THE INSTITUTE OF INDIAN FOUNDRYMEN,KOLKATA vs. I.T.O., WARD - 1(3), KOLKATA, KOLKATA

This appeal filed by the assessee is against the revisionary order passed u/s. 263 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) of Ld. CIT(E), Kolkata dated 28.03.2024for AY 2018-19 arising out of assessment order passed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the by Assessing Officer, National e-Assessment Centre, Delhi dated 12.04.2021.

The Ld. Counsel for the assessee submitted that the issue of applicability of proviso to section 2(15) to the assessee’s case has been decided by the Coordinate Bench in this very assessment year in wherein it has been directed to the AO to allow exemption u/s. 11 of the Act to the assessee trust by holding that the profit derived from the services rendered by the assessee as public utility services is very meager and, therefore, the same is held to be charitable. The ld. Counsel submitted that sec. 263 of the Act would be rendered infructuous and redundant with the pronouncement of order dated 28.06.2024 in for AY 2018-19 in assessee’s own case because any enhancement or shortfall of income would be taken care by the provision of section 11 of the Act. The Ld. Counsel, therefore, submitted that the revisionary proceeding u/s. 263 of the Act may be quashed as being infructuous.

After hearing the rival contentions and perusing the material on record, we note that in the assessment year 2018-19 the Tribunal has decided the issue of applicability of proviso to section 2(15) of the Act to the assessee vide order dated 28.06.2024. In the said order, the Coordinate Bench first held that the assessee is a charitable institution and is entitled to the exemption u/s. 11 on the ground that services rendered by the assessee trust as public utility services is very meager and, therefore, sec. 2(15) is not applicable. The relevant finding of the Tribunal reads as under:

We have minutely perused the decision of Hon’ble Apex Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra) and observed that the Hon’ble Apex Court has nowhere held that the activities carried on by the charitable entity which are supportive to the attainment of main object are to be treated as non-charitable activities. The Hon’ble Court has even held that activities of charging of any amounts towards consideration for any 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 in Para 253 page 82. The Hon’ble Court has held as under: The Institute of Indian Foundrymen, AY 2018-19 “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 or cess, or fee, or any other consideration towards trade, commerce or business. In this regard, the Court has clarified through illustrations wheat 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.”

In the present case also, the AO has computed business income at Rs. 21,99,772/- by allowing the administrative expenses proportionately on the basis of and in the ratio of business receipts and charitable receipts. We note that during the instant assessment year, the receipt form business activities of the assessee from the activities of holdings and organizing meetings, seminars and conferences were Rs. 9,48,14,435/- and the profit as computed by the AO constituted only 2% of such receipts. Therefore we are inclined to hold that the consideration charged by the ICC is just a cost basis and nominally above the cost. However if we allocate the administrative expenses on a rational and scientific basis between the activities of holding meetings, seminars and conferences on the one hand and other charitable receipts such as interest, rental and misc. income on the other , then there would be huge loss from these activities of organizing and holding meetings, seminars and meetings meaning thereby that the assessee has not been even charging from these sponsors, participants, members or non-members which are barely enough to cover the cost of the ICC and therefore it can be reasonable presumed that ICC has provided these activities even below the cost. We note that in the subsequent assessment year 2014-15 , the AO has computed the loss of Rs. 77,87,698/-. In view of this factual matrix , we are inclined to hold that the ICC is not carrying on any activity of holding meetings, seminars and conferences for business purpose but only in support its main object and it charges from its participants, members and non- members the amount of fee which does not even covers the cost of holding such events. So much so that the administrative and other incidental expenses of holding and organizing such seminars, conferences and meetings are met out of other charitable income received form interest on FDRs, rental and miscellaneous income. Therefore we find force in the contentions of the Ld. AR that the decision of Hon’ble Apex Court has wrongly been interpreted and applied against the assessee. In our opinion, the decision is squarely applicable to the facts of the case and in view of that the ICC is entitled to exemption u/s 11 of the Act as the activities of the advancement of main object is not hit by the proviso to Section 2(15) of the Act even post amendments.

We also note that the assessee’s case is squarely covered in its own case by the decision of Hon’ble Bench in for A.Y. 2009-10 wherein the issue was decided by the coordinate bench in favour of the assessee and the revenue has not preferred any appeal against the decision of Co-ordinate Bench before the Hon’ble High Court and the issue has attained finality. The operative part of the decision in 2012 is extracted as under: “32. We have already discussed the facts above in ITA No1491/Kol/2012 for AY 2008-09, which are unchanged in this appeal also i.e. for AY 2009-10 but in view of amendment in Section 2(15) of the Act vide Finance Act 2008, w.e.f. 01/04/2009, whereby new proviso was inserted and according to lower authorities the activities of assessee association of conducting Environment Management Centres, meetings, conferences & seminars and issuance of certificate of origin were all in the nature of “rendering of service in relation to business, for consideration” and falling under the last limb of charitable purpose, i.e. “advancement of any other object of general public utility”, thus covered by the proviso to section 2(15) of the Act. In connection to the above it would be relevant to know the amended section 2(15) of the Act in view of legislative intent behind such amendment. We have gone through section 2(15) of the Act, which is relevant for assessment year 2009-10 year under consideration, which lays down the definition of “charitable purpose” as under: “(15) “charitable purpose” includes relief of the poor, education, medical relief, 79 [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;”

The following implications arise from this amendment – 2.1 The newly inserted proviso to section 2(15) will not apply in respect of the first three limbs of section 2(15), i.e., relief of the poor, education or medical relief. Consequently, where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute ‘charitable purpose’ even if it incidentally involves the carrying on of commercial activities. 2.2 ‘Relief of the poor’ encompasses a wide range of objects for the welfare of the economically and socially disadvantaged or needy. It will, therefore, include within its ambit purposes such as relief to destitute, orphans or the handicapped, disadvantaged women or children, small and marginal farmers, indigent artisans or senior citizens in need of aid. Entities who have these objects will continue to be eligible for exemption even if they incidentally carry on a commercial activity, subject, however, to the conditions stipulated under section 11(4A) or the seventh proviso to section 10(23C) which are that i) the business should be incidental to the attainment of the objectives of the entity, and ii) separate books of account should be maintained in respect of such business. Similarly, entities whose object is ‘education’ or ‘medical relief’ would also continue to be eligible for exemption as charitable institutions even if they incidentally carry on a commercial activity subject to the conditions mentioned above.

From the Memo Explaining the provisions of Finance Bill 2008 & CBDT Circular dated 19-12-2008, what will be position of an entity engaged in the ‘advancement of any other object of general public utility’, whether the same will be hit by commercial activities in view of the newly inserted proviso to section 2(15) of the Act or not? The proviso was introduced with the sole aim of bringing into ambit of taxation such entities which were engaged in commercial activities. Here, we need to appreciate the concept of an “entity engaged in commercial activities”. In very simple words, any entity whose main or dominant object is commercial can only be said to be a commercial entity. An entity whose main purpose is undoubtedly charitable in nature without an iota of commerciality in it cannot be said to be engaged in commercial activity. Also we need to note that another point that emerges from the above is that whether an entity is carrying on an activity in the nature of trade, commerce or business always remains a question of fact which will have to be determined on the basis of the facts of the individual case. No generalization for such determination is possible. In view of the above, it is seen that the proviso can be applied to fact based on the facts and the past history of the assessee, which is discussed in detail above. From the above facts, we are clear that the assessee has never been dominantly engaged in any commercial activities and is a Charitable Institution registered as such u/s 12A of the Act, set up for the promotion and protection of Indian business and industry. The main purpose of this Institution is promotion and protection of trade and commerce in the country and not to conduct any commercial activities. Further, it has also never been the contention of the revenue that the assessee is engaged in commercial activities but it is hit by the proviso to section 2(15) of the act and thus will be deemed to be engaged in commercial activities. What will be the position to an institution engaged in advancement of any other object of general public utility, which lays down that such an institute will be deemed to be not “charitable” if it is involved in carrying on “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.” According to us, part of the proviso being “any activity of rendering any service in relation to any trade, commerce or business” intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity in relation to the trade commerce or business must be for a cess or fee or any other consideration. From the proviso, it is seen that the most material and relevant words in the proviso are “trade, business or commerce”. The activities which are undertaken by the institute should be in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. We will analyse the term “business” from the definition of the term ‘business’ as defined in section 2(13) of the act and whether assessee’s activities falls within the terminology of “business”. The term “Business” read as under:- “2. Definitions: … … … (13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture” The word “Business” is of large and infinite import. Section 2(13) defines business to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The intention of the legislature is to make the definition extensive as the term “includes” has been used. The legislature has deliberately departed from giving a definite import to the term ”business” but has made reference to several other general terms like “trade”, “commerce”, “manufacture” and “adventure or concern in the nature of trade, commerce and manufacture”. The term “business” has been explained by various judicial decisions and the landmark decision of the Hon'ble Supreme Court of India in the case of CST v. Sai Publication Fund [2002] 258 ITR 70 interpreted the word ‘business’ under section 2(5-A) of the Bombay Sales Tax Act, 1959 as follows:- “… No doubt, the definition of “business” given in Section 2(5-A) of the Act even without profit motive is wide enough to include any trade, commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture and any transaction in connection with or incidental or ancillary to the commencement or closure of such trade, commerce, manufacture, adventure or concern. If the main activity is not business, then any transaction incidental or ancillary would not normally amount to “business” unless an independent intention to carry on “business” in the incidental or ancillary activity is The Institute of Indian Foundrymen, AY 2018-19 established. In such cases, the onus of proof of an independent intention to carry on “business” connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of “business”. To put it differently, the inclusion of incidental or ancillary activity in the definition of “business” presupposes the existence of trade, commerce etc. The definition of “dealer” contained in Section 2(11) of the Act clearly indicates that in order to hold a person to be a “dealer” he must “carry on business” and then only he may also be deemed to be carrying on business in respect of transaction incidental or ancillary thereto. We have stated above that the main and dominant activity of the Trust in furtherance of its object is to spread message. Hence, such activity does not amount to “business”. Publication for the purpose of spreading message is incidental to the main activity which the Trust does not carry on as business. In this view, the activity of the Trust in bringing out publications and selling them at cost price to spread message of Saibaba does not make it a dealer under Section 2(11) of the Act. Further Hon'ble Supreme Court in para16 elaborated the term ‘business’ as under:- “16. The words ‘carrying on business’ require something more than merely selling or buying, etc. Whether a person ‘carries on a business’ in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive (Board of Revenue v. A. M. Ansari (1976) 38 STC 577 (Supreme Court); (1976) 3 scc 512). Such profit motive may, however, be statutorily excluded from the definition of ‘business’ but still the person may be ‘carrying on business.” Further in para 30 of the same judgment, it is stated thus: “30. In our view, if the main activity was not ‘business’, then the connected, incidental or ancillary activities of sales would not normally amount to ‘business’ unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the Revenue. It will then be necessary to find out whether the transactions which are connected, incidental or ancillary are only an infinitesimal or small part of the main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are not ‘business’ and the onus of proof of an independent intention to do ‘business’ in these connected, incidental and ancillary sales will rest on the department. If, for example, these connected, incidental or ancillary transactions are so large as to render the main activity infinitesimal or very small, then of course the case would fall under the first category referred to earlier.” (emphasis supplied.” Further, Hon'ble Supreme Court in this very same case held as under: “… … This decision is directly on the point supporting the case of the respondent after noticing number of decisions on the point including the decisions cited by the learned counsel before us. It may be stated that the question of profit motive or no-profit motive would be relevant only where a person carries on trade, commerce, manufacture or adventure in the nature of trade, commerce etc. On the facts and in the circumstances of the present case irrespective of the profit motive, it could not be said that the Trust either was “dealer” or was carrying on trade, commerce etc. The Trust is not carrying on trade, commerce etc., n the sense of occupation to be a “dealer” as its main object is to spread message of Saibaba of Shirdias already noticed above. Having regard to all aspects of the matter, the High Court was right in answering the question referred by the Tribunal in the affirmative and in favour of the respondent-assessee. We must however add here that whether a particular person is a “dealer” and whether he carries on “business”, are the mattes to be decided on facts and in the circumstances of each case.”

Thus from the above, the logical corollary which inexorably flows from a careful perusal of the above laid decision is that in the cases of many institutions / associations whose main activity is not ‘business’ the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. Therefore, the issue whether a professional institution is or is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive. The AO and CIT(A) in their orders relied upon the following judicial decisions: * Barendra Prasad Ray v. Income-tax Officer (129 ITR 295) SC * Commissioner of Income-tax v. Dharma Reddy (A) (73 ITR 751) SC * Sole Trustee, LokaShikshana Trust v. Commissioner of Income-tax (101 ITR 234 SC) We have already discussed the case law of Hon'ble Delhi High Court in the case of PHD Chamber of Commerce &Industry(Supra), wherein very categorically held that activities and services performed for a fee or against a payment, by a trade, professional or similar association, such as a chamber of commerce and industry could not be held to be “business” in nature carried out with a profit motive. From all the above what thus transpires is that it is the primary or dominant purpose of the institution, which must be charitable. Where the main activity is “charitable” then the activities which are incidental or ancillary to the main activity, even if carried out for profit, would not mitigate or change the “charitable” character of the institution. Thus in the cases of many professional institution whose main activity is not “business”, the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their The Institute of Indian Foundrymen, AY 2018-19 main objects would not, normally, amount to business, unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. The test, therefore, to be applied is whether the activity which is pursued is ancillary to a dominant object or is independent to the main object and forms a separate object in itself. The issue whether a professional institution is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive.

In view of the above, we thus now turn to examine and analyse in full details the particular facts of the present case. That the assessee association is a Charitable Institution, duly registered as such u/s. 12A of the Act, carrying on its main object of development of trade, industries and commerce. The main objects for which the association came into existence, are clearly set out in clause 3 of the Memorandum of Association which duly records and reads as under: “3(a) To promote and protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or concerned.” The activities of conducting Environment Management Centre, Meetings, Conferences & Seminar and issuance of Certificate of Origin, being the activities stated to be “services in relation to trade, commerce or business” were all well covered by the main object being fully connected, incidental and ancillary to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the development of trade and industries in India. Further it is to be noticed that the Memorandum has also specifically authorized the Chamber “to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them.” Thus it was only for the purpose of securing its primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit motive in any of the said activities. The surplus arising out of the same was merely incidental to the main object to charity. The majority of the receipts in the said activities were out of the sponsorships and donations. The expenses incurred on the said activities as and when incurred were all separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of general public utility, it can never be the case that it is engaged in “business, trade or commerce” or in any “service in relation to business, trade or commerce.” The individual nature and purpose of the specific activities, it is stated that the activities held by AO and the (A) to be business in nature, were as follows: (a) Meetings, Conferences & Seminars (b) Environment Management Centre (c ) Fees for Certificate of origin Facts relating to these activities are discussed in detail in para 23 to 25 of this order above, which need not be repeated.

From facts in entirety, now the question arises is whether principle of consistency will apply or not? From AY 1985-86 to 2007-08 exemption u/s 11 of the Act was allowed. Now, having extensively with the newly amended section 2(15) of the Act and its absolute inapplicability to the case of assessee supported by various judicial decisions, we will discuss this issue. We find that CIT(A) without appreciating that the basis principle underlying the definition of “charitable purpose” remained unaltered, and on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, whereby the restrictive first proviso was inserted therein, lower authorities held that the same substantially changed the position of law and thus the principle of consistency did not apply. But we are of the view that a 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. It was laid out by the Court that, “That if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g. promotion of or opposition to legislation concerning that purpose, was contemplated.” It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object.” In connection to the above case it is laid out the said case dealt with the The Institute of Indian Foundrymen, AY 2018-19 assessment of the assessee in the A.Ys 1948-49 to wherein relevant to the said AYs 948-49 to 1952-53, by the last paragraph of sub-section (3) of the IT Act, 1922”, charitable purposes” was defined as “… .. In this sub-section “Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public.” The adding of the words “not involving the carrying on of any activity for profit: was introduced by the Income tax Act, 1961. Hon'ble Apex court in the earliest decision in the case of Surat Art Silk Cloth Manufacturers Association (Supra) held the theory of dominant or primary object of the trust to be the determining factor so as to take the carrying on of the business activity merely ancillary or incidental to the main object. It was held as follows:- (i) That the dominant or primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth a set out in clause (a) and the objects specified in clauses (b) to (e) were merely powers incidental to the carrying out of that dominant and primary purpose; (ii) That the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., was an object of public utility not involving the carrying on of any activity for profit within the meaning of s.2(15) and that the assessee was entitled to exemption under s 11(1)(a)” Again the Hon'ble Apex Court in the case of Federation of Indian Chambers of Commerce & Industry (supra) held that “that the dominant object with which the Federation was constituted being a charitable purpose viz. promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, the respondent was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and common good of the country’s trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961” Again reiterating the dominant purpose theory, the Hon'ble SC in the case of Sai Publication Fund (supra) laid out as follows: “… If the main activity is not business, then any transaction incidental or ancillary would not normally amount to “business” unless an independent intention to carry on “business” in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on “business”: connected with or incidental or ancillary sales will rest on the Department. Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of “business”. In the recent decision which deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions) [2012] 347 ITR 0099 Del HC, laying down the very same principle it was again laid: “that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business.” Again, Hon'ble Bombay High Court in the WP of Baun Foundation Trust (Writ Petition No. 1206 of 2010 in the High Court of judicature At Bombay 27 March 2012) it was held that “4… It is a well settled position in law that the dominant nature of the purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital.” Thus from all the above it is seen that though the definition of “charitable” purpose under section 2(15) has undergone changes, the principle underlying the same has remained the same. In context of the above, with regard to the “principle of consistency” it would be of relevance here to quote the decision of the Apex Court in the case of RadhasoamiSatsang v. Commissioner of Income-tax (193 ITR 321 SC) wherein it was held that: “…. (ii) That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened. Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by The Institute of Indian Foundrymen, AY 2018-19 not challenging the ordered, it would not be at all appropriate to allow the position to be changed in a subsequent year.”

Now coming to application of section 28(iii) of the Act. We find that section 28(iii) of the Act provides that the income derived by a trade, professional or similar association from specific services performed for its members will be brought to charge under the head “profits and gains of business or profession”. The underlying idea behind s. 28(iii) is that there must be a business from which income is derived and that in the course of such business specific services must be rendered for its members. The concept behind s.28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services for its members in a commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore the principle of mutuality and reach the surplus arising to the mutual association and this is clear from the fact that these provisions are confirmed to services performed by the association “for its members”. Such income would either be charged as business income or under the residual head, depending upon the question whether the activities of the association with the non-members amount to a business or otherwise. Section 28(iii) constitutes certain income of the association to be business income without affecting the scope of the exemption under Section 11. Section 2(15) which incorporates the definition of “charitable purposes” simply shows that several mutual associations may also fall within the definition. The receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii) would still be entitled to the exemption under Section 11 r.w.s. 2(15) of the Act, provided there is no profit motive. Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and which is not involved in the carrying on of any activity in the nature of “business”, the said section 28(iii) of the Act does not apply.

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 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.” 17.1. In the impugned assessment yearalso , there is no change in facts or law vis-à-vis AY 2009-10 and therefore the department cannot be allowed to take a different stand on the same facts. The case of the assessee is squarely covered by the decision of Hon’ble Apex Court in the case of CIT vs. Radhasoami Satsang (supra) and by subsequent decision of the Apex Court in the case of CIT vs. M/s PFH Mall & amp; Retail Management Pvt. Ltd. (supra). Similar view has also been taken by the coordinate bench in DCIT vs. Kolkata Port Trust (supra) wherein it was held that there is no change in the facts and law , the revenue cannot be allowed to take a different view. Accordingly we are inclined to hold that the rule of consistency has to be applied. Pertinent to state that revenue authorities have failed to adhere to the principle of judicial discipline in following the decision of the Tribunal while adjudicating the case of the assessee. In our considered view the assessee is eligible and entitled to claim exemption u/s 11 of the Act in respect of its entire receipts. Therefore for this reason alone the order of ld. CIT(A) has to be and cannot be sustained.

Besides the assessee has received subscription fee from the existing member on annual basis as well as admission fee from new members as entrance fee which is not an income eligible to tax by virtue of principle of mutuality which means that there exists no difference between two persons (i.e. they are one and the same) and a person cannot make profit from himself. The Hon’ble Apex Court in the case of Secunderabad club vs. CIT (supra) has dealt with the principle of mutuality and thus the relevant part is extracted below: “31. While considering the triple test for applying the principle of mutuality, we find that in the case of Bangalore Club [2013] 350 ITR 509 (SC), the aforesaid triple test was applied. It was reiterated that the principle of mutuality envisages:

We also note that the other income comprises of interest income, rental income and other miscellaneous income. We further note that the interest income is accrued and earned from fixed deposits with the Banks which are maintained as per the provisions of Section 11(5)(iii) of the Act. The assessee has furnished the details of fixed deposits in schedule J of the ITR which is filed at page 50 and 95 of PB. Rental income and miscellaneous income were earned from building held by the assessee. Section 11(2) of the Act provides that the income of the institution falls short of 85% of the gross/total receipts or the said shortfall can be accumulated and set apart to be spent on the activities of the institutions over a period of 5 years. In other words the assessee can be said to have applied the said income over the said period provided that the said income is accumulated or set apart in terms of provision of Section 11(5) of the Act. Whereas provisions of 11(1) provides for accumulation of income of the trust to the extent of 15% of the gross receipts in perpetuity. In other words , the institution can retain 15% from the application of income without applying for charitable purpose in which accrued meaning thereby that 15% is indefinite accumulation and the assessee is not obliged to apply the same in subsequent years and can be retained as part of the corpus of the body. The AO has accepted which the same. But the institution has to comply with the requirements of section 11(5)(iii) of the Act. The ICC has fully complied with the provisions of section 11(5)(iii) of the Act and kept the funds invested in terms of the said section. So the ld CIT(A) has erred in treating the same as taxable income. But in any case we have allowed the main contentions of the ICC by allowing exemption u/s 11 of the Act on the entire receipts of the ICC as discussed supra.

Considering the above facts and ratio laid by the various judicial forums , we set aside the order of ld CIT(A) and direct the AO to allow exemption u/s 11 of the Act in respect of entire receipts/income. Consequently ,the grounds no. 1to 5 are allowed.

Issue raised in ground no. 6 and 7 is against the order of Ld. CIT(A) not allowing the depreciation of Rs. 16,20,365/- as claimed by the assessee thereby upholding the assessment order.

Facts in brief are that the assessee has claimed depreciation of Rs. 16,20,365/- in AY 2013-14 and Rs. 18,43,085/- in AY 2014-15 as application of income. The AO as well as Ld. CIT(A) has not allowed the deduction of the said depreciation as an expense to be deducted from the gross receipts for the purposes of calculating the income available for application.

After hearing the rival contentions and perusing the material on record, we find that the assessee’s case is squarely covered by the decision of Hon’ble Apex Court in the case of CIT vs. Rajashthan and Gujrati Charitable Foundation [2018] 402 ITR 441 (SC) in the context of amendment in Section 11(6) of the Act by the Finance (NO.2) Act 2014 w.e.f The Institute of Indian Foundrymen, AY 2018-19 01.04.2015 wherein it has been held that up to AY 2015-16 the assessee is entitled to claim the cost of acquisition of fixed asset as application of income and further depreciation thereon in subsequent years. The operative part is reproduced as under: “2. After hearing learned Counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.

It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in ‘Lissie Medical Institutions vs. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344.’ 4. It may also be mentioned at this stage that the legislature, realizing that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-16. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature.

Considering the facts of case and the decision of Hon’ble Apex Court, we set aside the order of Ld. CIT(A) and direct the AO to allow the depreciation on fixed asset as application of income/expenses. Accordingly ground nos. 6 and 7 are allowed.

Issue raised in ground no. 8 is against the confirmation of addition of Rs. 1,95,000/- by ld CIT(A) as made by AO by treating the sale value of motor car as income on the ground that the cost of car has been treated allowed as application of income when the car was purchased.

Facts in brief are that during the year the assessee has sold old motor car for a consideration of Rs. 1,95,000/- and purchased a new car of Rs. 14,49,732/-. The assessee has reduced the sale consideration from the fixed asset, however the AO rejected the same and treated the entire sale consideration as income by holding that the entire cost of car has been claimed as application of income in the year of purchase and thus the assessee was not entitledto reduction of cost of car from the sales consideration for the purpose of calculation of capital gain in the instant year which according to the AO would amount to double deduction.

The Ld. CIT(A) affirmed the order on this issue by holding that there is no opening WDV for this year.

After hearing the rival contentions and perusing the material on record, we find that up to AY 2015-16 even if fixed asset purchased by the assessee was claimed as application of income while computing the income, even then it is presumed that WDV is there in the books of account. We have even perused the provisions of Section 11(1)(a) of the Act which provide that if the sale consideration received on sale of assets is utilized for acquiring another asset then the same is treated as having applied for the charitable purposes. The case of the assessee also find support from the decision of Hon’ble Apex Court in the case of CIT vs. CIT vs. Rajashthan and Gujrati Charitable Foundation (supra) wherein it was held that besides claiming the full deduction of cost of fixed asset in the year and the assessee would be entitled to depreciation thereon. By considering the ratio laid down in the said decision, we are of the view that even if the entire cost has been claimed as application of income even then the assessee is entitled to claim the deduction of WDV from the sales consideration in order to calculate the capital gain. Accordingly we set aside the order of Ld. CIT(A) on this issue and direct the AO to delete the addition.

Issue raised in ground no. 9 is against the order of AO computing the deduction u/s 11(1)(a) @ 15% on the net income and not on the gross receipt of the ICC whereas the Ld. CIT(A) has not decided the issue on the ground of denial of exemption of assessee u/s 11 of the Act.

The assessee raised said issue before the Ld. CIT(A) but the Ld. CIT(A) did not decide the same on the ground that exemption to the assessee has been denied as a result of enhancement of income and thus there is no need to adjudicate the same thereby dismissing the ground raised

Considering the above facts and circumstances of the case, we are of the view that sec. 263 order passed by the Ld. CIT( E ) ,which has been under challenge before us by the assessee, becomes infructuous as subsequent to the passing of such order, the ITAT has decided the issue as stated hereinabove in favour of the assessee. Accordingly, we quash the revisionary order passed u/s. 263 of the Act. Appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 15th October, 2024