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2014 (12) TMI 256 - AT - Income TaxExemption u/s 11 - Activity carried on by assesse charitable or not u/s 2(15) Effect of amendment u/s 2(15) w.r.e.f. 01.04.2009 Whether the activities of assessee association is hit by the newly inserted proviso by the Finance (No.2)Act in section 2(15) of the Act w.r.e.f. 01.04.2009 and thereby falling u/s 28(iii) of the Act being profit of business Held that - Held that - The assessee was a charitable association registered u/s.12A of the Act and carrying on its objects of advancement of trade and commerce - even though the years 1964-65 to AY 1984-85, when exemption u/s 11 of the Act was denied to the assessee, it was nowhere held that the assessee was engaged in business activities - all through right from its inception, the facts remained the same whereby none of its activities were ever held to be business in nature except in this relevant AY 2008-09 - in a situation where the factual and legal position remains unchanged, any action by revenue to the contrary to what was taken earlier, is not justified - in view of facts remaining same and also legal position being the same, in the face of the history, dominant object for which assessee association was constituted, being a charitable one i.e. promotion and protection of trade, commerce and industries and particularly trade, commerce and industries in or with which Indian are engaged or concerned, any income arising from activity is exempt u/s 11 of the Act. In assessee s own case as decided in Commissioner of Income-Tax, West Bengal II Versus Indian Chamber Of Commerce 1970 (9) TMI 13 - CALCUTTA High Court - the expression any other object of general public utility u/s 2(15) does not expressly refer to trade or business, for a normal connotation of general public utility would not directly include trade or business - the word used in this new law is activity and not trade or business - Normally, a trade or business is always with profit or with profit motive, though no doubt, under some recent statutes as in the Sales Tax Act, the new concept of business without profit is being introduced - as defined in section 2(15) post amendment in 1961 Act post amendment is that activity not involving profits hits the case of assesse. The purpose for which the assessee association, i.e. The Indian Chamber of Commerce, was established is a charitable purpose within the meaning of S.2(15) of the Act - The assessee is carrying out the said activities which are incidental to the main object of the Association and which are conducted only for the purpose of securing the main objet which is the advancement and development of trade and commerce and industry in India - The activities are not in the nature of business and there is no motive to earn profit - The income arising to the assessee is only incidental and ancillary to the dominant object for the welfare and common good of the county s trade, commerce and industry - The profits earned are utilized only for the purpose of feeding its dominant object and no part of such profit is distributed amongst its members. Profit making is not the object of the assesse - Profit is merely a by-product which resulted incidentally in the process of carrying out the charitable purpose Thus, the income of the assessee for both the AYs in question is exempted from tax u/s 11 of the Act Decided in favour of assessee.
Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act. 2. Applicability of the proviso to Section 2(15) of the Income Tax Act. 3. Consideration of activities as business under Section 28(iii) of the Income Tax Act. 4. Maintenance of separate books of accounts under Section 11(4A) of the Income Tax Act. 5. Consistency in the application of tax exemption over the years. Issue-Wise Detailed Analysis: 1. Denial of Exemption under Section 11: The assessee, a charitable institution, claimed exemption under Section 11 of the Income Tax Act for the assessment years 2008-09 and 2009-10. The Assessing Officer (AO) denied the exemption, stating that the activities of conducting Environment Management Centers, meetings, conferences, seminars, and issuing Certificates of Origin were business activities. The AO argued that these activities were carried out systematically with a profit motive, thus violating Section 11(4A) of the Act, which requires separate books of accounts for business activities. 2. Applicability of the Proviso to Section 2(15): For the assessment year 2009-10, the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] applied the newly inserted proviso to Section 2(15) of the Act, which states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves carrying on any activity in the nature of trade, commerce, or business, or rendering any service in relation to trade, commerce, or business for a fee or any other consideration. The CIT(A) upheld the AO's decision, asserting that the assessee's activities were commercial and thus not eligible for exemption. 3. Consideration of Activities as Business under Section 28(iii): The AO and CIT(A) argued that the income derived from the specific activities of the assessee should be taxed under Section 28(iii) of the Act, which pertains to income from specific services performed for members by trade, professional, or similar associations. They contended that these activities were carried out with a profit motive and thus constituted business income. 4. Maintenance of Separate Books of Accounts under Section 11(4A): The AO noted that the assessee did not maintain separate books of accounts for the activities considered as business, as required under Section 11(4A) of the Act. This was cited as a reason for denying the exemption under Section 11. 5. Consistency in the Application of Tax Exemption: The assessee argued that it had been consistently granted exemption under Section 11 from the assessment year 1984-85 to 2007-08, and there was no material change in the nature of its activities. The principle of consistency, as upheld by the Supreme Court in various cases, was cited to argue against the sudden denial of exemption. Tribunal's Findings: On Denial of Exemption under Section 11: The Tribunal found that the primary purpose of the assessee was charitable, aimed at the promotion and protection of trade, commerce, and industries. The activities in question were incidental and ancillary to the main charitable purpose and were not carried out with a profit motive. The Tribunal cited the Supreme Court's decision in the case of Surat Art Silk Cloth Manufacturers Association, which emphasized the dominant purpose theory, stating that incidental activities generating profit do not negate the charitable nature of the institution. On Applicability of the Proviso to Section 2(15): The Tribunal held that the newly inserted proviso to Section 2(15) did not apply to the assessee's activities, as they were not carried out with a profit motive. The Tribunal emphasized that the dominant purpose of the assessee was charitable, and the incidental activities were conducted solely for the empowerment and betterment of trade and industry in India. On Consideration of Activities as Business under Section 28(iii): The Tribunal concluded that the activities of the assessee did not constitute business under Section 28(iii). It referred to the definition of "business" under Section 2(13) and various judicial interpretations, which state that incidental activities carried out to achieve the main charitable purpose do not amount to business unless there is an independent intention to conduct business. On Maintenance of Separate Books of Accounts under Section 11(4A): The Tribunal found that the requirement to maintain separate books of accounts under Section 11(4A) did not apply, as the activities in question were not business activities. The income generated was incidental to the main charitable purpose and was used to further the objectives of the institution. On Consistency in the Application of Tax Exemption: The Tribunal upheld the principle of consistency, noting that the assessee had been granted exemption under Section 11 for several years without any material change in its activities. The sudden denial of exemption was deemed unjustified. Conclusion: The Tribunal allowed the appeals of the assessee for both assessment years, holding that the assessee's activities were charitable in nature and not business activities. The income generated from these activities was incidental to the main charitable purpose, and the exemption under Section 11 was rightly claimed. The newly inserted proviso to Section 2(15) was found inapplicable, and the principle of consistency was upheld.
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