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Income Tax Appellate Tribunal, C Bench, Mumbai
Before: Shri R.C. Sharma & Shri Ram Lal Negi
O R D E R Per R.C. Sharma, AM These appeals are filed by the assessee against the order of the CIT(A)-1, Mumbai for assessment years 2011-12 and 2012-13 in the matter of order passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter “the Act”).
In both these appeals assessee is aggrieved for declining the claim of exemption under Sections 11 and 12 of the Act being hit by proviso to section 2(15) of the Act.
3.
Rival contentions have been heard and record perused. The brief facts of the case are that the assessee is a charitable institution sponsored by Ministry of Commerce, Government of India. It has its primary object to facilitate exports of Plastic and related products, raw materials etc. The assessee's functions includes advising the Ministry of 2 & 1275/Mum/2017 The Plastics Export Promotion Council Commerce on initiatives for export promotion, play active role in formulating EXIM policy along with other stake holders, act as nodal agency for implementation of schemes for export promotion targeted at individual exporters form the industry. Schemes include Market Development Assistance, Market Area Initiatives, Technological upgradation Initiatives, Manufacturing Clusters initiatives, etc.
The AO was of the view that the assessee is hit by the amendment to Section 2(15) of the Act by insertion of proviso (i) with effect from 01.04.2009. Accordingly assessee’s claim of exemption under Sections 11 & 12 was declined. By the impugned order the CIT(A) confirmed the action of the AO.
6. At the outset the learned AR placed on record the decision of the Coordinate Bench in the case of Council for Leather Exports 62 taxmann.com 183 (Chennai) wherein exactly similar issue is squarely covered in favour of the assessee. The precise observation of the Tribunal is as under: -
“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 the earliest 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 3 & 1275/Mum/2017 The Plastics Export Promotion Council 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.
Respectfully following the decision of this Tribunal, we allow the appeals of the assessee.”
We have carefully gone through the above decision of the Tribunal wherein the nature of activity was para-materia to that of the assessee. The Tribunal observed that where the institution is not operating primarily by desire or motive to earn profit but to do charity through advancement of general public utility, it can be recorded as an institution established for charitable purposes as defined under Section 2(15) of the Act. In this case the main objective of the assessee was to support, protect, maintain, increase and promote export of leather articles and bye-products of leather industry. Its activities were multiple and directed towards assisting its members in extending their global reach thereby increasing their exports. The AO held that the activities of the assessee were in the nature of trade, commerce and business and after applying proviso (ii) denied exemption under Section 10(23C)(iv) of the Act. The Tribunal held that the activities were not covered by proviso (ii) to Section 2(15) of the ACt. Accordingly AO was not justified in declining exemption. In the instant case before us the assessee is implementing the schemes and initiatives of Government of India. It is a pass through entity which receives the funds from GOI, monitors the claims for export promotions from Industry and disburses the funds so received amongst the industry as per the guidelines. The activities are in the form of arranging participation for product promotions in International markets in approved market segments and programs from GOI. The surplus is direct result of membership fees collected from the members. The exporters in order to avail the benefit of export promotion initiatives are required to enrol as members of the council and in turn Council is able to collect fees which are used for the administrative costs of the council. The contribution as entrance fees is also collected and such capital amount contributed is invested in the deposits with bank. The 4 & 1275/Mum/2017 The Plastics Export Promotion Council corpus fund which is received in the form of entrance fees is earmarked to meet future emergencies of the council. The proviso added to the section 2(15) talks about business or trade and service in the nature of business or trade. Any activity to be in nature of business or trade has most important ingredient which is profit motive. From the discussion above it is very clear that the council has no profit motive and surplus if any is because of membership or interest earned from investment of corpus funds and surplus funds. The amendment in section 2(15) is clarified in circular 11/2008 clearly explains that intention behind the amendment in section 2(15), which is to curb business activity carried out for earning profit under the garb of charitable objects. The circular also states that the genuine charitable activities will not be affected by the amendment. There is no doubt raised in the assessment about the activities of the council as charitable activity. On page 4 and page 5 assessing officer has accepted the charitable nature of activity of the council. The application of mutuality in assessment is also not free from errors to the extent that the concept of mutuality pre-suppose no commercial intention. That being the fact whole of income should be exempt including interest income.
In view of the above discussion we do not find any merit in the action of lower authorities for declining the claim of deduction under Section 2(15) of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 24th July, 2018.