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TMI Blog2023 (1) TMI 1346X X X X Extracts X X X X X X X X Extracts X X X X ..... e phrase general public utility (GPU) in the definition of charitable purposes primarily on the grounds that the institutions were carrying on trade, commerce or business for consideration, which does not qualify as GPU under the provisions of the Act as amended by Finance Act (FA), 2008 read with subsequent amendments. Before the Hon ble supreme court (supra), in the cases of most of the entities, there is no dispute as to the activities involved in the appeal qualified as GPUs within the meaning of the term charitable purposes , but the dispute was in respect of the meaning of fee, cess or other consideration and its impact on construing whether the activity falls under to the description of trade, commerce or business . Hon ble Supreme Court held that where fee, cess or other consideration is statutorily fixed or where it represents recoupment of cost or cost with nominal mark up, the activity may not be construed as trade, commerce or business and will be excluded from the mischief of commercial activity under the amended provision. If, however, fee, cess or other consideration charged is substantially higher over cost, it is tainted with trade, commerce or business and will qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this common order for convenience. 2. Firstly, we take up the appeal of the assessee for assessment year 2012-13. The grounds raised by the assessee in its appeal are reproduced as under: The Appellant appeals against the impugned order dated 11.11.2016 passed by the Commissioner of Income-tax (Appeals)-1, Mumbai (the CIT(A)) (received by it on 12.12.2016), under section 253 of the Income-tax Act (the Act), on the following amongst other grounds each of which is in the alternative and without prejudice to any others: 1. Whether the CIT(A) erred in upholding the action of the learned Assessing Officer (AO) in denying the Appellant's claim for exemption under section 11 of the Act and thereby assessing it on a total income of Rs.21,78,74,270/-. 2. Whether the CIT(A) ought to have held that the object of general public utility pursued by the Appellant did not involve the carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business and, therefore, proviso to section 2(15) of the Act had no application to its case. 3. Whether the CIT(A) ought to have held that activities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹8,97,94,173/-. The return of income filed by the assessee was selected for scrutiny assessment and the statutory notices under the Income-tax Act, 1961 (in short, the 'Act') were issued and complied with. In the scrutiny proceedings, the Assessing Officer observed receipts from membership, subscription fees, grants from Government of India, income from publication, exhibitions, award functions etc. Regarding the activity of conducting exhibitions, the Assessing Officer was of the view that it was a commercial activity, which prima-facie falls in the nature of trade or business, in view of expression "Business" having wide meaning in fiscal statues. He also inferred profit motive to the assessee based on the fact that term deposits placed with the banks at the end of the year was of ₹33,20,71,475/- giving rise to interest of ₹6,13,47,543/-. According to the Assessing Officer, the assessee was generating huge profit year after year from its activities. The learned Assessing Officer referred to amendment to the definition of charitable purpose to section 2(15) of Act with effect from 01/04/2009, wherein it is prescribed that advancement of any other object of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stration under section 12A of the Act would not ipso facto entitle the assessee for claim of exemption under section 11 of that unless conditions stipulated therein and other relevant provisions in this behalf are fulfilled by the assessee. The reliance placed by the assessee on the order of first appellate authority and the Tribunal for assessment year 2009-10 and 201011 was not found to be relevant by him in view of the proviso to section 2(15) of the Act and rejected the plea of the assessee of application of rule of consistency. The Ld. CIT(A) finally upheld the action of the Assessing Officer for: (i) disallowance of benefit under section 11 of the Act in respect of the income including income from exhibition, in view of express provision of section 13(8) of the act. (ii) denial of carryforward of deficitby in the year under consideration, holding that facts of the assessment year 2004-05, where the ITAT allowed such carryforward, are different 3.3 Aggrieved with denial of benefit of provisions of section 11 and carryforward of deficit, the assessee is before the Tribunal by way of raising grounds as reproduced above. 4. We have heard rival submission of the parties on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee amounts to trade, commerce or business or activity of rendering services in relation to trade, commerce or business. 5.1 In this regard, the ld. consul of the assessee has brought our attention to the historical background leading to establishing of the assessee organisation. Prior to the assessee came into existence, the role of promotion of the export of gems and jewellery products was with the Director General of Foreign Trade (DGFT) i.e. an organisation under the control of Ministry of Commerce and Industry, Government of India. As a part of export promotion, the trade exhibitions used to be conducted by the DGFT and said conducting of exhibitions by DGFT continued till the assessee came into existence in the year 1966. 5.2 Further, the ld. counsel of assessee referred to copy of certificate of incorporation (PB-13), according to which the company i.e. the Gem and Jewellery Export Promotion Council (GJEPC) has been incorporated under section 25 of the Companies Act, 1956 on 27/04/1966 as company limited by guarantee. In the memorandum of association (PB: 15 -22) main objects (clause 3a); ancillary objects (clause 3b) and other objects (clause 3c) have been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of commerce and industry, government of India, which issues calendars for each year, wherein it approves the exhibitions for gems and jewellery product. The Ld. Counsel referred to copy of such approval for overseas exhibitions and domestic exhibitions placed at paperbook pages 182 to 186 and 187 to 203 respectively. A copy of such approval of international exhibition and domestic exhibition available on pages 185 to 186 and 187 is reproduced as under : International Exhibition : "F.No. 12/32/2011-EP(G&J) Government of India Ministry of Commerce & Industry Department of Commerce EP(G&J) Division New Delhi, 13th December, 2011. To 1. Shri Raiv Jain Chairman, Gem & Jewellery Export Promotion Council Mumbai 2. Chairman-cum-Managing Director MMTC Limited, New Delhi 3. Shri Nirmal Sinha Chairman, HHEC of India Limited NOIDA Subject: Calendar of Overseas Exhibitions for the year 2012. Sir, I am directed to inform that the following Calendar exhibitions in Gem & Jewellery Products has been approved by the Department of Commerce for the calendar year 2012: Month GJEPC MMTC HHEC January Vicenzaoro First 2012 January 14-19, 2012, Vicenza It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be issued to the respective Commissioners of Customs in Delhi and Mumbai for allowing foreign exhibitors participating in IIJS 2011 for temporary import of gems & jewellery and jewellery making machinery under ATA Carnet Convention/Temporary Import Bond for display at the Show. 4. This issues with the approval of Joint Secretary (Gems and Jewellery)." 5.4. The ld. counsel also referred to the foreign trade policy for the period from 27/08/2009 to 31/03/2014 issued by the Department of Commerce, under the Ministry of Commerce and Industry, Government of India (PB-159 to 181). The Ld. counsel referred to clause 2.43 of chapter 2 (PB-174), wherein the basic objective of export promotion council has been mentioned as to promote and develop Indian exports. He also referred to clause 3.2 (PB-176) of the policy, where under the head market access initiative, the export promotion councils are provided financial assistance for participating in international trade fair. The ld. counsel drawn our attention to clause 4A.4 (PB-177) of the policy wherein the assessee has been nominated as agency for dealing with export/import related procedure of the Trade Policy. 5.5. It has been furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not specifically & expressly provide for double deduction on account of depreciation on the same very assets acquired from such capital expenditure, no deduction shall be allowed us.32 for the same or any other previous year in respect of that asset as it amounts to claiming a double deduction. 2 Whether, on the facts and in the circumstances of the case and in law theldCIT(A)erred in allowing the depreciation, when the Delhi High Court in the case of Charanjiv Charitable Trust and Kerala High Court in the case of Lissie Medical Institutions vs CIT 76 DTR (Ker) 372 has decided the issue in the favour of the department after considering the decision of Hon'ble Supreme Court in the case of Escorts Ltd (199 ITR 43). 3. The Appellant prays that, to the extent of above grounds, the order of the Commissioner of Income Tax (Appeal)-7, Mumbai be set aside and that of the Assessing Officer be restored. 4. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 5.7.21. Grounds of appeal before ITAT by Revenue in ITA No. 5756/Mum/2015 for AY 2010-11 are reproduced as under: "GROUNDS OF APPEAL: 1. Whether on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ?" 2. As regards, the first question raised by the revenue is concerned, the Tribunal has recorded the finding as follows:- "We have heard the rival submissions, perused the orders of the lower authorities and the materials available on record. The assessee is a council approved by the Govt. as "jem and jewellery export promotion council. From the name itself it is seen that the assessee's objects are to promote the export of jewellery for India For this purpose, various exhibitions have been held by the assessee in various countries. For this purpose, necessary approval has been obtained from the Govt. of India." Copy of such approval is placed at Pages 17 to 20 of the paper book. We have also seen the copy of the notes on objects of the council which are placed at pages 1 to 7 and also the extract of export and import policy, copy of which is placed at pages 8 and 9. Minutes of the grant of approval organizing exhibition, etc. is placed at pages 11 to 16 and approval from Govt. of India is placed at Pages 17 to 20. The assessee is also maintaining separate books of account. Copy of annual account is also placed at pages 21 to 25 from which it is clearly se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed challenging eligibility of exemption u/s 11 of the Act. 5.10. In the instant year are also, the fact of main object of the assessee of promoting the export of gems and jewellery remained the same. In the year under consideration, the assessee has claimed the organising and participating in exhibitions and trade fair as the core activity of the assessee and sine que non for promotion of Indian products of gems, jewellary and diamond etc. to overseas market buyers. The ld. Counsel has also pointed out that in these exhibitions, an exporter can only showcase their products to overseas buyer and prohibited from purchase or sale of products. The exhibitions are meeting point of overseas buyers and Indian exporter and during the period of exhibition, the exporters are also made aware about various policies of Govt.of India for bringing foreign exchange to the country through seminars and conference organized alongwith exhibitions where exporter across the India participate. 5.11 Thus, we find that there is no change in facts and circumstances in the year under consideration as compared to AY 2010-11, therefore following the rule of consistency, the Revenue should have allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year.] 5.12 The proviso to section 2(15) is attracted in case charitable activity in the nature of 'general public utility'. The issues adjudicated by the Hon'ble Supreme Court are related to determining the scope of the phrase "general public utility" (GPU) in the definition of "charitable purposes" primarily on the grounds that the institutions were carrying on trade, commerce or business for consideration, which does not qualify as GPU under the provisions of the Act as amended by Finance Act (FA), 2008 read with subsequent amendments. 5.13 Before the Hon'ble supreme court (supra), in the cases of most of the entities, there is no dispute as to the activities involved in the appeal qualified as GPUs within the meaning of the term "charitable purposes", but the dispute was in respect of the meaning of "fee, cess or other consideration" and its impact on construing whether the activity falls under to the description of "trade, commerce or business". 5.14 The Hon'ble Supreme Court held that where "fee, cess or other consideration" is stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly at cost or marginal mark up over cost, and also derive some profit, the prohibition against carrying on business or service relating to business is not attracted - if the quantum of such profits do not exceed 20% of its overall receipts. 173. It may be useful to conclude this section on interpretation with some illustrations. The example of Gandhi Peace Foundation disseminating Mahatma Gandhi's philosophy (in Surat Art Silk) through museums and exhibitions and publishing his works, for nominal cost, ipso facto is not business. Likewise, providing access to low-cost hostels to weaker segments of society, where the fee or charges recovered cover the costs (including administrative expenditure) plus nominal mark up; or renting marriage halls for low amounts, again with a fee meant to cover costs; or blood bank services, again with fee to cover costs, are not activities in the nature of business. Yet, when the entity concerned charges substantial amounts- over and above the cost it incurs for doing the same work, or work which is part of its object (i.e., publishing an expensive coffee table book on Gandhi, or in the case of the marriage hall, charging significant amounts from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court has given specific finding in respect of the trade promotion bodies, Councils etc, while dealing the facts of the Apparel Export Promotion Council (AEPC). The relevant finding of the Hon'ble Supreme Court (supra) is reproduced as under: "D. What kinds of income or receipts may not be characterized as derived from trade, commerce, business or in relation to such activities, for a consideration (i) Statutory corporations, authorities or bodies 176. It would be essential now to deal with certain kinds of receipts which GPU charities, typically statutory housing boards, regulatory authorities and corporations may be entitled to, if mandated to collect or receive. During the course of hearing, learned counsels highlighted that statutory boards, and corporations have to recover the cost of providing essential goods and services in public interest, and also fund large scale development and maintain public property. These would entail recovering charges or fees, interest and also receiving interest for holding deposits. It was further pointed out that in some cases, income in the form of rents - having regard to the nature of the schemes which the concerned board, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by trade promotion. However, when a trade promotion body provides individualized or specialized services - such as conducting paid workshops, training courses, skill development courses certified by it, and hires venues which are then let out to industrial, trading or business organizations, to promote and advertise their respective businesses, the claim for GPU status needs to be scrutinised more closely. Such activities are in the nature of services "in relation to" trade, commerce or business. These activities, and the facility of consultation, or skill development courses, are meant to improve business activities, and make them more efficient. The receipts from such activities clearly are 'fee or other consideration' for providing service "in relation to" trade, commerce or business. 203. The revenue has appealed to this court, in respect of two assessment years, in the case of Apparel Export Promotion Council (AEPC). The objects of AEPC, which was set up in 1978 - include promotion of ready-made garment export. To achieve that end, its objects include providing training to instil skills in the workforce, to improve skillsin the industry; guide in sourcing machinery; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -for profit society, set up under the aegis of the Union Government. At one time, government functionaries, including the late President, APJ Abdul Kalam, were members, on account of their ex officio capacity. The objects of this assessee are to "3.1.1 To advance the cause of computer communication in the country in all its aspects and dimensions with a view to provide rapid nationwide development of the sector and technological and economic growth of the county. 3.1.2 To develop, design, setup and operate nationwide state of the art computer communication infrastructure with international connectivity directed towards research and development, advancement of high quality education, create and host content, express creative and academic potential via intranet and intranet peer to peer connectivity among educational and research institutions in the country and the world and make available the communication infrastructure to users in academic, research and development institutions, Govt organizations in line with national priorities." 207. ERNET's networks are a mix of terrestrial and satellite-based wide-area network. It provides services through its 15 Points of Presence (PoP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nual membership fee of ₹1000/- and registration of second and third level domain names at ₹500/- and ₹250/-. The finding of the ITAT and the High Court are that NIXI's objects and functioning are by way of general public utility and thus it is a GPU category charity. 210. Having regard to the findings on record and the materials placed by the parties, it is evident that NIXI carries on the essential - crucial purpose of promoting internet services and more importantly, regulating domain name registration which is extremely essential for internet users in India. A country's need to have a domestic internet exchange, rather than depend on an international one, cannot be overemphasized. The Union Government's object of setting up of internet exchange is part of its essential function as a government to regulate certain segment of the communication networks. In the absence of a single entity authorized to register ".in" domain names, there is bound to be chaos or confusion. 211. In view of the foregoing discussion, this Court is of the opinion that the revenue's contention that NIXI does not merely carry-on public purpose of regulatory activity but is involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d orders by the assessing officer. Similarly, the conclusion in Para 253 G, was conclusive with respect to the claim of private trusts; the appeals were dismissed. These conclusions are accurately reflected in the final, operative directions in Para 254. In Para 254 (i) to (iv), the conclusions recorded are against the revenue. However, in Para 254 (v), (vi), (vii) and (vii), the conclusions, are in favour of the revenue. 5. The reference to application of the law declared by this court's judgment, therefore, has to be understood in the context, which is that they apply for the assessment years in question, which were before this court and were decided; wherever the appeals were decided against the revenue, they are to be treated as final. However, the reference to future application has to be understood in this context, which is that for the assessment years which this court was not called upon to decide, the concerned authorities will apply the law declared in the judgment, having regard to the facts of each such assessment year. In view of this discussion, no further clarification is necessary or called for. 6. The application M.A. No. 1849 of 2022 is disposed of in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,11,10,912 1,15,98,98,840 1,04,02,56,135 Less: Expenditure on Exhibitions 77,09,23,044 83,77,48,288 93,65,55,637 1,13,74,94,250 99,43,90,461 Less Expenditure on Advertisement for Exhibitions 2,12,45,443 1,78,37,641 2,79,26,801 2,35,58,718 5,44,94,173 Net Deficit from Exhibitions activities (8,42,11,653) (1,60,55,079) (33,71,526) (11,54,128) (86,28,499) 5.20 Thus, in the instant case it is evident that assessee has charged fee or consideration for conducting exhibitions or trade fair is slightly below the cost. The Hon'ble Supreme Court in the case of AEPC has held that activity of renting space to individual exhibitors or exporters in the exhibition or trade fair is a service in relation to trade commerce or business, but in the instant case, there being no markup on consideration charged from the exporter, therefore, in the broad principles laid down by the Hon'ble Supreme Court, the activity is beyond the purview of either trade, commerce and business or activity of rendering services in relation to trade, commerce or business. 5.21. The Ld. Counsel also referred to the annual report for the year under consideration (PB-79 to 89) having discussion regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law the Tribunal was right in directing the AO to set off the deficit of earlier years to the surplus of this year and consider such adjustment as application of income for charitable purpose?" 8.2 The Hon'ble High Court, on the second question of law dismissed the appeal of the Revenue observing as under: "4. As regards second question is concerned, counsel on both sides agree that the said question is covered against the revenue by the decision of this Court in the case of Commissioner of Income Tax V/s. Institute of Banking reported in [2003] 264 IT.R. 110. In this view of the matter, we see no merit in the appeal and the same is dismissed with no order as to costs." 8.3 We find that following above finding of the Hon'ble High Court, the Ld. CIT(A) in assessment year 2009-10 and 2010-11 has allowed the appeal of the assessee observing as under: "7. In the next ground, the appellant is aggrieved by action of the AO in not allowing the deficit of the year to be carried forward. AO held that there is no provision under the Act which allows determination of loss while computing income under section 11 of the Act. He has further stated that department has filed SLP aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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