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TMI Blog2012 (11) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... withstanding that some of the associations charged their members fees for specific services rendered. It is not proper to characterise the activities of the chamber as activities amounting to a business in the generally understood sense of the word, the most important feature of business being profit motive. It has not been suggested by the income tax authorities that the activities carried out by the assessee chamber were propelled by any profit motive. In such circumstances, it is proper to view the activities as driven by a charitable motive in the sense in which a charitable purpose is defined in Section 2(15). In this view of the matter, the provisions of Section 11(4A) are not attracted to the present case and a remand to the AO for finding out whether the activities were incidental to the objectives of the trust and separate books of accounts were maintained for such business was unnecessary - in favour of the assessee. - ITA No.368-369/2012 - - - Dated:- 19-10-2012 - S. Ravindra Bhat And R V Easwar, JJ Appellant Rep. by : Mr. C S Aggarwal, Sr.Adv with Mr. Prkash Kumar, Adv Respondent Rep. by : Mr. Anupam Tripathi, Sr.Standing Counsel with Mr. Sumit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for such activities. The Tribunal however held that the activities carried on by the assessee were charitable activities and a certificate of registration was also granted under Section 12A and, therefore, the only enquiry that can be carried out was whether the business carried on by the assessee was incidental to the attainment of the objects of the assessee and whether separate books of accounts were maintained for such business. The matter was thus restored by the Tribunal to the Assessing Officer for conducting the enquiry. 3. In respect of the assessment year 2007-08, the Tribunal followed its order for the assessment year 2006-07 and restored the matter to the Assessing Officer with the same directions. 4. It is relevant to reproduce the order of the Tribunal for the assessment year 2006-07 passed on 31st March, 2011, which was followed by it for the assessment year 2007-08. 5.2 The provision contained in section 11(4A) is clear to the effect that various deductions u/s 11 shall not be admissible in relation to any income, being profits and gains of business profit. Thereafter, a concession is also given that if (i) the business is incidental to attainment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose. 5. It may be added that against the order passed by the Tribunal for the assessment year 2006-07 in ITA 1233/Del/2010, the assessee filed a miscellaneous application under Section 254(2) of the Act in MA No.133/Del/2011 seeking rectification of certain mistakes which according to it were apparent from the record in the order of the Tribunal; however the miscellaneous application was rejected by the Tribunal by order pronounced on 14th October, 2011, the relevant extracts from which are as under: 3. We have considered the facts of the case and submissions made before us. The import of the remark made in paragraph no.5 of the order of the Tribunal is not what is understood by the ld. counsel. The finding of the AO is that the assessee is carrying on certain activities which are in the nature of business. However, the finding of the ld. CIT (A) is that since the activities are carried on in pursuance of the objects, the activities do not constitute business. Further, it has also been held that the mode of earning is not the sine qua non for grant of deduction u/s 11(1) and what is to be seen is that the income howsoever earned should be applied towards the objects of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om specific services performed for its members will be brought to charge under the head profits and gains of business or profession . The assessee is a Chamber of Commerce and in the course of pursuing its objects renders several services to its members such as certification, committee room services, secretarial services and facilities, energy audit etc. Some of the services are also rendered to non-members for a higher fee. The assessee also lets out space to members as well as non-members. In the opinion of the Tribunal, the Assessing Officer was not right in the characterisation of these services, both to the members as well as non-members, as non-charitable activities; however, it upheld the view of the Assessing Officer that in rendering these services the assessee was carrying on a business activity. 8. The nice question as to whether by rendering specific services to members and non-members for a fee, a trade, professional or similar association can be said to be carrying on a business activity needs to be examined. The further question to be addressed, with reference to Section 11(4A), would be whether such activities (which amount to a business) were incidental to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra). It would, therefore, appear that judicial thinking was never in favour of the view that the services performed by a trade, professional or similar association, such as a chamber of commerce and industry, were in pursuit of a business or trade with a profit motive. 9. In Delhi Stock Exchange Association Ltd. vs. CIT (1997) 225 ITR 235 (SC), the approach adopted in the case of a stock exchange was that if there is no obligation that the income from the properties held by the assessee was to be exclusively used for charitable purposes and if it was open to the assessee, under its constitution, to distribute the whole or part of the income as dividend amongst its shareholders, then there would be no exemption under Section 11 of the Act. In Additional Commissioner of Income-tax v. Delhi Brick Kiln Owners Association (1981) 130 ITR 55 a Division Bench of this Court, applying the judgment of the Supreme Court in CIT vs. Surat Art Silk Cloth Manufactures Association (supra) and CIT vs. Andhra Chamber of Commerce (Supra) applied the dominant intention theory and held that an association formed to promote brick kiln trade, which did not involve the carrying on of any activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on by the association in the sense that there is a profit motive which drives the carrying on of the activity. 11. We are fortified in our view by a judgment of the Madras High Court where this question was directly considered in CIT vs. South Indian Film Chamber of Commerce (1981) 129 ITR 22. The question before the High Court was with specific reference to Section 28(iii), which was whether the income derived by the South Indian Film Chamber of Commerce by way of services rendered by it to its members is not liable to be charged to tax under Section 28(iii). The Film Chamber was formed to encourage and develop the film industry and protect the interests of the film trade in general and to do various other things for the purpose of assisting the persons engaged in this line of activity. It assisted the members by supplying them raw materials and carbon, keeping the films in safe custody, screening the pictures for preview in its theatre etc. For these services, the film chamber was in receipt of fees. It also provided arbitration services for a fee. The question was whether these receipts were exempt under Section 11 on the ground that the film chamber of commerce was engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 28(iii) the definition would apply so as to bring to tax the income as a business income only if the income was not covered by any exemption available under the Act. Section 28(iii) cannot be read in isolation, but has to be read with the other provisions of the Act. ..This is not a case where the object of public utility is sought to be achieved by these activities. Therefore, the fact that there was income does not by itself solve the problem. The profit-making was only an incident and not the means of achieving the object of public utility. So long as the object was charitable and so long as the income was not earned from an activity which was by itself designed to achieve the object of general public utility, the exemption cannot be denied. Reference was made to Section 10(23A), as it existed at that time. This sub-section provided for complete exemption of the income of an association or institution established in India having as its object the control, supervision, regulation or encouragement of the professions of law, medicine, accountancy, engineering or architecture and such other professions notified by the government. The learned Judge, after noticing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. 13. The judgment of the Supreme Court in the case of Surat Art Silk (Supra) is significant also for the reason that the earlier judgment in Indian Chamber of Commerce vs. CIT (1975) 101 ITR 796 was overruled. It was held that the Court would not be justified in drawing the inference that the activity is driven by a profit motive merely because the activity resulted in profit. It was also held that it was not at all necessary that there must be a provision in the constitution of the trust or institution that the activity shall be carried on, on no profit no loss basis or that profit shall be proscribed . 14. The reason for the introduction of Section 10(6) of the old Act or Section 28(iii) of the new Act is, as already noted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otive of private profit. These decisions do establish that the receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii) would still be entitled to the exemption under Section 2(15) read with Section 11, provided there is no profit motive. 16. A survey of the decided cases shows that trade and professional associations have been held entitled to the exemption under Section 11. An association of businessmen who sold goods on hire purchase [Add. CIT vs. South India Hire Purchase Association (1979) 116 ITR 793], an association of traders dealing in photographic and connected trades [Commissioner of Income-tax v. South Indian Photographic and Allied Trades Assn (1987) 166 ITR 166], and an association consisting of Kirana Merchants (Madras Kirana Merchants Association v. CIT, (1978) 111 ITR 156) were held by the Madras High Court to be eligible for the exemption under Section 11 notwithstanding that some of the associations charged their members fees for specific services rendered. Other cases on similar lines are: NAME OF CASE CITATION ASSOCIATION OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther a member of the Company or otherwise. Clause 3 of the articles of association categorises the members as follows: - patron members, ordinary members, professional members, association members, overseas members and honorary members. The procedure for admission to membership is set out in detail in clause 10 of the articles of association. The financial statements and the audited accounts for the years ended 31st March, 2006 and 31st March, 2007 have been placed before us; they were also placed before the Assessing Officer. The income of the assessee under various heads such as membership subscription, specialised services, services and facilities, meetings, seminars and training programmes (net), legal and arbitration fee, sale of publications (net), miscellaneous etc. have been separately shown in the income and expenditure account, against which the expenditure is set of. The entire surplus which amounted to Rs 32,92,986/- was taken to the general reserve; it was not distributed as dividend or profits. For the year ended 31st March, 2006, there was a deficit of Rs 63,67,202/- which was also transferred to the general reserve. 18. The Tribunal in the present case disappro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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