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2017 (12) TMI 344 - AT - Income TaxCharitable institution within the meaning of s.11(1) - whether the assessee was engaged in commercial activities and proviso to s.2(15) was clearly applicable in this case - appellant had receipts from services provided to both members and non-members. The Assessing Officer has held that the income/fee received from members and nonmembers are purely commercial - Held that - It is an admitted fact that the assessee is registered under section 12A. The main objects of the assessee are to promote and protect trade commerce and manufacture in Delhi and to watch over and protect the general commercial interest in Delhi and adjoining area and to protect the interest of persons engaged in trade commerce and industry. The assessee charge nominal fee for admission fee subscription fee and certificate of origin fee as per the guidelines of Ministry of Commerce Government of India. The motive of the assessee is not to earn any profit since there are no profit that can be distributed. The surplus or the profits remain with the assessee chamber and is applied towards achieving the objects. So it cannot be said that the assessee is involved in any business activity. It is apparent that the assessee exists only for the Welfare of its members and there is nothing on record to prove that the assessee is involved in any business activities. In the assessment years 2009-10 to 2012-13 the AO similarly denied exemption under section 11 of the act. However the Ld.CIT(A) allowed the appeals of the assessee in all these years copies of the orders are placed in the paper book. The assessee in all these years submitted before the Ld.CIT(A) that the issue is covered by the judgement of Delhi High Court in the case of PhD Chamber of Commerce and Industry vs. DIT(E) (2012 (11) TMI 429 - DELHI HIGH COURT) and the Ld.CIT(A) allowed the claim of the assessee. In the Assessment Year 2009-10 the department filed an appeal before the Tribunal which was dismissed vide order dated 30th December 2015 finding the tax effect being below 10 lakhs. However nothing is explained about the remaining years. It is well settled law that the rule of consistency do apply to the income tax proceedings It may also be noted here that the claim of the assessee has been denied under section 13(3) of the Act. However it was explained by the assessee all these items have been purchased and used for meetings with delegations and attending conferences. These items are necessities and could not be considered as luxury because of the development of day today technology. Therefore there is nothing wrong if the assessee purchased these items for achieving its objects. Admittedly the issue is covered in favour of the assessee by the judgement of Hon ble Delhi High Court in the case of Phd Chamber of Commerce and Industry (2012 (11) TMI 429 - DELHI HIGH COURT) wherein on identical facts the claim of the assessee for exemption u/s 11 have been allowed. The AO has not brought any evidence on record as to what business activities are conducted by the assessee with a profit motive and whether the items purchased for achieving the objects are misused by any of the persons covered u/s 13(3) of the Act. Merely because SLP of the department is pending before the Hon ble Supreme Court in the case of Phd Chamber of Commerce and Industry (supra) is no ground to take a different view against the assessee. Considering all find no merit in the departmental appeal and the same is dismissed.
Issues Involved:
1. Whether the assessee qualifies as a charitable institution under section 11(1) of the Income Tax Act, 1961. 2. Applicability of proviso to section 2(15) regarding commercial activities. 3. Alleged misuse of luxury items by persons covered under section 13(3) of the Income Tax Act. 4. Adjustment to Income and Expenditure account, including the addition of sale proceeds of assets and disallowance of loss on sale of assets and depreciation. Issue-Wise Detailed Analysis: 1. Charitable Institution Status (Section 11(1)): The primary issue was whether the assessee qualifies as a charitable institution under section 11(1) of the Income Tax Act, 1961. The CIT(A) held that the assessee is a charitable institution within the meaning of section 11(1). The assessee, registered under section 12A, has its main objects to promote and protect trade, commerce, and manufacturers in Delhi. The assessee charged nominal fees as per guidelines from the Ministry of Commerce, Government of India, and applied the surplus towards its objectives without distributing any profit. The CIT(A) relied on the judgment of the Delhi High Court in the case of PhD Chamber of Commerce and Industry vs. DIT(Exemption), which held that activities of a trade association promoting trade and commerce do not amount to business activities driven by profit motive. The Tribunal upheld the CIT(A)’s decision, noting that the AO did not provide evidence of profit motive or misuse of funds. 2. Applicability of Proviso to Section 2(15): The AO contended that the assessee was engaged in commercial activities, invoking the proviso to section 2(15). The AO argued that charging fees from members and non-members for issuing certificates of origin constituted commercial activities. However, the CIT(A) and the Tribunal found that the fees were nominal and incidental to the assessee's main objects. The Tribunal reiterated that the activities were not driven by profit motive and were aligned with the objectives of promoting trade and commerce, referencing the Delhi High Court's judgment in PhD Chamber of Commerce and Industry, which supported the assessee’s claim. 3. Misuse of Luxury Items (Section 13(3)): The AO alleged that luxury items such as vehicles, mobile phones, and tablets purchased by the assessee were misused by persons covered under section 13(3). The CIT(A) found no material evidence of misuse and noted that these items were necessary for official purposes, such as meetings and conferences. The Tribunal agreed, stating that the AO did not bring any specific evidence of misuse, and the items were deemed necessary for achieving the assessee's objectives. 4. Adjustment to Income and Expenditure Account: The assessee's cross-objection included the issue of adjustments made by the AO to the Income and Expenditure account, specifically the addition of sale proceeds of assets and disallowance of loss on sale of assets and depreciation. The CIT(A) had failed to adjudicate this ground. The Tribunal restored this issue to the CIT(A) for a fresh decision, directing the CIT(A) to pass a reasoned order after providing a reasonable opportunity of being heard to the assessee. Conclusion: The Tribunal dismissed the departmental appeal, upholding the CIT(A)’s decision that the assessee is a charitable institution and not engaged in commercial activities. The Tribunal also found no merit in the AO's allegations of misuse of luxury items. The cross-objection of the assessee was allowed for statistical purposes, with the issue of adjustments to the Income and Expenditure account remanded to the CIT(A) for a fresh decision. The order was pronounced in the open Court.
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