2018 (4) TMI 1293 - AT - Income Tax

Denial of exemption u/s 11 - Activities of the appellant are commercial in nature - Subscription received; Sale of publications; Fafai Journal; Workshop & Conference; Bangalore Seminar; and Directory receipts - proof of charitable activity - Held that - The holding of the seminar at Bangalore and the other activities of the assessee trust, viz. receipt of subscriptions from the members, sale of publications, Fafai Journal, holding of workshops & conferences, directory receipts were incidental to and in furtherance of the main object of securing the advancement and development of the Fragrance and Flavours industry in India. The aforesaid activities of the assessee trust are neither in the nature of trade, commerce or business, nor an activity rendered in relation to any trade, commerce or business. The activities of the assessee trust are not with any motive to earn profit, which though we are not oblivious would not conclusively determine as to whether an activity is in the nature of a trade, commerce or business, but then, the same undoubtedly remains a crucial factor for characterising an activity, as one. The generation of the surplus in its hands was merely a by-product of its main object, which had incidentally resulted in the course of furtherance of its dominant object, viz. advancement and development of the Fragrance and Flavors industry in India. We are further of the view that as the international seminar at Bangalore was held by the assessee for the very first time, and the assessee was neither holding such type of seminars by way of a regular and systematic activity, nor for the general public at large, therefore, on the said count also the same can safely be held as not being in the nature of a commercial activity - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act.
2. Nature of activities of the assessee trust.
3. Application of the proviso to Section 2(15) of the Income Tax Act.
4. Principle of mutuality.

Detailed Analysis:

1. Denial of Exemption under Section 11:
The primary issue was whether the activities of the assessee trust, which included seminars, workshops, and publications, could be considered commercial, thereby disqualifying it from exemption under Section 11 of the Income Tax Act. The Assessing Officer (A.O) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the trust's activities were commercial, particularly focusing on the revenue generated from a seminar held in Bangalore. The tribunal, however, concluded that these activities were aimed at furthering the trust's main objective of promoting the Fragrance and Flavours industry and were not commercial in nature.

2. Nature of Activities of the Assessee Trust:
The A.O characterized several activities, such as subscription receipts, sale of publications, and seminar fees, as commercial. The assessee argued that these activities were essential for the development of the Fragrance and Flavours industry and were not intended for profit. The tribunal agreed with the assessee, noting that the activities were indispensable for the trust's objectives and could not be deemed commercial.

3. Application of the Proviso to Section 2(15):
The proviso to Section 2(15) states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves trade, commerce, or business activities. The tribunal found that the trust's activities, including the Bangalore seminar, were in line with its charitable objectives and did not constitute trade or business. Citing various judicial precedents, the tribunal emphasized that the trust's activities were for the benefit of the industry and not for profit.

4. Principle of Mutuality:
The assessee also contended that its activities fell under the principle of mutuality, where the surplus generated was used for the benefit of its members and not distributed as profit. The tribunal observed that the surplus was incidental and used to further the trust's objectives, reinforcing that the activities were not commercial.

Conclusion:
The tribunal concluded that the assessee trust was entitled to exemption under Section 11, as its activities were not commercial but aimed at the advancement of the Fragrance and Flavours industry. The order of the CIT(A) was set aside, and the appeal of the assessee was allowed. The judgment emphasized that genuine charitable activities should not be excluded from exemption merely because they generate incidental surplus.