2018 (10) TMI 1172 - AT - Income Tax

Denial of deduction u/s 44A - denial of exemption u/s 11 - special provision for deduction in case of trade, professional or similar association to the assessee, a Trade Association registered u/s 12A of the Income-tax Act, 1961 - as per AO it is an association of members existing for its members only and, therefore, it was a mutual association and assessee was carrying out activities in the nature of trade, business or commerce and/or providing services in relation thereto - proof of charitable activities - Held that - A perusal of the objects does lead to an inference that it is formed with the objects of promoting or protecting the interests of Rubber industry. Notably, assessee continues to be registered u/s 12A of the Act, and in that regard, its objects can be stated to be in the realm of advancement of objects of general public utility . The Assessing Officer has made out a case that since the objects are not for the benefit of general public at large, but are for a section of public inasmuch as the benefits are limited to the members of the assessee-association, therefore, the same is not charitable. In our view, the aforesaid approach of the Assessing Officer is contrary to the accepted legal position on this subject, and more so, considering that in assessee s own case for Assessment Year 1997-98 wherein held the expression object of general public utility in sec. 2(15) prima facie includes all objects which permits the welfare of the general public. It cannot be said that a purpose would cease to be charitable if it includes taking of steps for the promotion of trade, commerce or manufacture. An object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose, it is not necessary that the object must benefit the whole of mankind. It is sufficient if the intention is to benefit a section of the public. Thus no justification for the Assessing Officer to hold that since the objects of the assessee seek to promote and protect the interests of a particular trade, industry, the same loses the character of being charitable. A portion of the submissions furnished by the assessee have been reproduced wherein assessee specifically asserted that dissemination of information and publication of magazine relating to Rubber industry in India and developments abroad was a substantive activity carried out, which was for the charitable purpose of promoting the interests of Rubber industry and trade. Therefore, in view of the aforesaid discussion, in our view, the Assessing Officer erred in invoking proviso to Sec. 2(15) to treat the activities of the assessee as being non-charitable specifically considering the fact that no material or evidence has been led to show that there was any profit motive in carrying out such activities. Pertinently, there is no rebuttal at any stage to the assertions of the assessee that its activities in the instant years are similar to the activities in the past years. We set-aside the order of CIT(A) and direct the Assessing Officer to allow the exemption u/s 12A. Assessee s contribution towards the capital of a concern which is a Sec. 25 registered company under the Companies Act, 1956 - held that - No doubt, investment in shares of another concern is not a mode of investment prescribed in Sec. 11(5) of the Act; so however, the case set-up by the assessee herein is that it has made a contribution towards the corpus of the investee institution which is also a Sec. 25 company under the Companies Act, 1956. Notably, such companies are prohibited from declaring any dividend on its Share Capital and, therefore, in that sense, a person holding Share Capital in such a concern is not entitled to any return. Secondly, it is also clearly brought out that Rubber Sector Skill Council has been funded by the assessee along with ATMA as approved by the National Skill Development Corporation, i.e. Government of India in terms of a Memorandum of Understanding dated 16.03.2012, as noted by the Assessing Officer in para 6.1 of his order. It is also evident from the material on record that the said concern also holds registration u/s 12A of the Act. Considering all these aspects, in our view, it is not a case of investment of funds as envisaged u/s 11(5) r.w.s. 13(1)(d) of the Act, and rather it is a case where the money has been contributed towards promotion of the objects of the assessee-association itself. Thus, same cannot be treated as a violation falling within the purview of Sec. 13(1)(d) r.w.s. 11(5) - decided in favour of assessee

Issues Involved:
1. Denial of deduction under Section 44A of the Income Tax Act, 1961.
2. Denial of exemption under Section 11 of the Income Tax Act, 1961.
3. Application of the proviso to Section 2(15) of the Income Tax Act, 1961.
4. Characterization of the assessee as a mutual association.
5. Contribution to the corpus of Rubber Skill Development Centre and its compliance with Section 13(1)(d) of the Income Tax Act, 1961.

Detailed Analysis:

1. Denial of Deduction under Section 44A:
The assessee contended that it was a trade association registered under Section 12A of the Income Tax Act, 1961, and eligible for deduction under Section 44A. The CIT(A) denied this deduction, concluding that the appellant provided services to its members in lieu of membership fees, which amounted to remuneration for specific services. The Tribunal found that the CIT(A) erred in this conclusion and that the assessee's activities were in furtherance of its charitable objectives.

2. Denial of Exemption under Section 11:
The CIT(A) denied the benefit of exemption under Section 11, misapplying CBDT Circular No. 11/2008 and disregarding the submissions made by the assessee. The Tribunal noted that the assessee was registered under Section 12AA and had been carrying out activities of general public utility. The Tribunal emphasized that even if the benefits are for a section of the public, it would still be regarded as a charitable purpose. The Tribunal referred to the judgment of the Hon'ble Gujarat High Court in Hiralal Bhagwati vs CIT, which was affirmed by the Supreme Court in ACIT vs. Surat City Gymkhana.

3. Application of the Proviso to Section 2(15):
The Assessing Officer invoked the proviso to Section 2(15) to treat the activities of the assessee as non-charitable, arguing that the assessee was carrying out activities in the nature of trade, commerce, or business. The Tribunal referred to the Hon'ble Delhi High Court's judgment in India Trade Promotion Organisation vs DGIT (Exemptions) and other cases, which clarified that the proviso to Section 2(15) would not apply if there was no profit motive. The Tribunal found no evidence of profit motive in the assessee's activities and concluded that the proviso to Section 2(15) was wrongly invoked.

4. Characterization as a Mutual Association:
The Assessing Officer characterized the assessee as a mutual association, arguing that it could not be eligible for the benefits of Section 11/12 as it existed for the promotion of its members' interests. The Tribunal referred to various judgments, including PHD Chamber of Commerce & Industry vs DIT(E), which held that trade and professional associations could be entitled to exemption under Section 11, provided there was no profit motive. The Tribunal found that the assessee's activities were charitable and not driven by profit, thus rejecting the characterization as a mutual association.

5. Contribution to Rubber Skill Development Centre:
For the Assessment Year 2013-14, the Assessing Officer denied exemption under Section 11/12, citing that the assessee's contribution to the corpus of Rubber Skill Development Centre violated Section 13(1)(d) r.w.s 11(5). The Tribunal noted that Rubber Skill Development Centre was a Section 25 company under the Companies Act, 1956, and was registered under Section 12AA of the Income Tax Act. The contribution was towards the corpus and not an investment. The Tribunal concluded that this contribution was for the promotion of the assessee's objects and did not violate Section 13(1)(d) r.w.s 11(5).

Conclusion:
The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow the exemption under Section 11/12 of the Income Tax Act, 1961, to the assessee. The Tribunal also held that the assessee's activities were charitable and not driven by profit, and thus, the proviso to Section 2(15) did not apply. The appeals for all the assessment years were allowed.

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