2021 (10) TMI 224 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - applicability of newly inserted proviso to section 2(15) - withdrawing the registration under section 12A of the Act on the ground that the assessee is not covered under the term charitable purpose as defined in section 2(15) - HELD THAT - MOA provides that the income and property of the Association whensoever derived shall be applied solely towards the promotion of the objects of the Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise howsoever by way of profit to the persons who at any time are or have been members of the Association or to any person claiming through any of them - members of the assessee chamber do not stand to gain personally since no portion of the income or property is paid or transferred directly or indirectly by way of dividend or bonus or otherwise. Further, even on winding up, the members cannot claim any share in the surplus assets. These facts highlight the fundamental fact that the assessee by and large strives to promote and protect the trade, commerce and manufacturers of India without seeking to make profits for its members. Tribunal after considering the proviso to section 2(15) of the Act and the CBDT Circular No. 11/2008 dated 19.12.2008 (which was issued pursuant to the proviso being inserted in the Act) held that the definition of the term charitable purpose remained unaltered even on amendment in the section 2(15) of the Act w.e.f. 01.04.2009, though the restrictive first proviso was inserted therein. Hence, the assessee was not hit by newly inserted proviso to section 2(15) of the Act. The issue in present appeal is also covered in favour of assessee in the case of Indian Chamber of commerce 2014 (12) TMI 256 - ITAT KOLKATA because of its income streams noted above. We also noted that the amounts received are not in nature of trade (since there is no exchange of goods either for goods in return or money) or commerce (since it is not engaged in purchase and sale of goods) or business (since we are a non-profit making body formed with the promotion of protecting the trade, commerce and manufacture of India and in particular the Bombay Presidency). In view thereof, we hold that the activities carried out by the assessee chamber continue to be charitable in nature even under the amended definition under section 2(15) of the Act and assessee is entitled for exemption under section 11 - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under section 11 of the Income-tax Act, 1961.
2. Applicability of the proviso to section 2(15) of the Act.
3. Charitable purpose definition under section 2(15) of the Act.
4. Interpretation of legislative intent behind the amendment to section 2(15) of the Act.
5. Analysis of the dominant object of the trust.

Issue-wise Detailed Analysis:

1. Denial of exemption under section 11 of the Income-tax Act, 1961:
The primary issue in this appeal was whether the assessee was entitled to exemption under section 11 of the Act. The CIT(A) confirmed the action of the Assessing Officer (AO) in denying the exemption, holding that the proviso to section 2(15) was applicable as the assessee rendered services related to commercial activity for fees. The assessee, a non-profit company incorporated in 1924, claimed exemption under section 11 for the A.Y. 2009-10, but the AO denied this, leading to an appeal before the CIT(A), which was dismissed.

2. Applicability of the proviso to section 2(15) of the Act:
The CIT(A) held that the activities of the assessee were commercial in nature and thus hit by the proviso to section 2(15) of the Act. The proviso states that advancement of any other object of general public utility shall not be a charitable purpose if it involves trade, commerce, or business activities for a fee. The CIT(A) noted that the assessee charged fees for services like seminars, interest income, and sale of publications, indicating a commercial nature.

3. Charitable purpose definition under section 2(15) of the Act:
The Tribunal examined the amended definition of 'charitable purpose' under section 2(15) of the Act. The Finance Act, 2008 amended the definition to include relief of the poor, education, medical relief, and preservation of the environment, and excluded activities involving trade, commerce, or business. The Tribunal noted that the assessee's activities, such as promoting trade and commerce, were not for profit as no portion of income or property was paid to members, even on winding up.

4. Interpretation of legislative intent behind the amendment to section 2(15) of the Act:
The Tribunal considered the Finance Minister's speech and legislative intent, which aimed to exclude entities carrying on regular trade, commerce, or business from the definition of 'charitable purpose.' The intent was not to affect genuine charitable organizations. The Tribunal emphasized that the dominant activity should not be profit-making but should advance an object of general public utility.

5. Analysis of the dominant object of the trust:
The Tribunal analyzed the objectives of the assessee, which included promoting and protecting trade, commerce, and manufacturers of India. The income streams, such as fees for certificates of origin, secretarial services, and seminars, were found to be incidental to the main charitable objectives. The Tribunal cited the Delhi High Court's decision in India Trade Promotion Organization v. DGIT(E), which held that if the dominant activity is not business, incidental activities do not fall under trade or commerce.

Conclusion:
The Tribunal concluded that the assessee's activities were charitable in nature and not driven by profit motives. The assessee was entitled to exemption under section 11 of the Act, and the AO was directed accordingly. The appeal was allowed in favor of the assessee.