M/s India Semi conductor Association, Bangalore V. DDIT, Bangalore

ITA 1483/BANG/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9471 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Charitable institution
• Section: 11; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ITA NO.1483/BANG/2015 ASSESSMENT YEAR : 2010-11 M/S. INDIA SEMI CONDUCTOR ASSOCIATION, 4 TH FLOOR, UNI BUILDING, THIMMAIAH ROAD, BANGALORE 560 052. PAN: AAATI 5450L VS. THE DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS), CIRCLE 17(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : NONE RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 01.08.2016 DATE OF PRONOUNCEMENT : 12.08.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(APPEALS), LTU, BANGALORE DATED 31.08.2015 INTER ALIA ON THE FOLLOWING GROUNDS:- THE APPELLANT BEGS TO PREFER THE FOLLOWING AMONG, S UCH OTHER ADDITIONAL GROUNDS OF APPEALS AS MAY BE URGED, AT T HE TIME OF HEARING, AGAINST THE IMPUGNED ORDER PASSED BY THE C OMMISSIONER ITA NO.1483/BANG/2015 PAGE 2 OF 8 OF INCOME TAX (APPEALS) 14, BANGALORE, FOR THE ASSE SSMENT YEAR 2010-11. 5. THE IMPUGNED ORDER PASSED BY THE AO AND THE CIT APPEALS ARE WITHOUT JURISDICTION CONTRARY TO LAW FA CTS AND EVIDENCE ON RECORD AND LIABLE TO BE SET ASIDE. 6. THE AO NEVER DISCUSSED THE ISSUE PERTAINS TO THE PRINCIPAL OF MUTUALITY IN THE ORDER, WHICH IS ALSO ADMITTED B Y THE CIT APPEALS. WHEN THERE IS NO FINDING ON THE PRINCIPAL OF MUTUALITY, THE CIT APPEALS CANNOT RECORD THE FINDING FOR THE F IRST TIME, HENCE ON THIS GROUND ALONE THE ORDER IS LIABLE TO B E SET ASIDE. CIT APPEALS TRY TO SUPPORT THE ORDER, ON WHICH NO FINDI NG IS RECORDED. THE CIT APPEALS SUBSTITUTE THE AO ORDER ON PRINCIPA L MUTUALITY RECORDING THE REASON FOR THE FIRST TIME. 7. IT IS SUBMITTED THAT, AO WAS NOT RIGHT IN ARRIVI NG WRONG CONCLUSION THAT, THE APPELLANT TRUST IS WHOLLY CHAR ITABLE AND MUTUAL AT THE SAME TIME. THE LAW OR THE INCOME TAX PROVISIONS PROHIBITS SUCH PRINCIPALS, HENCE THE FINDING RECORD ED IS NOT CORRECT. THE AO HAS NOT VERIFIED THE TRUST DEED BEF ORE PASSING THE ORDER. THE TRUST DEED WAS AMENDED TO INCLUDE TH E WHOLLY CHARITABLE AND MUTUAL AT THE SAME TIME. THE AO NOT SEEN THE TRUST DEED BEFORE PASSING THE ORDER. 8. WHEN AN TRUST, MEMBERS SHIP IS EXTENDED TO THE T RADE AND INDUSTRY THE BENEFIT TO PRINCIPAL OF MUTUALITY HAS TO BE EXTENDED. WHEN THERE IS COMPLETE IDENTITY BETWEEN THE CONTRIB UTORS AND THE PARTICIPATORS, THE BENEFIT OF WHOLLY CHARTABLE AND MUTUAL HAS TO BE EXTENDED SINCE THOSE MEMBERS WHO HAVE NOT CONTRI BUTED TO THE SURPLUS AS CUSTOMERS ARE NEVERTHELESS ENTITLED TO PARTICIPATE IN THE SURPLUS. HOWEVER, IF SUCH AN ASSOCIATION OR COM PANY DISTRIBUTES THE SURPLUS AMONG THE CUSTOMERS AS SUCH , THERE WOULD BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND T HE PARTICIPATORS, IN THE PRESENT CASE, THE APPELLANT H AS PROVED BEYOND DOUBT, BUT STILL THE AUTHORITY REFERRING TO SECTION 2(15) R/W SECTION 15 REJECTED THE CLAIM. 9. THE CRUCIAL TEST OF MUTUALITY WAS LAID DOWN BY LORD MACMIL1AN IN MUNICIPAL MUTUAL INS. LTD. V. HILLS. THE CARDINAL REQUIREMENT IS THAT ALL THE CONTRIBUTORS TO THE COM MON FUND MUST BE ENTITLED TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPATORS IN THE SURPLUS MUST BE CONTRIBUTORS T O THE COMMON ITA NO.1483/BANG/2015 PAGE 3 OF 8 FUND; IN OTHER WORDS, THERE MUST BE COMPLETE IDENTI TY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. EXPLAINING THIS PRINCIPLE, THE ANDHRA PRADESH HIGH COURT HELD IN CIT V/ MERCHANT NAVY CLUB HELD THAT, THE CONTRIBUTORS TO THE COMMON FUND AND THE PARTICIPATORS IN THE SURPLUS MUST BE, AN IDENTICAL BODY. THAT DOES NOT MEAN THAT EACH MEMBER SHOULD CONTRIBUTE TO THE COMMON FUND OR THAT EACH MEMBER SHOULD PARTICIPATE IN THE SURPLUS OR GET BACK FROM THE SURPLUS PRECISELY WHAT HE HAS PAID. T HE MADRAS, ANDHRA PRADESH, KERALA, PUNJAB AND HARYANA AND CALC UTA HIGH COURTS HAVE HELD THAT THE TEST OF MUTUALITY DOES NO T REQUIRE THAT THE CONTRIBUTORS TO THE COMMON FUND SHOULD DISTRIBU TE THE SURPLUS AMONGST THEMSELVES; IT IS ENOUGH IF THEY HAVE A RIG HT OF DISPOSAL OVER THE SURPLUS AND IN EXERCISE OF THAT RIGHT THEY MAY AGREE THAT ON WINDING-UP THE SURPLUS WILL BE TRANSFERRED TO A SIMILAR ASSOCIATION OR USED FOR SOME CHARITABLE OBJECTS. W HILE THE COMPLETE IDENTITY BETWEEN THE CLASS OF CONTRIBUTORS AND THE CLASS OF PARTICIPATORS. 10. THE CARDINAL REQUIREMENT FOR SATISFACTION OF T HE PRINCIPLE OF MUTUALITY IS THAT ALL THE CONTRIBUTORS TO THE CO MMON FUND MUST BE ABLE TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPATORS IN THE SURPLUS MUST BE CONTRIBUTORS TO THE COMMON F UND. IN OTHER WORDS, IT IS ESSENTIAL THAT THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THI S WAS HELD BY THE SUPREME COURT IN THE LANDMARK DECISION IN THE C ASE OF CIT VS. KUMBAKONAM MUTUAL BENEFIT FUND LTD., 53 ITR 241 (SC). HOWEVER FROM THE FACTS OF THE PRESENT CASE AS DISCU SSED ABOVE, IT IS CLEAR THAT MOST OF THE ACTIVITIES CARRIED OUT BY THE TRUST BY WAY OF ORGANIZING TRADE FAIRS, VISION SUMMITS AND 'OTHE R SEMINARS AND CONFERENCES WERE ESSENTIALLY FOR MEMBERS AND NON-ME MBERS. IN FACT, SUBSTANTIAL PART OF THE TOTAL RECEIPTS HAS BE EN RECEIVED FROM NON-MEMBERS, WHICH ARE APPLIED FOR VARIOUS ACTIVITI ES OF THE TRUST CARRIED OUT BOTH FOR MEMBERS AS WELL AS NON-M EMBERS. THEREFORE, IN THIS CASE BY NO STRETCH OF IMAGINATIO N IT CAN BE SAID THAT 'THERE IS COMPLETE IDENTITY BETWEEN THE CONTRI BUTOR AND THE PARTICIPANTS'. THE SECTION 13 (8) OF THE ACT, IN NO T APPLICABLE IN THE PRESENT CASE. THE APPELLANT HAS RIGHTLY CLAIMED THE DEDUCTION/ EXEMPTION, AND IF THE AUTHORITY TAKES THE DIFFERENT VIEW, THE PENALTY UNDER SECTION 234, B,D AND D IS NOT APPLICA BLE. THE AO HAS RECORDED THAT, THE APPELLANT HAS CLAIMED THE EX EMPTION UNDER SECTION 11 OF THE ACT, IN THE COMPUTATION, TAKING C ONTRARY STAND THE CIT APPEALS HELD THAT, THE APPELLANT HAS NOT CL AIMED THE ITA NO.1483/BANG/2015 PAGE 4 OF 8 EXEMPTION UNDER SECTION 11 OF THE ACT. EACH AUTHORI TY IS TAKING DIFFERENT VIEWS. 11. THE CIRCULAR NO. 11/2008 DT.19. 12.2008 ISSUED BY THE CBDT, WITH SPECIFIC REFERENCE TO PARA 3.1, TO CLAIM THAT INDUSTRY AND TRADE ASSOCIATIONS CAN CLAIM TO BE BOTH CHARITA BLE INSTITUTIONS AS WELL AS MUTUAL ORGANIZATIONS, THEREBY JUSTIFYING ITS CLAIM OF EXEMPTION UNDER MUTUALITY. THE CIRCULAR IS BINDING ON THE AO, AS HELD BY THE SUPREME COURT AND HIGH COURT. THE AO CA NNOT TAKE DIFFERENT STAND, AND HE HAS TO FOLLOW THE OBSERVATI ONS MADE IN THE CIRCULAR. THE CIT APPEALS REJECTED THE CLAIM OF THE APPELLANT ON THE GROUND THAT, THE BULK OF THE AMOUNT IS RECEIVED FROM NON MEMBERS. WHEN THE APPELLANT TRUST HAS PROVED COMPLE TE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS OF AN ORGANIZATION, THE CIT APPEAL WAS NOT RIGHT IN DISMISSING THE CIT APPEAL, AND WAS NOT RIGHT IN CONFIRMING THE ORDER OF THE AO. THE HONBLE HIGH COURT IN CASE OF CIT V. RANCHI CLUB LTD, [1992] 64 TAXMANN 433 (PAT.) HELD THAT, IN THIS CASE THE HON'BLE COURT HAS HELD THAT THE PR INCIPLE OF MUTUALITY IS BASED ON THE PREMISE THAT NO MAN CAN M AKE PROFIT OUT OF HIMSELF. BY APPLYING THE PRINCIPLE OF MUTUAL ITY MEMBERS' CLUBS ALWAYS CLAIM EXEMPTION IN RESPECT OF SURPLUS ACCRUING TO THEM OUT OF THE CONTRIBUTIONS RECEIVED FROM THEIR M EMBERS. THE HONBLE HIGH COURT HAS HELD THAT MERELY BECAU SE THE ASSESSEE COMPANY HAD ENTERED INTO TRANSACTIONS WITH NON- MEMBERS AND EARNED PROFITS OUT OF TRANSACTIONS HELD WITH THEM, ITS RIGHT TO CLAIM EXEMPTION ON THE PRINCIPLE OF MU TUALITY IN RESPECT OF TRANSACTIONS HELD BY IT WITH ITS MEMBERS WAS NOT LOST. BUT IT HAS ALSO BEEN HELD THAT THE PRINCIPLE OF EST ABLISHING COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS WOULD APPLY IN RESPECT OF CONTRIBUTIONS MADE BY THE MEMBERS. 12. THE CARDINAL REQUIREMENT FOR SATISFACTION OF TH E PRINCIPLE OF MUTUALITY IS THAT ALL THE CONTRIBUTORS TO THE CO MMON FUND MUST BE ABLE TO PARTICIPATE IN THE SURPLUS AND THAT ALL THE PARTICIPATORS IN THE SURPLUS MUST BE CONTRIBUTORS TO THE COMMON F UND. IN OTHER WORDS, IT IS ESSENTIAL THAT THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. THI S WAS HELD BY THE SUPREME COURT IN THE LANDMARK DECISION IN THE C ASE OF CIT VS. KUMBAKONAM MUTUAL BENEFIT MUTUAL BENEFIT FUND L TD., 53 ITR 241 (SC). IN FACT, SUBSTANTIAL PART OF THE TOTA L RECEIPTS HAS ITA NO.1483/BANG/2015 PAGE 5 OF 8 BEEN RECEIVED FROM NON-MEMBERS WHICH ARE APPLIED FO R VARIOUS ACTIVITIES OF THE TRUST CARRIED OUT BOTH FOR MEMBER S AS WELL AS NON-MEMBERS. 13. THE AO WAS NOT CORRECT TO REJECT THE EXEMPTION ON THE GROUND THAT, THE APPELLANT TRUST IS REGISTERED UNDE R THE SERVICE TAX ACT, BOTH THE ACT ARE DIFFERENT, BECAUSE THE SERVI CES ARE TAXABLE, DOES NOT MEAN THAT, IT IS TAXABLE UNDER THE INCOME TAX ACT. THE AO HAS COME TO WRONG CONCLUSION THAT, THE APPELLANT TRUST ACTIVITIES ARE NATURE OF PROMOTION OF BUSINESS/TRAD E ACTIVITY. THEREFORE, INVOKING THE FIRST PROVISO TO SEC.2(15) OF THE ACT, THE AO HAS HELD THAT THE ACTIVITIES OF THE TRUST IS NOT CHARITABLE AND HENCE IT IS NOT ELIGIBLE FOR CLAIMING EXEMPTIONS U/ S. 11 OF THE ACT IS NOT CORRECT. THE APPELLANT TRUST ACTIVITIES ARE NOT IN THE NATURE OF BUSINESS/TRADE ACTIVITY BUT IN THE INTEREST OF G ENERAL PUBLIC AND PROMOTION OF THE ACTIVATES OF THE TRUST., WHICH IS VERY CLEAR FROM THE TRUST DEED. THE ACTIVITIES OF THE TRUST ARE NOT IN THE NATURE COMMERCIAL NATURE OR ACTIVITES, BUT WHOLLY CHARITAB LE. EVEN THOUGH THE APPELLANT HAS NOT CLAIMED EXEMPTION U/S 11 OF THE ACT , THE AUTHORITY COULD HAVE GRANTED THE EXEMPTION UNDE R SECTION 11 OF THE ACT, R/W 2 (15) OF THE ACT. THE R ESPONDENT AUTHORITY, HAS NOT PROVED THAT, THE ACTIVITIES OF T HE APPELLANT TRUST IS COMMERCIAL IN NATURE. DUE TO CHANGING ECONOMY AN D MULTINATIONAL NATIONAL COMPANIES ARE ENTERING THE I NDIAN MARKET, THE ACTIVATES OF THE TRUST ARE AMENDED AND IT IS WH OLLY CHARITABLE. 14. IT IS SUBMITTED THAT, THE APPELLANT RELIES ON THE FOLLOWING JUDGMENTS. COMMISONER OF INCOME TAX AND ANOTHER V MBA NAHATA CHARITABLE TRUST [2014] 364 ITR 693 (KARN) CHARITABLE TRUST - EXEMPTION AMOUNTS RECEIVED AS DONATIONS TOWRDS BUILDING FUND - AMOUNTS UTILIZED FOR CHARITABLE PURPOSES - MAJOR PORTION OF DONATIONS RECEIVED TROUGH CHEQUESFAILURE TO PRODUCE DONORS BEFORE ASSESSING OFFICER - NOT CONCLUSIVE - ASSESSEE ENTITLED TO EXEMPTION - INCOME TAX ACT, 1961, S. 11. ITA NO.1483/BANG/2015 PAGE 6 OF 8 THE ASSESSEE, A CHARITABLE TRUST, WAS EXEMPTED UNDE R SECTION 11 OF THE INCOME TAX ACT, 1961. HELD, DISMISSING THE A PPEAL, THAT ANY VOLUNTARY CONTRIBUTION RECEIVED BY A TRUST CREA TED WHOLLY FOR CHARITABLE OR RELIGIOUS PURPOSE SHALL BE DEEMED TO BE INCOME DERIVED FROM PROPERTY HELD UNDER THE TRUST WHOLLY F OR CHARITABLE AND RELIGIOUS PURPOSE. HOWEVER, THE AMOUNTS WERE US ED FOR CHARITABLE PURPOSES EVEN THOUGH THE ASSESSEE FAILED TO DISCLOSE THE NAMES AND ADDRESSES OF THE DONORS. SINCE THE AM OUNT WAS UTILISED BY THE TRUST WHOLLY FOR THE CHARITABLE OR RELIGIOUS PURPOSES, THE ASSESSEE HAS FULFILLED THE CONDITION IMPOSED UNDER SECTION 11. IT WAS ENTITLED TO EXEMPTION. THE DIVISION BENCH OF THIS COURT IN A JUDGMENT REPO RTED IN DIT (EXEMPTION) V. SRI. BELIMATHA MAHASAMSTHANA SOCIO C ULTURAL AND EDUCATIONAL TRUST [2011] 336 ITR 694 (KARN) HEL D THAT: 'SINCE THE AMOUNTS RECEIVED FROM THE THIRD PARTY HA S BEEN ACCOUNTED AND UTILIZED FOR CHARITABLE PURPOSES EVEN THOUGH THE ASSESSEE FAILED TO DISCLOSE THE NAMES AND ADDRESSES OF THE DONORS AS WELL AS THE MODE OF PAYMENT, ENTITLED FOR DEDUCT ION UNDER SECTION 11 OF THE ACT'. COMMISSIONER OF INCOME TAX V AGRICULTURAL MARKET COMMITTEE [2011] 336 ITR 641 (AP) CHARITABLE PURPOSE - CHARITABLE TRUST - REGISTRATION MEANING OF 'CHARITABLE PURPOSE' AGRICULTURAL MARKETING COMMITTEE ONSTITUTED BY STATE TO PROTECT AGRICULTURISTS - OBJECT OF GENERAL PUBLIC UTILITY - AGRICULTURAL MARKETING COMMITTEE IS A PERSON - ENTITLED TO REGISTRATION UNDER SECTION 12A/12AA- INCOME TAX ACT,1961. SS 11. 12A. 12AA. 15. PRAYER WHEREFORE, THE HON'BLE TRIBUNAL BE PLEASED TO A) TO SET ASIDE THE ORDER PASSED BY THE CIT (APPEALS) 14, BANGALORE FOR THE ASSESSMENT YEARS 2010-11. B) TO SET ASIDE THE ORDER PASSED BY THE AO FOR THE ASS ESSMENT YEARS 2010-11. C) TO DECLARE THAT, THE APPELLANT TRUST WHOLLY CHARITA BLE TRUST, UNDER THE INCOME TAX ACT. D) TO DECLARE THAT, APPELLANT HAS RIGHT CLAIMED THE DEDUCTION/EXEMPTION UNDER THE HEAD) PRINCIPLE OF MU TUALLY. E) TO DECLARE THAT T THE APPELLANT IS ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OF THE IT ACT. F) TO DECLARE THAT, THE APPELLANT TRUST IS ELIGIBLE FO R EXEMPTION AS PER THE CBDT CIRCULAR DATED 19/12/2008. G) TO GRANT ANY OTHER RELIEF DEEMED FIT, IN THE FACTS AND CIRCUMSTANCE OF THE CASE. 2. THIS APPEAL WAS LISTED FOR HEARING ON 01.08.2016 , BUT NONE APPEARED ON BEHALF OF THE ASSESSEE, DESPITE SERVICE OF NOTICE OF HEARING. SINCE NONE APPEARED ON BEHALF OF THE ASSESSEE, WE H AVE NO OTHER OPTION, EXCEPT TO HEAR THE APPEALS EX PARTE , QUA THE ASSESSEE. 3. WE HAVE CAREFULLY EXAMINED THE ORDERS OF THE CIT (APPEALS) ON ALL THE GROUNDS RAISED BEFORE US AND WE FIND THAT THE C IT(APPEALS) HAS ADJUDICATED ALL THE GROUNDS IN DETAIL IN HIS ORDER. SINCE NO DEFECT HAS BEEN POINTED OUT IN THE ORDER OF THE CIT(APPEALS), WE CONFIRM THE SAME. ITA NO.1483/BANG/2015 PAGE 8 OF 8 4. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS DIS MISSED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF AUGUST, 2016. SD/- SD/- ( S. JAYARAMAN ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 12 TH AUGUST, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.