2015 (8) TMI 170 - AT - Income Tax

Eligibity for exemption under section 11 - CIT(A) allowed claim - whether the assessee association is not hit by amended provisions of section 2(15) of the Act under the object of general public utility? - Held that - In the given facts and detailed reading of the various judicial decisions through the years, interpreting the definition of charitable purpose as laid out in section 2(15) of the Act and also the definition of business in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was charitable in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be charitable in nature. Hon ble Apex Court in the earliest case of Andhra Chamber of Commerce (1964 (10) TMI 19 - SUPREME Court) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view the basic principle underlying the definition of 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. Accordingly, in the given facts of the case as discussed above in detail, the assessee association s primary purpose was advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act - Decided in favour of assessee.

Issues Involved:
1. Eligibility of the association for exemption under section 11 of the Income Tax Act.
2. Applicability of amended provisions of section 2(15) of the Income Tax Act.
3. Nature of activities of the association and whether they qualify as charitable under section 2(15) of the Income Tax Act.
4. Whether the collection of certification fees, membership fees, and other incomes are incidental to the main charitable activities.

Detailed Analysis:

1. Eligibility for Exemption under Section 11:
The Revenue's grievance was that the Commissioner of Income Tax (Appeals) erred in holding that the association is eligible for exemption under section 11 of the Act. The Commissioner of Income Tax (Appeals) concluded that the activities of the assessee qualify as charitable under section 2(15) of the Act. The Appellate Tribunal upheld this decision, noting that the activities of the Council for Leather Exports (CLE) are aimed at assisting its members in extending their global reach, thus increasing their exports, which aligns with the definition of charitable purposes under section 2(15).

2. Applicability of Amended Provisions of Section 2(15):
The Assessing Officer denied the exemption under section 10(23C)(iv) of the Act, arguing that the activities of the assessee were in the nature of trade, commerce, or business, thereby invoking the amended provisions of section 2(15). The Commissioner of Income Tax (Appeals) disagreed, stating that the activities of the association fall under "any other object of general public utility" and are not in the nature of trade, commerce, or business. The Tribunal supported this view, referencing the Delhi High Court's ruling in India Trade Promotion Organization Vs. Director General of Income Tax (Exemptions) & Others, which emphasized that the dominant and prime objective of the institution should be considered to determine if it is established for charitable purposes.

3. Nature of Activities and Qualification as Charitable:
The Assessing Officer observed that the association's activities were only for registered members and not for the general public, thus considering them commercial. However, the Commissioner of Income Tax (Appeals) and the Tribunal noted that the activities of the association benefit a distinct group of the population, namely exporters of leather goods, and thus qualify as charitable. The Tribunal cited the case of The Southern India Chamber of Commerce & Industry, where it was held that similar activities were incidental to carrying out the charitable objects of the association.

4. Collection of Fees and Incidental Activities:
The Assessing Officer highlighted that the association received various incomes such as membership subscription, certification fees, and interest on deposits, and had a surplus, suggesting commercial activity. The Commissioner of Income Tax (Appeals) clarified that these receipts were incidental to the main charitable activities. The Tribunal agreed, noting that the surplus from such activities does not indicate a profit motive but rather supports the primary charitable purpose. The Tribunal referenced multiple judicial decisions, including the Kolkata Bench's ruling in Indian Chamber of Commerce Vs. ITO(Exemption), which held that such receipts are incidental and do not constitute business income.

Conclusion:
The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to grant the exemption under section 10(23C)(iv) of the Act to the association. It concluded that the association's activities are charitable in nature, falling under "any other object of general public utility," and are not in the nature of trade, commerce, or business. The appeal of the Revenue was dismissed, affirming that the association is entitled to the claimed exemptions.

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