THE SYNTHETIC & RAYON TEXTILES EXPORT PROMOTION COUNCIL,MUMBAI vs. DDIT (E) 1(2), MUMBAI

Briefly stated facts are that the assessee is a trust incorporated in 1954 as a company under section 25 of the Indian Companies Act. The assessee trust is also registered under section 12 A of the Act. During the course of assessment proceedings, the AO noticed that the assessee has debited the expenditure of Rs. 3,36,66,868/- as direct export promotion expenses. He also noted that out of these export promotion expenses, a sum of Rs. 2,93,78,816/- is incurred outside India. The AO require the assessee to explain as to why export permission expense of Rs. 2,93,78,816/- incurred outside India should not be disallowed. The assessee before AO claimed that the expenditure although incurred in foreign currency outside India but it was incurred for charitable purpose in India and hence, the same is allowable as per the provisions of Section 11(1)(a) of the Act. It was explained that the Council is engaged in promotion of export of Synthetic and Rayon Textiles of India which is charitable purpose in India and for that purpose it holds expenditure in foreign countries which entails expenditure in foreign currency. It was explained that holding of expenditure in foreign countries is one of the object / integral part of Council export promotion activities but the AO disallowed the expenses by observing in Para 3.1.3 of his assessment order as under: - “3.1.3 As per the provision, of section, the income is to be applied for charitable purpose, in India. According to the assessee's contention it exists for the promotion of export Whereas the expenditure under the head direct export promotion expenses is Rs. 3,36,67,868/- (1,66,61,384/- + 1,70,06,484/-) out of which, the amount , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 of Rs. 2,93,78,816/- (as per audit report FY 2011-12) has been incurred in foreign exchange outside India. This expenditure incurred outside India which cannot be allowed as an application on charitable objects, though in computation, the assessee has claimed it is direct export promotion expenses towards objects of the trust. Under any circumstances, this is not an application of income in India towards export promotion and the contentions of the assessee not being tenable. Therefore, direct promotion expenses incurred outside India of Rs. 2,93,78,816/- is disallowed.”

The Assessing Officer held that expenses incurred outside India to the extent of Rs. 35,88,720/- can not be disallowed because only expenditure incurred in India on charitable objects is allowable. The ld. CIT(A) allowed the assessee’s claim by holding that allowable expenditure can be incurred outside India if the object of charity is located in India.

We have considered the rival submissions. Apparently, the decision of the Hon’ble AP High Court relied upon by the ld. DR related to a case where both expenditure and charitable objects were outside India. We would respectfully follow the decision of the ITAT, Mumbai Bench ‘A’ outside India is entitled to deduction under section 11 if such expenditure is for charitable purposes in India. We see no reason to interfere with the order of the CIT(A).”

This decision was further followed by Tribunal in AY 1997-98 in order dated 11-02-2004 and further, in AY 2007-08 and 2008-09 in ITA No. 6639 and 6640/Mum/2011 order dated 12-09-2012. The Page 8 of 16 , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 learned Counsel for the assessee also relied on the decision of Tribunal for AY 1993-94 taken by Revenue before Hon’ble Bombay High Court and the Hon’ble Bombay High Court in Income Tax Appeal No. 518 of 2004 dismissed the appeal of Revenue for non-appearance of the parties vide order dated 12-06-2007 and similarly for AY 1997-98 also Revenue appeals are dismissed for default.

On the other hand, the learned Sr. DR supported the orders of the CIT(A) and also relied on the decision of Hon’ble Delhi High Court in the case of National Association of Software and Services Companies (supra).

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this issue is covered in favour of assessee by the Tribunals decision consistently from the AY 1993-94, 1997-98, 2007-08 and 2008-09 in assessee’s own case. Even Hon’ble Bombay High Court has dismissed the Revenue’s appeal although for non-attendance by the department. In the present order also there is no change in law and facts of the case and hence, the Hon’ble Bombay High Court in the similar circumstances taking the principle consistency in the case of Madhukar C. Ashar vs. Union of India (2016) 239 Taxman 367 (Bom) held as under: - “6. We find that the impugned order of the Commissioner of Income completely ignores the past practice accepted by the Revenue in orders passed under Section 143(3) of the Act taxing the income of the AOP on allocation in the hands of its individual members. Nothing is indicated in the impugned order to show that there has been any change either in facts or in law, which would warrant taking a different view from that taken by the Assessing Officer from the A.Y. 2005-06 onwards. Although the principle of res judicata may not specifically apply, yet where a fundamental aspect running through various Assessment Years is subject of consideration then as held by the Apex Court in Radhasoami Satsang v. CIT [1992] 60 Taxman 248, the same approach be adopted in the Page 9 of 16 , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 absence of change in facts and law. Further, in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 the Apex Court held that though the principle of res judicata would not apply to tax matters as cause of action for each assessment year is different / distinct, yet in case there is no change in the factual position or the law, the views expressed in one year are binding for the subsequent years. This on the principle of consistency. Therefore, if the impugned order wants to depart from the consistent view taken earlier, it must so justify. Moreover, the impugned order also completely ignores the fact that there has been no change amongst the members of AOP as existing since A.Y. 2006-07 till date. The assessment order for A.Y. 2006-07 and orders subsequent thereto do reflect a determinate share being attributed to each of the members of the AOP. This submission has not even been adverted to in the impugned order while proceeding to hold that the shares of the individual members of the AOP are not determinate. Thus, the impugned order is in breach of natural justice being a non-speaking order.”

Respectfully, following the co-ordinate Bench decision in assessee’s own case and following principle of consistency we allow this issue of assessee’s appeal.

Similarly, issue is raised by assessee in other years in for the AY 2004-05, in ITA No. 1577/Mum/2017 for AY 2006- 07, ITA No. 1576/Mum/2017 for AY 2009-10 and in AY 2011-12. In all these years, the facts and circumstances are exactly identical; hence, taking a consistent view, we allow this ground of all the years.

The next issue in for the AY 2012-13 is regards to the order of CIT(A) in treating the contribution received from members for trade fair and exhibition. For this assessee has raised ground No. 3. For all other , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 years, the assessee raised identical worded grounds and facts and circumstances are exactly identical and hence we take the facts from this AY and will decide the issue. Ground No.3 reads as under: - “Ground No.3 The CIT(A) erred in not adjudicating the Appellants Ground No.3 regarding claim of mutuality in respect of membership subscription and registration fees are in the nature of mutual receipt and therefore should be excluded on the principle of mutuality.”

Brief facts relating to this issue are that the AO during the course of assessment proceedings found that the assessee has claimed membership subscription and registration fee for membership amounting to Rs. 2,35,74,044/- was claimed as exempt but the AO disallowed the claim of exemption by observing in Para 3.2.4 as under: - “3.2.4 On the issue of whether in the given circumstances, the body constitutes a mutual association or mutual association becomes relevant in case of trade a trade association. If the benefit of a trade association is confined to a member who contribute to such association, it could be a mutual association. However, if the benefit of the public or section of public, then such trade association ceases to be mutual association and it becomes a charitable association. For example, in case of Ahmedabad Mill Owners Association, a member association whose benefit was confined to specific individual who formed an association was not considered a charitable association by the Supreme Court and other conditions having been fulfilled, the same would constitute a mutual association. As against that in case of various Chambers, Trade Associations though there is a membership of such association as the benefit goes to the Page 11 of 16 , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 industry as a whole and not confined to the members of such association they are not mutual associations, but they are charitable associations. As such, many of the trade associations though there is membership, the benefit of such Association is to go to the trade as a whole, which itself constitutes a section of the public. Such association will be charitable association and not a mutual association. ”

At the outset, the learned counsel for the assessee stated that the issue is covered by co-ordinate Bench of Mumbai Tribunal in assessee’s own case for AY 1993-94 in order dated 05-05-2003 wherein, in Para 2 to 3, the issue is dealt as under: - “2. The first grounds of appeal read as under: -

Before us, the ld. DR contended that subscription fees and entrance fees were includible in assessee’s receipt and were exempt from tax only to the extent they were utilized for the objects of the assessee’s council. The ld. Authorized representative drew our attention to the order of the ITAT, Mumbai Bench ‘C’ dt. 15.10.1992, in the case of ITO vs. The Cotton Textiles Export Promotion Council, wherein the ITAT held that entrances fees should be treated as capital receipt and not assessee’s income. It was stated that the constitution and the objects of the assessee Council were similar to those of the Cotton Textiles Export Corporation Council and hence, the decision of the ITAT in the said case ought to apply to the present case. Reliance was also placed on the decision of the Hon’ble Jurisdictional High Court in the case of Trustees of Shrikot Hindstree Mandal vs. CIT, 209 ITR 396 in support of the plea that the entrance fees are exempt from tax.

We have considered the rival submissions. We find that as per page 2 of the assessment order, an amount of Rs. 51,32,000/- received as subscriptions from members have been treated by the assessee as its income and exemption have been claimed to the extent they are applied to the objects of the Council. The controversy is thus restricted only to the entrance fees amounting to Rs. 2,74,000/-. On careful consideration of the facts of the case, we see no reason as to why we should take a view different from that of the ITAT, Mumbai Bench C in the case of Cotton Textiles Export Promotion Council, Page 13 of 16 , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 wherein, entrance fees were treated as capital receipt. We would respectfully, follow the said decision and confirm the order of the CIT(A) in the matter of entrance fees. Thus, an amount of Rs. 2,74,000/- shall be treated as assessee’s capital receipts and not income for the purpose of section 11.”

This decision was further followed by Tribunal in AY 1997-98 in order dated 11-02-2004 and further, in AY 2007-08 and 2008-09 in ITA No. 6639 and 6640/Mum/2011 order dated 12-09-2012. The learned Counsel for the assessee also the decision of Tribunal for AY 1993-94 taken by Revenue before Hon’ble Bombay High Court and the Hon’ble Bombay High Court in Income Tax Appeal No. 518 of 2004 dismissed the appeal of Revenue for non-appearance of the parties vide order dated 12-06-2007 and similarly for AY 1997-98 also Revenue appeals are dismissed for default.

On the other hand, the learned Sr. DR supported the orders of the CIT(A).

We have heard the rival contentions and gone through the facts and circumstances of the case. We find that this issue is covered in favour of assessee by the Tribunals decision consistently from the AY 1993-94, 1997-98, 2007-08 and 2008-09 in assessee’s own case. Even Hon’ble Bombay High Court has dismissed the Revenue’s appeal although for non-attendance by the department. In the present order also there is no change in law and facts of the case and hence, the Hon’ble Bombay High Court in the similar circumstances taking the principle consistency in the case of Madhukar C. Ashar (supra) exactly on same facts allow the claim of the assessee.

Respectfully, following the co-ordinate Bench decision in assessee’s own case and following principle of consistency we allow this issue of assessee’s appeal.

Similarly, this issue is raised by assessee in other years in for the AY 2004-05, in ITA No. 1577/Mum/2017 for AY 2006- Page 14 of 16 , 1577,1576, 1575 & 1573 /Mum/2017 The Synthetic & Rayon Textiles Export Promotion Council; AYs:04-05,06-07,09-10,11-12,12-13 07, for AY 2009-10 and in AY 2011-12. In all these years, the facts and circumstances are exactly identical; hence, taking a consistent view, we allow this ground of all the years.

In the result, all the five appeals of the assessee are allowed.