9911796707
TMI Blog2024 (8) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... overseas buyers on one hand and between Government and industry on the other hand. The assessee has been granted exemption u/s. 10(23C)(iv) of the Act, for the earlier Assessment years upto 2015-16 based on the ITAT order on the ground that, Council is not carrying out any activity of business, trade or commerce and proviso to Sec. 2(15) will not apply. What is the receipts that has to be considered for the purpose of applying the Proviso 2 to sec.2(15) - As the assessee provides for rental space in Fairs and Trade shows receipts from such activity should also be considered for the purpose of complying with the limit of 20% of total receipts of the Council. While total receipts is to be taken as the denominator for the second proviso, whether total receipts from different activities has to be aggregated or only the profit element alone has to be taken into consideration as Numerator, for complying with the condition under second proviso? - As in respect of activities incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated, it can be granted exemption provided the quantitative limit of not exceeding 20% under second proviso to Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants claim of exemption u/s 10(23C)(iv). 3.1 The Commissioner of Income tax (NFAC) ought to have appreciated that the appellant's activities are not in nature of trade, business or commerce nor renders any service in relation to trade, business or commerce. He ought to have appreciated that in assessee's own case for the assessment year 2010-11 and 2012-13 the Hon'ble ITAT has allowed the appeal of the assessee. 3.2 The Commissioner of Income tax (NFAC) ought to have appreciated that the decision of Hon'ble Apex court in the case of ACIT Vs. Ahmedabad Urban Development Authority, Reported in 449 ITR 1 (SC) is not applicable to fact of the appellant case. 3.3 Without prejudice the Commissioner of Income tax (Appeals) (NFAC) should have appreciated that the entire certification was only for the members of the council and therefore the entire income from certification is exempt from tax section on account of mutuality. 3.4 The Appellant relies on the circular number 11/2008 Dated 19.12.2008 issued by the CBDT wherein it has been clarified that: 3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period during the previous year's relevant to the assessment years mentioned above otherwise than in any one or more of the forms or modes specified in sub-section (5) of the section 11; c) this notification will not apply in relation to any income being profits and gains of business unless the business is incidental to the attainment of the objectives of the institution and separate books of account are maintained in respect of such business; d) the institution will regularly file its return of income before the income tax authority in accordance with the provisions of the income tax Act 1961. e) that in the event of dissolution of the institution, its surplus and assets will be given to an organization with similar objectives. f) The institute will get its accounts audited by an accountant as defined in Explanation below sub section (2) of section 288 and furnish along with the return of income. The report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. The Council has complied with the all the conditions stated about and hence eligible for exemption u/s. 10(23C)(iv). 3.8 The appellant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and wildlife) and preservation of monuments or places or objects of artistic or historic interest'. The gross receipts of the assessee for the assessment year from the activity of issuance of certificate is also seen to be Rs. 7,3,51,961/-. Therefore, the exception to the first proviso, given in the second proviso to Sec.2(15), also does not apply in the assessee's case, inasmuch as, the aggregate value of the receipts from the above mentioned two activities, for the relevant previous year, has exceeded. For easy reference, both the aforesaid provisos [first and second provisos to Sec.2(15)] are reproduced hereunder Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves 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, for a cessor fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exemption u/s 10(23)(iv), the assessee is not granted the relief u/s 10(23)(iv) for this assessment year also. Nonetheless, as the decision of the jurisdictional Hon'ble Tribunal is in favour of the assessee on the issue under consideration, the tax demand arising out of the said issue will not be recovered until there is a change which alters the present situation. Subject to the above, the taxable income of the assessee and tax payable, thereon, is computed below: Net surplus as per the income expenditure 7,62,60,796 Total taxable income (rounded off) 7,62,60,800 Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A), NFAC, Delhi. 4. The Ld.CIT(A) confirms the order of the AO by passing an order dated 21/07/2023 holding as under : 5.8.4 The appellant's aggregate receipts from the activity of issuing textile certificates were Rs. 8,11,19,933/- and total receipts were Rs. 13,25,33,668/ during the F.Y.2015-16 relevant to the A.Y.2016-17. The surplus shown by the appellant was Rs. 7,62,60,796 and thus it is clear that the appellant has rendered services not on any cost-basis or nominal above cost basis. The mark-up is very high which shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has been granted for the earlier years and the issue is before the High Court. On appeal, the CIT(A) has applied the ratio of the Apex Court decision in the case of ACIT v Ahmedabad Urban Development Authority (449 ITR 1) and has held (@ Para 5.8.4) that the surplus amount shows that the Appellant has charged at a high markup and hence the surplus is taxable as per Proviso 2 to sec. 2(15), which reads as under: Further, the advancement of any other object of general public utility shall not be considered as charitable purpose, if it involves 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless:- i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act If one keeps his in mind, what Section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental, or in other words, white actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to. 172 Yet another manner of looking at the definition together with Sections 10 (23) and 11 is that for achieving a general public utility object, if the charity involves itself in activities, that entail charging amounts only 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 ph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (15) these profits has to be less than 20% of the Total receipts of the Institution. The total receipts and which has to be considered for the second proviso is given as under: (Rs. in crores) Receipts Profits 1. Membership fee Rs. 5.14 2. Certificate fee Rs. 8.11 3. Interest from banks Rs. 4.74 4. Sale of magazine Rs. 0.17 5. Grant for capital expenditure Rs. 0.09 6. Receipt for participating in trade Fairs 7. From Government Rs. 11.72) 8. Contribution from members Rs. 12.35) (0.80) Total Rs. 42.82 The expenses (including the loss) - Rs. 34.71 The net surplus - Rs. 7.62. 9.2 Applying the ratio of the Apex Court, the net surplus of Rs. 7.62 crores is less than 20% of the total receipts of the Institution of Rs. 42.82 Crores and hence the exemption u/s. 23(c)(iv) cannot be rejected under second proviso to section 2(15) of the Act. 10. Further, the Ld. AR also state that, the assessee relies on the circular number 11/2008 Dated 19.12.2008 issued by the CBDT wherein it has been clarified that: 3.1 There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the earlier Assessment years upto 2015-16 based on the ITAT order on the ground that, Council is not carrying out any activity of business, trade or commerce and proviso to Sec. 2(15) will not apply. 12.2 It is noted that, for the Assessment year 2016-17 the AO has held that total receipts of the Assessee is Rs. 13,25,33,668/- (Taking only Sum of Membership Fee of Rs. 5.14 Crores and Certification fee of Rs. 8.22 Crores and ignoring other receipts - Page 61 of PB Actual gross receipts of Rs. 42.34 Crores) and the surplus of Rs. 7.62 crores is in excess of 20% of the receipts and hence is liable to tax, but has held that tax will not be demanded as the exemption has been granted for the earlier years and the issue is before the High Court. 12.3 It is further observed that, on appeal the CIT(A) has applied the ratio of the Apex Court decision in the case of ACIT v Ahmedabad Urban Development Authority (449 ITR 1) and has held (Para 5.8.4) that the surplus amount shows that the Appellant has charged at a high markup and hence the surplus of Rs. 7.62 crores is taxable as per Proviso 2 to sec.2(15), which reads as under : Further, the advancement of any other object of general pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as numerator, while determining the compliance of the 20% limit of the total receipts. 13.2 In that connection, the Hon ble Apex Court has distinguished between the receipt in carrying out the charitable objects, or activities for which the Trust charges only the cost or marginal mark up, for complying with the proviso to Section 2(15), only profits from activities should be taken into account in the Numerator. Para 171 to 173 of the Hon ble Apex Court order (as reported in 449 ITR 001) reads as under: 171. Therefore, pure charity in the sense that the performance of an activity without any consideration is not envisioned under the Act If one keeps his in mind, what Section 2(15) emphasizes is that so long as a GPU's charity's object involves activities which also generates profits (incidental, or in other words, while actually carrying out the objectives of GPU, if some profit is generated), it can be granted exemption provided the quantitative limit (of not exceeding 20%) under second proviso to Section 2(15) for receipts from such profits, is adhered to. 172 Yet another manner of looking at the definition together with Sections 10 (23) and 11 is that for achieving a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, Appellant charges/collects only the actual expenditure from Govt as grant and members as participation charges.(Receipts Rs. 24,07,51,794/- and expenditure 24,76,65,706/- = Loss of Rs. 80,57,912/-). Therefore, in respect of these activities which is in furtherance of the objective of the Appellant as per Para 171 of the Hon ble Apex order referred to above, while the receipts are Rs. 24.07 Crores only, the profit (here a loss of Rs. 80,57,912/-) can be considered for Numerator for the purpose compliance of second Proviso to sec. 2(15). 13.6 As per second proviso to sec. 2(15) these profits has to be maximum cap of 20% of the Total receipts of the Institution. The total receipts and which has to be considered for the second proviso is given as under: (Rs. in crores) Receipts Profits 1. Membership fee Rs. 5.14 2. Certificate fee Rs. 8.11 3. Interest from banks Rs. 4.74 4. Sale of magazine Rs. 0.17 5. Grant for capital expenditure Rs. 0.09 6. Receipt for participating in trade Fairs 7. From Government Rs. 11.72) 8. Contribution from members Rs. 12.35) (0.80) Total receipts (A) Rs. 42.82 The expenses (including the loss) - Rs. 34.71 The net surplus - Rs. 7.62 20% of the Total recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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