2015 (12) TMI 901 - AT - Income Tax

Benefit of exemption u/s 11 denied - charitable purpose u/s 2(15) - profit motive - Association of leather merchants - 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. - Held that - Keeping in mind the factual aspects and the objects of the Assessee and principle laid down in the decision of India Promotion Organization (2015 (1) TMI 928 - DELHI HIGH COURT ), 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. - Decided in favour of assessee

Summary

Issues Involved:
1. Applicability of the proviso to section 2(15) of the Income Tax Act, 1961.
2. Concept of mutuality and its appreciation by CIT(A).
3. Consideration of contributions from non-members as income under the proviso to section 2(15).

Detailed Analysis:

1. Applicability of the Proviso to Section 2(15) of the Income Tax Act, 1961:

The primary issue revolves around whether the activities carried out by the assessee fall under the proviso to section 2(15) of the Income Tax Act, which would negate the charitable status of the assessee if it involves trade, commerce, or business. The assessee, an association registered under section 12A and holding a certificate under section 80G, was engaged in organizing trade shows, seminars, fairs, and publishing magazines related to the leather industry. The Assessing Officer (AO) denied the exemption under section 11, asserting that the assessee was conducting activities in the nature of trade, commerce, or business by allowing non-members to participate in trade fairs and thereby generating income.

The CIT(A) ruled in favor of the assessee, stating that organizing trade fairs was part of its declared objectives and did not constitute a business activity. The Tribunal upheld this view, emphasizing that the dominant objective of the assessee was not profit-making but promoting the leather trade, thus not falling under the proviso to section 2(15). The Tribunal referenced the Delhi High Court's decision in the case of India Trade Promotion Organisation vs. DGIT (Exemptions), which highlighted that the dominant objective must be considered to determine if an activity is charitable or commercial.

2. Concept of Mutuality and its Appreciation by CIT(A):

The revenue argued that the CIT(A) erred in appreciating the concept of mutuality, which is a fundamental principle for determining the taxability of transactions within a mutual association. The assessee argued that its activities were aimed at spreading knowledge and assisting members in the leather trade, thus qualifying as charitable activities. The CIT(A) accepted the assessee's explanation, noting that the primary contributions from non-members were related to stall booking charges during trade fairs, which were incidental to the main objective of promoting the leather industry.

The Tribunal agreed with the CIT(A), reiterating that the activities conducted by the assessee were in line with its charitable objectives and did not amount to a business. The Tribunal also noted that the total contributions from non-members were not substantial enough to alter the charitable nature of the assessee's activities.

3. Consideration of Contributions from Non-Members as Income Under the Proviso to Section 2(15):

The AO considered contributions from non-members as income derived from business activities, thereby denying the exemption under section 11. The assessee contended that these contributions were necessary for organizing trade fairs, which benefited both members and non-members by enhancing knowledge and business opportunities in the leather industry. The CIT(A) ruled that the contributions from non-members were part of the declared objectives and did not constitute business income.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the primary purpose of the trade fairs was to promote the leather industry, not to generate profit. The Tribunal highlighted that the dominant objective of the assessee was charitable, and the contributions from non-members were incidental to achieving this objective. Therefore, the proviso to section 2(15) did not apply, and the assessee was entitled to the benefits of section 11.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming that the assessee's activities were charitable and not in the nature of trade, commerce, or business. The contributions from non-members were incidental to the primary objective of promoting the leather industry, and the concept of mutuality was appropriately appreciated by the CIT(A). The assessee was thus entitled to exemption under section 11 of the Income Tax Act.