I.T.O (E) - 1,KOLKATA, KOLKATA vs. INDIAN LEATHER PRODUCTS ASSOCIATION, KOLKATA

Grounds of 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

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”

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.

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.

In the result the appeal by the revenue is dismissed.