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Income Tax Appellate Tribunal, DELHI BENCHES : G : NEW DELHI
Before: SHRI R.S. SYAL, AM & SHRI KULDIP SINGH, JM
ORDER
PER R.S. SYAL, AM:
This appeal filed by the assessee is directed against the order passed by the CIT(A) on 1.6.2012 upholding the denial of benefit of sections 11 and 12 of the Income-tax Act, 1961 (hereinafter also called `the Act’) in relation to the assessment year 2009-10.
Succinctly, the facts of the case are that the assessee society was registered u/s 12A(a) of the Act by the order dated 12.10.1998 of the Director of Income-tax (Exemptions). The assessee also enjoyed exemption u/s 80G of the Act. Such grant of the benefits continued as such for all the following years except for the year under consideration, during the course of whose assessment proceedings, the AO observed from the Income & Expenditure Account of the assessee that there was income from Seminar and conferences amounting to Rs.1.85 crore; from providing statistical information at Rs.40.41 lac; and from Auto Expo 2008 at Rs.1 crore. Since the assessee claimed these activities to be charitable as was done in the past, the AO called upon the assessee to show cause as to why its activities be not considered as not charitable in the light of the amended provisions of section 2(15) of the Act. The assessee submitted explanation fortifying its claim of charitable character, which has been reproduced in the assessment order. Not convinced, the AO held that the activities of the assessee were hit by the amended 2 provisions of section 2(15) of the Act. In his opinion, the receipts from seminar, statistical information and Auto Expo 2008 were not charitable activities. Relying upon the amended provisions of section 2(15), the AO denied the benefit of sections 11/12 and computed total income at Rs.3.02 crore. The ld. CIT(A) approved the action of the AO in holding that the assessee’s activities were not in the nature of charitable activities as defined u/s 2(15) of the Act as the same were marred by the proviso inserted w.e.f. assessment year 2009-10. The assessee is aggrieved against the impugned order.
We have heard the rival submissions and perused the relevant material on record. Undisputedly, the assessee society was registered u/s 12A(a) of the Act vide the order of the Director of Income-tax (Exemptions) dated 12.10.1998, a copy of which is available on pages 42 and 43 of the paper book. Exemption was granted by holding that: ‘the activities of the trust can be held to be genuine and that it is carrying out charitable activities.’ Thus, it becomes clear that the activities of the assessee were admitted by the Revenue to be charitable. It is only because of the amendment made by the Finance Act, 2008 to section 3 2(15) w.e.f. 1.4.2009 that the AO proceeded to treat the activities of the assessee as not charitable. In order to appreciate the rival contentions, we deem it expedient to reproduce the relevant parts of section 2(15) at the material time, reading as under:-
‘ "charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity: Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty- five lakh rupees or less in the previous year;’
A careful perusal of the above provision indicates that the ‘charitable purpose’, inter alia, includes: ‘the advancement of any other object of general public utility’. The assessee was granted registration in 1998 by impliedly covering it under this part of the definition of `charitable purpose’. The AO has heavily banked on the first proviso to section 2(15) for jettisoning the assessee’s claim of exemption u/ss 11 and 12 of the Act, which provides that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trading, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for consideration irrespective of the nature of use of the income from such activity. If we closely peruse the mandate of the proviso, it transpires that any other object of general public utility shall not be considered as a charitable purpose if the activities of the assessee are either the carrying on of or rendering of any service in relation to any trade, commerce or business for a consideration. It is further clear that the user of the income earned from the carrying on of or rendering of any service in relation to any trade, commerce or business does not, in any manner, alter the non-charitable purpose of the character of the income derived from such activities. The essence of the proviso is that the assessee must carry on any activity in the nature of trade, commerce or business or render any service in relation to any trade, commerce or business so as to be tagged as an activity of a non-charitable purpose. 5 Thus, it becomes important to ascertain if the assessee was carrying on any activity in the nature of trade, commerce or business or was rendering any service in relation to any trade, commerce or business.
This can be viewed in the light of the activities actually carried out by the assessee and its Memorandum of Rules and Regulations as are available on page 1 onwards of the paper book. The ‘Aims and objectives’ have been set out in clause 3 of the Memorandum of Association, which read as under :-
“1. The aims and objects for which the Society is established are as under: i) To act as an Apex body of Indian Automobile Manufacturers for Automobile Sector in India. ii) To focus on objects relating to improvement, protection of environment, including global warming, pollution control and safety of automobile vehicle - users and public at large. iii) To work towards the sustainable growth of Automobile industry in India.”
The above referred three objects are the principal objects of the assessee. The objects stated in subsequent sub-paras of para 3 have been described as ancillary objects of the society. Some of the ancillary objects, which are relevant for our purpose, read as under:-
“2) To promote and diffuse useful knowledge on automobile technology and industry, so as to - I. enhance the contribution of automobile industry to the growth and development of the Indian National Economy and to assist the automobile industry to meet its social obligations; II. encourage the efficiency of industry in general and the automobile industry in particular, in India; Ill. maintain cordial dialogue and to exchange data & information with Government, authorities, Non-Governmental organizations, institutions, professional bodies and other sectors of' trade, commerce and industry, within or outside India, on matters connected directly or indirectly with the automobile industry; IV. foster good relations with manufacturers, suppliers of goods and services and end-consumers of automobiles; . . V. encourage healthy industrial relations in the automobile industry; VI. further mutual help and co-operation amongst the Society's members and with the Government, other public bodies, institutions, organizations and societies and to make representations to Government and other public bodies, institutions, organizations and committees thereof in regard to matters covering manufacture, quality of automobiles, environment and safety standard, road infrastructure and fiscal measures relating to the industry in general and automobile industry in particular. VII. to encourage friendly feelings and unanimity amongst the manufacturers of automobiles and automobile products and all those engaged in commerce and industry on all subjects involving their common good; 7
3) To organize or form organizations for the development and regulation of the sale of automobiles and/or components, and establish branch offices, markets, syndicates or boards, with such. powers as may be thought fit within India and in any other country or countries; 4). To encourage., assist, and extend knowledge, education and Information connected with environment and safety and trade, commerce and industries and manufacturers in India, whether by establishment and promotion of lectures, discussions or correspondence, by holding conferences, by formation of libraries, by publication of papers, periodicals, magazines, books, maps and any other kinds of literature using print, electronic or any other devices or by foundation and endowment of professorship. studentship, or scholarship, or by encouraging research work or howsoever or otherwise, and by establishing museums, or organizing exhibitions industrial and trade fairs, either on behalf of the Society or in cooperation with others more particularly by organizing exhibitions, industrial and trade fairs of the automobile industry's and allied products and services from time to time; ……… 6). To make representations and to nominate representative or representatives to the Central or State authorities or bodies, executive or legislative, on any matter affecting the trade and for the best interests of the trade, commerce and manufacturers connected with the automobile industry; ……. 10) To organize and encourage research work in the process of manufacture of automobiles arid automobile engines and ancillary parts, and to encourage inventions and to aid the same for the said purpose by assisting in the financing for research facilities such as laboratories, Test Centres, R&D Centres, high speed tracks and other aids to research including equipment manpower and infrastructure required in connection therewith; 8
11 ) To collect, tabulate and circulate information and statistics of value to automobile manufacturers; ….. 13) To provide to automobile manufacturers in India the means of formulating, making known and influencing general policy in regard to economic, fiscal, commercial, labour, social, financial, technical, legal, safety and environmental, and educational matters; ….. 15)To make representations to the various Authorities, and to appear before any Authority in. the interest of protection and betterment of the Society's members; …… 7. On going through the above principal objects and ancillary objects, it becomes patent that the assessee has been set up as a body of Indian Automobile Manufacturers with a view to improve and protect the environment and safety of automobile vehicles and also to work towards the growth of automobile industry in India. All the ancillary objects are directed towards the attainment of principal objects in a meaningful manner.
Again reverting to the proviso to section 2(15), which has been invoked by the authorities for denying the benefit, we find that the same states that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business.
Thus carrying on an `activity in the nature of trade, commerce or business’ or rendering of any service in relation to trade etc. is sine qua non for taking away the character of charitable purpose. An activity in the nature of trade, commerce or business is always carried on with the prior object of earning income. What is relevant is the intention of the person before undertaking such activity. A line of distinction needs to be drawn between the activities undertaken by a society, otherwise satisfying the prescription of section 2(15) prior to the insertion of proviso, which are aimed at earning income divorced from the objects for which it is charitable por una parte and the activities which are aimed at the attainment of the objects for which it was set up por otra parte. Whereas the former fall within the mandate of the proviso to section 2(15), the latter do not. The obvious reason is that the latter activities are in furtherance of the charitable objects of such society and income, if any, resulting from such activities does not convert the otherwise charitable 10 activity [within the definition of section 2(15)] into carrying on of a business, trade or commerce. It can be understood with the help of a simple illustration. Supposing an association set up for the promotion of a particular trade, has its own premises, from which it carries out the activities for the promotion of such trade. If the association lets out its premises from time to time for enhancing its income, which letting out has no relation with the objects for which it was set up as a charitable institution, namely, the promotion of that particular trade, the resultant activity will amount to carrying on trade, commerce or business so as to fall within proviso to section 2(15). On the other hand, if it uses its premises for undertaking activities for which it was set up and is a charitable institution, and while doing so, there results some income, such income will not amount to carrying on any trade, commerce or business.
The crux of the matter is to understand the object of carrying on the activity which resulted into income. If the object is to simply earn income de hors the promotion of objects for which it was set up, it will fall within the ambit of proviso to section 2(15) and if the object of the activity is to promote the objects for which it was set up, then it will not 11 be caught with in the sweep of the proviso notwithstanding the fact that there results some income from carrying out such activity. The core of the matter is to see whether the activity which resulted into some income or loss was carried on with the object of doing some trade, commerce or business, etc., or it was in furtherance of the objects (non-business) etc., for which the assessee was set up. In other words, the predominant object of the activities should be seen as to whether it is aimed at carrying on some business, trade or commerce or the furtherance of the object for which it was set up. If it falls in the first category, then, the case would be covered within the proviso to section 2(15) and, in the otherwise scenario, the assessee will be construed to have carried on its activities of general public utility.
The Hon’ble Delhi High Court in the Institute of Chartered Accounts of India vs. Director General of Income-tax (Exemptions) (2013) 358 ITR 91 (Del), observed, while disposing of a writ petition, that holding interviews for a fees for the purpose of campus placements of its students does not amount to carrying on a business so as to deny exemption u/s 11 of the Act. It further observed that if the object or purpose of an institution is charitable, the fact that the institution collects certain charges does not alter the character of the institution. The Hon’ble High Court further observed in para 67 that: ‘the purport of the first proviso to section 2(15) of the Act is not to exclude entities which are essentially for charitable purpose, but are conducting some activities for a consideration or a fee. The object of introducing the first proviso is to exclude organizations which are carrying on regular business from the scope of “charitable purpose”’. The Hon’ble High Court also noticed the purpose of introducing the proviso to section 2(15) of the Act from the Budget Speech of the Finance Minister while introducing the Finance Bill 2008 and reproduced the relevant extract to the Speech as under:-
‘……. “Charitable purpose” includes relief of the poor, education, medical relief and any other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning incomes have sought to claim that their purposes would also fall under “charitable purpose”. Obviously, this was not the intention of Parliament and, hence, I propose to amend the law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected.’
The expressions “business”, “trade” or “commerce” as used in the first proviso must, thus, be interpreted restrictively and where the dominant object of an organization is charitable any incidental activity for furtherance of the object would not fall within the expressions “ business”, “trade” or “commerce”.’
Almost similar observations have been made by the Hon’ble Delhi High Court in India Trade Promotion Organization vs. DGIT (E) and Ors. (2015) 374 ITR 333 (Del). While disposing a writ petition filed by the assessee, the Hon’ble High Court held: ‘Merely because a fees or some other consideration is collected or received by an institution, it would not lose its character of having been established for a charitable purpose. It is also important to note that we must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such institutional or ancillary activity would also not fall within the categories of trade, commerce or business.’ On going through the above judgments of the Hon’ble jurisdictional High Court, it becomes vivid that if the object of an assessee is charitable, the fact that it collects certain charges, does not militate against its charitable character. In view of the explicit opinion available on the point from the Hon’ble jurisdictional High Court, there is hardly any need to consider contrary decisions of the Tribunal taken note of in the assessment order or relied by the ld. DR. The nitty gritty of the matter is that so long as the dominant activity of the assessee is not business, then, any institutional activity would not fall within the meaning of business, trade or commerce, etc., even if there is some surplus in doing such activity.
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 2(15). For that we will venture to examine the actual activities carried out by the assessee during the year, which can 15 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 16 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 17 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 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 18 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.
In the result, the appeal is allowed.
The order pronounced in the open court on 06.06.2016.