DEPUTY COMMISSIONER OF INCOME-TAX(EXEMPTION)-2(1), MUMBAI, MUMBAI vs. SOCIETY FOR APPLIED MICROWAVE ELECTRONIC ENGINEERING AND RESEARCH (SAMEER), MUMBAI

On the facts and circumstances of the case the Ld. CITIA) has erred in not acknowledging the commercial nature of the objectives of the society and that the income received by the society from the activities in the form of trade and commerce is more than Rs. 25 Lakhs and hence the exemption u/s 11 shall not be granted to it as per the provisions of the proviso to section 2(15) 2. On the facts and circumstances of the case the Ld. CIT(A) has erred in not acknowledging the fact that the issue involved in the case law relied by him is related to section 10(23C)/10(38)/10(33) of the Income-tax act and not to that section 10(21) of the Income-tax Act, 1961.

3 ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) 28.09.2014 disclosing a total income of Rs.Nil after claiming exemption u/sec11 of the Act. The assessee society was registered as a charitable organisation u/sec 12A of the Act and also with the Charity Commissioner of Mumbai and the books of accounts are audited and audit report in Form No.10B along with the audited financial statements were filed. Subsequently the case was selected for scrutiny and notice u/sec 143(2) and u/sec 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The Assessing Officer (AO) on perusal of the information find that the assessee is engaged purely in the research work in the areas of microwave electronics and the assessee claimed benefit of exemption u/sec 11 of the Act. Since the assessee’s activities are of pure research work and the assessee is required to comply with the provisions of section 10(21) of the Act. The assessee has filed the detailed submissions on the activities in the assessment proceedings referred at Para3.1 of the order. Whereas the AO is of the opinion that the assessee is not eligible for exemption u/sec 11 of the Act and assessed the total income of Rs. 20,34,07,500/- and passed the order u/sec 143(3) of the Act dated 25.11.2016.

4 ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) considered the grounds of appeal, submissions of the assessee and findings of the AO and dealt on the provisions of the Act, information, judicial decisions, and activities of the assessee and has granted relief dealt at Para 5 to 5.2 of the order and partly allowed the assessee appeal. Aggrieved by the order of the CIT(A), the revenue has filed the appeal before the Hon’ble Tribunal

ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) 7. We heard the rival submissions and perused the material on record. The sole disputed issue as envisaged by the Ld. DR that the CIT(A) has erred in directing the AO to grant exemption u/s 11 of the Act. We find the Honble Tribunal in ITA.No.431/Mum/2017 & others vide order dated 25.11.2022 has dealt on the provisions and judicial decisions and restored the issues to the file of the Assessing Officer dealt at Page 3 Para 7 to 9 of the order read as under:

“7. We have heard learned DR and perused the record. We noticed that there is merit in the submission made by learned AR. The Hon'ble Supreme Court, in the case of Ahmedabad Urban Development Authority (supra), has explained the scope of the proviso to sec.2(15) of the Act. For the sake of convenience we extract below the summation of conclusions made by Hon'ble

IV Summation of conclusions

253 In view of the foregoing discussion and analysis, the following conclusions are recorded regarding the interpretation of the changed definition of "charitable purpose" (w.e.f. 01.04.2009), as well as the later amendments, and other related provisions of the IT Act.

A. General test under Section 2(15)

A. 1. It is clarified that an assessee advancing general public utility cannot engage itself in any trade, commerce or business, or provide service in relation thereto for any consideration ("cess, or fee, or any other consideration");

A.2. However, in the course of achieving the object of general public utility, the concerned trust, society, or other such organization, can carry on trade, commerce or business or

ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) provide services in relation thereto for consideration, provided that (i) the activities of trade, commerce or business are connected ("actual carrying out..." inserted w.e.f. 01.04.2016) to the achievement of its objects of GPU; and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit, as amended over the years (Rs. 10 lakhs w.e.f. 01.04.2009; then Rs. 25 lakhs w.e.f. 01.04.2012; and now 20% of total receipts of the previous year, w.e.f. 01.04.2016

A.3. Generally, the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be "trade, commerce, or business" or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of "cess, or fee, or any other consideration" towards "trade, commerce or business" In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment.

A.4. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions.

B. Authorities, corporations, or bodies established by statute

ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) B1. The amounts or any money whatsoever charged by a statutory corporation, board or any other body set up by the state government or governments, for achieving what are essentially 'public (such as housing, industrial development, supply of water, sewage management, supply of food grain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger bench judgments of this court in Ramtanu Cooperative Housing Society and NDMC (supra)

B.2. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinize the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal mark-up. If such is the case, then the receipts would indicate that the activities are in fact in the nature of "trade, commerce or business" and as a 143 result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act.

B.3. In clause (b) of Section 10(46) of the IT Act, "commercial" has the same meaning as "trade, commerce, business" in Section 2(15) of the IT Act. Therefore, sums charged by such notified body, authority, Board, Trust or Commission (by whatever name called) will require similar considerationi.e., whether it is at cost with a nominal mark-up or significantly higher, to determine if it falls within the mischief of "commercial activity". However, in the case of such notified bodies, there is no quantified limit in Section 10(46). Therefore, the Central Government would have to decide on a case-by-case basis whether and to what extent, exemption can be awarded to bodies that are notified under Section 10(46).

B.4. For the period 01.04.2003 to 01.04.2011, a statutory corporation could claim the benefit of Section 2(15) having

ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) regard to the judgment of this Court in the Gujarat Maritime Board case (supra). Likewise, the denial of benefit under Section 10(46) after 01.04.2011 does not preclude a statutory corporation, board, or whatever such body may be called, from claiming that it is set up for a charitable purpose and seeking exemption under Section 10(23C) or other provisions of the Act."

9 ITA No. 3364& 3363/MUM/2023 (A.Y.2014-15)& (2015-16) Society for Applied Microwave Electronic Engineering And Research (SAMEER) ITA No. 3363/Mum/2023.A.Y 2015-16. 9. As the facts and circumstances in this appeal are identical to ITA No 3364/Mum/2023, for the A.Y 2014-15 (except variance in figures) and the decision rendered in above paragraphs would apply mutatis mutandis for this appeal also. Accordingly, we allow the grounds of appeal of the revenue for statistical purposes.

Sd/- Sd/- Sd/-d/- (AMARJIT SINGH) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 04/07/2024 KRK Copy of the Order forwarded to: 1. The Appellant, 2. The Respondent 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy//

BY ORDER, (Dy./Asstt.Registrar)ITAT, Mumbai