The ACIT, Circle-1, Surat V. Gujarat Hira Bourse, Surat

ITA 2917/AHD/2014

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1101 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 05-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARIMALSINH PARMAR; TUSHAR HIMARNI
• Keywords: Business income; Charitable institution; Wholly owned subsidiary; Set aside
• Section: 143(3); 12AA; 13; 22; 10(23C); 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM ./ ITA NO.2917/AHD/2014 ( [ [ / ASSESSMENT YEAR: (2010-11) (VIRTUAL COURT HEARING) THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE -1, SURAT. V S. GUJARAT HIRA BOURSE, 508, 5 TH FLOOR, BELGIUM TOWER, OPP.LINEAR BUS STAND, RING ROAD, SURAT 395002. ./ ./PAN/GIR NO.: AACCG 0717 B (ASSESSEE) (RESPONDENT) ./ ITA NO.1967/AHD/2016 ( [ [ / ASSESSMENT YEAR: (2012-13) THE INCOME TAX OFFICER (EXEMPTION), WARD, SURAT. V S. GUJARAT HIRA BOURSE, 508, 5 TH FLOOR, BELGIUM TOWER, OPP.LINEAR BUS STAND, RING ROAD, SURAT 395002. ./ ./PAN/GIR NO.: AACCG 0717 B (ASSESSEE) (RESPONDENT) ./ ITA NO.897/AHD/2017 ( [ [ / ASSESSMENT YEAR: (2013-14) THE INCOME TAX OFFICER (EXEMPTION), WARD, SURAT. V S. GUJARAT HIRA BOURSE, 2 ND FLOOR, ADMINISTRATIVE BUILDING, GEM & JEWELLARY PARK, NR. GIDC WTER TANK, ONGC HAZIRA ROAD, ICHCHHAPOR, SURAT 394 510. ./ ./PAN/GIR NO.: AACCG 0717 B (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI TUSHAR HIMARNI SR.ADV & SHRI PARIMALSINH PARMAR ADV. RESPONDENT BY : SHRI RITESH MISHRA CIT(DR) / DATE OF HEARING : 02/06/2021 / DATE OF PRONOUNCEMENT : 22/06/2021 PAGE | 2 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: CAPTIONED THREE APPEALS FILED BY THE REVENUE PERTAINING TO ASSESSMENT YEAR 2010-11, 2012-13 AND 2013-14 ARE DIRECTED AGAINST THE SEPARATE ORDERS PASSED BY THE LD.COMMISSIONER OF INCOME TAX(APPEALS), WHICH IN TURN ARISE OUT OF SEPARATE ASSESSMENT ORDERS PASSED BY THE LD.ASSSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. 2. SINCE, THE ISSUES INVOLVED IN ALL THESE REVENUE APPEALS ARE COMMON AND IDENTICAL; THEREFORE, THESE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE, THE GROUNDS AS WELL AS THE FACTS NARRATED IN ITA NO.2917/AHD/2014 FOR THE A.Y. 2010-11, HAVE BEEN TAKEN INTO CONSIDERATION FOR DECIDING THE ABOVE APPEALS EN MASSE . 3. THE GRIEVANCES RAISED BY THE REVENUE IN LEAD CASE IN ITA NO.2917/AHD/2014, FOR THE A.Y. 2010-11, ARE AS FOLLOWS: [1] WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) HAS ERRED IN NOT HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION U/S 11 AND 12 AND DETERMINING THE INCOME ACCORDINGLY. [2] WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.30,81,12,572/- WHEN THE ASSESSEE WAS CARRYING OUT BUSINESS AND THE REASON FOR HOLDING THE ASSESSEE TO BE A MUTUAL ORGANISATION DOES NOT EXIST AND HENCE IT DID NOT FULFILL THE CONDITIONS OF SECTION 11 & 12 OF THE I.T. ACT. [3] WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ID.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.1,31,94,745/- MADE ON ACCOUNT OF NET INCOME FROM OTHER SOURCES WHICH BECOMES TAXABLE DUE TO SECTION 2(15) OF THE I.T. ACT. [4] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. [5] IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT (A) MAY BE SET ASIDE AND THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTENT. PAGE | 3 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE 4. THE RELEVANT MATERIAL FACTS, AS CULLED OUT FROM THE MATERIAL ON RECORD, ARE AS FOLLOWS. ASSESSEE TRUST, IS A NON-PROFIT MAKING COMPANY REGISTERED U/S 25 OF THE COMPANIES ACT, 1956. IT HAS OBTAINED REGISTRATION AS A TRUST U/S 12AA OF THE ACT, ON 01.04.2006. WITH REGARD TO CLAIMING FOR INCOME FROM PROPERTY HELD FOR CHARITABLE PURPOSES, SPECIFICALLY UNDER THE HEAD 'GENERAL PUBLIC UTILITY', ITS OBJECTS ARE TO ESTABLISH A BOURSE FOR PROMOTION OF EXPORTS OF DIAMONDS, GEMS, PEARLS AND JEWELLERY FROM INDIA AND TO PROVIDE FOR THIS PURPOSE INFRASTRUCTURE AND OTHER FACILITY IN INDIA FOR INDIANS AND OVERSEAS BUYERS AND SELLERS. THE ASSESSEE HAS TAKEN LAND FROM GUJARAT GOVERNMENT FOR A 100 YEARS LEASE FOR ESTABLISHING THE GEM AND JEWELLERY PARK AT SURAT WHICH COMPRISES SEZ AREA AND DTA AREA. THE RETURN OF INCOME WAS FILED ON 29.09.2010 SHOWING TOTAL INCOME AT (-) RS.28,58,25,050/-. THE RETURN OF INCOME, WAS SELECTED FOR SCRUTINY AND DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER OBSERVED THAT THE TOTAL RECEIPTS DURING THE YEAR EXCEEDED RS. 10 LACS FROM THE ACTIVITY IN THE NATURE OF BUSINESS, TRADE OR COMMERCE THEREFORE IN VIEW OF THE PROVISO TO THE SECTION 2(15) OF THE ACT, ACTIVITIES OF THE ASSESSEE DO NOT FALL IN THE CATEGORY OF 'CHARITABLE PURPOSE'. IT WAS ALSO OBSERVED BY ASSESSING OFFICER THAT THE DEPOSITS FROM THE MEMBERS HAVE BEEN KEPT WITH SOME SAR INFRCON PVT. LTD. FOR MAXIMIZING THE PROFIT WHICH IS NOT THE OBJECT OF THE TRUST. THE SURPLUS AMOUNTS COLLECTED FROM MEMBERS AND BOOKING PROCEDURE WERE ALSO CONSIDERED BY ASSESSING OFFICER AS NON CHARITABLE PURPOSES. IN VIEW OF THESE OBSERVATIONS, ASSESSING OFFICER PROPOSED TO WITHDRAW THE EXEMPTIONS UNDER SECTIONS 11 AND 12 OF THE ACT, AND ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE. 5. IN RESPONSE, THE ASSESSEE TRUST SUBMITTED ITS REPLY TO THE ASSESSING OFFICER AND EXPLAINED THE MAIN OBJECTS OF THE ASSESSEE TRUST AS INDICATED IN 'MEMORANDUM OF ASSOCIATION' I.E., IN SHORT, TO ESTABLISH A BOURSE FOR PROMOTION OF EXPORTS OF DIAMOND, GEMS, PEARL AND JEWELLERY AND TO PROVIDE INFRASTRUCTURE AND OTHER FACILITY FOR THIS PURPOSE, TO DEVELOP AND ESTABLISH AN INTERNATIONAL TRADING, CENTER IN INDIA FOR ALL THOSE ENGAGED AS MANUFACTURERS, TRADERS, EXPORTERS AND IMPORTERS, BROKERS, COMMISSION AGENT OF DIAMONDS, PAGE | 4 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE GEMS, PEARLS AND JEWELLERY, TO ESTABLISH FOR THE BENEFIT OF MEMBERS OF THE BOURSE, EFFECTIVE LIAISON WITH OTHER AGENCIES DEALING IN SAME TRADE, TO ESTABLISH, CONSTRUCT AND RUN GEMS AND JEWELLERY PARK TO PROVIDE ALL INFRASTRUCTURAL FACILITIES TO ITS MEMBERS AND TO HOST AND ORGANIZE GEMS AND JEWELLERY TRADE FARES, EXHIBITIONS ETC. IN INDIA AND ABROAD. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE TRUST HAS BEEN ENTRUSTED BY THE INDUSTRY AND THE GOVERNMENT TO DEVELOP AND PROVIDE INFRASTRUCTURE FACILITY BY WAY OF AN SEZ FOR FURTHERING THE GROWTH OF THE GEMS AND JEWELLERY INDUSTRY. IT WAS ALSO SUBMITTED THAT THE ASSESSEE TRUST PROVIDES EMPLOYMENT OPPORTUNITIES THROUGH THIS PROJECT AND ORGANIZES VARIOUS PROGRAMS TO ENCOURAGE EDUCATION AND DEVELOPMENT AND HAS ALSO PARTICIPATED UNDER VIBRANT-2009' EXHIBITION AND 'SWARNIM GUJARAT' CONDUCTED BY GUJARAT GOVERNMENT. IT WAS FURTHER HIGHLIGHTED THAT THE ASSESSEE HAS ACQUIRED A LAND ON LEASE FROM GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION (GIDC), A GOVERNMENT OF GUJARAT UNDERTAKING FOR THE SPECIFIC PURPOSE OF DEVELOPMENT OF GEMS AND JEWELLERY PARK WITH THE CONDITIONS THAT LAND CAN BE ALLOTTED TO MEMBERS ONLY AND NO PROFIT CAN BE MADE OUT OF THE ACTIVITIES OF BOURSE. IT WAS ALSO MENTIONED THAT THE PLOTS WOULD BE ALLOTTED TO MEMBERS RELATED TO GEMS AND JEWELLERY BUSINESS ONLY WHICH CANNOT BE SUBLET/TRANSFERRED WITHOUT THE APPROVAL OF BOURSE. THE ASSESSEE EXPLAINED THE LEGAL PROVISIONS OF SECTION 2(15) OF THE ACT ALSO RELYING ON THE VARIOUS DECISIONS OR HON'BLE SUPREME COURT AND OTHER HIGH COURTS AND ALSO THE CIRCULAR NO. 11/2008, DATED 19.12.2008 ISSUED BY CBDT. IN RESPECT OF DEPOSITS MADE IN SAR INFRCON PVT. LTD, IT WAS EXPLAINED THAT THE ASSESSEE TRUST HAD APPLIED FOR GOVERNMENT GRANT FROM MINISTRY OF COMMERCE AND INDUSTRY DEPARTMENT (MCID) FOR DEVELOPMENT OF BOURSE WHICH WAS APPROVED WITH THE CONDITION TO FORM A SPECIAL PURPOSE VEHICLE (SPV) AND FOR THIS PURPOSE, 100% SUBSIDIARY SAR INFRCON PVT. LTD. WAS FORMED WHEREIN THE GRANT RECEIVED FROM GOVERNMENT WAS DEPOSITED ALONGWITH CONTRIBUTION BY ASSESSEE TRUST. ALL THESE DEPOSITS WERE MADE IN PAGE | 5 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE VIEW OF THE CONDITIONS IMPOSED BY MCID. IT WAS FURTHER EXPLAINED THAT IN ADDITION TO SAR INFRCON PVT. LTD., FUNDS WERE KEPT AS FIXED DEPOSITS WITH THE SCHEDULED BANKS ALSO AND ALL THESE MONEY HAS NOT BEEN UTILIZED WITH ANY PROFIT MOTIVE. 6. THE ASSESSING OFFICER HAS GONE THROUGH THE AFORESAID EXPLANATIONS GIVEN BY ASSESSEE. THE SAID EXPLANATIONS WERE NOT FOUND CONVINCING BY THE ASSESSING OFFICER. THE ASSESSING OFFICER OBSERVED THAT THE INTEREST OF RS. 33,64,211/- RECEIVED BY ASSESSEE ON THE DEPOSITS MADE WITH SAR INFRCON PVT. LTD., BEING A PRIVATE LIMITED COMPANY, IS NOTHING BUT AN ACT OF MAXIMIZATION OF PROFIT WHICH INFRINGES THE MANDATE OF FIRST PROVISO TO SECTION 2(15) OF THE ACT. AS PER ASSESSING OFFICER, THE ASSESSEE TRUST DID NOT REQUIRE THE GOVERNMENT GRANT AFTER APRIL, 2006, THEREFORE, PLEA TAKEN BY ASSESSEE THAT DEPOSITS MADE WITH SAR INFRCON-PVT. LTD WAS AS PER CONDITION IMPOSED BY MCID IS MISPLACED AS THE FUNDS INVESTED IN THIS COMPANY DO NOT FIT IN ANY FORM OR MODE FOR INVESTING FUNDS IN THE INSTITUTIONS AS DEFINED IN SECTION 11(5) OF THE ACT. IT WAS FURTHER OBSERVED BY ASSESSING OFFICER THAT THE SECURITY DEPOSITS OF RS. 1,62,83,510/- AGAINST PLOT BOOKINGS FROM ITS MEMBERS CANNOT BE CALLED AS AN ACT FOR CHARITABLE PURPOSE AS THESE EXTRA AMOUNTS COLLECTED FROM MEMBERS MERELY REFLECT THE PROFIT MOTIVE OF THE ASSESSEE TRUST. FURTHER, ASSESSEE HAS RECEIVED THE AMOUNT OF RS. 21,11,660/- AS DIFFERENCE OF DEPOSITS AND INSTALLMENTS WHICH CLEARLY EXCEEDS, THE MONITORY LIMIT AS PRESCRIBED U/S 2(15) OF THE ACT. SOME OTHER IRREGULARITIES SUCH AS THE PROJECT HAS NOT BEEN COMPLETED EVEN AFTER A LONG PERIOD, NO DETAILS HAVE BEEN FILED ABOUT THE CONTRIBUTION MADE BY ASSESSEE FOR CHARITABLE PURPOSES BY PARTICIPATING IN VIBRANT GUJARAT' AND SWARNIM GUJARAT', THERE IS NO CLARITY ABOUT SUB-LETTING/TRANSFER OF PLOTS TO ITS MEMBERS, ALLOWING MEMBERSHIP TO EVERYBODY ETC. WERE ALSO NOTICED BY ASSESSING OFFICER. PAGE | 6 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE 7. THEREFORE, IN THE LIGHT OF THE ABOVE FACTS, THE ASSESSING OFFICER NOTED THAT ASSESSEE TRUST DOES NOT FULFILL THE MANDATE OF FIRST AND SECOND PROVISO OF SECTION 2(15) OF THE ACT. MOREOVER, THE TOTAL RECEIPTS OF THE ASSESSEE TRUST ARE EXCEEDING RS. 10,00,000/- THEREFORE A GROSS VIOLATION IS APPARENT. THE ACTIVITIES OF THE ASSESSEE TRUST CANNOT BE CALLED AS ACTIVITIES FOR 'GENERAL PUBLIC UTILITY' AND THEREBY NOT FALLING WITHIN THE DEFINITION OF CHARITABLE PURPOSE. FURTHER, THE VIOLATION OF THE PROVISIONS OF SECTION 2(15) AND 11(5) IS DOUBTLESSLY PROVED IN THE CASE OF ASSESSEE TRUST. AS IT IS PROVED THAT THE CLAIM OF THE ASSESSEE TRUST THAT IT IS APPLYING ITS FUNDS TO THE ACTIVITIES WHICH ARE NOT FALLING WITHIN THE MEANING OF 'CHARITABLE PURPOSES' THEREFORE THE PROVISIONS OF SECTION 11 ARE ALSO VIOLATED AT LARGE AND ACCORDING TO THE PROVISIONS OF SECTION 11(3) THE INCOME (RECEIPT ARE TO BE TREATED AS BUSINESS INCOME) WHICH IS APPLIED TO THE PURPOSES OTHER THAN CHARITABLE OR RELIGIOUS PURPOSES OR CEASES TO BE ACCUMULATED OR SET APART FOR APPLICATION THERETO, OR CEASES TO REMAIN INVESTED OR DEPOSITED IN ANY OF THE FORMS OR MODES SPECIFIED IN SUB-SECTION (5) OR IS NOT UTILIZED FOR THE PURPOSE FOR WHICH IT IS SO ACCUMULATED OR SET APART DURING THE PERIOD REFERRED TO IN CLAUSE (A) SHALL BE DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVIOUS YEAR IN WHICH IT IS SO APPLIED OR CEASES TO BE SO ACCUMULATED OR SET APART OR CEASES TO REMAIN SO INVESTED OR DEPOSITED OR (CREDITED OR PAID OR) AS THE CASE MAY BE. THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS FAILED TO APPLY ITS FUNDS TO THE 'CHARITABLE OR RELIGIOUS PURPOSES' AND THE INVESTMENT OF THE FUNDS IS MADE IN A FORM OR MODE WHICH IS NOT PERMISSIBLE UNDER SECTION 11(5) OF THE ACT. 8. THUS, ASSESSING OFFICER OBSERVED THAT WHEN THE ACTIVITIES OF THE ASSESSEE ARE PROVED TO HAVE BEEN OF NON-CHARITABLE NATURE AND THE TOTAL RECEIPTS DURING THE YEAR UNDER SCRUTINY INVOLVED AN AMOUNT OF RS.10,00,000/- OR MORE IS APPARENT ON RECORDS THAN THE ENTIRE RECEIPTS OF THE ASSESSEE TRUST DURING THE YEAR, REQUIRED TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THEREFORE, THE AMOUNT APPLIED TO CHARITABLE OR RELIGIOUS PURPOSES IN INDIA DURING THE PREVIOUS YEAR TO PAGE | 7 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE THE TUNE OF RS. 30,81,12,572/- WAS TREATED BY ASSESSING OFFICER AS BUSINESS INCOME OF THE ASSESSEE TRUST. 9. THE ASSESSING OFFICER ALSO OBSERVED THAT BY VIRTUE OF THE AMOUNT CLAIMED TO HAVE BEEN APPLIED TO CHARITABLE OR RELIGIOUS, PURPOSES IN INDIA DURING THE PREVIOUS YEAR, TREATED AS 'NON-CHARITABLE PURPOSE' AND TREATED AS BUSINESS INCOME OF THE ASSESSEE TRUST, THEREFORE, THE NET INCOME FROM OTHER SOURCES OF RS. 2,22,87,522/- BECOMES TAXABLE IN THE HANDS OF THE ASSESSEE TRUST. HOWEVER, THE EXPENSES INCURRED TOWARDS THIS INCOME OF RS. 90,92,777/- WERE ALLOWED AGAINST THIS INCOME. THUS, TOTAL DISALLOWANCE OUT OF INCOME FROM OTHER SOURCES WAS TO THE TUNE OF RS. 1,31,94,745/- ( RS. 2,22,87,522- RS. 90,92,777). 10.AGGRIEVED BY THE ORDER OF THE LD.ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE LD.ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 11. SHRI RITESH MISHRA, LEARNED CIT(DR) SUBMITS BEFORE THE BENCH THAT ACTIVITIES OF THE ASSESSEE DOES NOT FULFILL THE MANDATE OF FIRST AND SECOND PROVISO OF SECTION 2(15) OF THE ACT. THE TOTAL RECEIPTS OF THE ASSESSEE ARE EXCEEDING RS.10,00,000/-, THEREFORE, GROSS VIOLATION IS APPARENT. LEARNED DR POINTED OUT THAT ACTIVITIES OF THE ASSESSEE TRUST CANNOT BE CALLED AS ACTIVITIES FOR 'GENERAL PUBLIC UTILITY' AND THEREBY NOT FALLING WITHIN THE DEFINITION OF CHARITABLE PURPOSE, BECAUSE, IT CAN BE SEEN THAT THE ASSESSEE HAS TAKEN LAND FROM GUJARAT GOVT FOR A HUNDRED YEAR LEASE FOR ESTABLISHING THE GEM AND JEWELLERY PARK AT SURAT WHICH COMPRISES SEZ AREA AND THE DTA AREA AND THE INFRASTRUCTURE PROJECT IN THE SAID PIECE OF LAND HAS BEEN UNDERTAKEN IN ACCORDANCE WITH THE INDUSTRIAL INFRASTRUCTURE UPGRADATION SCHEME( IIUS), 2003 AS APPROVED BY MINISTRY OF COMMERCE & INDUSTRY. AS PER THE APPROVAL LETTER OF THE MINISTRY, THE ASSESSEE HAS TO ACQUIRE A SPECIAL PURPOSE VEHICLE(SPV), SAR INFRACON PVT LTD TO AVAIL THE GRANT SANCTIONED BY THE CENTRAL GOVT, TOWARDS THE INFRASTRUCTURE PAGE | 8 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE DEVELOPMENT. SUBSEQUENTLY, AS ADMITTED BY THE ASSESSEE, THE GRANT ALONG WITH THE INVESTMENT MADE BY THE ASSESSEE TOWARDS THE INFRASTRUCTURE DEVELOPMENT COULD NOT BE AVAILED IN TIME AND THE SAID AMOUNT OF INVESTMENT WAS DEPOSITED IN THE BANK AS F.D IN JANUARY AND MARCH 2005, BY SAR INFRACON PVT. LTD. AND SUBSEQUENTLY THE SAID AMOUNT OF INVESTMENT ALONG WITH INTEREST RECEIVED FROM BANK WAS RETURNED TO THE ASSESSEE AFTER A LONG PERIOD I.E. IN JANUARY 2010. THEREFORE, LEAVING SUCH A HUGE AMOUNT WITH THE PVT. LTD. COMPANY IS NOTHING BUT A WILLFUL ATTEMPT OF THE ASSESSEE TRUST TO MAXIMIZE ITS PROFIT. FURTHER, THE INVESTMENT IN A PVT. LTD. COMPANY IS NOT EVEN MENTIONED IN THE OBJECTS OF MEMORANDUM OF ASSOCIATION OF THE ASSESSEE TRUST. THE LD DR FURTHER POINTED OUT THAT IN THE PROCEDURE FOR ALLOTMENT OF PLOTS IN SEZ AND DTA AFTER 31.03.2010 PRINCIPAL AMOUNT OF RS.2200/- IS ENHANCED TO RS.3700/-, AS PER THE MANAGEMENT DECISION FOR NEW BOOKING FOR PLOT IN GUJARAT HIRA BOURSE (GHB). THE ABOVE FACTS CLEARLY SHOW THAT THERE IS PROFIT MOTIVE BEHIND THE DEVELOPMENT OF PLOTS AND SELLING THEM TO THE CUSTOMERS AFTER DEVELOPING IT.THE ASSESSEE TRUST HAD RECEIVED NEW SECURITY DEPOSITS TO THE TUNE OF RS.1,62,83,510/- AGAINST PLOT BOOKING FROM ITS MEMBERS. BY ACCEPTING SECURITY DEPOSITS FROM ITS MEMBERS AT MARKET RATE, THE ASSESSEE TRUST HAS SHOWN PROFIT MOTIVE AND NOT THE INTENTION OF CHARITY. AS REGARDS THE PRINCIPAL OF MUTUALITY IS CONCERNED, WHICH IS RELIED UPON BY THE LD CIT(A), LD DR POINTED OUT THAT THE SAME IS ALSO NOT APPLICABLE IN THE CASE OF THE ASSESSEE TRUST. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER CATEGORICALLY MENTIONED THAT CERTAIN ADDITIONAL CONDITIONS IMPOSED AT THE TIME OF ALLOTTING PLOTS TO THE MEMBERS, LIKE THE MEMBERS HAVE TO BE RELATED TO THE GEM & JEWELLERY BUSINESS ONLY, THE LAND ALLOTTED CANNOT BE SUBLET/TRANSFERRED WITHOUT THE APPROVAL OF THE GHB, IF TRANSFER IS SOUGHT, THE SAME HAS TO BE DONE TO A MEMBER OF GHB ONLY. THE ASSESSING OFFICER NOTICED THAT THE SAME IS NOT FOLLOWED STRICTLY. FROM THIS, IT IS CLEAR THAT THE LD CIT(A) IS NOT JUSTIFIED IN HOLDING THAT IN THE ASSESSEE'S CASE THE PRINCIPLE OF MUTUALITY HAS BEEN ADHERED TO AS PER THE CBDT CIRCULAR, EVEN AFTER IT IS EVIDENT THAT THERE IS NO CLARITY IN THE SUB-LETTING/ TRANSFER OF PLOTS BY MEMBERS. HENCE, THE ASSESSING OFFICER WAS RIGHT TO CONCLUDE THAT THE ASSESSEE WAS PAGE | 9 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE DOING BUSINESS ACTIVITIES IN THE GARB OF CHARITABLE ORGANIZATION WITH AN INTENTION TO EARN PROFIT, THEREFORE, ORDER PASSED BY THE ASSESSING OFFICER MAY BE UPHELD. 12. ON THE OTHER HAND, SHRI TUSHAR HIMARNI, SENIOR ADVOCATE, BEGINS BY POINTING OUT THAT ASSESSEE TRUST IS AN ORGANIZATION BASED ON PRINCIPLE OF MUTUALITY AND, THEREFORE, COVERED BY THE CIRCULAR NO. 11/2008, DATED 19.12.2008. THE ASSESSEE TRUST HAS BEEN ESTABLISHED FOR THE PURPOSE OF PROMOTION OF EXPORTS OF DIAMONDS, GEMS, PEARL AND JEWELLERY EXCLUSIVELY FOR ITS MEMBERS. THE ASSESSEE TRUST HAS FULFILLED ALL THE REQUIRED CONDITIONS TO BE TREATED IT AS CHARITABLE INSTITUTION. SHRI TUSHAR HIMARNI, EXPLAINED THE REQUIREMENTS OF SECTION 2 (15) OF THE ACT AND PLEADS THAT SECTION 2(15) OF THE ACT GIVES THE DEFINITION OF 'CHARITABLE PURPOSE' WHICH INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF,, [PRESERVATION OF ENVIRONMENT (INCLUDING WATERSHEDS, FORESTS AND WILDLIFE) AND PRESERVATION OF MONUMENTS OR PLACES OR OBJECTS OR ARTISTIC OR HISTORIC INTEREST,] AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. BY MAKING AMENDMENT VIDE FINANCE ACT, 2008, A PROVISO WAS INSERTED IMPOSING CERTAIN RESTRICTIONS ON THE LAST LIMB OF THE DEFINITION I.E. 'ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. THE SAID PROVISO READS FOLLOWS: '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 CESS OR FEE OR ANY OTHER CONSIDERATION, IRRESPECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION, OF THE INCOME FROM SUCH ACTIVITY' SHRI TUSHAR HIMARNI, EXPLAINED THE ABOVE PROVISO, STATING THAT ANY ORGANIZATION WHICH IS INVOLVED IN CARRYING ON OF ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVICES IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IT WILL NOT BE CONSIDERED AS CHARITABLE ORGANIZATION. THE ASSESSEE TRUST UNDER CONSIDERATION DOES NOT ENGAGE IN TRADE, COMMERCE OR BUSINESS. HOWEVER, THERE WERE CONTROVERSIES THAT WHETHER THOSE ORGANIZATIONS WHICH ARE INVOLVED IN THE ACTIVITY OF RENDERING SERVICES IN PAGE | 10 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE RELATION TO ANY TRADE, COMMERCE OR BUSINESS TO EXCLUSIVELY FOR ITS MEMBERS, WOULD BE REGARDED AS CHARITABLE ORGANIZATIONS OR NOT FALLING UNDER THE LAST LIMB OF DEFINITION I.E. 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. IN THIS REGARD, SHRI TUSHAR HIMARNI, TOOK US THROUGH THE SPEECH OF HON'BLE FINANCE MINISTER. THE HON'BLE FINANCE MINISTER IN HIS SPEECH IN THE PARLIAMENT, EXPLAINED AND ASSURED ALSO THAT CHAMBERS OF COMMERCE AND SIMILAR ORGANIZATIONS RENDERING SERVICES TO THEIR MEMBERS WOULD NOT BE AFFECTED BY THE AMENDMENT AND THEIR ACTIVITIES WOULD CONTINUE TO BE REGARDED AS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY . SHRI TUSHAR HIMARNI, FURTHER EXPLAINED THAT IN CONSONANCE WITH SUCH ASSURANCE GIVEN BY HON'BLE FINANCE MINISTER, A CIRCULAR NO. 11 OF 2008, DATED 19.12.2008 WAS ISSUED BY CBDT, EXPLAINING THE AMENDMENT. THE RELEVANT PARTS OF CIRCULAR ARE AS UNDER '3. THE NEWLY INSERTED PROVISO TO SECTION 2 (15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ' ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' IE., THE FOURTH LIMB OF THE DEFINITION OF 'CHARITABLE PURPOSE' CONTAINED IN SECTION 2 (15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UNDER SECTION 10 (2AC) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. SHRI TUSHAR HIMARNI, EXPLAINED THAT THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX UNDER SECTION 11 OF THE ACT 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 TOGETHER 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. 13. SHRI TUSHAR HIMARNI, (SENIOR ADVOCATE) FURTHER PLEADS THAT ASSESSEES TRUST ACTIVITIES ARE IN THE NATURE OF GENERAL PUBLIC UTILITY, OBJECTIVES OF THE TRUST ARE NOT PAGE | 11 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE PROFIT MAKING. THE ASSESSEE TRUST IS A SECTION 25 COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956. THE ASSESSEE TRUST DOES NOT DISTRIBUTE DIVIDEND. THE ASSESSEE TRUST DOES NOT PROVIDE HIGHER REMUNERATION TO ITS EMPLOYEES. THE ASSESSEE TRUST DOES NOT DISTRIBUTE PROFITS AMONG ITS MEMBERS. THE ASSESSEE TRUST GOT REGISTRATION UNDER SECTION 12AA OF THE ACT AND WORKING AS A NON-PROFIT ORGANIZATION AND IT HELPS TO IMPROVE THE GEMS AND JEWELLERY TRADE. THE ASSESSEE TRUST HAS BEEN GRANTED SECTION 12AA REGISTRATION, THEREFORE, LD.ASSESSING OFFICER CANNOT QUESTION THE OBJECTIVES OF THE ASSESSEE TRUST, UNLESS ASSESSEE TRUST HAS DEVIATED FROM ITS OBJECTIVE. THE ASSESSEE TRUST HAS GIVEN SECURITY DEPOSIT WHICH IS NOT PER SE THE INCOME OF THE ASSESSEE TRUST WHEN IT GET REFUNDED BACK TO IT. THEREFORE, DEPOSIT MADE IS NOT AN INCOME IN THE ORDINARY SENSE. THE LD.COUNSEL ALSO POINTED OUT THAT MERELY BECAUSE THERE IS SOME SURPLUS IN THE HANDS OF THE ASSESSEE TRUST, DOES NOT MEAN THAT THE ASSESSEE IS NOT A TRUST AS PER SECTION 12AA OF THE ACT. 14. SHRI TUSHAR HIMARNI, (SENIOR ADVOCATE), HAS ALSO PUT AN ALTERNATIVE ARGUMENT BEFORE THE BENCH THAT ASSESSEE TRUST IS RUNNING ON THE PRINCIPLE OF MUTUALITY. THAT IS, BASED ON DOCTRINE OF MUTUALITY, HENCE THE ASSESSEE TRUST IS ENTITLED TO GET THE BENEFIT UNDER SECTION 11 AND 12 OF THE ACT. THE MEMBERS HAVE CREATED THIS TRUST TO HELP AND TO ENHANCE THE TRADE OF DIAMOND AND JEWELLERY. THIS, SECTION 25 COMPANY ALSO HELPS TO PROVIDE THE JOB AND CREATES MORE OPPORTUNITY FOR YOUNGER POPULATION. BESIDES, ASSESSEE TRUST HAS NOT DIVERTED ITS FUNDS FOR THE COMMERCIAL PURPOSE AND THEREFORE, THE ASSESSEE TRUST IS ENTITLED TO TAKE THE BENEFIT UNDER SECTION 11 AND 12 OF THE ACT. SHRI TUSHAR HIMARNI, THEN BUTTRESS ASSESSEES CASE WITH THE AID OF VARIOUS JUDICIAL PRECEDENTS AS WELL AND PLEADED THAT THE ORDER PASSED BY THE LD.CIT(A) IS JUST AND PROPER AND DOES NOT REQUIRE INTERFERENCE, THEREFORE, ORDER PASSED BY THE LD CIT(A) MAY BE UPHELD. 15. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL CONTENTION. WE HAVE PERUSED CASE FILE AS WELL AS PAPER BOOKS FURNISHED BY ASSESSEE WITH THE ABLE PAGE | 12 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE ASSISTANCE OF SHRI TUSHAR HIMARNI, (SENIOR ADVOCATE), REPRESENTING THE ASSESSEE AND SHRI RITESH MISHRA, LEARNED CIT(DR), REPRESENTING THE REVENUE. WE FIND THAT ONE KEY ISSUE ARISES FOR OUR APT ADJUDICATION IN THE INSTANT LIS, WHICH IS, WHETHER THE ASSESSEE TRUST ( A SECTION 25 COMPANY, AS PER OLD COMPANIES ACT, 1956), IS CHARITABLE INSTITUTION OR NOT. WE NOTE THAT IN THE INSTANT CASE THE ASSESSMENT ORDER U/S 143(3) WAS PASSED ON 28.03.2013 DETERMINING TOTAL INCOME AT RS.3,54,82,267/- BY MAKING FOLLOWING ADDITIONS: (I) AMOUNT APPLIED TO CHARITABLE PURPOSE TREATED AS BUSINESS INCOME RS. 30,81,12,572/- AND (II) WITHDRAWAL OF EXEMPTION CLAIMED UNDER SECTION 11 AND 12 OF INCOME FROM OTHER SOURCES TO THE TUNE OF RS. 1,31,94,745/-. REGARDING (II) ADDITION, THAT IS, WITHDRAWAL OF EXEMPTION CLAIMED UNDER SECTION 11 AND 12 OF INCOME FROM OTHER SOURCES TO THE TUNE OF RS. 1,31,94,745/- IS CONCERNED, SHRI TUSHAR HIMARNI, SR. ADVOCATE, INVITED OUR ATTENTION TO PAGE NO. 16 OF ASSESSEE`S PAPER BOOK WHEREIN INCOME AND EXPENDITURE ACCOUNT OF THE ASSESSEE IS PLACED. TOTAL INCOME OF THE ASSESSEE TRUST IS RS.2,22,87,522/- AND TOTAL EXPENDITURE IS AT RS.90,92,777/. THUS, RESULTED SURPLUS IS AT RS. 1,31,94,744/- (RS.2,22,87,522- RS.90,92,777). ONCE THE GROSS INTEREST INCOME IS ADDED AND AGAIN GROSS EXCESS INCOME OVER EXPENSES ( RS. 2,22,87,522 RS.90,92,772), RS.1,31,94,745 IS ADDED, THEN IT RESULTED IN DOUBLE ADDITION/DISALLOWANCE TO THAT EXTENT. THUS, RS.1,31,94,745/- IS DOUBLE ADDITION WHICH IS NOT SUSTAINABLE IN LAW. THEREFORE, THE EFFECTIVE ADDITION MADE BY THE ASSESSING OFFICER IN ASSESSEE`S CASE IS TO THE TUNE OF RS. 30,81,12,572/-, WHICH IS, TREATED AS BUSINESS INCOME, BY THE ASSESSING OFFICER. 16. NOW, COMING TO THE KEY ISSUE ARISES FOR OUR APT ADJUDICATION IN THE INSTANT LIS , WHICH IS, WHETHER THE ASSESSEE TRUST, IS CHARITABLE INSTITUTION OR PAGE | 13 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE NOT. WE NOTE THAT ASSESSEE TRUST IS A COMPANY INCORPORATED U/S 25 OF THE COMPANIES ACT, 1956, AS NON-PROFIT MAKING ORGANIZATION. THE ASSESSEE IS PROMOTED BY SURAT DIAMOND ASSOCIATION, ITS OTHER MEMBERS AND THE GOVERNMENT OF GUJARAT FOR DEVELOPMENT OF WORLD CLASS GEM AND JEWELLERY PARK. THE MAIN OBJECT OF THE ASSESSEE IS TO DEVELOP THE WORLD CLASS GEM AND JEWELLERY PARK. THE CITY OF SURAT HAD BEEN TRADITIONALLY THE HEAD-QUARTER OF DIAMOND, TRADED EXPORT FOR GUJARAT. THE MAIN OBJECTS OF THE ASSESSEE TRUST ARE AS FOLLOWS: (I) TO ESTABLISH COMMON FACILITIES REQUIRED TO PROMOTE EXPORTS OF DIAMONDS FROM INDIA AND TO PROVIDE FOR THIS PURPOSE TRADING HALLS AND OTHER UTILITIES AT A CENTRAL PLACE FOR INDIAN EXPORTERS AND OVERSEAS BUYER TO CARRY ON TRADE AND COMMERCE IN DIAMONDS WITH SPEED AND IN SECURE CONDITIONS. (II) TO ESTABLISH AND PROMOTE EFFECTIVE LIAISON BETWEEN DIAMOND TRADE AND INDUSTRY IN INDIA AND ABROAD WITH A VIEW TO PROMOTING THEIR SALES FROM INDIA IN INTERNATIONAL MARKET. (III) TO PROMOTE, ADVANCE, PROTECT AND DEVELOP TRADE, COMMERCE AND INDUSTRY IN INDIA RELATING TO EXPORTS AND IMPORTS OF DIAMONDS INTER ALIA BY SETTING UP OF WORLD CLASS GEM AND JEWELLERY PARK. (IV) TO DEVELOP INDIA AS MODERN AND SOPHISTICATED DIAMOND MARKET BY ESTABLISHING AND MAINTAINING AN INTERNATIONAL TRADING CENTER IN INDIA FOR ALL THOSE ENGAGED AS MANUFACTURERS, TRADERS, EXPORTERS AND IMPORTERS, BROKERS/COMMISSION AGENTS OF DIAMONDS.' THE SETTING OF GUJARAT HIRA BOURSE (GHB) HAS A GREAT IMPACT ON THE DIAMOND EXPORT TRADE OF GUJARAT. BY SETTING UP OF GEM AND JEWELLERY PARK THE INDIA CAN EXPORT DIAMOND EASILY AND WITH BETTER INFRASTRUCTURE FACILITY. THE GUJARAT HIRA BOURSE PAGE | 14 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE (GHB-ASSESSEE) HAS ALSO SET UP CUSTOM HOUSE CLEARING AND ADMINISTRATIVE OFFICE THROUGH WHICH STORAGE AND CLEARANCE OF DIAMONDS FOR EXPORT CAN BE MANAGED EASILY. FOR DEVELOPMENT OF CUSTOMS HOUSE AND ADMINISTRATIVE BUILDING AND GEM AND JEWELLERY PARKS FOR EXPORT OF DIAMONDS, THE ASSESSEE RECEIVES CONTRIBUTION FROM ITS MEMBERS BEING WELL KNOWN GEM AND JEWELLERY EXPORTERS. AFTER DEVELOPMENT OF PLOT AS GEM AND JEWELRY PARK RESPECTIVE PLOTS ARE BEING ALLOTTED TO THE RESPECTIVE MEMBERS ONLY. THE ASSESSEE IS NOT DEALING WITH ANY OUTSIDER OTHER THAN ITS MEMBERS FOR THE PURPOSE OF RECEIPT OF FUNDS AND UTILIZATION THEREOF (COMPLETE IDENTITY BETWEEN CONTRIBUTOR AND PARTICIPATORS TO FUND EXIST). THE CASE OF THE ASSESSING OFFICER IS THAT IN VIEW OF THE FIRST PROVISO TO SECTION 2(15), WHICH IS INSERTED BY FINANCE ACT, 2008, THE ASSESSEE IS CARRYING OUT ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND CONSEQUENTLY IT CANNOT BE REGARDED AS CHARITABLE ORGANIZATION AND THEREFORE THE EXEMPTION UNDER SECTIONS 11 AND 12 SHOULD NOT BE ALLOWED TO THE ASSESSEE. WE NOTE THAT THE MAIN OBJECT OF THE ASSESSEE TRUST IS TO DEVELOP THE WORLD CLASS GEMS AND JEWELLERY PARK TO PROVIDE COMMON FACILITIES REQUIRED TO PROMOTE EXPORTS OF DIAMONDS FROM INDIA AND FOR THIS PURPOSE TO ESTABLISH UTILITIES AT A CENTRAL PLACE. FOR THIS PURPOSE, CONTRIBUTIONS FROM THE MEMBERS BEING WELL KNOWN GEMS AND JEWELLERY EXPORTERS HAVE BEEN RECEIVED AND FACILITIES HAVE BEEN PROVIDED EXCLUSIVELY TO THEM. AS PER LD COUNSEL, THESE ACTIVITIES ARE BASED ON PRINCIPLE OF MUTUALITY IN VIEW OF CBDT CIRCULAR NO. 11/2008 DATED 19.12.2008 AND THE ENTITY IS NOT INVOLVED IN CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, THEREFORE, IT IS NOT COVERED BY THE PROVISO TO SECTION 2(15) OF THE ACT. 17. IN THIS CONNECTION, THE LD COUNSEL STATES THAT THE AFORESAID PROVISO PROVIDES FOR EXCLUSION FROM THE MAIN OBJECT OF THE DEFINITION OF THE TERM 'CHARITABLE PURPOSES' AND APPLIES ONLY TO CASES OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. IF THE CONDITIONS PROVIDED UNDER THE PROVISO ARE SATISFIED, ANY ACTIVITY, EVEN IF INVOLVED IN ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY BY VIRTUE TO PROVISO, WOULD BE EXCLUDED FROM THE DEFINITION OF 'CHARITABLE PURPOSE'. HOWEVER, PAGE | 15 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE FOR THE APPLICATION OF THE SAID PROVISO, WHAT IS NECESSARY IS THAT THE ENTITY SHOULD BE INVOLVED IN CARRYING ON ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS, OR ANY ACTIVITY OF RENDERING SERVICES IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. IN SUCH A SITUATION, THE NATURE, USE OR APPLICATION, OR RETENTION OF INCOME FROM SUCH ACTIVITIES WOULD NOT BE RELEVANT. UNDER THE PRESENT CIRCUMSTANCES, THE IMPORTANT ELEMENTS OF APPLICATION OF PROVISO ARE THAT THE ENTITY SHOULD BE INVOLVED IN CARRYING ON THE ACTIVITIES OF ANY TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITIES OF RENDERING SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. SUCH STATUTORY AMENDMENT WAS EXPLAINED BY THE FINANCE MINISTER'S SPEECH IN THE PARLIAMENT. RELEVANT PORTION OF WHICH READS AS UNDER: I ONCE AGAIN ASSURE THE HOUSE THAT GENUINE CHARITABLE ORGANIZATIONS WILL NOT IN ANY WAY BE AFFECTED. THE CBDT WILL, FOLLOWING THE USUAL PRACTICE, ISSUE AN EXPLANATORY CIRCULAR CONTAINING GUIDELINES FOR DETERMINING WHETHER ANY ENTITY IS CARRYING ON 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. WHETHER THE PURPOSE IS A CHARITABLE PURPOSE WILL DEPEND ON THE TOTALITY OF THE FACTS OF THE CASE. ORDINARILY, CHAMBERS OF COMMERCE AND SIMILAR ORGANIZATIONS RENDERING SERVICES TO THEIR MEMBERS WOULD NOT BE AFFECTED BY THE AMENDMENT AND THEIR ACTIVITIES WOULD CONTINUE TO BE REGARDED AS 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. THE LD COUNSEL STATES THAT IN CONSONANCE WITH SUCH ASSURANCE GIVEN BY THE HON'BLE FINANCE MINISTER ON THE FLOOR OF THE HOUSE, CBDT ISSUED A CIRCULAR NO. 11 OF 2008 DATED 19TH DECEMBER 2008 EXPLAINING THE AMENDMENT, WHICH ARE REPRODUCED BELOW: '3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' IE., THE FOURTH LIMB OF THE DEFINITION OF ' CHARITABLE PURPOSE' CONTAINED IN SECTION 2 (15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UNDER SECTION 10 (23C) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. 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 PAGE | 16 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE 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 TOGETHER 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 CASES, 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. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH NON-MEMBERS, THEIR CLAIM TO BE CHARGEABLE ORGANIZATIONS WOULD NOW BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2 (15). 3.2 IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASSESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' IS A QUESTION OF FACT. IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, THE OBJECT OF ' GENERAL PUBLIC UTILITY' WILL BE ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS POSSIBLE. ASSESSEES, WHO CLAIM THAT THEIR OBJECT IS CHARITABLE PURPOSE' WITHIN THE MEANING OF SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS.' 18. WE HAVE GONE THROUGH THE AFORESAID CIRCULAR OF CBDT, AND NOTE THAT THE STATUTORY PROVISIONS, AS EXPLAINED IN THE SPEECH OF FINANCE MINISTER AND THE CIRCULAR, IS THAT THE ACTIVITY, OF A TRUST WOULD BE EXCLUDED FROM THE TERM 'CHARITABLE PURPOSE' ONLY IF IT IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR A CESS, FEE AND/OR ANY OTHER CONSIDERATION. IT IS NOT AIMED AT EXCLUDING THE GENUINE CHARITABLE TRUSTS OF GENERAL PUBLIC UTILITY BUT IS AIMED 'AT EXCLUDING ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS WHICH ARE MASKED AS ' CHARITABLE PURPOSE'. IN THIS CONNECTION, LD COUNSEL STATES THAT THE ACTIVITIES OF THE DEVELOPMENT OF GEM AND JEWELLERY PARK PAGE | 17 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE FOR ITS MEMBERS CANNOT BE REGARDED AS ACTIVITY IN NATURE OF TRADE, COMMERCE OR BUSINESS ON THE FOLLOWING GROUNDS: (A) THE ASSESSEE IS A NON-PROFIT MAKING COMPANY INCORPORATED UNDER SECTION 25 OF THE COMPANIES ACT, 1956 (B) THE ASSESSEE OBTAINED REGISTRATION U/S 12AA OF THE INCOME TAX ACT, WITH REGARD TO CLAIMING INCOME FROM PROPERTY HELD FOR CHARITABLE OR RELIGIOUS PURPOSE, SPECIFICALLY UNDER THE HEAD 'GENERAL PUBLIC UTILITY' (C) ITS OBJECT IS TO ESTABLISH A BOURSE FOR PROMOTION OF EXPORTS OF DIAMOND, GEMS, PEARL AND JEWELLERY FROM INDIA AND PROVIDE FOR THIS PURPOSE INFRASTRUCTURE AND OTHER FACILITIES IN INDIA FOR INDIAN AND OVERSEAS BUYERS AND SELLERS OF DIAMONDS, GEMS, PEARLS AND JEWELLERY. WITHIN ITS OBJECTS THE ASSESSEE HAS TAKEN THE ACTIVITY OF DEVELOPING GEM AND JEWELRY PARK. (D) IN ASSESSEE'S CASE, THE FACTS ARE WELL COVERED BY FINANCE MINISTER'S SPEECH READ TOGETHER WITH PARA 3.1 OF THE CIRCULAR. IT IS WELL SETTLED LAW THAT THE SPEECH OF THE FINANCE MINISTER IS VERY MUCH RELEVANT TO INTERPRET THE PROVISION OF LAW. RELIANCE IN THIS CASE IS PLACED ON THE DECISION OF HON'BLE SUPREME COURT DELIVERED IN THE CASE OF K.P. VARGHESE V. INCOME-TAX OFFICER [1981] 131 ITR 597 (SC) WHEREIN APEX COURT INTER ALIA OBSERVED AS UNDER:- .THE SPEECH MADE BY THE MOVER OF THE BILL EXPLAINING THE REASON FOR THE INTRODUCTION OF THE BILL CAN CERTAINLY BE REFERRED TO FOR THE PURPOSE OF ASCERTAINING THE MISCHIEF SOUGHT TO BE REMEDIED BY THE LEGISLATION AND THE OBJECT AND PURPOSE FOR WHICH THE LEGISLATION IS ENACTED. THIS IS AN ACCORD WITH THE RECENT TREND IN JURISTIC THOUGHT NOT ONLY IN WESTERN COUNTRIES BUT ALSO IN INDIA THAT INTERPRETATION OF A STATUTE BEING AN EXERCISE IN THE ASCERTAINMENT OF PAGE | 18 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE MEANING, EVERYTHING WHICH IS LOGICALLY RELEVANT SHOULD BE ADMISSIBLE (E) THE FIRST PROVISO TO SECTION 2(15) ONLY APPLIES WHERE ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS ARE CARRIED OUT WITH PROFIT MOTIVE AND IN THE PRESENT CASE THERE IS NO SUCH PROFIT MOTIVE AS THE ASSESSEE IS INCORPORATED AS NON-PROFIT ORGANIZATION UNDER SECTION 25 OF THE COMPANIES ACT, 1956. 19. IN SUPPORT OF THE ABOVE CONTENTIONS, THE LD COUNSEL RELIES ON THE DECISION OF HON'BLE SUPREME COURT, DELIVERED IN THE CASE OF DIT VS. BHARAT DIAMOND BOURSE (2003) 259 ITR 280 (SC). IN THAT CASE THE DIAMOND BOURSE WAS REGISTERED AS A COMPANY LIMITED BY GUARANTEE. THE PRIMARY OBJECTS OF THE BOURSE WERE TO ESTABLISH COMMON FACILITIES REQUIRED TO PROMOTE EXPORTS OF DIAMONDS, PROMOTE EFFECTIVE LIAISON BETWEEN THE DIAMOND TRADE INDUSTRIES IN INDIA AND ABROAD, PROMOTE, ADVANCE, PROTECT AND DEVELOP TRADE, COMMERCE AND INDUSTRY IN INDIA RELATING TO EXPORT AND IMPORT OF DIAMONDS AND TO DEVELOP INDIA AS MODERN AND SOPHISTICATED DIAMOND MARKET. IT WAS HELD BY THE HON'BLE APEX COURT THAT THE ASSESSEE WAS AN INSTITUTION ESTABLISHED FOR CHARITABLE PURPOSE AND ITS OBJECTS WERE FOR THE ADVANCEMENT OF OTHER OBJECTS OF GENERAL PUBLIC UTILITY WITHIN THE MEANING OF SECTION 2(15) OF THE I.T. ACT. THE REFERENCE IS ALSO INVITED TO THE DECISION OF MUMBAI I.T.A.T. IN THE CASE OF BHARAT DIAMOND BOURSE VS. INCOME-TAX OFFICER [1999] 105 TAXMAN 344 (MUMBAI)(MAG.) WHEREIN I.T.A.T. INTER ALIA, OBSERVED AS UNDER : .. WITH REGARD TO THE DEPARTMENT'S ARGUMENT THAT THE ASSESSEE-TRUST HAD BEEN FORMED FOR THE PURPOSE OF EARNING PROFITS, THE MEMORANDUM OF ASSOCIATION AS WELL AS ARTICLES OF ASSOCIATION CLEARLY SHOWED THAT THE SUBSCRIBERS WERE DESIROUS OF BEING FORMED INTO A COMPANY NOT FOR PROFIT AND THAT THE INCOME AND PROPERTY OF THE COMPANY SHALL BE APPLIED SOLELY FOR THE PROMOTION OF ITS OBJECTS SET FORTH IN THE MEMORANDUM. FURTHER, ON WORKING OUT THE DEFICITS FOR THE YEARS 1986-87 TO 1997-98, BY DEDUCTING FROM THE INCOME OF THE TRUST THE EXPENDITURE INCURRED FOR THE PURPOSES OF THE TRUST AND THE ACQUISITION OF THE FIXED ASSET, IT WAS FOUND THAT CONSISTENT EARNING OF PROFITS HAD BEEN ONLY WITH A VIEW TO APPLYING THE SAME FOR CHARITABLE OBJECTS. THUS, RELYING ON THE PAGE | 19 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE OBSERVATIONS MADE BY THE SUPREME COURT IN SURAT ART SILK CLOTH MFRS. ASSOCIATION'S CASE (SUPRA) THAT A CHARITABLE TRUST WOULD NOT LOSE ITS CHARACTER OF CHARITABLE PURPOSE IF THE PREDOMINANT OBJECT OF THE ACTIVITY IS TO CARRY OUT THE CHARITABLE PURPOSE AND NOT TO EARN PROFITS AND IF SOME PROFIT ARISES FROM THE ACTIVITY, IT WOULD BE DIFFICULT TO HOLD THAT ALL PERVADING MOTIVE OF THE ACTIVITIES CARRIED ON BY THE ASSESSEE-TRUST WAS THE MAKING OF THE PROFIT. WE NOTE THAT FACTS OF THE AFORESAID CASE OF BHARAT DIAMOND BOURSE(SUPRA), WERE SIMILAR TO THAT OF THE ASSESSEE AND INSERTION OF FIRST PROVISO TO SECTION 2(15) DOES NOT ALTER THE LEGAL POSITION ALREADY SETTLED BY HON'BLE APEX COURT, BECAUSE THE SAID PROVISO ONLY APPLICABLE TO THE CASE WHERE THE ACTIVITIES OF TRADE, COMMERCE OR BUSINESS ARE CARRIED OUT UNDER THE GUISE OF 'CHARITY' AS ENVISAGED IN PARA 3.1 OF CIRCULAR OF CBDT (NO.11/2008). THE CONTENTION OF THE LD COUNSEL THAT IT IS NOT CARRYING OUT ANY TRADE, COMMERCE OR BUSINESS WITH PROFIT MOTIVE IS FURTHER SUPPORTED BY THE FACT THAT IT IS INCORPORATED UNDER SECTION 25 OF THE COMPANIES ACT, 1956, AS NON-PROFIT MAKING ORGANIZATION WHICH PROHIBITS DISTRIBUTION OF PROFITS IN THE FORM OF DIVIDEND. 20. ON SIMILAR AND IDENTICAL ISSUES, THE COORDINATE BENCH OF ITAT CHENNAI DELIVERED DECISION IN THE CASE OF AMBUR ECONOMIC DEVELOPMENT ORGANIZATION LTD. VS. DIT ITA NO.L88/MDS/2012, DATED 28TH MARCH, 2012. THE SAID DECISION IS DELIVERED AFTER THE AMENDMENT MADE BY FINANCE ACT, 2008 IN SECTION 2(15) OF THE ACT. WHILE DELIVERING THE SAID DECISION, THE COORDINATE BENCH HAS CONSIDERED FIRST PROVISO TO SECTION 2(15) OF THE ACT AND CIRCULAR OF THE CBDT NO. 11/2008. THE FINDINGS OF THE COORDINATE BENCH ARE AS FOLLOWS: WE HAVE HEARD THE PARTIES AND HAVE GONE THROUGH THE IMPUGNED ORDER. BOARD'S CIRCULAR NO. 11 OF 2008 DATED 19.12.2008 CLARIFIES EXEMPTION UNDER SECTION 11 IN CASE OF ASSESSEE CLAIMING BOTH TO BE CHARITABLE INSTITUTION AS WELL AS MUTUAL ORGANIZATION. THE RELEVANT EXTRACT OF THE CIRCULAR IS REPRODUCED HEREIN BELOW:- . 1. SECTION 2(15) OF THE INCOME-TAX ACT, 1961 ('ACT') DEFINES 'CHARITABLE PURPOSE' TO INCLUDE THE FALLOWING: (I) RELIEF OF THE POOR (II) EDUCATION PAGE | 20 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE (III) MEDICAL RELIEF, AND (IV) THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. AN ENTITY WITH A CHARITABLE OBJECT OF THE ABOVE NATURE WAS ELIGIBLE FOR EXEMPTION FROM TAX UNDER SECTION 11 OR ALTERNATIVELY UNDER SECTION 10(23C) OF THE ACT. HOWEVER, IT WAS SEEN THAT A NUMBER OF ENTITIES WHO WERE ENGAGED IN COMMERCIAL ACTIVITIES WERE ALSO CLAIMING EXEMPTION ON THE GROUND THAT SUCH ACTIVITIES WERE FOR THE ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY IN TERMS OF THE FOURTH LIMB OF THE DEFINITION OF 1 CHARITABLE PURPOSE'. THEREFORE, SECTION 2(15) WAS AMENDED VIDE FINANCE ACT, 2008 BY ADDING A PROVISO WHICH STATES THAT THE 1 ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' SHALL NOT BE A CHARITABLE PURPOSE IF IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS; OR (B) 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 3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WILL APPLY ONLY TO ENTITIES WHOSE PURPOSE IS 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' I.E., THE FOURTH LIMB OF THE DEFINITION OF 1 CHARITABLE PURPOSE' CONTAINED IN SECTION 2(15). HENCE, SUCH ENTITIES WILL NOT BE ELIGIBLE FOR EXEMPTION UNDER SECTION 11 OR UNDER SECTION 10(23C) OF THE ACT IF THEY CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENTITY IS CARRYING ON AN ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS IS A QUESTION OF FACT WHICH WILL BE DECIDED BASED ON THE NATURE, SCOPE, EXTENT AND FREQUENCY OF THE ACTIVITY. 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 TOGETHER 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 CASES, 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 PAGE | 21 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE ONLY THEIR MEMBERS, THESE WOULD NOT FALL UNDER THE PURVIEW OF THE PROVISO TO SECTION 2(15) OWING TO THE PRINCIPLE OF MUTUALITY. HOWEVER, IF SUCH ORGANIZATIONS HAVE DEALINGS WITH NON-MEMBERS, THEIR CLAIM TO BE CHARITABLE ORGANIZATIONS WOULD NOW BE GOVERNED BY THE ADDITIONAL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2(15). 3.2 IN THE FINAL ANALYSIS, HOWEVER, WHETHER THE ASSESSEE HAS FOR ITS OBJECT 'THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY' IS A QUESTION OF FACT. IF SUCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS, IT WOULD NOT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE PURPOSE. IN SUCH A CASE, THE OBJECT OF 'GENERAL PUBLIC.UTILITY' WILL BE ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WHICH IS TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS. EACH CASE WOULD, THEREFORE, BE DECIDED ON ITS OWN FACTS AND NO GENERALIZATION IS POSSIBLE. ASSESSEES, WHO CLAIM THAT THEIR OBJECT IS 1 CHARITABLE PURPOSE' WITHIN THE MEANING OF SECTION 2(15), WOULD BE WELL ADVISED TO ESCHEW ANY ACTIVITY WHICH IS IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS.' 21. WE NOTE THAT FACTS OF THE ASSESSEE'S CASE ARE SIMILAR TO THAT OF AMBUR ECONOMIC DEVELOPMENT ORGANIZATION LTD(SUPRA) AND, THEREFORE, RATIO DECIDENDI OF THAT CASE CAN BE APPLIED IN THE PRESENT CASE . THE ASSESSEE IS ALSO CARRYING OUT THE ACTIVITY OF DEVELOPMENT OF INFRASTRUCTURE FOR WORLD CLASS GEM AND JEWELLERY PARK FOR ITS MEMBERS. THE ASSESSEE IS ALSO INCORPORATED AS NON-PROFIT MAKING COMPANY U/S 25 OF THE COMPANIES ACT, 1956 AND DOES NOT ALLOW DISTRIBUTING EITHER ANY PART OF ITS PROFITS TO MEMBERS. THE SAID FACT IS GIVEN AT NOTE NO. 7 OF SCHEDULE K, 'SIGNIFICANT ACCOUNTING POLICIES' TO AUDITED ANNUAL ACCOUNTS FOR THE YEAR UNDER CONSIDERATION. 22. RELIANCE IS ALSO PLACED ON THE DECISION OF COORDINATE BENCH OF CHANDIGARH IN THE CASE OF HIMACHAL PRADESH ENVIRONMENT VS. CIT (I.T.A.T. CHANDIGARH), ITA NO. 74/ CHD/ 2009 WHEREIN IT IS INTER ALIA HELD THAT THE PROVISO TO SECTION 2(15) CAN APPLY ONLY TO ENTITIES WHOSE PURPOSE IS 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. IT IS ALSO OBSERVED THAT PROFIT MOTIVE IS THE ESSENCE OF TRADE, COMMERCE OR BUSINESS, AND WHERE THE SERVICES ARE RENDERED WITHOUT A PROFIT MOTIVE, SUCH SERVICES WILL NOT HAVE ANYTHING IN COMMON WITH TRADE, BUSINESS OR COMMERCE. PAGE | 22 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE ACCORDINGLY, TO FALL WITHIN THE SECOND LIMB OF THE PROVISO TO SECTION 2(15), 'RENDERING OF SERVICE TO TRADE, COMMERCE OR BUSINESS' MUST BE SUCH THAT IT HAS A PROFIT MOTIVE. 23.ON SIMILAR AND IDENTICAL FACTS THE RELIANCE CAN BE PLACED ON THE DECISION OF HON'BLE GUJARAT HIGH COURT, IN THE CASE OF DIT VS. SABARMATI GAUSHALA AASHRAM TRUST [2014] 362 ITR 539, WHEREIN AT PARA NO. 9 OF THE JUDGMENT HON'BLE HIGH COURT OBSERVED THAT MANY ACTIVITIES OF GENUINE CHARITABLE PURPOSES WHICH ARE NOT IN THE NATURE OF TRADE, COMMERCE OR BUSINESS MAY STILL GENERATE MARKETABLE PRODUCTS. AFTER SETTING OFF OF THE COST, FOR PRODUCTION OF SUCH MARKETABLE PRODUCTS FROM THE SALE CONSIDERATION, THE ACTIVITY MAY LEAVE A SURPLUS. THE LAW DOES NOT EXPECT THE TRUST TO DISPOSE OF ITS PRODUCE AT ANY CONSIDERATION LESS THAN THE MARKET VALUE. IF THERE IS ANY SURPLUS GENERATED AT THE END OF THE YEAR, THAT BY ITSELF WOULD NOT BE THE SOLE CONSIDERATION FOR JUDGING WHETHER ANY ACTIVITY IS TRADE, COMMERCE OR BUSINESS, - PARTICULARLY IF GENERATING 'SURPLUS' IS WHOLLY INCIDENTAL TO THE PRINCIPAL ACTIVITIES OF THE TRUST; WHICH IS OTHERWISE FOR GENERAL PUBLIC UTILITY, AND THEREFORE, OF CHARITABLE NATURE. BY APPLYING THE RATIO OF THE SAID DECISION TO THE ASSESSEE`S CASE UNDER CONSIDERATION, IT CAN BE SAID THAT WHATEVER THE SURPLUS ARISES IS PURELY INCIDENTAL AND NO ADVERSE INFERENCE OF CARRYING OUT TRADE, COMMERCE OR BUSINESS SHOULD BE DRAWN IN ITS CASE.IN VIEW OF THE AFORESAID FACTUAL AND LEGAL POSITION, PROVISO TO SECTION 2(15) OF THE ACT, DOES NOT ATTRACT IN THE PRESENT CASE OF THE ASSESSEE AND THEREFORE NO DISALLOWANCE IS CALLED FOR. 24. NOW, WE DEAL WITH THE ALTERNATIVE ARGUMENT OF THE LD COUNSEL, IN RESPECT OF PRINCIPLE OF MUTUALITY.IT IS SUBMITTED BY LD COUNSEL THAT A DEVELOPMENT OF INFRASTRUCTURE PROJECT OF GEM AND JEWELLERY PARK IS BEING CARRIED OUT FROM THE FUNDS OF ITS MEMBERS ONLY AND THERE IS COMPLETE IDENTITY BETWEEN CONTRIBUTOR AND PARTICIPATOR TO THE FUND. IT IS PERTINENT TO NOTE THAT AT PARA 3.1 OF THE CBDT CIRCULAR, IT IS MADE CLEAR THAT WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE PAGE | 23 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE 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. IN THE PRESENT CASE OF THE ASSESSEE, IT IS UNDISPUTED FACT THAT THE AMOUNT RECEIVED FROM MEMBERS IS UTILIZED SOLELY FOR THE BENEFIT OF THE MEMBERS ONLY. IT IS ALSO AN ADMITTED FACT THAT THERE IS A COMPLETE IDENTITY BETWEEN CONTRIBUTORS AND PARTICIPATORS TO THE FUND OF THE ASSESSEE. IN VIEW OF THE SAME, IT CAN BE SAID THAT THE ASSESSEE IS NOT CARRYING OUT ANY ACTIVITY IN THE NATURE TRADE, COMMERCE OR BUSINESS. IT IS WELL SETTLED LAW THAT NO ONE CAN TRADE WITH HIMSELF OR DERIVE PROFIT FROM HIM. FOR THAT WE RELY ON THE JUDGMENT OF HON'BLE SUPREME COURT, IN THE CASE OF CIT VS. BANKIPUR CLUB LTD 226 ITR 97 (SC), WHEREIN THE HON'BLE APEX COURT HELD AS UNDER: 'UNDER THE IT ACT, WHAT IS TAXED IS, THE INCOME, PROFITS OR GAINS EARNED OR 'ARISING', 'ACCRUING' TO A 'PERSON'. WHERE A NUMBER OF PERSONS COMBINE TOGETHER 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 THOSE PERSONS CANNOT BE REGARDED IN ANY SENSE AS PROFIT. THERE MUST BE COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND THE PARTICIPATORS. IF THESE REQUIREMENTS ARE FULFILLED, IT IS IMMATERIAL WHAT PARTICULAR FORM THE ASSOCIATION TAKES. TRADING BETWEEN PERSONS ASSOCIATING TOGETHER IN THIS WAY DOES NOT GIVE RISE TO PROFITS WHICH ARE CHARGEABLE TO TAX. WHERE THE TRADE OR ACTIVITY IS MUTUAL, THE FACT THAT, AS REGARDS CERTAIN ACTIVITIES, CERTAIN MEMBERS ONLY OF THE ASSOCIATION TAKE ADVANTAGE OF THE FACILITIES WHICH IT OFFERS DOES NOT AFFECT THE MUTUALITY OF THE ENTERPRISE.' 25. WE NOTE THAT IN THE PRESENT CASE OF THE ASSESSEE, REGISTRATION U/S 12AA IS GRANTED. THE ASSESSEE TRUST IS CARRYING OUT THE ACTIVITIES OF GENERAL UTILITY OF DEVELOPMENT OF INFRASTRUCTURE FOR WORLD CLASS GEM AND JEWELLERY IN SURAT. NOW, ON INSERTION OF FIRST PROVISO TO SECTION 2(15), THE BENEFIT OF SECTION 11 CANNOT BE DEPRIVED AS THE ASSESSEE IS NOT CARRYING OUT ANY TRADE, COMMERCE OR BUSINESS AND ONLY DEALS WITH ITS MEMBERS TO ATTAIN ITS OBJECTS. THEREFORE, IT CANNOT BE CONSIDERED AS AN ENTITY CARRYING OUT BUSINESS UNDER THE GUISE OF CHARITY, AS REFERRED AT PARA 3.2 OF AFORESAID CBDT PAGE | 24 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE CIRCULAR. MOREOVER, AT PARA 3.1 OF THE SAID CIRCULAR, IT IS CLARIFIED THAT GENUINE 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, WOULD NOT FALL UNDER THE PURVIEW OF THE PROVISO TO SECTION 2 (15) OF THE ACT, OWING TO THE PRINCIPLE OF MUTUALITY.IN VIEW OF THE ABOVE, THE ASSESSEE TRUST, UNDER CONSIDERATION, IS CARRYING OUT ONLY MUTUAL ACTIVITY AND BY NO STRETCH OF IMAGINATION CAN BE CONSIDERED AS BEING CARRYING OUT ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS. 26. TO CONCLUDE, WE NOTE THAT THE ACTIVITIES OF MUTUAL ORGANIZATIONS ARE TO BE RESTRICTED TO CONTRIBUTIONS FROM AND PARTICIPATION OF ONLY THEIR MEMBERS. IN THE CASE OF ASSESSEE ALSO, IT CAN BE SEEN FROM THE FACTS DISCUSSED BY ASSESSING OFFICER AS WELL AS ASSESSEE THAT THE ASSESSEE ORGANIZATION IS BASED ON THE PRINCIPLE OF MUTUALITY. IT IS CLEAR FROM THE FACTS THAT ASSESSEE HAS BEEN ALLOTTING THE PLOTS AND COLLECTING CONTRIBUTIONS FROM ITS MEMBERS ONLY AND THERE IS COMPLETE IDENTITY BETWEEN THE PERSONS WHO CONTRIBUTE THE AMOUNTS TO THE ASSESSEE TRUST AND BENEFICIARIES OF ASSESSEE`S ACTIVITIES. IT IS ALSO ESTABLISHED FROM THE FACTS THAT ASSESSEE DEALS/TRANSACTS ONLY WITH ITS MEMBERS STRICTLY FOR THE FULFILLMENT OF ITS OBJECTS. THE BYE LAWS OF ASSESSEE`S ORGANIZATION RESTRICT THE ALLOTMENT OF PLOTS AND RECEIVING CONTRIBUTIONS FROM ANYONE OTHER THAN MEMBERS. IT IS ALSO ESTABLISHED THAT ALL THE CONTRIBUTORS AS WELL AS BENEFICIARIES OF THE ASSESSEE ARE ITS MEMBERS ONLY AND THERE IS COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPANTS. IT IS FURTHER SHOWN FROM THE RECORDS THAT THE ASSESSEE TRUST IS NOT PROVIDING ANY SERVICES TO THE PERSONS OTHER THAN ITS REGISTERED MEMBERS. THE ASSESSEE TRUST DOES NOT DISTRIBUTE ITS PROFITS AMONG MEMBERS AND IT DOES NOT PAY HIGHER REMUNERATION TO ITS EMPLOYEES. IT IS ABUNDANTLY CLEAR THAT THE INCOME OF THE MUTUAL CONCERN FALLS OUTSIDE THE AMBIT OF CHARGING SECTION 4 OF THE INCOME TAX ACT AND, THEREFORE, OUTSIDE THE TAX NET. THE NET EFFECT OF APPLICABILITY OF EXEMPTION PROVISION IN SECTION 11 IS ALSO JUST THE SAME. IT WAS ALSO LAID DOWN IN CIT VS. ANDHRA CHAMBER OF COMMERCE (1981) 130 ITR 184 (SC), PAGE | 25 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE ADDL. CIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION 121 ITR 1 (SC) AND IN CIT VS. BAR COUNCIL OF MAHARASHTRA (1981) 130 ITR 28 (SC), THAT IF THE PRIMARY OBJECT OF AN ENTITY LIKE 'CHAMBER OF COMMERCE, PROFESSIONAL ASSOCIATION, A BAR COUNCIL, ETC IS THE PROMOTION OF ANY TRADE, INDUSTRY, PROFESSION, ETC. THE FACT THAT THE BUSINESS COMMUNITY OR THE PROFESSION AS THE CASE MAY BE WOULD BE BENEFIT THEREFROM, WOULD NOT TAKE AWAY THE OBJECT FROM THE REALM OF OBJECT OF GENERAL PUBLIC UTILITY AND, THEREFORE, THEY WOULD BE HELD ESTABLISHED FOR A CHARITABLE PURPOSE. IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION, IT IS QUITE CLEAR THAT THE OBJECT OF THE ASSESSEE IS OF GENERAL PUBLIC UTILITY AND DOES NOT HIT BY FIRST PROVISO TO SECTION 2(15) OF THE ACT. THAT BEING SO, WE DECLINE TO INTERFERE WITH THE ORDER OF ID. CIT(A) IN DELETING THE AFORESAID ADDITIONS. HIS ORDER ON THESE ADDITION ARE, THEREFORE, UPHELD AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 27. SIMILAR ISSUES TOWARDS WHETHER THE ASSESSEE TRUST, IS CHARITABLE INSTITUTION OR NOT, HAVE BEEN RAISED BY THE REVENUE IN OTHER CAPTIONED APPEALS NAMELY, ITA NO.1967/AHD/2016 (AY 2012-13), AND ITA NO.897/AHD/2017 (AY 2013-14). THE FACTS AND ISSUES INVOLVED IN ALL THESE APPEALS ARE ANALOGOUS TO ITA NO. 2917/AHD/2014 FOR AY 2010-11, WHEREIN THE GROUNDS RAISED BY REVENUE IN THIS APPEAL HAVE BEEN DISCUSSED IN EARLIER PARAS IN GREAT LENGTH. ACCORDINGLY, OUR OBSERVATIONS MADE IN ITA NO. 2917/AHD/2014, FOR AY 2010-11, SHALL APPLY MUTATIS MUTANDIS TO THE AFORESAID OTHER APPEALS OF REVENUE, NAMELY, ITA NO.1967/AHD/2016 AND ITA NO.897/AHD/2017. FOR THE PARITY OF REASONS, WE DISMISS THE ABOVEMENTIONED APPEALS OF THE REVENUE IN TERMS OF DIRECTIONS NOTED IN ITA NO. 2917/AHD/2014 FOR AY 2010-11. PAGE | 26 ITAS NO.2917/AHD/2014 FOR A.Y. 2010-11, 1967/AHD/2016 FOR A.Y. 2012- 13 & 897/AHD/2017 FOR A.Y. 2013-14 - GUJARAT HIRA BOURSE 28. IN THE RESULT, APPEALS FILED BY THE REVENUE ( IN ITA NO. 2917/AHD/2014, ITA NO.1967/AHD/2016 AND ITA NO.897/AHD/2017), ARE DISMISSED ORDER IS PRONOUNCED 22/06/2021 BY PLACING RESULT ON NOTICE BOARD. SD/- SD/- (PAWAN SINGH) (DR. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER SURAT / / DATE: 22/06/2021 / SGR COPY OF THE ORDER FORWARDED TO 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A) 4. PR.CIT 5. DR/AR, ITAT, SURAT 6. GUARD FILE BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR/SR. PS/PS ITAT, SURAT