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2019 (4) TMI 662 - AT - Income TaxExemption u/s 11 - charitable activity u/s 2(15) - main object of assessee trust - HELD THAT - The Trust is sponsored and the nature of activities of the trust is to provide credit insurance cover to Indian Exporters keeping in view of the national interest. The Trust is sponsored by Govt. of India with the objective to promote exports, improve competitiveness of Indian exports and to implement schemes formulated by the Govt. of India for the benefits of medium and long term exporters in national interest. Certainly, none of the above objectives are tainted with motive of trade, commerce or business as Govt. of India is not into business of providing Credit Insurance. Wherever, it has intended to do so, it has been done through Corporate structure e.g. ECGC of India Ltd. (Export Credit Guarantee Corporation) which does the credit insurance activity on commercial basis with Govt. of India as the sole shareholder with a premium and other income of ₹ 1020 crores (appx) and a net surplus of ₹ 171 (approx) for FY 2012-13. On the basis of the above, NEIA s activity cannot and should not be considered to be in nature of trade, commerce or business. Since the dominant and prime object of the assessee is not to earn the profit in relation to trade, commerce and business, therefore, the exemption u/s.11 & 12 is not liable to be declined. Accordingly, we set aside the finding of the CIT(A) in this issue and allowed the claim of the assessee. Corpus donations - disallowance in sum of ₹ 190 crores received during the year from Central Government of India accounted as Corpus Contribution - HELD THAT - Relying on decision in CREDIT GUARANTEE FUND TRUST FOR MICRO AND SMALL ENTERPRISES VERSUS ITO-1 (1) , (EXEMPTIONS) , MUMBAI 2018 (2) TMI 1875 - ITAT MUMBAI mere action of charging fee for services, by itself, would not justify invoking of the proviso to section 2(15) unless it is established that the purpose and object is profit motive. Considering the entirety of circumstances we are unable to find any credible reasoning taken by the Revenue to say that the purpose and object of the assessee Trust falls within the meaning of expression trade, commerce or business used in the proviso to section 2(15) - the assessee Trust has been settled by the Government of India and SIDBI. The trust deed brings out the objects and purpose for which the assessee Trust has been set up, namely, to mitigate the difficulties faced by the small scale industries and micro enterprises in availing credit facilities from various lending institutions. It is also to be noted that the object and purpose of the Trust is focussed on small scale industries and micro enterprises and is not available to entrepreneurs at large. Apart there-from, it is also prescribed in the scheme operationalized by the Trust that the benefits are to be made available only to credit facilities aggregating upto ₹ 10.00 lacs sanctioned and disbursed by the lending institutions. Therefore, it could not be inferred that there is any profit motive so as to view the activities to be trade, commerce or business as understood for the purposes of proviso to section 2(15) - it is not possible to infer that assessee Trust is carrying on any regular trade, commerce or business and on the contrary it is an entity which is essentially existing for charitable purposes but conducting some activities for consideration or fee. - Decided in favour of assessee.
Issues Involved:
1. Granting of exemption claimed under Section 11(1)(a) of the Income Tax Act, 1961. 2. Applicability of Section 11 of the Income Tax Act. 3. Assessment of ?190 Crores received from the Central Government as income. 4. Treatment of ?190 Crores as a liability rather than corpus contribution. Issue-wise Detailed Analysis: Issue 1: Granting of Exemption Claimed Under Section 11(1)(a) of the Income Tax Act, 1961 The primary issue was whether the assessee's activities qualify as "Charitable Purpose" under Section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) applied the first proviso to Section 2(15) and declined the exemption under Sections 11 and 12, arguing that the assessee’s activities were in the nature of business, trade, and commerce. The assessee trust was established to implement the NEIA Scheme through ECGC for the benefit of medium and long-term exporters, and it received policy premium payments from various entities. The Tribunal noted that the trust's activities were aimed at providing credit insurance cover to Indian exporters in the national interest, sponsored by the Government of India. The dominant and prime objective of the trust was not profit-making but to promote exports and improve competitiveness. The Tribunal referenced the Delhi High Court's decision in India Trade Promotion Organization vs. DGIT(E), emphasizing that the dominant and prime objective should be considered to determine whether the activities fall under "trade, commerce, or business." The Tribunal concluded that since the trust's primary objective was not profit-making, the exemption under Sections 11 and 12 should not be declined. The finding of the CIT(A) was set aside, and the claim of the assessee was allowed. Issue 2: Applicability of Section 11 of the Income Tax Act The assessee argued that since it held registration under Section 12AA, the provisions of Section 11 should be applied in assessing its income. The Tribunal upheld this view, reiterating that the trust’s activities were charitable in nature and not driven by profit motives. Therefore, the exemption under Section 11 was applicable. Issue 3: Assessment of ?190 Crores Received from the Central Government as Income The AO assessed the ?190 Crores received from the Central Government as income, which was contested by the assessee. The Tribunal referred to a similar case, Credit Guarantee Fund Trust vs. ITO (Exemption), where it was held that the purpose of the trust was charitable, and the mere charging of fees did not imply a profit motive. The Tribunal found that the ?190 Crores received were in the nature of grants for specific purposes and not income. The dominant objective was to support small scale industries and micro enterprises, which aligned with charitable purposes. Hence, the amount should not be assessed as income. Issue 4: Treatment of ?190 Crores as a Liability Rather than Corpus Contribution The Tribunal noted that the CIT(A) had observed that the ?190 Crores represented grant-in-aid and were liable to be surrendered if not utilized, thus representing a liability rather than corpus contribution. The Tribunal agreed with this view, setting aside the CIT(A)’s finding and allowing the claim of the assessee. Conclusion The appeal filed by the assessee was allowed. The Tribunal ruled that the trust’s activities were charitable and not driven by profit motives, thereby qualifying for exemptions under Sections 11 and 12 of the Income Tax Act. The ?190 Crores received from the Central Government were deemed as grants and not income, and the amount was treated as a liability rather than corpus contribution.
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