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TMI Blog2019 (6) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... ns yet there was express understanding between the appellant and the participants that the surplus, if any, remaining after meeting the cost and expenses for holding the events would be transferred to infrastructure fund of the appellant. We therefore find that the surplus generated from holding the events was an unintended surplus which the contributor at the outset had agreed to appropriate as their contribution to Own Infrastructure Fund of the appellant and therefore it was corpus in nature. Viewed from any angle therefore the surplus was not bearing income character in the hands of the appellant and therefore the lower authorities were unjustified in assessing the same as business income of the appellant. - Decided in favour of assessee Treating the corpus donation - admission fees from its members is exempt u/s 11(1)(d) or not? - HELD THAT:- As relying on DIVINE LIGHT MISSION. [ 2004 (4) TMI 25 - DELHI HIGH COURT] we hold that the membership fees received from members were towards the corpus and therefore rightly claimed exempt u/s 11(1)(d). The AO is therefore directed to delete the addition - Decided in favour of assessee - I.T.A. No. 278/Kol/2018 - - - Dated:- 3-6- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s. 11 r.w.s. 13(8) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) on the income of ₹ 91,10,026/- arising in the form of sponsorship out of the activity of holding fairs, meetings, conferences and seminars. 4. Brief facts of the case as observed by the AO are that the assessee filed its return of income on 29.09.2012 for the relevant AY 2012-13 declaring deficit income of ₹ 29,82,888/-. The case was selected for scrutiny through CASS in AST Module. Notices u/s. 143(2) and 142(1) of the Act along with questionnaire were issued and served on the assessee. According to AO, the assessee was registered u/s. 12A of the Act vide order No. DIT(E)/S-37/8E/238/91-92 dated 10.10.1995 and has claimed exemption u/s. 11 of the Act. The assessee was engaged in the promotion of commerce and industry relating to construction in general and building construction in particular. According to AO, during the course of assessment proceedings the assessee submitted that the assessee had received ₹ 3,94,70,967/- from different sponsors, most of whom are the members of the appellant-organization. These sponsors gav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard rival submissions and gone through the facts and circumstances of the case. We note that the appellant has been granted registration u/s 12AA of the Act since 1995 and onwards. Holding trade exhibitions and conferences has been the regular feature of the activities carried on by the appellant since its incorporation. In the past assessments completed u/s 143(3), the AOs never questioned the appellant s eligibility to claim benefit of Section 11 of the Act in respect of surplus realized from its activities of holdings fairs and exhibitions where members as well as non-members participated on payment of fees / sponsorship charges. We find that even in the preceding year i.e. AY 2011-12, the AO had allowed the appellant s claim for non-taxability of the sponsorship / participation fees received from the members for participating in trade fairs, exhibitions and conferences but denied the benefit of Section 11 in relation to the sponsorship / participation fees received from non-members. The Ld. CIT(E) was however of the opinion that the appellant s activity of holding trade fairs, exhibitions and conferences did not come within the ambit of Section 2(15) which defines the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the proviso introduced by the Finance Act, 2008 in Section 2(15) of the Act, the said activity could not be regarded to be charitable in nature and consequently therefore the benefit of Section 11 was not available to the appellant. We however find that since inception of the appellant it has been conducting the foregoing activities in furtherance of the objects of the company and in all the past assessments such activities were considered to be charitable in nature. We find that there was no material change in the factual matrix of the appellant s case though the change was brought about in Section 2(15) by introduction of proviso therein. On careful perusal of proviso to Section 2(15) it is noted that the object of advancement of general public utility is not be considered as charitable in nature if it involves carrying of any activity in nature of trade, commerce or business or any activity of rendering any service in relation to trade, commerce or business, for a cess or fee or other consideration. From the language employed by the Legislature while enacting the said proviso it is apparent that it is only when the activity of general public utility in itself involves carry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attainment of the main objects for which the appellant-institution was created and registered u/s. 12AA of the Act. In view of the foregoing facts we are of the considered opinion that the benefit of Section 11 could not be denied to the appellant only because it realized net surplus from activities which were undertaken in the pursuit of attaining main object of the organization which was considered to be charitable in nature by the Department itself at the time when registration u/s 12AA was granted and in the past assessments the benefit of Section 11 was also extended in respect of the self-same activities. 8. In this regard we note that the issue involved in the present appeal is coveredby the majority opinion of the Hon ble Supreme Court in Addl. CIT vs Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1. Even though the decision of the Hon ble Supreme Court was rendered in the backdrop of provisions of the IT Act, 1961 prior to introduction of the proviso in Section 2(15) of the Act yet in our considered opinion the judicial principles laid down in the said decision continue to hold field and therefore still applicable even after introduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid activities as commercial in nature. Accordingly, in view above, we are inclined to provide the relief to the assessee on the basis of consistency as there is no change in the objects and activities of the society. In this connection, we rely in the case of Radhasoami Satsang vs. CIT (1992) 193 ITR 321 where the Hon ble Supreme Court has held as under:- There is no dispute that the properties of the assessee are also recorded in the name of the Sabha (Central Council) and there is no personal interest claimed by the Sant Satguru in such property. Over the years the Satguru has never claimed any title over, or beneficial interest in, the properties and they have always been utilised for the purpose of the religious community. Even if the trust was revocable, the property was not to go back to the Satguru on revocation. The constitution and the bye-laws on record indicate in cl. 1(b) that where the property was given to the SantSatguru, it was intended for the common purpose of furthering the objects of the Sant Satguru and the Central Council had the authority to manage the property. Clause 9 of the document stipulated that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s twenty-five lakh rupees or less in the previous year The ld. CIT passed impugned order u/s 263 of the Act is treating the activities of the assessee as commercial in nature in terms of the clause of section2(15) i.e. advancement of any other object of general public utility . However we find that as per the proviso to section 15 along with the speech of the Finance Minister and CBDT circular number 11 of the 2008 dated 19thDecember 2008 make it clear that only the institution carrying on commercial activities are intended to be covered by the proviso, not the genuine charitable institutions. The activity will be deemed to be in the nature of trade, commerce or business only if the same is carried on with the intention to earn profit. The Courts in the series of decision have held that it is an activity carried on in a systematic manner with a view to earn profit, which will be termed as business . Accordingly in order to hold that the activity is in the nature of trade, commerce or business there should be profit motive. If during the course of carrying out any activity on non-commercial lines, some profit is received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d industry. Therefore, in our considered view the facts of the case are squarely applicable of case of Indian Chamber of Commerce Vs. ITO(Supra), wherein it was held that the activities of the assessee are charitable in nature. The relevant portion of the order is reproduced below:- 30. Hence in view of all the above, concluding this issue we hold that the purpose for which the assessee association, i.e. the Indian Chamber of Commerce was established is a charitable purpose within the meaning of s. 2(15) of the Act. The assessee is carrying out the said activities which are incidental to the main object of the Association and which are conducted only for the purpose of securing the main object which is the advancement and development of trade and commerce and industry in India. The activities are not in the nature of business and there is no motive to earn profit. The income arising to the assessee is only incidental and ancillary to the dominant object for the welfare and common good of the country s trade, commerce and industry. The profits earned are utilized only for the purpose of feeding its dominant object and no part of such profit is distributed amongst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when incurred were all separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of general public utility, it can never be the case that it is engaged in business trade or commerce or in any service in relation to business, trade or commerce. The individual nature and purpose of the specific activities, it is stated that the activities held by AO and the (A) to be business in nature, were as follows:- a) Meetings, Conference Seminars b) Environment Management Centre c) Fees for Certificate of origin 38. In view of the above decision, we are of the considered view 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 sec. 2(15) of the Act and also the definition of business in relation to the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustry in India. The income derived by the assessee from such activities was exempt under r/w s.11(1)(a) s. 2(15). There is a distinction between the purpose of a trust and powers conferred upon the trustees as incidental to the carrying out of the purpose. For instance, cl. 3(v) enables the establishment and support of associations, institutions, funds, trusts and convenience calculated to benefit the employees and their dependents, for making provision for grant of pension and allowances, etc. The framing of such employee benefit scheme is essential and necessary for the proper functioning of the organisation and is incidental to the carrying out of the purpose for which it is constituted. If the primary or dominant purpose of a trust or institution is charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or the institution from being a valid charity. Likewise, cl.3(z1) and (z2) which permit the establishment of a trust or trusts, appointment of trustees thereof from time to time and the vesting of funds or surplus income or any property of the assessee in the trustees, are nothing but powers conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indeed. One need not go in search of charitable persons amongst the taxpayers only. Still the majority view has got to be followed now. The main object of assessee being promotion, protection and development of trade, commerce, and industry in India, it was an object of general public utility and income derived from activities for advancing the dominant object was exempt under s. 11. 9. Since the factual matrix of the appellant s case for the AY 2012-13 is identical with that involved in AY 2011-12, we have no hesitation in holding that the ratio laid down in the decision of the coordinate Bench of this Tribunal holds good and applies to the year under consideration as well. Applying the said decision we hold that the appellant s activity of holding trade fairs, exhibitions and conferences was not in the nature of trade, commerce or business and therefore there was no violation of Section 2(15) of the Act. Accordingly we hold that the lower authorities were legally unjustified in not granting the appellant the benefit of Section 11 of the Act. 10. We also note that during the relevant year the gross receipts from the activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in future. 12. We therefore find that the surplus generated from holding the events was an unintended surplus which the contributor at the outset had agreed to appropriate as their contribution to Own Infrastructure Fund of the appellant and therefore it was corpus in nature. Viewed from any angle therefore the surplus of ₹ 91,10,026/- was not bearing income character in the hands of the appellant and therefore the lower authorities were unjustified in assessing the same as business income of the appellant. For the reasons set out in the foregoing therefore the addition of ₹ 91,10,026/- is deleted and hence, Ground Nos. 1 to 3 are allowed. 13. The next ground of appeal of the assessee is against the action of the Ld. CIT(A) in confirming the action of the A.O. in treating the corpus donation of ₹ 17,50,000/- in the form of admission fees from its members as not exempt u/s 11(1)(d) of the Act. 14. Brief facts are that the appellant had created the membership admission fees of ₹ 17,50,000/- received by it as corpus funds to the reserve fund and claimed exemption u/s 11(1)(d) of the Act when confronted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra), High Court of Bombay examined a similar question. Voluntary contribu-tions do not mean annual subscriptions. It amounts to gift made from disinterested motives for benefit of others. In Society of Writers to the Signet v. IRC [1886] 2 TC 257 (C Sess), the Court held that the entrance fees and subscriptions paid by entrants to a society or institution as a condition precedent to their membership and as the price of admission to the privileges and benefits of the society or institution are given under a contract and are not voluntary. In view of the Bombay High Court, membership and subscription amounts received by the assessee-trust/society from its members cannot be characterized as voluntary contribution within the meaning of the expression fund in section 12 of the Income-tax Act, 1961. 16. Thus there is a distinction between voluntary contribution and subscription. When a sum is paid in the nature of gift or a gratuitous payment to the trust without any consideration it would be considered as voluntary contribution. Subscription is not to be treated as voluntary contribution. 17. Voluntary contribution is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, laying down standards of quality in packing and so on. Where the activities with regard to income and property, in the form of mandate for application of income and property was solely for the promotion of the objects of the society, as indicated in the memorandum of association and by whatever method property or income was to be utilized by way of dividends, bonus or otherwise or by way of profits etc. For this, there were two sources about the funds for its activities, namely, grants made by the Government and subscriptions of its members. Section 4(3)(i) of the Income-tax Act, 1922 was for grant of exemption. Section 4(3)(i) reads as under :- Subject to the provisions of clause ( C ) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligations wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f grants and subscriptions from members which cannot possibly have received by the company except from its business. It was, therefore, submitted that the entire income of the company must be held to be the income derived from its business, which is its property. The Court pointed out that the entire business or the organization of the assessee commenced with the object of promoting the export trade of the country. The object was held as charitable purpose, as defined in the Act. The Court held that the income which the company received from the two admitted sources, namely, grants from Government and subscriptions from its members, was income which it could not have received but for its business or organization and it would, therefore, be income derived from such business or organization, which as shown can be held to be the property of the company. The Division Bench further pointed out:- We have already held that the property held under trust was the business or organization itself and whether we consider either of the two sources of income of this company, namely, the grant or the subscriptions from its members, both arose directly and substantially from tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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