DCIT, CIR-1, KOLKATA, Kolkata V. Indian Chamber of Commerce, Kolkata

ITA 415/KOL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4793 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2016
• Court: TRIBUNAL
• Department Lawyers: SELLONG YADE N CIT LD
• Assessee Lawyers: RAVI TULSIYAN FCA LD
• Keywords: Business income; Charitable institution; Rule of consistency
• Section: 143(3); 12A

Judgement Text

1 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI WASEEM AHMED, ACCOUNTANT MEMB ER, AND SHRI S.S. VISWANETHRA RAVI, JUDIC IAL MEMBER I.T.A NOS. 415 & 416/KOL/2016 A.YS. 2010-11 & 2011-12 D.C.I.T (E), CIR-I, VS. INDIAN CHAMBER OF CO MMERCE, KOLKATA PAN : AAAT 114IG (APPELLANT) (RESPON DENT) FOR THE APPELLANT/ DEPARTMENT : SHRI SELLONG YADE N, ADDL CIT, LD.DR FOR THE RESPONDENT/ ASSESSEE: SHRI RAVI TULSIYAN, FCA, LD.AR DATE OF HEARING: 15-06-2016 DATE OF PRONOUNCEMENT: 03 -08-2016 ORDER SHRI S.S. VISWANETHRA RAVI, JM THESE TWO APPEALS OF THE REVENUE ARISES OUT OF THE COMMON ORDER DATED 23-12-2015 OF THE CIT(A)-25, KOLKATA IN APPEAL NOS . 152 AND 197 OF 2514-15 FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTI VELY BOTH ASSESSMENT ORDERS FRAMED BY THE AO U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE 2. THE REVENUE HAS RAISED THE FOLLOWING COMMON G ROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN GRANTING RELIEF WITHOUT CONSIDERING THE AP PLICABILITY OF THE PROVISION OF SECTION 13 (8) OF THE INCOME TAX ACT, 1961 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) HAS ERRED IN DECIDING THE CASE ON THE PRINCIPLE OF RESJ UDICATA WHERE IT IS SETTLED THAT THE PRINCIPLES OF RESJUDICATA IS NOT APPLICABLE IN GENERAL IN THE CASE OF INCOME TAX PROCEEDINGS. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN LAW IN GRANTING RELIEF WITHOUT APPRECIATIN G THE FACT THAT INTERPRETATION OF 1 ST PROVISO TO SECTION 2(15) WAS REQUIRED TO BE TAKEN UP TOGETHER WITH THE RESTRICTION LAID DOWN IN THE 2 ND PROVISO BELOW SECTION 2(15) FOR THE RELEVANT ASSESSMENT YEAR. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED IN GRANTING RELIEF BY ADOPTING AN INTERPRETAT ION WHICH ITSELF DID NOT APPRECIATE, ANALYSE OR EXAMINE THE PRESENCE, US AGE AND MEANING OF THE WORD SHALL IN THE FIRST PROVISO OF SECTIO N 2(15) OF THE I.T.ACT, 1961. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN ASSOCIATION OF VARIOUS INDUSTRIALISTS FORMED IN THE YEAR 1925 FOR THE DEVE LOPMENT OF TRADE, INDUSTRIES AND COMMERCE. THE MEMBERSHIP OF THE CHAMBER COMPRISES S EVERAL OF THE LARGEST CORPORATE GROUPS IN THE COUNTRY, WITH BUSINESS OPER ATIONS ALL OVER THE COUNTRY AND ABROAD. THE ASSESSEE IS A NON-PROFIT MAKING COMPANY INCORPORATED UNDER SECTION 3 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE 25 OF THE COMPANIES ACT, 1956 WITHOUT ANY SHARE CAP ITAL AND DOES NOT DISTRIBUTE ANY DIVIDENDS TO ITS MEMBERS, ITS ENTIRE RECEIPT BEING EXPENDED FOR THE FULFILMENT OF ITS OBJECTS. THE ASSESSEE WAS DULY SET UP FOR THE PURPO SE OF PROMOTION AND PROTECTION OF INDIAN BUSINESS AND INDUSTRY AND WAS REGISTERED UNDER SECTION 12A OF THE ACT AS A CHARITABLE INSTITUTION. 4. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010 11 ON 14 TH OCTOBER 2010 DECLARING TOTAL INCOME AT NIL. DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSMENT OFFICER FOUN D THAT THE RECEIPTS FROM ENVIRONMENT MANAGEMENT CENTRE, MEETING, CONFERENCE AND SEMINARS AND FEES FOR CERTIFICATE OF ORIGIN WERE IN THE NATURE OF TRADE, COMMERCE OR BUSINESS AND THE ASSESSE IS HIT BY THE AMENDED PROVISION OF SECTION 2(15) OF THE ACT WITH EFFECT FROM ASSESSMENT YEAR 2009 10 WHICH PROVIDES BY WAY OF INSERTION OF A PROVISO THAT ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE OR BU SINESS OR PROVIDING SERVICE IN RELATION TO TRADE, COMMERCE OR BUSINESS FOR A FEE S HALL NOT BE REGARDED AS CHARITABLE PURPOSE. BASED ON SUCH AMENDMENT ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOT AL INCOME OF THE ASSESSEE AT RS.2,31,50,090/- WITHOUT ALLOWING EXEMPTION UNDER S ECTION 11 AS CLAIMED BY THE ASSESSEE AND AS ALLOWED IN THE EARLIER YEARS. 5. IN FIRST APPEAL, THE CIT-A ALLOWED THE APPEAL OF THE ASSESSEE OBSERVING AS UNDER:- (I) THAT ISSUES INVOLVED IN THE PRESENT APPEAL FOR A.Y 2010 11 WERE IN REGARD TO RECEIPTS BY WAY OF ANY ENVIRON MENT MANAGEMENT CENTRE, MEETING, CONFERENCES AND SEMINARS AND FEES FOR CERTIFICATE OF 4 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE ORIGIN, WHICH HAVE BEEN DELIBERATED AND DISCUSSED I N DEPTH BY THE HONBLE ITAT, KOLKATA IN THE ASSESSEES OWN APPEAL IN ITA NO. 1284/KOL/2012 FOR A.Y 2009 10 VIDE ORDER DATED 02 - 12-2014 AND DECIDED IN FAVOUR OF THE ASSESSEE ON SIMILAR SET OF FACTS AND LEGAL IMPLICATION. (II) THE HONBLE ITAT IN ITS EXHAUSTIVE AND DETAIL ED ORDER (SUPRA) HAD EXAMINED AND DISCUSSED ALL THE FACTS, C IRCUMSTANCES AND VARIOUS PROMINENT DECISIONS AND THEREAFTER HAD COME TO THE DECISION THAT THE ACTIVITIES OF ICC GENERATING THOSE RECEIPTS WERE BU T ONLY INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVE OF TH E TRUST WHICH WERE FOR CHARITABLE PURPOSES. (III) THAT HONBLE ITAT WHILE DEALING WITH THE APPE AL FOR A.Y 2009 10 INVOLVING THE AMENDED SECTION 2(15) AND R ESTRICTIVE PROVISO THERETO DULY CONSIDERED VIDE PARA 33 OF THE ORDER ( SUPRA) MEMORANDUM EXPLAINING THE FINANCE BILL, 2008 AS ALS O CBDT CIRCULAR NO. 11 OF 2008 DATED 19.12. 2008, AND EXAM INED VARIOUS FACTS OF THE MEANING OF THE WORD BUSINESS AS ALSO THE I NCOME TAX HISTORY OF ICC AND PROMINENT JUDICIAL DECISIONS. FOR BETTER APPRECIATION ON THE ISSUE, THE OBSERVATI ON OF HONBLE TRIBUNAL, TO QUOTE, WAS AS UNDER: 35. THE ACTIVITIES OF CONDUCTING ENVIRONMENT MA NAGEMENT CENTRE, MEETINGS, CONFERENCES AND SEMINAR AND ISSUA NCE OF CERTIFICATE OF ORIGIN, BEING THE ACTIVITIES STATED TO BE SERVI CES IN RELATION TO TRADE, COMMERCE OR BUSINESS WERE ALL WELL COVERED BY THE MAIN OBJECT BEING FULLY CONNECTED, INCIDENTAL AND ANCILLARY TO THE MA IN PURPOSE AND WERE CONNECTED SOLELY FOR THE EMPOWERMENT, BETTERME NT AND FOR CREATING OF AWARENESS AMONGST THE INDUSTRIALISTS IN ORDER TO BEING ABOUT THE DEVELOPMENT OF TRADE AND INDUSTRIES IN IN DIA. FURTHER IT IS TO BE NOTICED THAT THE MEMORANDUM HAS ALSO SPECIFICALL Y AUTHORISED THE 5 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE CHAMBER TO DO ALL OTHER THINGS AS MAY BE CONDUCTIV E TO THE DEVELOPMENT OF TRADE, COMMERCE AND INDUSTRIES, OR I NCIDENTAL TO ATTAINMENT OF THE ABOVE OBJECTIVES OR ANY OF THEM. THUS IT WAS ONLY FOR THE PURPOSE OF SECURING ITS PRIMARY AIMS OF PRO PER DEVELOPMENT OF BUSINESS IN INDIA THAT THE ASSESSEE WAS TAKING THE SAID ANCILLARY STEPS. THE SAID ACTIVITIES WERE NOT CARRIED OUT INDEPENDEN T OF THE MAIN PURPOSE OF THE ASSOCIATION OF THE INSTITUTION BEING THE DEVELOPMENT AND PROTECTION OF TRADE. THERE WAS NO INDEPENDENT P ROFIT IN ANY OF THE SAID ACTIVITIES. THE SURPLUS AND ARISING OUT OF THE SAME WAS MERELY INCIDENTAL TO THE MAIN OBJECT TO CHARITY. THE MAJOR ITY OF THE RECEIPTS IN THE SAID ACTIVITIES WERE OUT OF THE SPONSORSHIPS AN D DONATIONS. THE EXPENSES INCURRED ON THE SAID ACTIVITIES AS AND WHE N INCURRED WERE ON SEPARATELY DEBITED TO THE SAID ACCOUNTS AND THE BAL ANCE WAS SHOWN AS SURPLUS OVER RECEIPTS. THUS IN VIEW OF THE ABOVE IT IS CLEAR THAT THE ALLEGED ACTIVITIES WERE ALL MERELY INCIDENTAL TO TH E MAIN OBJECT OF THE ASSESSEE AND PREDOMINANT OBJECT OF THE ASSOCIATION BEING THE PROMOTION AND DEVELOPMENT AND PROTECTION OF TRADE A ND COMMERCE WHICH IS AN OBJECT OF GENERAL PUBLIC UTILITY, IT CA N NEVER BE THE CASE THAT IT IS ENGAGED IN BUSINESS, TRADE OR COMMERCE OR IN ANY SERVICE IN RELATION TO BUSINESS, TRADE OR COMMERCE . THE INDIVIDUAL NATURE AND PURPOSE OF THE SPECIFIC ACTIVITIES, IT I S STATED THAT THE ACTIVITIES HELD BY AO AND (A) TO BE BUSINESS IN NAT URE, WERE AS FOLLOWS A) MEETINGS, CONFERENCES AND SEMINARS (B) ENVIRONME NT MANAGEMENT CENTRE (C) FEES FOR CERTIFICATE OF ORIGIN. (IV) THUS THE HONBLE ITAT HELD THAT THE ACTIVITIES GENERATING THE NATURE OF THE IMPUGNED RECEIPTS WERE PART AND PARCE L OF CHARITABLE PURPOSE 6. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE BENE FIT OF SECTION 11 OF THE ACT WAS DENIED BY THE ASSESSING OFFICER IN ASSESSMENT Y EARS 2010 11 AND 2011 12 6 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE IS SAME AS IN A.Y 2009 10 IN ITA NO.1284/KOL/2012 IN ASSESSEES OWN CASE. RELEVANT FINDINGS OF THE ORDER ARE RE-PRODUCED HERE IN BELOW FOR BETTER UNDERSTANDING:- 35. IN VIEW OF THE ABOVE, WE THUS NOW TURN TO EX AMINE AND ANALYSE IN FULL DETAILS THE PARTICULAR FACTS OF THE PRESENT CASE. T HAT THE ASSESSEE ASSOCIATION IS A CHARITABLE INSTITUTION, DULY REGISTERED AS SUCH U /S. 12A OF THE ACT, CARRYING ON ITS MAIN OBJECT OF DEVELOPMENT OF TRADE, INDUSTR IES AND COMMERCE. THE MAIN OBJECTS FOR WHICH THE ASSOCIATION CAME INTO EXISTEN CE, ARE CLEARLY SET OUT IN CLAUSE 3 OF THE MEMORANDUM OF ASSOCIATION WHICH DUL Y RECORDS AND READS AS UNDER: 3(A) TO PROMOTE AND PROTECT THE TRADE, COMMERCE AN D INDUSTRIES AND IN PARTICULAR THE TRADE, COMMERCE AND INDUSTRIES IN OR WITH WHICH INDIANS ARE ENGAGED OR CONCERNED. THE ACTIVITIES OF CONDUCTING ENVIRONMENT MANAGEMENT CENTRE, MEETINGS, CONFERENCES & SEMINAR AND ISSUANCE OF CERTIFICATE O F ORIGIN, BEING THE ACTIVITIES STATED TO BE SERVICES IN RELATION TO TR ADE, COMMERCE OR BUSINESS WERE ALL WELL COVERED BY THE MAIN OBJECT BEING FULL Y CONNECTED, INCIDENTAL AND ANCILLARY TO THE MAIN PURPOSE AND WERE CONDUCTED SO LELY FOR THE EMPOWERMENT, BETTERMENT AND FOR CREATING AWARENESS AMONGST THE I NDUSTRIALISTS IN ORDER TO BRING ABOUT THE DEVELOPMENT OF TRADE AND INDUSTRIES IN INDIA. FURTHER IT IS TO BE NOTICED THAT THE MEMORANDUM HAS ALSO SPECIFICALLY A UTHORIZED THE CHAMBER TO DO ALL OTHER THINGS AS MAY BE CONDUCTIVE TO THE DEVELOPMENT OF TRADE, COMMERCE AND INDUSTRIES, OR INCIDENTAL TO ATTAINMEN T OF THE ABOVE OBJECTIVES OR ANY OF THEM. THUS IT WAS ONLY FOR THE PURPOSE OF S ECURING ITS PRIMARY AIMS OF PROPER DEVELOPMENT OF BUSINESS IN INDIA THAT THE AS SESSEE WAS TAKING THE SAID ANCILLARY STEPS. THE SAID ACTIVITIES WERE NOT CARRI ED OUT INDEPENDENT OF THE MAIN PURPOSE OF THE ASSOCIATION OF THE INSTITUTION BEING THE DEVELOPMENT AND PROTECTION OF TRADE. THERE WAS NO INDEPENDENT PROFI T MOTIVE IN ANY OF THE SAID ACTIVITIES. THE SURPLUS ARISING OUT OF THE SAME WAS MERELY INCIDENTAL TO THE MAIN OBJECT TO CHARITY. THE MAJORITY OF THE RECEIPT S IN THE SAID ACTIVITIES WERE OUT OF THE SPONSORSHIPS AND DONATIONS. THE EXPENSES INCURRED ON THE SAID ACTIVITIES AS AND WHEN INCURRED WERE ALL SEPARATELY DEBITED TO THE 7 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE SAID ACCOUNTS AND THE BALANCE WAS SHOWN AS SURPLUS OVER RECEIPTS. THUS IN VIEW OF THE ABOVE IT IS CLEAR THAT THE ALLE GED ACTIVITIES WERE ALL MERELY INCIDENTAL TO THE MAIN OBJECT OF THE ASSESSE E AND THE PREDOMINANT OBJECT OF THE ASSOCIATION BEING THE PRO MOTION DEVELOPMENT AND PROTECTION OF TRADE AND COMMERCE WHICH IS AN OB JECT OF GENERAL PUBLIC UTILITY, IT CAN NEVER BE THE CASE THAT IT IS ENGAGED IN BUSINESS, TRADE OR COMMERCE OR IN ANY SERVICE IN RELATION T O BUSINESS, TRADE OR COMMERCE. THE INDIVIDUAL NATURE AND PURPOSE OF THE SPECIFIC ACTIVITIES, IT IS STATED THAT THE ACTIVITIES HELD B Y AO AND THE (A) TO BE BUSINESS IN NATURE, WERE AS FOLLOWS: (A) MEETINGS, CONFERENCES & SEMINARS (B) ENVIRONMENT MANAGEMENT CENTRE FEES FOR CERTIFICATE OF ORIGIN FACTS RELATING TO THESE ACTIVITIES ARE DISCUSSED I N DETAIL IN PARA 23 TO 25 OF THIS ORDER ABOVE, WHICH NEED NOT BE REPEATED. 36. FROM FACTS IN ENTIRETY, NOW THE QUESTION ARISE S IS WHETHER PRINCIPLE OF CONSISTENCY WILL APPLY OR NOT? FROM AY 1985-86 T O 2007-08 EXEMPTION U/S 11 OF THE ACT WAS ALLOWED. NOW, HAVIN G EXTENSIVELY WITH THE NEWLY AMENDED SECTION 2(15) OF THE ACT AND ITS ABSOLUTE INAPPLICABILITY TO THE CASE OF ASSESSEE SUPPORTED B Y VARIOUS JUDICIAL DECISIONS, WE WILL DISCUSS THIS ISSUE. WE FIND THAT CIT(A) WITHOUT APPRECIATING THAT THE BASIS PRINCIPLE UNDERLYING TH E DEFINITION OF CHARITABLE PURPOSE REMAINED UNALTERED, AND ON AME NDMENT IN THE SECTION 2(15) OF THE ACT W.E.F. 01/04/2009, WHEREBY THE RESTRICTIVE FIRST PROVISO WAS INSERTED THEREIN, LOWER AUTHORITIES HEL D THAT THE SAME SUBSTANTIALLY CHANGED THE POSITION OF LAW AND THUS THE PRINCIPLE OF CONSISTENCY DID NOT APPLY. BUT WE ARE OF THE VIEW T HAT A DETAILED READING OF THE VARIOUS JUDICIAL DECISIONS THROUGH THE YEARS, INTERPRETING THE DEFINITION OF CHARITABLE PURPOSE AS LAID OUT IN SECTION 2(15) OF THE ACT AND ALSO THE DEFINITION OF BUSINESS IN RELATION TO THE SAID SECTION AMPLY REVELS THAT THE THEORY OF DOMINANT PURPOSE HAS ALWAYS, ALL THROUGH THE YEARS, BEEN UPHELD TO B E THE DETERMINING FACTOR LAYING DOWN WHETHER THE INSTITUTION IS CHARI TABLE IN NATURE OR 8 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE NOT. WHERE THE MAIN OBJECT OF THE INSTITUTION WAS CHARITABLE IN NATURE, THEN THE ACTIVITIES CARRIED OUT TOWARDS THE ACHIEVEMENT OF THE SAID, BEING INCIDENTAL OR ANCILLARY TO THE MAIN OBJ ECT, EVEN IF RESULTING IN PROFIT AND EVEN IF CARRIED OUT WITH NON MEMBERS, WERE ALL HELD TO BE CHARITABLE IN NATURE. HON'BLE APEX COURT IN THE E ARLIEST CASE OF ANDHRA CHAMBER OF COMMERCE (SUPRA) HAD CLEARLY LAID OUT THE PRINCIPLE THAT IF THE PRIMARY PURPOSE OF AN INSTITU TION WAS ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY, IT WOULD REMA IN CHARITABLE EVEN IF AN INCIDENTAL OR ANCILLARY ACTIVITY OR PURPOSE, FOR ACHIEVING THE MAIN PURPOSE, WAS PROFITABLE IN NATURE. IT WAS LAID OUT BY THE COURT THAT, THAT IF THE PRIMARY PURPOSE BE ADVANCEMENT OF OBJE CTS OF GENERAL PUBLIC UTILITY, IT WOULD REMAIN CHARITABLE EVEN IF AN INCIDENTAL ENTRY INTO THE POLITICAL DOMAIN FOR ACHI EVING THAT PURPOSE, E.G. PROMOTION OF OR OPPOSITION TO LEGISLA TION CONCERNING THAT PURPOSE, WAS CONTEMPLATED. IT WAS ONLY FOR THE PURPOSE OF SECURING ITS PRIMARY AIMS THAT IT WAS MENTIONED IN THE MEMORANDUM OF ASSOCIATION THAT THE CHAMBER MIGHT TAKE STEPS TO URGE OR OPPOSE LEGISLATIVE OR OTHER M EASURES AFFECTING TRADE, COMMERCE OR MANUFACTURES. SUCH AN OBJECT OUG HT TO BE REGARDED AS PURELY ANCILLARY OR SUBSIDIARY AND NOT THE PRIMA RY OBJECT. IN CONNECTION TO THE ABOVE CASE IT IS LAID OUT THE SAI D CASE DEALT WITH THE ASSESSMENT OF THE ASSESSEE IN THE A.YS 1948-49 TO W HEREIN RELEVANT TO THE SAID AYS 948-49 TO 1952-53, BY THE LAST PARAGRA PH OF SUB-SECTION (3) OF THE IT ACT, 1922, CHARITABLE PURPOSES WAS DEFINED AS .. IN THIS SUB-SECTION CHARITABLE PURPOSE INCL UDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCE MENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, BUT NOTHING CONTAINED IN CLAUSE (I) OR CLAUSE (II) SHALL OPERATE TO EXEMPT F ROM THE PROVISIONS OF THIS ACT PART OF THE INCOME FROM PROP ERTY HELD UNDER A TRUST OR OTHER LEGAL OBLIGATION FOR PRIVATE RELIGIOUS PURPOSES WHICH DOES NOT ENSURE FOR THE BENEFIT OF T HE PUBLIC. THE ADDING OF THE WORDS NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT: WAS INTRODUCED BY THE INCOME TAX ACT, 1 961. HON'BLE APEX 9 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE COURT IN THE EARLIEST DECISION IN THE CASE OF SURA T ART SILK CLOTH MANUFACTURERS ASSOCIATION (SUPRA) HELD THE THEORY O F DOMINANT OR PRIMARY OBJECT OF THE TRUST TO BE THE DETERMINING F ACTOR SO AS TO TAKE THE CARRYING ON OF THE BUSINESS ACTIVITY MERELY ANCILLA RY OR INCIDENTAL TO THE MAIN OBJECT. IT WAS HELD AS FOLLOWS:- (I) THAT THE DOMINANT OR PRIMARY PURPOSE OF THE ASS ESSEE WAS TO PROMOTE COMMERCE AND TRADE IN ART SILK YARN, RAW SI LK, COTTON YARN, ART SILK CLOTH, SILK CLOTH AND COTTON CLOTH A SET OUT IN CLAUSE (A) AND THE OBJECTS SPECIFIED IN CLAUSES (B) TO (E) WERE MERELY POWERS INCIDENTAL TO THE CARRYING OUT OF THAT DOMIN ANT AND PRIMARY PURPOSE; (II) THAT THE DOMINANT OR PRIMARY PURPOSE OF THE PR OMOTION OF COMMERCE AND TRADE IN ART SILK, ETC., WAS AN OBJECT OF PUBLIC UTILITY NOT INVOLVING THE CARRYING ON OF ANY ACTIVI TY FOR PROFIT WITHIN THE MEANING OF S.2(15) AND THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION UNDER S 11(1)(A) AGAIN THE HON'BLE APEX COURT IN THE CASE OF FEDERAT ION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY (SUPRA) HELD THAT THAT THE DOMINANT OBJECT WITH WHICH THE FEDERATION WAS CONSTITUTED BEING A CHARITABLE PURPOSE VIZ. PROMOTI ON, PROTECTION AND DEVELOPMENT OF TRADE, COMMERCE AND INDUSTRY, TH ERE BEING NO MOTIVE TO EARN PROFITS, THE RESPONDENT WAS NOT E NGAGED IN ANY ACTIVITY IN THE NATURE OF BUSINESS OR TRADE, AND, I F ANY INCOME AROSE FROM SUCH ACTIVITY, IT WAS ONLY INCIDENTAL OR ANCILLARY TO THE DOMINANT OBJECT FOR THE WELFARE AND COMMON GOOD OF THE COUNTRYS TRADE, COMMERCE AND INDUSTRY, AND ITS INC OME WAS, THEREFORE, EXEMPT FROM TAX UNDER S.11 OF THE IT ACT , 1961 AGAIN REITERATING THE DOMINANT PURPOSE THEORY, THE HON'BLE SC IN THE CASE OF SAI PUBLICATION FUND (SUPRA) LAID OUT AS FO LLOWS: 10 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE IF THE MAIN ACTIVITY IS NOT BUSINESS, THEN ANY T RANSACTION INCIDENTAL OR ANCILLARY WOULD NOT NORMALLY AMOUNT T O BUSINESS UNLESS AN INDEPENDENT INTENTION TO CARRY ON BUSINE SS IN THE INCIDENTAL OR ANCILLARY ACTIVITY IS ESTABLISHED. IN SUCH CASES, THE ONUS OF PROOF OF AN INDEPENDENT INTENTION TO CARRY ON BUSINESS: CONNECTED WITH OR INCIDENTAL OR ANCILLA RY SALES WILL REST ON THE DEPARTMENT. THUS, IF THE MAIN ACTIVITY OF A PERSON IS NOT TRADE , COMMERCE ETC., ORDINARILY INCIDENTAL OR ANCILLARY ACTIVITY MAY NOT COME WITHIN THE MEANING OF BUSINESS. IN THE RECENT DECISION WHICH DEALS SPECIFICALLY WIT H THE NEWLY AMENDED SECTION 2(15) OF THE ACT, IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA V. DIRECTOR GENERAL OF INCOME -TAX (EXEMPTIONS) [2012] 347 ITR 0099 DEL HC, LAYING DOWN THE VERY SA ME PRINCIPLE IT WAS AGAIN LAID: THAT THE FUNDAMENTAL OR DOMINANT FUNCTION OF THE I NSTITUTE WAS TO EXERCISE OVERALL CONTROL AND REGULATE THE ACTIVI TIES OF THE MEMBERS/ENROLLED CHARTERED ACCOUNTANTS. A VERY NARR OW VIEW HAD BEEN TAKEN THAT THE INSTITUTE WAS HOLDING COACH ING CLASSES AND THAT THIS AMOUNTED TO BUSINESS. AGAIN, HON'BLE BOMBAY HIGI COURT IN THE WP OF BAUN FOUNDATION TRUST (WRIT PETITION NO. 1206 OF 2010 IN THE HIGH C OURT OF JUDICATURE AT BOMBAY 27 MARCH 2012) IT WAS HELD THAT 4 IT IS A WELL SETTLED POSITION IN LAW THAT THE D OMINANT NATURE OF THE PURPOSE FOR WHICH THE TRUST EXISTS HAS TO BE CONSIDERED. THE CHIEF COMMISSIONER HAS NOT DOUBTED THE GENUINEN ESS OF THE TRUST OR THE FACT THAT IT IS CONDUCTING A HOSPITAL. THUS FROM ALL THE ABOVE IT IS SEEN THAT THOUGH THE DEFINITION OF CHARITABLE PURPOSE UNDER SECTION 2(15) HAS UNDERG ONE CHANGES, THE PRINCIPLE UNDERLYING THE SAME HAS REMAINED THE SAME . IN CONTEXT OF THE ABOVE, WITH REGARD TO THE PRINCIPLE OF CONSISTENCY IT WOULD BE OF RELEVANCE HERE TO QUOTE THE DECISION OF THE APEX CO URT IN THE CASE OF 11 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE RADHASOAMI SATSANG V. COMMISSIONER OF INCOME-TAX (1 93 ITR 321 SC) WHEREIN IT WAS HELD THAT: . (II) THAT, IN THE ABSENCE OF ANY MATERIAL CHANG E JUSTIFYING THE DEPARTMENT TO TAKE A DIFFERENT VIEW FROM THAT T AKEN IN EARLIER PROCEEDINGS, THE QUESTION OF THE EXEMPTION OF THE A SSESSEE APPELLANT SHOULD NOT HAVE BEEN REOPENED. STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO I NCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLL OWING YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAI NED BY NOT CHALLENGING THE ORDERED, IT WOULD NOT BE AT ALL APP ROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YE AR. 37. NOW COMING TO APPLICATION OF SECTION 28(III) OF THE ACT. WE FIND THAT SECTION 28(III) OF THE ACT PROVIDES THAT THE INCOME DERIVED BY A TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION FROM SPECIFIC S ERVICES PERFORMED FOR ITS MEMBERS WILL BE BROUGHT TO CHARGE UNDER THE HEA D PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE UNDERLYING ID EA BEHIND S. 28(III) IS THAT THERE MUST BE A BUSINESS FROM WHICH INCOME IS DERIVED AND THAT IN THE COURSE OF SUCH BUSINESS SPECIFIC SERVICES MU ST BE RENDERED FOR ITS MEMBERS. THE CONCEPT BEHIND S.28(III) IS TO CUT AT THE MUTUALITY PRINCIPLE BEING RELIED ON IN SUPPORT OF A CLAIM FOR EXEMPTION, WHEN THE ASSESSEE WAS ACTUALLY DERIVING INCOME OR MAKING PRO FITS AS A RESULT OF RENDERING SPECIFIC SERVICES FOR ITS MEMBERS IN A CO MMERCIAL WAY. THE REASON FOR THE INTRODUCTION OF SECTION 28(III) OF A CT, TO IGNORE THE PRINCIPLE OF MUTUALITY AND REACH THE SURPLUS ARISIN G TO THE MUTUAL ASSOCIATION AND THIS IS CLEAR FROM THE FACT THAT TH ESE PROVISIONS ARE CONFIRMED TO SERVICES PERFORMED BY THE ASSOCIATION FOR ITS MEMBERS. SUCH INCOME WOULD EITHER BE CHARGED AS BUSINESS INC OME OR UNDER THE RESIDUAL HEAD, DEPENDING UPON THE QUESTION WHETHER THE ACTIVITIES OF THE ASSOCIATION WITH THE NON-MEMBERS AMOUNT TO A BUSINE SS OR OTHERWISE. SECTION 28(III) CONSTITUTES CERTAIN INCOME OF THE A SSOCIATION TO BE BUSINESS INCOME WITHOUT AFFECTING THE SCOPE OF THE EXEMPTION UNDER 12 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE SECTION 11. SECTION 2(15) WHICH INCORPORATES THE DE FINITION OF CHARITABLE PURPOSES SIMPLY SHOWS THAT SEVERAL MUT UAL ASSOCIATIONS MAY ALSO FALL WITHIN THE DEFINITION. THE RECEIPTS D ERIVED BY A CHAMBER OF COMMERCE AND INDUSTRY FOR PERFORMING SPECIFIC SE RVICES TO ITS MEMBERS, THOUGH TREATED AS BUSINESS INCOME UNDER SE CTION 28(III) WOULD STILL BE ENTITLED TO THE EXEMPTION UNDER SECT ION 11 R.W.S. 2(15) OF THE ACT, PROVIDED THERE IS NO PROFIT MOTIVE. THUS, ASSESSEE BEING A CHARITABLE INSTITUTION CARRYING ON THE OBJECT OF PR OMOTION AND DEVELOPMENT OF TRADE AND COMMERCE AND WHICH IS NOT INVOLVED IN THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF BUSIN ESS, THE SAID SECTION 28(III) OF THE ACT DOES NOT APPLY. 38. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT IN THE GIVEN FACTS AND DETAILED READING OF THE VARI OUS JUDICIAL DECISIONS THROUGH THE YEARS, INTERPRETING THE DEFINITION OF CHARITABLE PURPOSE AS LAID OUT IN SECTION 2(15) OF THE ACT AND ALSO TH E DEFINITION OF BUSINESS IN RELATION TO THE SAID SECTION AMPLY RE VELS THAT THE THEORY OF DOMINANT PURPOSE HAS ALWAYS, ALL THROUGH THE YEA RS, BEEN UPHELD TO BE THE DETERMINING FACTOR LAYING DOWN WHETHER THE I NSTITUTION IS CHARITABLE IN NATURE OR NOT. WHERE THE MAIN OBJECT OF THE INSTITUTION WAS CHARITABLE IN NATURE, THEN THE ACTIVITIES CAR RIED OUT TOWARDS THE ACHIEVEMENT OF THE SAID, BEING INCIDENTAL OR ANCILL ARY TO THE MAIN OBJECT, EVEN IF RESULTING IN PROFIT AND EVEN IF CAR RIED OUT WITH NON MEMBERS, WERE ALL HELD TO BE CHARITABLE IN NATURE . HON'BLE APEX COURT IN THE EARLIEST CASE OF ANDHRA CHAMBER OF COM MERCE (SUPRA) HAD CLEARLY LAID OUT THE PRINCIPLE THAT IF THE PRIM ARY PURPOSE OF AN INSTITUTION WAS ADVANCEMENT OF OBJECTS OF GENERAL P UBLIC UTILITY, IT WOULD REMAIN CHARITABLE EVEN IF AN INCIDENTAL OR AN CILLARY ACTIVITY OR PURPOSE, FOR ACHIEVING THE MAIN PURPOSE, WAS PROFIT ABLE IN NATURE. IN OUR VIEW THE BASIC PRINCIPLE UNDERLYING THE DEFINIT ION OF CHARITABLE PURPOSE REMAINED UNALTERED EVEN ON AMENDMENT IN TH E SECTION 2(15) OF THE ACT W.E.F. 01/04/2009, THOUGH THE RESTRICTIV E FIRST PROVISO WAS INSERTED THEREIN. ACCORDINGLY, IN THE GIVEN FACTS O F THE CASE AS DISCUSSED ABOVE IN DETAIL, THE ASSESSEE ASSOCIATIONS PRIMARY PURPOSE WAS ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY AN D IT WOULD REMAIN CHARITABLE EVEN IF AN INCIDENTAL OR ANCILLARY ACTIV ITY OR PURPOSE, FOR 13 ITA NOS. 415 & 416/KOL/2016 INDIAN CHAMBER OF COMMERCE ACHIEVING THE MAIN PURPOSE WAS PROFITABLE IN NATURE . HENCE, ASSESSEE IS NOT HIT BY NEWLY INSERTED PROVISO TO SECTION 2(1 5) OF THE ACT. THIS ISSUE OF ASSESSEES APPEAL IS ALLOWED. 39. IN THE RESULT, BOTH APPEALS OF ASSESSEE ARE ALL OWED. 8. IN VIEW OF THE ABOVE FINDINGS OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE UPHOLD THE ORDERS OF CIT-A. GROUNDS RAISED BY THE R EVENUE IN BOTH THE APPEALS ARE DISMISSED. 9. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DI SMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2016. SD/- SD/- WASEEM AHMED S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03 /08 /2016 *PRADEP/SR.PS COPY OF ORDER FORWARDED TO: 1 DCIT (E), CIRCLE-1, KOLKATA,10B, MIDDLETON ROW, 5 TH FLOOR, KOLKATA-700001 2 INDIAN CHAMBER OF COMMERCE,4, INDIA EXCHANGE PLACE, KOLKATA 700 001. 3 THE CIT(A), 4 5 CIT, 5. D.R. TRUE COPY, BY ORDER ASSTT. REGISTRAR , ITAT, KOLKATA