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Income Tax Appellate Tribunal, BENCH “B”, KOLKATA
Before: Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
This is an appeal by the revenue against the order dated 05.02.2013 of CIT(A)-Jalpaiguri relating to A.Y.2008-09.
Grounds of appeal
raised by the revenue read as follows :- “I. That on the facts and in circumstances of the case, The Ld. CIT (A) / Jalpaiguri had erred in justifying the applicability of the proviso to section 2( 15) of the Income Tax Act, 1961.
2. That on the facts in the circumstances of the case, The Ld. CIT (A) / Jalpaiguri had erred in appreciating the cardinal requirement of the concept of mutuality.
3. That on the facts and in circumstances of the case, The Ld. CIT (A)/Jalpaiguri had erred in considering the contribution from non-members as income according to the proviso to section 2(15) of the Income Tax Act,1961.
4. That the appellant craves leave to add to and/or alter, amend, rescind or modify the grounds here in above before or at the hearing of this appeal.”
The assessee is an Association duly registered u/s 12A of the Income tax Act, 1961 (Act). It also holds a certificate u/s 80G of the Act. The assessee is carrying on charitable activities since 1988. The Association of the assessee was formed by leather merchants for various activities such as spreading, knowledge among members, regarding the trade to remove hardship of the members, to assist the members in Indian Leather Products Association A.Yr.2009-10 increasing the volume by organizing trade shows, fairs, seminars and publishing of magazines for the sole benefit and advantages of the leather industry. The prime object of the assessee is to promote leather trade.
During the previous year the assessee derived income from conducting trade shows, seminars, fairs, SVHC testing, leather goods park booking fees, fashion magazine and entry tickets for various trade shows. The assessee in the past was enjoying the benefit of exemption u/s 11 of the Act as it was considered that the assessee was existing for a charitable purpose within the meaning of the term u/s 2(15) of the Act. With effect from A.Y.2009-10 a proviso has been introduced for charitable purpose u/s 2(15) of the Act, according to which if the object of the general public utility are carried on by an assessee and if that assessee carries on any activity in the nature of trade, commerce or business then such assessee will not be considered as existing for a charitable purpose. AO was of the view that the assessee was allowing outsiders also to participate by keeping their stall in the trade fair organized by the assessee. The AO was therefore of the view that the assessee was having dealings or relations with the outside body and generating income. The AO therefore concluded that the assessee was deriving income by carrying on activity in the nature of trade, commerce or business. The AO accordingly denied the benefit of exemption u/s 11 of the Act to the assessee. AO brought to tax gross receipts as per income and expenditure account after deducting expenditure incurred to tax.
Before CIT(A) the assessee explained the charitable nature of the assessee and submitted that it was existing for a charitable purpose. The Assessee pointed out that during the relevant financial year, the Assessee had organized its 14th trade fair. This Fourteenth International Leather Goods Fair was held between in 22nd February to 24th February. The fair was inaugurated by State Finance Minister, Dr.Asim Kumar Dasgupta and was chaired by Sri Bikash Ranjan Bhattacharya, the Mayor of Kolkata. Thirty eight business houses including several leading international companies took up stalls at the Fair. Delegates from various countries such as USA, Europe, South Africa, Australia, Germany, Sri Lanka, Italy and Spain visited the fair. The fair helped
Indian Leather Products Association A.Yr.2009-10 in generating business valued at Rs. 3.25 crores. The Stalls at fair were booked by members and non- members. Without the participation of non-members, there cannot be any value addition to the members in respect of knowledge, fashion, techniques and business. Total contribution from members was Rs. 14,67,500 and from non- members was Rs. 15,64,566 totaling to Rs. 30,32,066 during the financial year 2008- 09. The association incurred expenses of Rs. 17,94,635 towards its trade show during the financial year 2008-09. Apart from the receipt Rs. 15,64,566, there was no contribution from non-members for any other activities of the association such as National Seminar, Leather Testing, Foreign Language courses etc. The Assessee submitted that since the motive of the association was to spread knowledge and assist the members in increasing their business whereby development of trade and industry, the contribution received for various activities of the association has been wrongly treated as business activities by the AO.
5.1. The CIT(A) on a consideration of the above submissions of the Assessee was of the view that the main contribution from non-members was stall booking charges in the trade fair organized by the assessee during the previous year. He was of the view that as per First Proviso to Section 2(15), the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on an activity in the nature of trade, commerce or business. The assessee has not carried out any such activity by charging rent from the non-members for the stalls in the trade fair organized by the assessee. The organization of trade fair is one of the declared objects of the assessee on the basis of which it has been registered u/s 12A and the donations to it are eligible for deduction u/s 8OG. He was of the view that the first Proviso to Section 2(15) will be attracted only when the assessee is found to be involved in advancement of any other object of general public utility in the nature of trade, commerce or business. The activity of organizing trade fair is not any other object of public utility but the declared object of the assessee on the basis of which it is registered u/s 12A and 8OG. The purpose of First Proviso to Section 2(15) is to check the misuse of exemption u/s 11 by assessees who try to mask the business transactions as charitable receipts with a view to avoid payment of tax In the instant case, there is Indian Leather Products Association A.Yr.2009-10 reason not to draw any such inference. The CIT(A) accordingly directed the AO to compute the income of the assessee without invoking the First Proviso to Section 2(15).
5.2 Aggrieved by the order of the CIT(A) the revenue has preferred the present appeal before the Tribunal.
We have heard the rival submissions and the learned DR, who reiterated the stand of the AO as reflected in the order of the assessment. The learned counsel for the assessee relied on the order of the CIT(A) and also filed before us the copy of the Paper book containing the Memorandum & Rules of the assessee, audited accounts and computation of total income. He also placed reliance on the decision of the Hon’ble Delhi High Court in the case of India Trade Promotion Organisation vs Director General of Income Tax (Exemptions) & Others W.P.(C) 1872/2013 judgment dated 22.01.2015 wherein the Hon’ble Delhi High Court has explained the scope of proviso to section 2(15) of the Act.
We have given a very careful consideration to the rival submissions. The AO examined the claim of the Assessee for exemption u/s.11 of the Act, in the light of the proviso to Sec.2(15) of the Act. Sec.2 (15) of the Act, which defines the expression “Charitable purpose” for the purpose of the Act, had undergone an amendment by the Finance Act, 2008 with effect from 01-04-2009. The expression charitable purpose, prior to the aforesaid amendment read as follows; “(15) “Charitable purpose” includes relief to the poor, education, medical relief and the advancement of any other object of general public utility”
The definition after the amendment reads as follows;
“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;
Indian Leather Products Association A.Yr.2009-10 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”.
It can be seen from the proviso to Sec.2(15) which came into effect from 01-04-2009 that 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.
According to the AO, the Assessee was carrying on any other object of general public utility and therefore the proviso to Sec.2(15) of the Act would apply to the case of the Assessee. The purpose for which the Assessee exists is for the ‘advancement of any other object of general public utility”. Therefore the question that we need to be answered is as to whether the proviso to Sec.2(15) of the Act would be applicable to the case of the Assessee.
We shall now understand the approach to be adopted in coming to the conclusion as to whether the proviso to Sec.2(15) of the Act will be applicable to the Assessee in the light of the decision of the Hon’ble Delhi High Court in the case of India Trade Promotion Organization Vs. DGIT(Exemption) and others 371 ITR 333 (Delhi). The facts of the case before the Hon’ble Delhi High Court in the case of India Trade Promotion Organization (supra) was that the Assessee in that case enjoyed the benefit of exemption u/s.10(23C)(iv) of the Act. Sec.10(23C)(iv) provides any income received by any person on behalf of any other fund or institution established for charitable purposes which may be approved by the prescribed authority, having regard to the objects of the fund or institution and its importance throughout India or throughout any State or States, shall not form part of the total income under the Act. The prescribed authority withdrew the approval granted to the Assessee consequent to the insertion of the proviso to Sec.2(15) of the Act, on the ground that the Assessee was deriving rental income from letting out space for rent during trade fairs and Indian Leather Products Association A.Yr.2009-10 exhibitions, was deriving income from sale of tickets and income from food and beverage outlets. The said withdrawal was challenged by the Assessee before the Hon’ble Delhi High Court. The Hon’ble Delhi High Court had to go into the question as to the scope of the proviso to Sec.2(15) of the Act. The Hon’ble Delhi High Court has laid down the following very important principles as to how the proviso to Sec.2(15) of the Act has to be interpreted:- (i) The proviso to Sec.2(15) of the Act introduced by virtue of the Finance Act, 2008 with effect from 01.04.2009 has two parts. The first part has reference to the carrying on of any activity in the nature of trade, commerce or business. The second part has reference to any activity of rendering any service ―in relation to any trade, commerce or business. Both these parts are further subject to the condition that the activities so carried out are for a cess or fee or any other consideration, irrespective of the nature or use or application or retention of the income from such activities. In other words, if, by virtue of a cess‘ or fee‘ or any other consideration, income is generated by any of the two sets of activities referred to above, the nature of use of such income or application or retention of such income is irrelevant for the purposes of construing the activities as charitable or not. (ii) If an activity in the nature of trade, commerce or business is carried on and it generates income, the fact that such income is applied for charitable purposes, would not make any difference and the activity would nonetheless not be regarded as being carried on for a charitable purpose. If a literal interpretation is to be given to the proviso, then it may be concluded that this fact would have no bearing on determining the nature of the activity carried on by the petitioner. But, in deciding whether any activity is in the nature of trade, commerce or business, it has to be examined whether there is an element of profit making or not. Similarly, while considering whether any activity is one of rendering any service in relation to any trade, commerce or business, the element of profit making is also very important. (iii) The meaning of the expression "charitable purposes" has to be examined in the context of “income”, because, it is only when there is income the question of not including that income in the total income would arise. Therefore, merely because an institution, which otherwise is established for a charitable purpose, receives income would not make it any less a charitable institution. Whether that institution, which is established for charitable purposes, will get the exemption would have to be determined having regard to the objects of the institution and its importance throughout India or throughout any State or States.
Indian Leather Products Association A.Yr.2009-10 (iv) Merely, because an institution derives income out of activities which may be commercial, that does, in any way, affect the nature of the Institution as a charitable institution if it otherwise qualifies for such a character. (v) Merely because a fee 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. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. If the driving force is not the desire to earn profits but to do charity, the exception carved out in the first proviso to Section 2(15) of the said Act would not apply. (vi) If a literal interpretation were to be given to the said proviso, then it would risk being hit by Article 14 (the equality clause enshrined in Article 14 of the Constitution). Courts should always endeavour to uphold the Constitutional validity of a provision and, in doing so, the provision in question may have to be read down, as pointed out above. (vii) Section 2(15) is only a definition clause. Section 2 begins with the words, ―in this Act, unless the context otherwise requiresǁ. The expression "charitable purpose" appearing in Section 2(15) of the said Act has to be seen in the context of Section 10(23C)(iv). When the expression "charitable purpose", as defined in Section 2(15) of the said Act, is read in the context of Section 10(23C)(iv) of the said Act, we would have to give up the strict and literal interpretation sought to be given to the expression "charitable purpose" by the revenue. (viii) The expression "charitable purpose", as defined in Section 2(15) cannot be construed literally and in absolute terms. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities 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. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen. If the dominant and prime objective of the institution, which claims to have been established for charitable purposes, is profit making, whether its activities are directly in the nature of trade, commerce or business or indirectly in the rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public
Indian Leather Products Association A.Yr.2009-10 utility, it cannot but be regarded as an institution established for charitable purposes. (emphasis supplied)
It can be seen from the bye-laws of the Assessee that the dominant and prime objective of the Assessee is not profit making. Prior to the introduction of the proviso to Section 2(15) of the Act, there was no dispute that the Assessee was established for charitable purposes.
The contribution the Assessee received from non-members in conducting trade fair was Rs.15,64,556. The total receipts of the Assessee during the previous year was a sum of Rs.1,30,26,506/-. It cannot be said that the receipts from non-members constituted the major receipts of the Assessee. The expenses incurred in connection with the trade fairs and promotion events was Rs.29,03,411/-. It cannot thus be said that the activity of organizing trade fairs and exhibitions and the act of collecting contribution from non-members rendered the Assessee as an organization existing for profit or was doing business or trade.
Keeping in mind the above factual aspects and the objects of the Assessee and principle laid down in the aforesaid decision of the Hon’ble Delhi High Court in the case of India Promotion Organization (supra), in our view, will clearly show that the Assessee does not driven primarily by desire or motive to earn profits but to do charity through advancement of an object of general public utility. This is substantiated by the actual income received on operations of the Assessee and the expenditure incurred set out in the earlier paragraphs of this order. The proviso to Sec.2(15) of the Act is therefore not applicable to the case of the Assessee. We therefore hold that the Assessee is entitled to the benefits of Sec.11 of the Act. The AO has not disputed the conditions necessary for allowing exemption u/s.11 of the Act, except the applicability of proviso to Sec.2(15) of the Act. In view of our conclusions that the said proviso is not applicable to the case of the Assessee, we uphold the order of CIT(A) and hold that the Assessee’s income is not includible in the total income.
Indian Leather Products Association A.Yr.2009-10
In the result the appeal by the revenue is dismissed.
Order pronounced in the court on 02.12.2015.