. Thus the contention of the Revenue that the petitioner charges fee and, therefore, is carrying on business, has to be rejected. The intention behind the entire activity is philanthropic and not to recoup or reimburse in monetary terms what is given to the beneficiaries. Element of give and take is missing, but decisive element of bequeathing is present. In the absence of “profit motive” and charity being the primary and sole purpose behind the activities of the petitioner is perspicuously discernible and perceptible.
Table relied on by the respondent and mentioned in paragraph 7 above tells a partial story. Only direct expenses incurred have been set off from the fee earned from registration and renewal. The activity of the petitioner involves promotion, propagation and spreading awareness and knowledge about global coding identification system GS1. The entire expenditure of the petitioner has to be taken into consideration and cannot be ignored. There are stipulations in Sections 11, 13 etc. of the Act to prevent misuse of or siphoning of funds, bar/prohibit gains to related persons, stipulations of time limits for use of funds, which are effective checks and curtail and deny Page 15 of 18 benefit in cases of abuse. There is no such allegation or contention of the Revenue in the present case.
As observed above, fee charged and quantum of income earned can be indicative of the fact that the person is carrying on business or commerce and not charity, but we must keep in mind that charitable activities require operational/running expenses as well as capital expenses to be able to sustain and continue in long run. The petitioner has to be substantially self-sustaining in long-term and should not depend upon government, in other words taxpayers should not subsidize the said activities, which nevertheless are charitable and fall under the residuary clause “general public utility”. The impugned order does not refer to any statutory mandate that a charitable institution falling under the last clause should be wholly, substantially or in part must be funded by voluntary contributions. No such requirement has been pointed out or argued. A practical and pragmatic view is required when we examine the data, which should be analyzed objectively and a narrow and coloured view will be counter-productive and contrary to the language of Section 2(15) of the Act.”
From the above paras, it is seen that the basis of this judgement is this that the petitioner is not dealing or treating the prized rights as a right, which is to be exploited commercially to earn or generate profits. It is also noted that nominal amount was charged to meet operational/running expenses as well as capital expenses to be able to sustain and continue in long run. In the present case, it is seen that as per the income and expenditure account available in the paper book, as against expenditure Rs. 125 Lakhs only on account of Hall Rent and total expenses of Rs. 152.77 Lakhs and Administrative expenses of Rs. 57.86 Lakhs, the assessee is charging and realizing Stall Space Charges of Rs. 454.08 Lakhs and generating surplus of Rs. 341.72 Lakhs which is quite substantial and the same cannot be equated with charging of revenue for survival as in that case and therefore, in our considered opinion, this judgment of Hon’ble Delhi High Court is also not applicable in the present case.
The next judgment cited before us is the judgement of Hon’ble Bombay High Court rendered in the case of DIT(E) Vs. Shree Nashik Panchvati Panjrapole as reported in [2017] 397 ITR 501(Bombay). In that case, it was held that dominant activity carried out by assessee-trust for 130 years was to take care of old, sick and disabled cows and hence, the Incidental activity of selling milk which might result in receipt of money, by itself, would Page 16 of 18 not make it trade, commerce or business to be hit by proviso to section 2(15). In the facts of present case, this judgment of Hon’ble Bombay High Court is also not applicable in the present case.
The next judgment cited before us is also the judgement of Hon’ble Bombay High Court rendered in the case of DIT Vs. Women’s India Trust as reported in [2015] 379 ITR 506 (Bombay). In this case, it was held that where motive of assessee is not generation of profit but to provide training to needy women in order to equip or train them and make them self-confident and self-reliant and occasional sales or trust’s own fund generation was for furthering objects of trust, proviso to section 2(15) would not apply. In our considered opinion, in the facts of present case, this judgment of Hon’ble Bombay High Court is not applicable.
As per above discussion, we have seen that none of the judgments cited by the learned AR of the assessee is applicable in the present case. As against this, the ld. DR of revenue has also placed reliance on the following judicial pronouncements. a) DGIT Vs. Institute of Chartered Accountants of India, [2016] 236 Taxman 481 (SC) b) CIT Vs. Truck Operators Association, [2010] 328 ITR 636 (Punjab & Haryana) c) Sukhmani Society for Citizen Services Vs. ACIT, [2018] 93 taxmann.com 292 (Amritsar-Trib.) d) Employers’ Federation of Southern India Vs. ADIT (E), [2017] 54 ITR(T) 568 (Chennai-Trib.) 21. But in the facts of present case, we do not consider it necessary to examine the applicability of these judgements in the present case because as per the above discussion, we have seen that in the present case, the assessee is not doing any activity in respect of its stated main objects i.e. to promote training and the diffusion of knowledge relating to standards in the manufacture of Tools and Gauges to improve the standards or the connected trade therewith or with allied industries and to impart relevant and appropriate training to all those engaged in the manufacture of tools and gauges. We have seen that in the present case, the assessee has taken a hall on rent and the assessee is earning huge amount of income on account of Stall Space Charges and no expenditure is incurred for carrying out the said activities as per the objects of the assessee and therefore, in Page 17 of 18 the present case, we hold this that the assessee is not eligible for exemption u/s. 11 of IT Act and for this, help of any authority is not required and therefore, we do not enter into this aspect of examining the applicability of various judicial pronouncements cited by ld. DR of revenue. We would also like to observe that this is a settled position of law that at the stage of granting registration u/s 12A, only the objects as per the relevant Deed i.e. Trust Deed etc. are required to be seen and if the objects are charitable, such registration has to be granted but granting of such registration is not final and binding for granting exemption u/s 11 in assessment proceedings. In course of assessment proceedings, actual activities are to be examined and if such actual activities are not found to be charitable, exemption u/s 11 is not allowable although registration u/s 12A was granted on the basis of stated objects. In the present case, we have to examine as to whether the actual activities are charitable or not and when we do so, we find that the only activity undertaken by the assessee is to take a hall on rent for Rs. 125 lacs and realize huge amount of receipts for Stall space charges Rs. 4,82,47,599/-, power Rs. 18.99 Lakhs and Rs. 4,74,305/- from Directory, total Rs. 506,20,904/-. These activities cannot be said to be charitable particularly in the absence of its correlation with the stated main objects to promote training and the diffusion of knowledge relating to standards in the manufacture of Tools and Gauges to improve the standards or the connected trade therewith or with allied industries and to impart relevant and appropriate training to all those engaged in the manufacture of tools and gauges. In view of above discussion, we reverse the order of CIT(A) and restore that of AO.
In the result, the appeal filed by the revenue is allowed. Order pronounced in the open court on the date mentioned on the caption page.