ITO (E) 1(1), MUMBAI vs. BHARAT DIAMOND BOURSE, MUMBAI

सुनवाई क" तार"ख /Date of Hearing : 29-03-2017 घोषणा क" तार"ख /Date of Pronouncement : 30-03-2017 आदेश / O R D E R PER Bench These are bunch of nine appeals which are filed by the assessee as well Revenue for different assessment years . These appeals were heard together and are disposed of by this common order.

“Section 2(15) [ (15) “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 ten lakh rupees or less in the previous year;]”

The learned DIT(E) issued SCN dated 31.10.2011 asking assessee to explain as to why its registration should not be withdrawn by invoking provisions of Section 12AA(3) of 1961 Act on the grounds that the activities of the assessee were in the nature of trade , commerce , business during the relevant previous year to impugned assessment year 2009-10. The assessee stated before learned DIT(E) in reply to SCN that it’s main objects are :

(a) To establish a Bourse for the promotion of exports of Gem & Jewellery from India and to provide for this purpose infrastructure ITA 884/M/2012 , 2789/M/2011 5 4437/M/2011, 2790/M/2011 4852/M/2011, 2791/M/2011 6591/M/2011, 3004/M/2013 3127/M/2015 and other facilities in India for Indian and overseas buyers and sellers of Gem and Jewellery. (b) To establish and promote effective liaison between the Gem and Jewellery trade and industry in India and abroad. (c) To promote , advance , protect and develop trade, commerce and industry in India relating to Gem & Jewellery including cutting, polishing and processing. (d) To develop India as modern and sophisticated Gem & Jewellery market in the world by establishing and maintain an international trading centre in India all those engaged as manufacturers , traders, exporters,importers, brokers and commission agents in the Gem & Jewellery trade and Industry.

The assessee also submitted that the major activity carried on by the assessee is to provide infrastructure facilities including handling, storage and clearance of import and export cargo of diamonds, precious , semi-precious stones etc. . The assessee submitted that it entered into an agreement with MMTC by which it was agreed by MMTC to function as custodian at the office of the assessee where infrastructure facilities including handling, storage and transportation of import and export cargo of Diamonds, Precious and Semi- precious stones are provided to Gem and Jewellery traders and members of the assessee. The services rendered by the assessee , thus, as contended by the assessee were as under:

(1) Provision of rent free accommodation for housing and customs clearance centre as well as the custodian’s office. (2) Maintenance of strong room at the DPCCC as well as at the Sahar International Air-cargo complex. (3) Provision of security and to and fro transportation of export and import parcels between DPCCC and Sahar International Air Cargo complex on every working day. (4) Depositing of Airways Bills with respective Airline Offices. (5) Collection and distribution of EP copies of shipping bills.

ITA 884/M/2012 , 2789/M/2011 6 4437/M/2011, 2790/M/2011 4852/M/2011, 2791/M/2011 6591/M/2011, 3004/M/2013 3127/M/2015 (6) Providing Export/Import statistics on website of the assessee on regular basis.

It was stated that the above arrangement was on cost recovery basis. These services were rendered by assessee to gem and jewellery traders only. Thus, it was contended that the basic motive of the assessee is to provide services to the members and not to make profits or carry out any commercial activity with profit motive. The assessee also contended that the activities of the assessee are not non genuine and also there is no allegation that the activities of the assessee are not carried out in accordance with the objects of the assessee and prayed that the registration granted u/s 12A of 1961 Act be not withdrawn or cancelled.

The learned DIT(E) invoked amended provisions of Section 2(15) of 1961 Act which were amended w.e.f. 01-04-2009 by Finance Act , 2008 and Finance Act, 2010 . The ld. DIT(E) observed that assessee has shown income of Rs. 4,35,12,773/- on account of reimbursement of handling, carting and custom expenses as recovered from its members , against which payment of Rs. 69,87,555/- was made to MMTC which act as custodian and to the custom authorities of Rs. 1,74,13,599/-. It was observed by ld. DIT(E) that the assessee makes payment to MMTC which has acted as clearing and forwarding agent on behalf of members. It was held by ld. DIT(E) that the activities of the assessee are in the nature of business which is being carried on by the assessee and there is no concept of mutuality as contended by assessee. Thus, ld DIT(E) held that activities of the assessee are in the nature of business and receipts of the assessee exceeded the monetary limit specified by second proviso to Section 2(15) of 1961 Act which has come into effect from assessment year 2009-10. Thus, the assessee has lost its charitable character. Thus, the trust becomes non genuine for the purposes of Section ITA 884/M/2012 , 2789/M/2011 7 4437/M/2011, 2790/M/2011 4852/M/2011, 2791/M/2011 6591/M/2011, 3004/M/2013 3127/M/2015 11 of 1961 Act as it looses its charitable status and hence provisions of Section 12AA(3) of 1961 Act gets attracted, was the observation of ld. DIT(E). The learned DIT(E) thus cancelled/withdrew the registration as allowed to the assessee in earlier years u/s 12AA of 1961 Act w.e.f. assessment year 2009-10 and the assessee was held to be non-charitable trust/institution by ld. DIT(E), vide orders dated 27.12.2011 passed u/s 12AA(3) of 1961 Act.

“Section 2(15) of the Act defines "Charitable purpose" as including relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

In order to decide the first question, the circumstances under which the appellant-assessee came into existence are required to be noticed. The diamond exporters in India had formed a Diamond Exporters Association for facilitating export of diamonds. There was need for setting up a diamond bourse in Bombay with customs clearance facilities which would facilitate the export of diamonds and make the trade more competitive in the international market. In 1984 the Central Government accepted the proposal made by the said association to set up a diamond bourse in Bombay. The Minerals and Metals Trading Corporation of India Ltd. (a Central Government Undertaking) agreed to co-ordinate the ITA 884/M/2012 , 2789/M/2011 8 4437/M/2011, 2790/M/2011 4852/M/2011, 2791/M/2011 6591/M/2011, 3004/M/2013 3127/M/2015 administrative steps and the bourse was to be named as suggested by the Ministry of Commerce as 'Bharat Diamond Bourse'. A decision to set up the same was taken up by the Government of India in the Ministries of Finance and Commerce with the object of encouraging and increasing the export of polished diamonds from India. The city of Bombay had been traditionally the headquarters of diamond trade and exports, though the main business centre was located in a congested locality. The International Airport in Bombay is situated in Sahar, Andheri, in North Bombay. The long distance between the centre of activity of the diamond trade and the international airport made it highly inconvenient and cumbersome for operations of the diamonds export trade from the point of view of transportation, security and customs clearance. It was, therefore, decided with the concurrence of the Central Government to have a custom clearance facility opened at Diamond Plaza near Opera House as a customs area for the purpose of storage and clearance of diamonds. There was also the question of security since diamonds and gems imported and exported in small packets in large quantities had to be transported over long distances. The