Tamilnadu Leather Tanner Exporters and Importers Association, CHENNAI V. ITO (Exemption) Ward 2 , CHENNAI

ITA 2265/CHNY/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3263 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 01-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R ANITHA
• Assessee Lawyers: S SRIDHAR
• Keywords: Tax effect; Benefit of exemption

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI , ! '!# $ , % BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ! ./ ITA NOS.2006, 2007 & 2008/CHNY/2014 & /ASSESSMENT YEAR: 2009-10, 2010-11 & 2011-12 DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS)-II, AYAKAR BHAVAN, ANNEXE BUILDING, III FLOOR 121, M.G. ROAD, NUNGAMBAKKAM CHENNAI 600 024 VS. M/S. TAMIL NADU LEATHER TANNERS EXPORTERS IMPORTERS ASSOCIATION, NO.69/66, SYDENHAMS ROAD, PERIAMET, CHENNAI 600 003 [PAN: AAATT 4312Q] ( ' /APPELLANT) ( ()' /RESPONDENT) ! ./ ITA NO.2265/CHNY/2018 & /ASSESSMENT YEAR: 2014-15 M/S. TAMIL NADU LEATHER TANNERS EXPORTERS IMPORTERS ASSOCIATION, NO.69/66, SYDENHAMS ROAD, PERIAMET, CHENNAI 600 003 [PAN: AAATT 4312Q] VS. THE INCOME TAX OFFICER (EXEMPTION) WARD 2, CHENNAI ( ' /APPELLANT) ( ()' /RESPONDENT) ' * + / ASSESSEE BY : MR. S. SRIDHAR, ADVOCATE ()' * + /RESPONDENT BY : MS. R. ANITHA, JCIT , * -. /DATE OF HEARING : 25.11.2019 /0& * -. / DATE OF PRONOUNCEMENT : 25.11.2019 1 / O R D E R PER SHRI GEORGE MATHAN, JUDICIAL MEMBER : ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 2 -: ITA NOS.2006, 2007 & 2008/CHNY/2014 ARE APPEALS FIL ED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSION ER OF INCOME TAX (APPEALS)-VII, CHENNAI (HEREINAFTER CALLED AS CIT( A)) IN APPEAL NOS. ITA NOS560/11-12, 249/12-13 & 1080/13-14 DATED 28.03.20 14 FOR THE ASSESSMENT YEAR 2009-10 TO 2011-12. ITA NO.2265/CHNY/2018 IS AN APPEAL FILED BY THE ASS ESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-17, CHENNAI IN I.T.A NO.126/2016-17 DATED 30.05.2018 FOR THE ASSES SMENT YEAR 2014-15. 2. MS. R. ANITHA, JCIT REPRESENTED ON BEHALF OF THE REVENUE AND SHRI S. SRIDHAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSE SSEE. 3. AS THE ISSUE IN ALL THE FOUR APPEALS ARE IDENTIC AL, THE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER. AT THE TIME OF H EARING, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE APPEAL OF THE REVENUE WA S HIT BY TAX EFFECT AND IN VIEW OF THE CIRCULAR ISSUED BY THE CBDT CIRCULAR NO.17/2019 IN F.NO.279/MISC.142/2007-ITJ(PT) DATED 8TH AUGUST, 20 19 WHICH HAS BEEN DISCUSSED IN DEPTH IN THE CASE OF THE COMMISSI ONER OF INCOME TAX-5,NEW DELHI VS. KESHAV POWER LTD., IN SLP NO.214 97/2019 DATED 16.08.2019 REPORTED IN 2019(8)TMI 811(SC), THE A PPEALS ARE LIABLE TO BE DISMISSED ON ACCOUNT OF TAX EFFECT. 4. AS THE ISSUES ARE IDENTICAL AS RAISED IN THE REVEN UES APPEAL AS ALSO IN THE APPEAL OF THE ASSESSEE, THOUGH THE APPEALS OF THE REVENUE ARE LIABLE TO BE DISMISSED ON ACCOUNT OF TAX E FFECT AND IS ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 3 -: ALSO CONSEQUENTLY DISMISSED ON ACCOUNT OF TAX EFFECT , THE ASSESSEES APPEAL IS ALSO HEARD TOGETHER AND THE ISSUE IS BEING ADJUDICATED ON MERITS. 5. SHRI S. SRIDHAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND MS. R. ANITHA, JCIT REPRESENTED ON BEHALF OF THE RE VENUE. 6. IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPRE SENTATIVE THAT THE ASSESSEE IS A PUBLIC CHARITABLE SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 U/S.12AA OF THE ACT. THE MA IN OBJECT OF THE ASSESSEE AS PER ITS BY-LAWS IS TO ENSURE THE PROPER GROWTH OF ECONOMY IN THE COUNTRY AND THE AVAILABILITY OF STANDARD GOODS AT REASONABL E PRICES TO THE PUBLIC, TO ENCOURAGE EXPORTS WITH A VIEW TO IMPROVE THE FOREIG N EXCHANGE EARNINGS AND RESERVES OF THE COUNTRY AND TO SECURE A PRIDE OF PL ACE FOR INDIA IN THE INTERNATIONAL TRADE RELATING TO LEATHER AND LEATHER PRODUCTS AND TO SECURE THE AFORESAID ENDS. THE OBJECTS OF THE ASSESSEE IS CONTROLLED BY THE P ROVISO THEREUNDER WHICH SPECIFIES AS UNDER: PROVIDE THAT:- A) NONE OF THE ACTIVITIES CARRIED ON SHALL BE WITH THE INTENTION OF EARNING PROFITS AND B) NONE OF THE ACTIVITIES CARRIED ON ABOVE SAID, SH ALL BE CARRIED ON OUTSIDE INDIA. 7. THE ASSESSEE IN COMPLIANCE WITH THE OBJECTS WAS ENGAGED IN IMPORTING AND DISTRIBUTING WATTLE EXTRACTS, SOLID AND POWDER . THE SAID IMPORTED PRODUCT WAS A SUBSTITUTE FOR THE CHEMICALS USED IN THE TANNING PROCESS. IT WAS ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 4 -: A SUBMISSION THAT THE IMPORTED GOODS WERE DISTRIBUT ED AMONGST THE MEMBERS OF THE ASSESSEES ASSOCIATION AND NOT TO OUTSIDERS AND THIS WAS ALSO THE ACCEPTED FACT AS RECORDED IN PAGE NO.1 OF THE ASSES SMENT ORDER FOR THE ASSESSMENT YEAR 2014-15. FOR THE ASSESSMENT YEAR 2 014-15, THE TOTAL WATTLE EXTRACTS SO DISTRIBUTED WAS TO AN EXTENT OF RS.8.47 CRORES AND THE PROFIT ON SURPLUS GENERATED OUT OF THE SAID SALE WAS ABOUT 25.00 LAKHS, I.E. NEARLY 3% MARGIN. THE SAID SURPLUS WHICH WAS GENERATED WAS A LSO USED FOR OTHER CHARITABLE ACTIVITIES AS PER THE BY-LAWS. IT WAS A SUBMISSION BY THE LEARNED AUTHORIZED REPRESENTATIVE THAT THE SAID WATTLE EXTR ACTS WHICH WAS IMPORTED WAS AN ORGANIC SUBSTITUTE TO THE CHEMICALS USED IN THE TANNING PROCESS AND THE SAID PRODUCT COULD NOT BE PURCHASED IN SMALL QUANTI TIES, MORE SO IMPORTED IN SMALL QUANTITIES AND CONSEQUENTLY IT WAS NOT FEASIB LE FOR THE SMALL MEMBERS. CONSEQUENTLY, THE ASSESSEE HAD DONE THE IMPORT ON B EHALF OF ALL THE MEMBERS. IT WAS FURTHER A SUBMISSION THAT THE ASSESSEE HAD A LSO TAKEN UPON ITSELF THE SOCIAL RESPONSIBILITY OF SEEING TO IT THAT THE NATU RE WAS NOT POLLUTED BY CHEMICAL POLLUTANTS USED IN THE TANNING INDUSTRY AND THAT IT S MEMBERS USED NON-POLLUTING MATERIALS LIKE THE WATTLE EXTRACTS. IT WAS A SUBMI SSION THAT THE WATTLE EXTRACTS IS NOT AVAILABLE IN THE OPEN MARKET ANYWHERE IN THE COUNTRY AND THE SAME IS TO BE IMPORTED ONLY. WATTLE EXTRACTS IS NOT POSSIBLE TO BE IMPORTED IN SMALL QUANTITIES AND CONSEQUENTLY IF THE SAID WATTLE EXTR ACTS WERE NOT AVAILABLE, THE MEMBER TANNERIES WOULD RESORT TO USING CHEMICALS IN THE TANNING PROCESS WHICH WOULD BE HARMFUL FOR THE NATURAL RESOURCE ITS ELF. IT WAS A SUBMISSION THAT AT THE OUTSET THERE WAS NO INTENTION OF PROFIT. WH ATEVER MEAGER SURPLUS THAT ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 5 -: WAS GENERATED WAS ALSO USED ONLY FOR CHARITABLE PUR POSES AS PROVIDED IN THE OBJECTS. EVEN IF THE SURPLUS IS SAID TO HAVE GENERA TED, IT WAS ABOUT LESS THAN 3% OF ITS TURNOVER. THE ASSESSEE HAD BEEN COMPLYING WITH THE SOCIAL OB JECTIVE OF SEEING TO IT THAT NATURE WAS NOT DAMAGED BY USING CHEMICALS I N THE PROCESS OF TANNING AND THAT ITS MEMBERS USE THE SUBSTITUTE TO THE CHEM ICALS WHICH OTHERWISE WOULD POLLUTE THE NATURAL ENVIRONMENT. THE ASSESSE E HAS NOT DISTRIBUTED THE WATTLE EXTRACTS TO ANY OUTSIDER BUT HAS ONLY PROVID ED THE SAME TO ITS MEMBERS AND THE PURCHASE AND DISTRIBUTION OF THE WATTLE EXT RACTS WAS IN LINE IN THE PRIMARY OBJECTS OF THE ASSESSEES SOCIETY. IT WAS A SUBMISSION THAT THE ASSESSING OFFICER DENIED THE ASSESSEE THE BENEFIT O F DEDUCTION U/S.12AA AND U/S.11 IN RESPECT OF THE INCOME GENERATED, IF ANY, FROM THE IMPORT AND DISTRIBUTION OF THE WATTLE EXTRACTS. IT IS A SUBMI SSION THAT THE ASSESSING OFFICER MAY BE DIRECTED TO GRANT THE ASSESSEE BENEFIT OF EX EMPTION U/S.11 OF THE INCOME TAX ACT, 1961. 8. IN REPLY, THE LEARNED DEPARTMENTAL REPRESENTATIV E VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND TH E COMMISSIONER OF INCOME TAX (APPEALS). IT WAS A SUBMISSION THAT THE IMPORT AND SALE OF THE WATTLE EXTRACT FALL WITHIN THE PROVISO OF SECTION 2(15) OF THE ACT AND WAS TO BE TREATED AS BUSINESS OPERATION AND CONSEQUENTLY THE ASSESSEE WAS HELD NOT TO BE ELIGIBLE U/S.11 OF THE INCOME TAX ACT, 1961. ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 6 -: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND PERU SED THE MATERIALS AVAILABLE ON RECORD. 10. AT THE OUTSET, THE PERUSAL OF THE OBJECTS SUPRA CLEARLY SHOW THAT THE MAIN OBJECTS OF THE ASSESSEE IS TO ASSIST IN THE INTERNA TIONAL TRADE RELATING TO LEATHER AND LEATHER PRODUCTS AND TO SECURE OBJECTIVES TOWAR DS THE SAID NEEDS. THE OBJECTS ARE ALSO SPECIFICALLY CONTROLLED WITH THE C LEAR PROVISO THAT THERE SHALL BE NO INTENTION OF EARNING PROFITS NOR ARE THE ACTIVIT IES TO BE CARRIED ON OUTSIDE INDIA. ADMITTEDLY, IT IS A FACT THAT THE WATTLE EXTRACTS IS NOT AVAILABLE FOR SALE IN INDIA. WATTLE EXTRACTS ARE BASICALLY SOLID MIMOSA EXTRACTS. THE SAID PRODUCT IS AN ORGANIC PRODUCT WITH HIGH QUANTITY OF BIO-DEGRAD ABLE VEGETABLE TANNING COMPLETELY SOLUBLE IN WATER. THUS, THE ASSESSEE HE REIN ADMITTEDLY PROCURED THE SAID WATTLE EXTRACTS AND HAS DISTRIBUTED THE SA ME ONLY TO HIS MEMBERS. THERE IS NO OUTSIDER DEALINGS IN RESPECT OF THE ASS ESSEE. ADMITTEDLY, ONE CANNOT DO BUSINESS WITH ONES OWN MEMBERS. 11. THIS BEING SO, THE PRIMARY CONDITION OF THE PRO VISO TO SECTION 2(15) WHICH TALKS OF CARRYING ON ANY ACTIVITY IN THE NAT URE OF TRADE, COMMERCE OR BUSINESS ITSELF FAILS. THE ASSESSEE IS NOT DOING ANY TRADE, COMMERCE OR BUSINESS IN DEALING WITH THE WATTLE EXTRACTS. IT I MPORTS THE PRODUCTS FOR ITS MEMBERS AND DISTRIBUTES THE SAME FOR ITS MEMBERS IN THE COURSE OF WHICH MINOR SURPLUSES ARE GENERATED. THIS SURPLUS IS ALS O NOT USED FOR ANY OTHER PURPOSES BUT FOR DOING CHARITABLE ACTIVITIES AS PER MITTED IN THE BY-LAWS. ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 7 -: FURTHER, THE ASSESSEE HAS BEEN GRANTED REGISTRATION U/S.12AA AFTER CONSIDERING THE MAIN AND PRIMARY OBJECTS OF THE ASS ESSEE WHICH HAS BEEN EXTRACTED ABOVE. 12. THIS BEING SO, IT CANNOT BE SAID THAT THE ACTIV ITY OF THE ASSESSEE IN IMPORTING OR PROCURING THE WATTLE EXTRACTS AND DIST RIBUTING THE SAME WITHIN ITS MEMBERS IS AN ACTIVITY WHICH IS HIT BY THE PROVISO TO SECTION 2(15) OF THE INCOME TAX ACT, 1961. 13. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE THE BENEFIT OF EXEMPTION U/S.11 OF THE INC OME TAX ACT, 1961 IN RESPECT OF THE EXCESS OF INCOME OVER EXPENDITURE AS GENERATED BY THE ASSESSEE. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND IN RESPECT OF THE APPEALS FILED BY THE REVENUE, THOUGH EVEN ON MERITS , THE ISSUE IS LIABLE TO BE HELD IN FAVOUR OF THE ASSESSEE ON ACCOUNT OF TAX EF FECT ALSO, THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 25 TH DAY OF NOVEMBER, 2019 IN CHENNAI. SD/- ( '!# $ ) (INTURI RAMA RAO) . /ACCOUNTANT MEMBER SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER /CHENNAI, 2! /DATED: 25 TH NOVEMBER, 2019 . IA, SR. P.S 1 * (-34 54&- /COPY TO: ITA NOS. 2006, 2007 & 2008/CHNY/2014 & I.T.A. NO.2265/CHNY/2 018 :- 8 -: 1. ' /APPELLANT 2. ()' /RESPONDENT 3. , 6- ( )/CIT(A) 4. , 6- /CIT 5. 4 78 (- /DR 6. 89 : /GF