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TMI Blog2018 (6) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... or earning profits. A PE to come into existence, within the meaning of Article 5 of the said DTAA, in the first place there should be a fixed place of business through which the business of an enterprise is wholly or partly carried on. Once we hold that the Applicant works on the principle of mutuality and is not an enterprise set up for the purpose of doing business or earning profit, the question of any PE coming into existence does not arise. The Liaison Office (LO) proposed to be established would not be liable to tax in India under the provisions of the Income-tax Act, 1961 or the India-Belgium DTAA. Membership fee and contribution from members received by IZA Belgium from the Indian members would not be liable to Income-tax in India under the provisions of the Income-tax Act, 1961 or the India-Belgium DTAA. - A.A.R. No 1319 of 2012 - - - Dated:- 24-5-2018 - Mr. R.S. Shukla, In-Charge Chairman And Mr. Ashutosh Chandra, Member ( Revenue ) For the Applicant : Mr. S P Singh, AR Mr. RishabhAgarwal, AR Mr. KeshavAgarwal, AR Mr. AmitPahwa, AR For the Department : Ms. KavitaPandey, CIT (DR) Mr. VijayendraR, ACIT (DR) RULING ( By Ashutosh Chandra ) In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the following questions to us for a Ruling: (1). Whether on the facts and circumstances of the case, the representative/liaison office (LO) proposed to be established by IZA in India would be liable to income-tax in India under the provisions of the Act or the provisions of Double Taxation Avoidance agreement between Indiaand Belgium ( India Belgium DTAA )? (2). Whether on the facts and circumstances of the case, membership fee and contribution from members received by IZA Belgium from the Indian members would be liable to Income-tax in India under the provisions of the Act or the provisions of India-Belgium DTAA? 4. In its report submitted by the Revenue, it is stated that the Applicant is offering a variety of services to its members ranging from advocacy for zinc usage,participation in conferences for training knowledge sharing-business networking, technical and marketing services, commercial listing etc. Due to these specific services rendered for its members, income derived by IZA, the Applicant,falls under section 28(iii) of theAct, liable for taxation under the head Profits and Gains of Business and Profession . The services include the following:Represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Association, and is the only global industry association dedicated exclusively to the interests of Zinc and its users. This requires funds / resources, and the Applicant collects the participation fees for such events, where evensome non-members may be allowed to attend. However, it is clear that if membersare to attend such events, discounts are allowed to all the members and not on selective basis to a few of them. Accordingly, the provisions of section 28(iii) of the Act cannot be invoked in this case also. 4.4 It is submitted that Representation and Technical Expertise are also not in the nature of specific services being rendered by the Applicant to its members and are performed in the ordinary course of the Applicant s operations for its members. 4.5 Activities like providing training and networking opportunities, technical and marketing materials, organizing conferences and workshops etc, are performed with an objective to create and spread awareness for Zinc and its users which are completely in line with its key aim to help sustainlong-term global demand for Zinc by creating awareness about the key end uses of Zinc. It is stated that these services are neither s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awareness about zinc and its uses by other organizations / associations. The participation / sponsorship fees was collected with the prior approval of the Reserve Bank of India, and was necessitated by the large scale of such event (i.e., IGC- 2014). Further, the LO did not make any profits from such receipt and the entire funds collected in relation to the same were spent on organizing it. 4.10 It is therefore stated that the collection of such participation fees /sponsorship fees cannot be held to have violated the doctrine of mutuality which is squarely applicable in the Applicant s case. The case of CIT v. Standing Conference of Public Enterprises (SCOPE) [2010] 186 Taxman 142 (Delhi) has been cited in this regard. 4.11 It is stated that the facts of the aforesaid case are squarely applicable to its case. The Applicant is the only global industry association dedicated exclusively to the interests of Zinc and its users, and helps sustain long-term global demand for Zinc by creating awareness about the key end uses of Zinc such as corrosion protection for steel, the essentiality of Zinc in human health and crop nutrition/fertilizers. The Article 8 of the Articles of Associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent usage of zinc and providing market opportunities to the members. It is rendering technical expertise to various member entities. These are business activity. The Applicants states that it is a well settled law that where the principle of mutuality is found to be valid in a case, any receipts or income cannot be brought to tax. Without prejudice it is submitted that the ruling of the Hon ble Delhi High Court in the case of ICAI v. Director General of Income-tax (Exemptions), Delhi [2013] 35 taxmann.com 140 (Delhi) relied upon by the Revenue in support of its argument has been selectively quoted. 6. The Revenue has also stated that in the event of dissolution of the Applicant, the surplus (if any) shall be allocated to another non-profit organization with similar objectives and will not be available for distribution among the members of the Applicant, therefore, the principle of mutuality will not be satisfied. In this regard the Applicant has submitted that in the case of SCOPE (supra), the principle of mutuality was upheld despite the fact that treatment of surplus on dissolution of the assessee s case was precisely the same as in the case of the Applicant. Further, dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for its members, income derived by it falls under section 28(iii) of theAct, as Profits and Gains of Business and Profession . We are unable to agree. The Applicant is a not-for-profit organization and works for the benefit of its members on the principle of mutuality, that is on the dictum that one cannot earn from oneself. Acting as per its objects, it is hosting members information on its website, publishing various materials, organizing conferences, representing its members etc., not aimed at deriving any profit. Such services may be customized and focused but are not special services in the sense that their utility is not restricted to a few beneficiaries, but across the board to all members and those in this industry. Besides, these are rendered in the ordinary course of its activities and are as per its stated objects, which it has been permitted to carry out by the RBI is being allowed to set up the LO in India. There are no services focused at any specific member or the benefit of which is denied to others. Similarly, the use of communication materials and its websites are for the benefit of all the member companies, and general facilities for all its members. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.4.1 The above view gets support from decision of the Hon ble Madras High Court in the case CIT v. South Indian Films Chamber of Commerce (supra) wherein the Hon ble High Court held that the provisions of section 28(iii) of the Act will not be attracted in a case where profit-making was only incidental and not the means of achieving the main objects. So long as the objects of the assessee were charitable and the income arose from the fulfillment of its objects, the receipts so derived could not be brought to tax. 8.5 The other contention of the Revenue is that with the receipt of outside subscription, i.e. from non-members, the mutuality principle has been breached. It is argued before us by the Applicant that in the course of carrying out its activities, the LO organizes numerous events in India like conferences etc. No fees is charged, rather expenditure is incurred. Only in the IGC-2014 participation / sponsorship fees was collected with the prior approval of the RBI, considering the large scale, which required financial support from the participants and stakeholders. The LO did not make any profits from such receipt and the entire funds collected in relation to the same wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then only it would be treated as tainted with commerciality. The fact that the assessee-society had let out part of the premises to its members and was receiving rents and also giving the convention centre to non-members was not sufficient to clothe the activity of the assessee-society as commercial activity, which was not the object with which the assessee-society was formed. Simply because some incidental activity of the assessee-society is revenue generating, the same does not provide any justification to hold that it is tainted with commerciality and reaches a point where relationship of mutuality ends and that of trading begins. 8.5.3 We agree that the above findings are applicable in the instant case, as the facts are similar. The Applicant has also been created with the objective of providing services for the promotion of zinc. Article 8 of the Articles of Association of the Applicant also provides that in case of dissolution of the Applicant, the surplus (if any) shall be allocated to another non-profit organization having a similar purpose and will not be available for distribution among the members; it does not have its motive to earn profits. Except in IGC-2014, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not. The Applicant s case also is primarily for the service to its members with defined objects to that end, and mere receipts from some non-members, that too for the services rendered to all others in line with its stated objectives, will not convert its activities to business. 8.7.1 During the course of these proceedings, the Applicant was asked whether the objects had any clause that permitted it to provide services to the public at large, or to nonmembers. Our attention was drawn to the Articles of Association to demonstrate that none of the clauses indicate that the Applicant intended to do any business or render services to nonmembers. The extract of the accounts furnished during the course of these proceedings also show that the Applicant s total receipts for the FY 2014-15 from all Indian members and nonmembers (including fees received directly from Indian members in Belgium) was INR 4,92,87,663, against which the receipts in the LO from the non-Members (sponsorship and participation) amounted to INR 36,95,697, which works out to only 7.50%. When seen for the FYs 2012-13 to 2015-16, against total receipts from Indian members and nonmembers of INR 18,04,25,163, the receip ..... X X X X Extracts X X X X X X X X Extracts X X X X
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