POWERLOOM DEVELOPMENT & EXPORT PROMOTION COUNCIL, MUMBAI V. ITO (E)-11(1), MUMBAI

ITA 2869/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9777 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHARTI SINGH
• Assessee Lawyers: SHANKARLAL JAIN
• Keywords: Charitable institution; Opportunity of being heard
• Section: 143(3); 12A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO.2869/MUM/2016 ASSESSMENT YEAR: 2011 - 12 M/S POWERLOOM DEVELOPMENT COUNCIL C/O SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BUILDING, 265, PRINCESS STREET, MUMBAI - 400002. VS. ITO - II(1), 4 TH FLOOR PIRAMAL CHAMBERS, LALBAUG, MUMBAI . APPELLANT RESPONDENT PAN NO. AAATP0271E ASSESSEE BY : MR. SHANKARLAL JAIN , AR REVENUE BY: MS. BHARTI SINGH , DR DATE OF HEARING : 02 /05/2017 DATE OF PRONOUNCEMENT: 28/07/2017 ORDER PER N.K. PRADHAN, A.M . THIS APPEAL IS FILED BY THE ASSESSE E. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 1 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). ITA NO. 2869/MUM/2016 2 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER: - 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ORDE R OF THE INCOME TAX OFFICER UPHOLDING TAXATION OF INTEREST EARNED BY APPELLANT DURING THE YEAR OF RS.79,85,535/ - WITHOUT GRANTING EXEMPTION U/S.11 AND CONSIDERING THE FACT THAT APPELLANT IS A COMPANY REGISTERED UNDER THE PROVISIONS OF SECTION 25 OF THE COM PANIES ACT, 1956 PROHIBITING ANY DISTRIBUTION OF INCOME AMONGST THE MEMBERS AND COMPLIES WITH ALL THE REQUIREMENTS OF SECTION 2(15) OF THE INCOME - TAX ACT HENCE ENTITLED FOR EXEMPTION U/S.11. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DENYING EXE MPTION U/S.11 TO THE APPELLANT WITHOUT CONSIDERING THE FACT THAT DOMINANT OBJECT OF THE APPELLANT WAS CHARITABLE, APPELLANT BEING A TRADE ASSOCIATION FORMED AND ACTING FOR THE PURPOSE OF DEVELOPMENT OF POWER LOOM INDUSTRY AND ITS EXPORT. 3. THE LD. COMMISSION ER OF INCOME TAX (APPEALS) ERRED IN DENYING EXEMPTION U/S.11 TO THE APPELLANT IN SPITE OF THE FACT THAT NO ACTIVITY BEING CARRIED OUT BY THE APPELLANT FOR PROFIT IS BEING POINTED OUT BY ASSESSING OFFICER. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT IN VIEW OF THE CBDT CIRCULAR NO.11/2008 AS INCOME OF THE APPELLANT BY WAY OF MEMBER'S SUBSCRIPTION IS EXEMPT ON THE PRINCIPLE OF MUTUALITY, INTEREST INCOME NOT BEING EXEMPT ON THE PRINCIPLE OF MUTUALITY IS TAXABLE IN THE HANDS OF THE APPEL LANT WITHOUT CONSIDERING THE FACT THAT APPELLANT IS ENTITLED FOR EXEMPTION UNDER THE PROVISIONS OF SECTION 11 OF THE ACT AS WELL. 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT CASE LAWS RELIED UPON ARE DISTINGUISHABLE ON FACT AND INAPP LICABLE TO THE APPELLANT'S CASE WITHOUT PROPERLY APPRECIATING THE RATIO LAID DOWN IN THOSE DECISIONS THAT FOR DETERMINING CHARITABLE PURPOSE, DOMINANT OBJECT ITA NO. 2869/MUM/2016 3 TO BE LOOKED INTO AND EVEN IF PART OF INCOME IS EXEMPT UNDER PRINCIPLE OF MUTUALITY, BALANCE INCOM E IS ENTITLED TO EXEMPTION U/S.11. 6. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT AS EXEMPTION WAS GRANTED IN EARLIER YEAR ON THE SAME FACT UNDER SECTION 11, EXEMPTION CAN BE DENIED ON THE SAME FACT AS THE PRINCIPLE OF REST JUDICATA DOE S NOT APPLY TO INCOME - TAX ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE CORRECT PRINCIPLE OF LAW. 7. APPELLANT PRAY THAT APPELLANT BEING A COMPANY REGISTERED UNDER THE PROVISIONS OF SECTION 25 OF THE COMPANIES ACT AND OBJECT BEING DEVELOPMENT AND PROMOTION OF TRADE DOMINANT PURPOSE BEING CHARITABLE IS ENTITLED FOR NECESSARY EXEMPTION U/S.11 OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) NOTICED DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HAT THE ACTIVITIES AS CARRIED OUT BY THE ASSESSEE WERE IN THE NATURE OF TRADE, COMMERCE, BUSINESS ETC. DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE RECEIVED RS.79,85,535/ - AS INTEREST ON INVESTMENT DURING THE YEAR. THE AO RELIED ON THE DECISION BY THE HONBLE SUPREME COURT IN BANGALORE CLUB VS. CIT & ANR . [ CIVIL APPEAL NO. 124 OF 2007 DATED 14.01.2013 ], CIT VS. COMMON EFFLUENT TREATMENT PLANT (THEME BELAPUR) ASSOCIATION (2010) 328 ITR 362 (BOM.) AND BROUGHT TO TAX THE INTEREST INCOME OF RS.79,85, 535/ - SEPARATELY AND DENIED EXPENSES ON THE ABOVE AMOUNT. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE DECISIONS RELIED ON BY THE ASSESSEE WERE NOT APPLICABLE TO THE FACTS OF THE CASE. THE LD. CIT(A) FOUND THAT CIRCULAR NO. 11 / 2008 DATED 19.12.2008 ISSUED BY ITA NO. 2869/MUM/2016 4 CBDT IS RELEVANT IN THE INSTANT CASE. HE REPRODUCED THE RELEVANT PORTION OF THE ABOVE CIRCULAR AS UNDER: 3.1 THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX UNDER SECTION 11 ON THE GROUND THAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSE AS THESE ARE COVERED UNDER ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY . UNDER THE PRINCIPLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN PERSONS WHO ARE ASSOCIATED TOGET HER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING OF SOME VENTURE OR OBJECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLUS RETURNED TO THE PERSONS FORMING SUCH ASSOCIATION IS NOT CHARGEABLE TO TAX. IN SUCH CAS ES, THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANIZATIONS AND THEIR ACTIVITIES ARE RESTRICTED TO CONTRIBUTIONS FROM AND PARTICIPATION OF ONLY THEIR MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF THE PROVISO TO SECTION 2(15) OWING TO THE PRINCIPLE OF MUTUALITY. 4.1 THUS THE LD. CIT(A) HAS COME TO A FINDING THAT THE ASSESSEE IS A TRADE ASSOCIATION AND IS CLAIMING BOTH TO BE CHARITABLE INSTITUTION AS WELL AS MUTUAL ASSOCIATION. CONSEQUENTLY, AS PER THE ABOVE CIRCULAR, ITS CASE WILL BE COVERED BY THE PRINCIPLE OF MUTUAL ITY. 4.2 THE LD. CIT(A) HAS ALSO NOTICED THAT THE ASSESSEE HAS EARNED INTEREST INCOME WHICH CANNOT BE SAID TO HAVE BEEN RECEIVED FROM ITS MEMBERS. ACCORDINGLY, THE SAME IS NOT COVERED BY THE PRINCIPLE OF MUTUALITY. WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION IN THE CASE OF BANGALORE CLUB (SUPRA) AND COMMON EFFLUENT TREATMENT PLANT (SUPRA) AND HELD THAT (I) INTEREST INCOME HAS BEEN RIGHTLY BROUGHT TO TAX ITA NO. 2869/MUM/2016 5 BY THE AO AND (II) SINCE EXEMPTION U/S 11 HAS BEEN DENIED, THE CONSEQUENTIAL GROUNDS RAISED BY THE ASSESSEE CANNOT BE ALLOWED. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK (P/B) CONTAINING (I) MEMORANDUM & ARTICLES OF ASSOCIATION, (II) CERTIFICATION OF REGISTRATION U/S 12A DATED 21 . 10 . 1996, (III) AUDITED ACCOUNTS FOR YEAR ENDED 31 ST MARCH, 2011 AND (IV) AUDIT REPORT. HE HAS ALSO FILED ANOTHER P/B CONTAINING (I) WRITTEN SUBMISSION BEFORE THE LD. CIT(A) DATED 05.01.2016 AND 01.02.2016, (I I) CBDT CIRCULAR NO. 11OF 2008 DATED 19.12.2008 AND THE DECISION IN (III) CALCUTTA CRICKET & FOOTBALL CLUB VS. ITO - 183 TTJ (KOL) 112, (IV) BOMBAY PRESIDENCY GOLF CLUB LTD. VS. ITO 184 TTJ (MUM) 23, (V) PDH CHAMBER OF COMMERCE & INDUSTRY VS. DIT 265 ITR 318 (DELHI), (VI) INDIAN CHAMBER OF COMMERCE VS. ITO 167 TTJ 001 (KOL), (VII) GS1 INDIA VS. DGIT 360 ITR 138 (DELHI), (VIII) NATIONAL HORTICULTURE BOARD VS. ACIT 168 TTJ (DELHI) 362, ( IX ) JAPANESE CHAMBER OF COMMERCE & INDUSTRIES VS. DIRECTOR OF INCOME TAX (E XEMPTIONS) 160 TTJ (CHENNAI) 356, (X) ANDHRA CHAMBER OF COMMERCE VS. ADIT 49 ITR (T) (S.N.) 77 (CHEN), (XI) ITO VS. INDIAN LEATHER PRODUCTS ASSOCIATION 156 ITD 393 (KOLKATA), (XII) SOCIETY OF INDIAN AUTOMOBILE MANUFACTURING VS. ITO 71 TAXMANN.COM 138 (DELH I TRIBUNAL) AND (XIII) ASSOCIATION OF STATE ROAD TRANSPORT UNDERTAKING VS. CIT 155 ITD 117 (DELHI). 5.1 THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE ASSESSEE - COMPANY WAS FORMED BY THE MINISTRY OF TEXTILE, GOVERNMENT OF INDIA AND WAS REGISTERED ON 08.09.1995 UNDER THE PROVISIONS OF SECTION 25 OF THE COMPAN IES ACT, 1956. THE COMPANY WAS PROMOTED WITH THE MAIN OBJECT OF (1) TO PROMOTE, SUPPORT, DEVELOP, ADVANCE AND INCREASE ITA NO. 2869/MUM/2016 6 POWERLOOMS AND EXPORT OF POWERLOOM FABRICS AND MADE - UPS THEREOF AND TO CARRY OUT ANY SUCH ACTIVITY IN SUCH MANNER AS MAY BE NECESSARY OR EXPEDIENT. (2) TO UNDERSTAND OR ASSIST IN RESEARCH IN METHODS, DESIGNS, ETC AND SCHEMES OF TECHNICAL NATURE INTENDED TO IMPROVE THE EFFICIENCY OF THE POWERLOOM SECTOR. THE LD. COUNSEL FURTHER SU BMITS THAT THE ASSESSEE IS REGISTERED U/S 12A OF THE ACT AND WAS GRANTED EXEMPTION U/S 11 UP TO AY 2010 - 11. THERE WAS NO CHANGE IN THE CIRCUMSTANCES DURING THE AY 2011 - 12. NONE OF THE ACTIVITY OF THE ASSESSEE IS CARRIED WITH PREDOMINANT OBJECT OF EARNING P ROFIT. INTEREST EARN ED ON INVESTMENT IS NOT AN ACCOUNT OF CARRYING ANY ACTIVITY FOR PROFIT. 6. PER CONTRA THE LD. DR RELIES ON (I) THE CIRCULAR NO. 11/2008 DATED 19.12.2008 ISSUED BY CBDT AND (II) THE DECISION IN COMMON EFFLUENT TREATMENT PLANT (THANE BELA PUR) ASSOCIATION (SUPRA) AND (III) BANGALORE CLUB (SUPRA) . THE LD. DR THUS SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL S ON RECORD. WE ARE OF THE CONSIDERED VIEW THAT IN THE INSTANT APPEAL THE FOLLOWING FACTS ARE TO BE ASCERTAINED: (I) WHETHER THERE IS COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS? (II) WHETHER TRADING HAS TAKEN PLACE BETWEEN PERSONS WHO ARE ASSOCIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FINANCING ITA NO. 2869/MUM/2016 7 OF SOME VENTURE OR OBJECT AND IN THIS RESPECT THEY HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY? 7.1 WE FIND THAT THE FACTS DELINEATED AT PARA 7 HERE - IN - ABOVE HAVE NOT BEEN EXAMINED EITHER BY THE AO OR THE LD. CIT(A). THEREFORE, WE S ET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO MAKE A FRESH ASSESSMENT AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ALSO DIRECT THE ASSESSEE TO FILE THE RELEVANT DETAILS BEFORE THE AO. AS THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO, WE ARE NOT ADVERTING TO THE CASE LAWS REFERRED BY BOTH SIDES. 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN C OURT ON 28/07/2017. SD/ - SD/ - (JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 28/07/2017 ITA NO. 2869/MUM/2016 8 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI