DCIT, CIR-1, KOLKATA, KOLKATA vs. INDIAN CHAMBER OF COMMERCE, KOLKATA

SHRI S.S. VISWANETHRA RAVI, JM

These two appeals of the Revenue arises out of the common order dated 23-12-2015 of the CIT(A)-25, Kolkata in Appeal Nos. 152 and 197 of 2514-15 for the assessment years 2010-11 & 2011-12 respectively both assessment orders framed by the AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

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25 of the companies act, 1956 without any share capital and does not distribute any dividends to its members, its entire receipt being expended for the fulfilment of its objects. The assessee was duly set up for the purpose of promotion and protection of Indian business and industry and was registered under section 12A of the act as a charitable institution.

(i) That issues involved in the present appeal for A.Y 2010 – 11 were in regard to receipts by way of any environment management centre, meeting, conferences and seminars and fees for certificate of 3 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

origin, which have been deliberated and discussed in depth by the Hon’ble ITAT, Kolkata in the assessee’s own appeal in ITA no. 1284/Kol/2012 for A.Y 2009 – 10 vide order dated 02- 12-2014 and decided in favour of the assessee on similar set of facts and legal implication. (ii) The Hon’ble ITAT in its exhaustive and detailed order (supra) had examined and discussed all the facts, circumstances and various prominent decisions and thereafter had come to the decision that the activities of ICC generating those receipts were but only incidental to the attainment of the objective of the trust which were for charitable purposes. (iii) that Hon’ble ITAT while dealing with the appeal for A.Y 2009 – 10 involving the amended section 2(15) and restrictive proviso thereto duly considered vide para 33 of the order (supra) memorandum explaining the Finance Bill, 2008 as also CBDT circular no. 11 of 2008 dated 19.12. 2008, and examined various facts of the meaning of the word ‘business’ as also the income tax history of ICC and prominent judicial decisions. For better appreciation on the issue, the observation of Hon’ble Tribunal, to quote, was as under: “35. …… The activities of conducting environment management centre, meetings, conferences and 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 connected solely for the empowerment, betterment and for creating of awareness amongst the industrialists in order to being about the development of trade and industries in India. Further it is to be noticed that the memorandum has also specifically authorised the 4 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

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 in any of the said activities. The surplus and 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 on 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 predominant object of the Association being the promotion and 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 (A) to be business in nature, were as follows a) meetings, conferences and seminars (b) environment management centre (c) fees for certificate of origin.” (iv) Thus the Hon’ble ITAT held that the activities generating the nature of the impugned receipts were part and parcel of ‘charitable purpose’ 6. The facts and circumstances under which the benefit of section 11 of the Act was denied by the assessing officer in assessment year’s 2010 – 11 and 2011 – 12

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is same as in A.Y 2009 – 10 in ITA No.1284/Kol/2012 in assessee’s own case. Relevant findings of the order are re-produced herein below for better understanding:-

“35. 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 6 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

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 © 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. 36. 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 7 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

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 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 ensure 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 8 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

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:

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“… 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 Higi 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 10 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

Radhasoami Satsang 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 not challenging the ordered, it would not be at all appropriate to allow the position to be changed in a subsequent year.” 37. 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 11 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

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. 38. 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 12 ITA Nos. 415 & 416/Kol/2016 Indian Chamber of Commerce

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. 39. In the result, both appeals of assessee are allowed. 8. In view of the above findings of the tribunal in assessee’s own case, we uphold the orders of CIT-A. Grounds raised by the revenue in both the appeals are dismissed.

Sd/- Sd/- WASEEM AHMED S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 03 /08 /2016 *PRADEP/Sr.PS

Copy of order forwarded to: 1 DCIT (E), Circle-1, Kolkata,10B, Middleton Row, 5th Floor, Kolkata-700001 2 Indian Chamber of Commerce,4, India exchange place, Kolkata – 700 001. 3 The CIT(A), 4 CIT, 5. D.R. 5