DDIT, CHENNAI V. The South Indian Film Chamber of Commerce, CHENNAI

ITA 449/CHNY/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4906 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMATHI VENKATRAMAN
• Assessee Lawyers: VIJAYARAGHAVAN
• Keywords: Business income; Depreciation; Charitable institution; Rule of consistency
• Section: 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , !' . #$#% , & '' ( [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NO.449/MDS/2013 / ASSESSMENT YEAR : 2009-2010 DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS I) AAYAKAR BHAVAN ANNEXURE BUILDING, III FLOOR, M.G. ROAD, CHENNAI 600 034 VS. M/S. SOUTH INDIAN FILM CHAMBER OF COMMERCE, NO.606, ANNA SALAI, CHENNAI 600 006. [PAN AAAAT 2561N] ( )* / APPELLANT) ( +,)* /RESPONDENT) / APPELLANT BY : SMT. SUMATHI VENKATRAMAN, JCIT. /RESPONDENT BY : SHRI. VIJAYARAGHAVAN, ADVOCATE /DATE OF HEARING : 28-03-2017 ! /DATE OF PRONOUNCEMENT : 05-04-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE REVENUE, IT IS AGGRIE VED THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE AS SESSEE CLAIM FOR ITS EXEMPTION U/S.11 OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). ITA NO. 449/MDS/2013. :- 2 -: APPEAL HAS BEEN FILED WITH A DELAY OF TEN DAYS. CO NDONATION PETITION HAS BEEN FILED. DELAY IS CONDONED AND APPEAL ADMITT ED. 2. FACTS APROPOS ARE THAT ASSESSEE A TRUST REGISTERED U/S.12AA OF THE ACT HAD FILED ITS RETURN OF INCOME FOR THE I MPUGNED ASSESSMENT YEAR DECLARING INCOME OF RS.12,85,860/-. ASSESSEE HAD ADMITTED FOLLOWING INCOME IN ITS INCOME AND EXPENDITURE ACC OUNT. (A) SUBSCRIPTION RECEIVED RS.8,24,950/- (B) ENTRANCE FEES RS. 79,000/- (C) TITLE REGISTRATION FEES RS. 98,000/- (D) CHAMBER JOURNAL SUBSCRIPTION RS. 95,970/- (E) SALES RS. 1,400/- (F) ADVERTISEMENT RS. 5,59,000/- (G) SHARE INCOME FROM PREVIEW THEATRE RS.17,42,455/- 3. LD. ASSESSING OFFICER WAS OF THE OPINION THAT THE A BOVE RECEIPTS WHERE IN THE NATURE OF INCOME FROM TRADE, BUSINESS, COMMERCE OR BY PROVIDING SERVICES IN RELATION TO ANY TRADE/B USINESS/COMMERCE. HE REQUIRED THE ASSESSEE TO EXPLAIN WHY IT SHOULD N OT BE DENIED EXEMPTION CLAIMED BY IT U/S.11 OF THE ACT. AS PER L D. ASSESSING OFFICER, ASSESSEE WAS HIT BY FIRST PROVISO TO SEC.2(15) OF THE ACT. ACCORDING TO HIM, THE OBJECT OF THE ASSESSEE WAS TO ENCOURAGE AN D DEVELOP FILM INDUSTRY IN SOUTHERN STATES. AS PER THE LD. COMMISS IONER OF INCOME TAX (APPEALS) IT WAS FORMED TO ENCOURAGE AND FACILI TATE FILM PRODUCTION, DISTRIBUTION, EXHIBITION AND ACTIVITIES INCIDENTAL TO FILM ITA NO. 449/MDS/2013. :- 3 -: INDUSTRY. HOWEVER, AS PER THE LD. ASSESSING OFFICER , IT WAS REGISTERING FILM TITLES FOR A FEE AND WAS HAVING ITS OWN THEAT RE FOR PREVIEW OF MOVIES AGAIN ON A FEE. FURTHER, PER LD. ASSESSIN G OFFICER, ASSESSEE COULD ALSO NOT CLAIM SUCH INCOME AS EXEMPT ON THE PRINCIPLE OF MUTUALITY, SINCE THERE WAS NO COMPLETE IDENTITY BET WEEN CONTRIBUTORS AND PARTICIPATORS. RELYING ON CIRCULAR NO.11/2008, DATED 19.12.2008, LD. ASSESSING OFFICER CAME TO A CONCLUSION THAT AN INDUSTRY OR TRADE ASSOCIATION COULD CLAIM BENEFIT OF MUTUALITY ONLY W HERE THERE WAS NO DEALINGS WITH NON MEMBERS. HE DENIED THE CLAIM OF EXEMPTION U/S.11 OF THE ACT AND COMPLETED THE ASSESSMENT CONSIDERIN G INCOME AS PER ITS PROFIT AND LOSS AS THE TOTAL INCOME, AFTER ADD ING BACK THE CLAIM FOR DEPRECIATION. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT IT WAS A REGISTERED SOCIETY COMMITTED FOR THE CAUSE AND BETTERMENT OF THE SOUTH INDIAN FILM INDUSTRY. CONT ENTION OF THE ASSESSEE WAS THAT ITS SOLE OBJECTIVE WAS TO PROMOTE TRADE AND COMMERCE IN SOUTH INDIAN FILM INDUSTRY. AS PER AS SESSEE IT DID NOT ITSELF CARRY ON ANY TRADE OR COMMERCE. RELIANCE WA S PLACED BY THE ASSESSEE ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE ITA NO. 449/MDS/2013. :- 4 -: CASE OF CIT VS MADRAS STOCK EXCHANGE LTD. 105 ITR 546 IN WHICH CASE, ASSESSEE WAS ALSO TAGGED AS ONE OF THE MANY RESPOND ENTS. 5. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONS IDERING THE SUBMISSIONS OF THE ASSESSEE AND ANALYZING THE SECTION 2(15) OF THE ACT AS IT STOOD PRIOR TO ITS SUBSTITUTION WITH EFFECT AMENDMENT FROM 01.04.2009 AND AFTER SUCH AMENDMENT, HELD THA T FIRST PROVISO WAS ATTRACTED ONLY WHERE AN ASSESSEE WAS CARRYIN G IN ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS RENDERING ANY SERVICES IN RELATION TO TRADE, COMMERCE OR BUSINESS. AS PER LD. COMMISSIONER OF INCOME TAX (APPEALS), ASSESSEE COULD NOT BE CONSIDE RED AS CARRYING ON ANY TRADE, COMMERCE OR TRADE OR PROVIDING SERVICES IN RELATION TO A TRADE, BUSINESS OR COMMERCE. FURTHER, AS PER LD. CO MMISSIONER OF INCOME TAX (APPEALS), THERE WAS A HUGE DIFFERENCE B ETWEEN THE WORDS TO PROMOTE AND TO CARRY ON. LD.CIT( A) REACHED A CONCLUSION THAT ASSESSEE ITSELF WAS NOT CARRYING ON ANY TRADE, BUSINESS OR COMMERCE OR RENDERING ANY SERVICES IN RELATION T O A TRADE, BUSINESS OR COMMERCE. ACCORDING TO HIM, ASSESSEES PRIME OB JECTIVE WAS TO PROMOTE TRADE AND COMMERCE. HE ALSO RELIED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT VS. ANDHRA CHAMBER OF COMMERCE 130 ITR 184 FOR ARRIVING AT A CONCLUSION THAT PREDOMINANT OBJECT OF THE ASSESSEE WAS PROMOTION OF TRADE AND COMMERCE, WHICH WAS ONE GENERAL PUBLIC UTILITY, WITHOUT ANY INTENTI ON ITA NO. 449/MDS/2013. :- 5 -: FOR MAKING PROFITS. ACCORDING TO HIM, WHEN PROFIT MAKING WAS NOT THE PREDOMINANT ACTIVITY CARRIED ON BY AN ASSESSEE IT C OULD NOT BE DENIED EXEMPTION U/S.11 OF THE ACT, DESPITE THE PROVISO TO SEC. 2(15) OF THE ACT. HE DIRECTED THE LD. ASSESSING OFFICER TO GRAN T THE EXEMPTION CLAIMED U/S.11 OF THE ACT. 6. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STRO NGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT CIRCULAR NO.11/2008, DATED 19.12.200 8 CLEARLY STATED THE REASONS FOR SUBSTITUTING SEC. 2(15) OF THE ACT, THROUGH FINANCE ACT, 2008. RELYING ON PARA 3.1 OF THE SAID CIRCULA R, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IT WAS FOR ROPING IN PERSONS LIKE ASSESSEE THAT THE AMENDMENT WAS BROUGHT IN. ACCORD ING TO HIM, LD. COMMISSIONER OF INCOME TAX (APPEALS) MISUNDERSTOOD THE SCOPE OF THE AMENDMENT AND ALLOWED THE CLAIM OF THE ASSESSEE. 7. PER CONTRA, LD. AUTHORISED REPRESENTATIVE SUBMITTE D THAT THE SCENARIO AFTER THE AMENDMENT TO SEC. 2(15), THROUGH FINANCE ACT, 2008 WAS CONSIDERED BY THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF INDIAN CHAMBER OF COMMERCE VS. ITO ( 2015) 113 DTR 0153 . ACCORDING TO HIM, WHEN THE MAIN ACTIVITY WAS NOT BU SINESS, CONNECTED INCIDENTAL OR ANCILLARY ACTIVITIES WHICH WAS ONLY IN FURTHERANCE OF THE MAIN OBJECT WOULD NOT AMOUNT TO BUSINESS, UNLESS AN INDEPENDENT ITA NO. 449/MDS/2013. :- 6 -: INTENTION TO CONDUCT BUSINESS COULD BE ESTABLISHED . AS PER LD. AUTHORISED REPRESENTATIVE KOLKATA BENCH HAD RELIED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA VS. DIRECTOR GENERAL OF INCOME TAX (EXEMPTIONS) 347 ITR 99 WHILE HOLDING THAT FUNDAMENTAL OR DOMINANT FUNCTIO N ALONE WAS TO BE CONSIDERED AND NOT THE ANCILLIARY OBJE CTS. THUS ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (APPEALS) WA S JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE U/S. 11 OF THE A CT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. OBJECTS OF THE ASSESSEE AS IT A PPEARS IN ITS MEMORANDUM OF ASSOCIATION (MOU) READ AS UNDER:- 3. THE OBJECTS FOR WHICH THE SOCIETY IS ESTABLISHED AR E (A) TO ENCOURAGE AND DEVELOP THE FILM INDUSTRY IN ALL I TS BRANCHES IN THE WHOLE OF SOUTH INDIA CONSISTING OF TAMIL NADU, ANDH RA PRADESH, KARNAKATA, KERALA AND THE UNION TERRITORY OF PONDIC HERRY AND AS FOR AS POSSIBLE TO WORK IN CONJUNCTION WITH OTHER SIMILAR ASSOCIATIONS. (B) TO WATCH, PROTECT AND EXTEND THE RIGHTS AND PRIVILE GES OF ITS MEMBERS AND OF FILM TRADE IN GENERAL. (C) TO ENCOURAGE AND FACILITATE FILM PRODUCTION, DISTRI BUTION AND EXHIBITION, AND ALSO OTHER INCIDENTAL AND ALLIED ACTIVITES DIRE CTLY CONNECTED WITH THE FILM INDUSTRY. (D) TO ACT AS A CLEARING HOUSE FOR INFORMATION ON ALL M ATTERS PERTAINING TO THE PRODUCTION, DISTRIBUTION AND EXHIBITION OF FILMS. (E) TO ADVISE ON MATTERS PERTAINING TO THE FILM INDUSTR Y AND TO EXTEND TO ITS MEMBERS SUPPORT IN THE EXERCISE OF THEIR LEGITIMATE RIGHTS; (F) TO INVESTIGATE PROBLEMS PECULIAR TO THE FILM INDUST RY WITH A VIEW TO DEVELOP THE INDUSTRY; (G) TO CONDUCT AN ORGAN FOR THE SPREAD OF KNOWLEDGE RE GARDING THE FILM ITA NO. 449/MDS/2013. :- 7 -: REGARDING (H) TO' EDUCATE, THE PUBLIC ,IN THE. UTILITY OF THE FILM INDUSTRY FROM A SOCIAL, INDUSTRIAL AND EDUCATIONAL POINT OF VIEW. (HH)TO ORGANISE REGIONAL NATIONAL OR INTERNATIONAL FESTI VALS OF FILMS FOR THE INFORMATION AND BENEFIT OF MEMBERS AND/OR THE CINE-GOING PUBLIC. (I) TO MAINTAIN, A IIBRARY FOR THE BENEFIT OF THE MEMBERS (J) TO ESTABLISH INSTITUTIONS FOR ,THE DEVELOPMENT OF FILM TECHNIQUES AND TO INSTITUTE ' AWARDS OR OTHER FORMS OF RECOGNITION. WHICH ARE CONSIDERED BY THE SOCIETY TO BE TO THE DEVELOPMEN T OF FILM TECHNIQUES. (K) TO ACT, IF REQUIRED, TO ACT. IF REQUIRED, AS AN ADVISORY BODY TO GOVERNMENT DEPARTMENTS CONCERNED WITH THE USE AND CONTROL OF FILMS. (L)..TO CONCILIATE. MEDIATE AND ARBITRATE IN ALL DISPUTES THAT MAY BE SUBMITTED FOR SETTLEMENT BY THE MEMBERS; (M) TO PROMOTE THE FILM BUSINESS INTERESTS. (N) TO STUDY BUSINESS PROSPECTS, FLUCTUATIONS, DANGERS AND OPPORTUNITIES AND, TO LAY BEFORE THE LEGISLATURE THE VIEWS OF TH E SOCIETY ON MATTERS AFFECTING THE FILM TRADE (0).TO OBTAIN AND FURNISH STATISTICS REGARDING THE VARIOUS PHASES OF THE FIL M INDUSTRY AND TRADE; (P) TO OBTAIN BY COMBINATION ADVANTAGES WHICH COULD=NOT BE OBTAINED INDIVIDUAL ENTERPRISE; (Q)TO AFFORD TO ITS MEMBERS AMENITIES OF A SOCIAL C LUB: (R) TO AFFILIATE THE SOCIETY TO ANY OTHER ALL-INDIA ASSOCIATIONK OR BODY. REPRESENTING THE PRODUCTION, DISTRIBUTION AND EXHIB ITION SECTORS OF THE. FILM INDUSTRY AND HAVING OBJECTS WHOLLY SIMILAR TO THOSE OF THE SOCIETY. (RR) TO GRANT, IN ITS DISCRETION, AFFILIATION TO OR PERMIT AMALGAMATION WITH,_ IT TO ANY REGISTERED ASSOCIATION OR ORGANISATION WHIC H EXCLUSIVELY ' PERTAINSKK TO THE FILM INDUSTRY AND HAS OBJECTS SIMILAR TO THO SE OF THE SOCIETY . (S)GENERALLY TO PURCHASE, TAKE ON LEASE OR IN EXCHA NGE, HIRE, OR OTHERWISE ACQUIRE ANY IMMOVABLE OR MOVABLE PROPERTY AND ANY RIGHTS OR PRIVILEGES WHICH THE SOCIETY MAY THINK NECESSARY . OR CONVENIENT FOR ANY OF THE PURPOSES FOR WHICH .IT IS ESTABLISHED; ITA NO. 449/MDS/2013. :- 8 -: (SS) .. TO SELL OR OTHERWISE DISPOSE OF MOVABLE- PR OPERTIES OF THE SOCIETY OR THE INTERESTS THEREOF; (SSS) TO SELL, ASSIGN. MORTGAGE, LEASE, HIRE OR OTH ERWISE DISPOSE OF IMMOVABLE PROPERTIES OF THE SOCIETY OR THE INTERES TS THEREOF, FOR THE PURPOSE OF ACQUIRING OR CREATING ANOTHER IMMOVABL E PROPERTY OR PROPERTIES FOR THE BENEFIT OF ITS MEMBERS AND, PENDING THE AC QUISITION .OR CREATION OF SUCH IMMOVABLE. PROPERTIES, TO KEEP THE SALE PROCE EDS OF THE IMMOVABLE PROPERTIES IN ANY NATIONALISED BANK. OR ANY OF ITS. SUBSIDIARIES A READING OF THE ABOVE OBJECTS CLEARLY INDICATE THA T ASSESSEE WAS NOT FORMED WITH AN INTENTION TO DO ANY BUSINESS OR TRAD E DIRECTLY. THE PURPOSE FOR WHICH ASSESSEES SOCIETY WAS FORMED WAS TO ENCOURAGE FILM INDUSTRY PRODUCTION IN SOUTH INDIA. WHEN VIEW ED FROM THIS ANGLE, THE TYPE OF INCOME LISTED BY US AT PARA 2 WERE IN DIRECT FURTHERANCE OF ITS OBJECTS AND WERE NOT ARISING FROM INDEPENDENT A CTIVITIES IN THE NATURE OF TRADE, BUSINESS OR COMMERCE. EVEN IF WE C ONSIDER THESE RECEIPTS TO BE FROM RENDERING OF SERVICE IN RELAT ION TO TRADE OR COMMERCE STILL SUCH RENDERING OF SERVICE WAS NOT AN INDEPENDENT ACTIVITY. KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF INDIAN CHAMBER OF COMMERCE (SUPRA) HAD AFTER CONSIDERING THE RESTRICTIVE PROVISO INTRODUCED INTO SEC. 2(15) OF THE ACT THOUGH FINA NCE ACT, 2008 WITH EFFECT FROM FIRST APRIL, 2009, DIGESTED VARIOUS CA SE LAWS IN RELATION TO DEFINITION OF CHARITABLE PURPOSE AND HELD AS UND ER AT PARAGRAPHS 36 TO 38 OF ITS ORDER. 36. FROM FACTS IN ENTIRETY, NOW THE QUESTION ARIS ES IS WHETHER PRINCIPLE OF CONSISTENCY WILL APPLY OR NOT ? FROM ASST. YRS. 1985-86 TO 2007-08 EXEMPTION UNDER S. 11 OF ITA NO. 449/MDS/2013. :- 9 -: THE ACT WAS ALLOWED. NOW, HAVING EXTENSIVELY WITH T HE NEWLY AMENDED S. 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 PRINCIPL E UNDERLYING THE DEFINITION OF 'CHARITABLE PURPOSE' R EMAINED UNALTERED, AND ON AMENDMENT IN THE S. 2(15) OF THE ACT W.E.F. 1ST APRIL, 2009, WHEREBY THE RESTRICTIVE FIR ST PROVISO WAS INSERTED THEREIN, LOWER AUTHORITIES HELD THAT T HE SAME SUBSTANTIALLY CHANGED THE POSITION OF LAW AND THUS THE PRINCIPLE OF CONSISTENCY DID NOT APPLY. BUT, WE ARE OF THE VIEW THAT A DETAILED READING OF THE VARIOUS JUDICIA L DECISIONS THROUGH THE YEARS, INTERPRETING THE DEFINITION OF ' CHARITABLE PURPOSE' AS LAID OUT IN S. 2(15) OF THE ACT AND ALS O THE DEFINITION OF 'BUSINESS' IN RELATION TO THE SAID SE CTION AMPLY REVEALS THAT THE THEORY OF DOMINANT PURPOSE HAS ALW AYS, ALL THROUGH THE YEARS, BEEN UPHELD TO BE THE DETERMININ G FACTOR LAYING DOWN WHETHER THE INSTITUTION IS CHARI TABLE IN NATURE OR NOT. WHERE THE MAIN OBJECT OF THE INSTITU TION WAS 'CHARITABLE' IN NATURE, THEN THE ACTIVITIES CARRIED OUT TOWARDS THE ACHIEVEMENT OF THE SAID, BEING INCIDENT AL OR ANCILLARY TO THE MAIN OBJECT, 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 CLEA RLY LAID OUT THE PRINCIPLE THAT IF THE PRIMARY PURPOSE OF AN INSTITUTION WAS ADVANCEMENT OF OBJECTS OF GENERAL P UBLIC UTILITY, IT WOULD REMAIN CHARITABLE EVEN IF AN INCI DENTAL OR ANCILLARY ACTIVITY OR PURPOSE, FOR ACHIEVING THE MA IN PURPOSE, WAS PROFITABLE IN NATURE. IT WAS LAID OUT BY THE COURT THAT, 'THAT IF THE PRIMARY PURPOSE BE ADVANCEMENT OF OBJECTS OF GENERAL PUBLIC UTILITY, IT WOULD REMAIN CHARITABLE EVEN IF AN INCIDENTAL ENTRY INTO THE POLITICAL DOMAIN FOR ACHIEVING THAT PURPOSE, E.G. PROMOTION OF OR OPPOSITION TO LEGISLATION CONCERNING THAT PURPOSE, WAS CONTEMPLATED.' IT WAS ONLY FOR THE PURPOSE OF SECURING ITS PRIMAIY AIMS THAT IT WAS MENTIONED IN THE MEMORANDUM OF ASSOCIATION T HAT THE CHAMBER MIGHT TAKE STEPS TO URGE OR OPPOSE LEGISLAT IVE OR OTHER MEASURES AFFECTING TRADE, COMMERCE OR MANUFAC TURES. SUCH AN OBJECT OUGHT TO BE REGARDED AS PURELY ANCIL LARY OR SUBSIDIARY AND NOT THE PRIMARY OBJECT. IN CONNECTIO N TO THE ABOVE CASE IT IS LAID OUT THE SAID CASE DEALT WITH THE ASSESSMENT OF THE ASSESSEE IN THE ASST. YRS. 1948-4 9 ITA NO. 449/MDS/2013. :- 10 -: WHEREIN RELEVANT TO THE SAID ASST. YRS. 1948-49 TO 1952-53, BY THE LAST PARA OF SUB-S. (3) OF THE IT ACT, 1922, 'CHARITABLE PURPOSES' WAS DEFINED AS : '... .. IN THIS SUB-SECTION 'CHARITABLE PURPOSE' INCLUDES RELIEF OF THE POOR, EDUCATION, MEDICAL RELIEF AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY, BUT NOTHING CONTAINED IN CL. (I) OR CL. (II) SHALL OPERATE TO EXEMPT FROM TH E PROVISIONS OF THIS ACT PART OF THE INCOME FROM PROPERTY HELD UNDER A TRUST OR OTHER LEGAL OBLIGATION FOR PRIVATE RELIGIOUS PURPOSES WHICH DOES NOT ENURE FOR THE BENEFIT OF THE PUBLIC.' THE ADDING OF THE WORDS 'NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT' WAS INTRODUCED BY THE IT A CT, 1961. HON'BLE APEX COURT IN THE EARLIEST DECISION IN THE CASE OF SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (SUP RA) HELD THE THEORY OF DOMINANT OR PRIMARY OBJECT OF THE TRU ST TO BE THE DETERMINING FACTOR SO AS TO TAKE THE CARRYING O N OF THE BUSINESS ACTIVITY MERELY ANCILLARY OR INCIDENTAL TO THE MAIN OBJECT. IT WAS HELD AS FOLLOWS : '(I) THAT THE DOMINANT OR PRIMARY PURPOSE OF THE ASSESSEE WAS TO PROMOTE COMMERCE AND TRADE IN ART SILK YARN, RAW SILK, COTTON YARN, ART SILK CLOT H, SILK CLOTH AND COTTON CLOTH AS SET OUT IN CL. (A) A ND THE OBJECTS SPECIFIED IN CLS. (B) TO (E) WERE MEREL Y POWERS INCIDENTAL TO THE CARRYING OUT OF THAT DOMINANT AND PRIMARY PURPOSE; (II) THAT THE DOMINANT OR PRIMARY PURPOSE OF THE PROMOTION OF COMMERCE AND TRADE IN ART SILK, ETC., WAS AN OBJECT OF PUBLIC UTILITY NOT INVOLVING THE CARRYING ON OF ANY ACTIVITY 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 FEDERA TION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY (SUPRA) HELD THAT: 'THE DOMINANT OBJECT WITH WHICH THE FEDERATION WAS CONSTITUTED BEING A CHARITABLE PURPOSE VIZ. PROMOTION, PROTECTION AND DEVELOPMENT OF TRADE, COMMERCE AND INDUSTRY, THERE BEING NO MOTIVE TO EARN PROFITS, THE RESPONDENT WAS NOT ENGAGED IN ANY ACTIVITY IN THE NATURE OF BUSINESS OR TRADE, AND, IF ANY INCOME AROSE FROM SUCH ACTIVITY, IT ITA NO. 449/MDS/2013. :- 11 -: WAS ONLY INCIDENTAL OR ANCILLARY TO THE DOMINANT OBJECT FOR THE WELFARE AND COMMON GOOD OF THE COUNTRY'S TRADE, COMMERCE AND INDUSTRY, AND ITS INCOME WAS, THEREFORE, EXEMPT FROM TAX UNDER S. 11 OF THE IT ACT, 1961.' AGAIN, REITERATING THE DOMINANT PURPOSE THEORY, THE HON'BLE SUPREME COURT IN THE CASE OF SAI PUBLICATIO N FUND (SUPRA) LAID OUT AS FOLLOWS : '... IF THE MAIN ACTIVITY IS NOT BUSINESS, THEN ANY TRANSACTION INCIDENTAL OR ANCILLARY WOULD NOT NORMALLY AMOUNT TO 'BUSINESS' UNLESS AN INDEPENDENT INTENTION TO CARRY ON 'BUSINESS' 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 ANCILLARY SALES WILL REST ON THE DEPARTMENT. THUS, IF THE MAIN ACTIVITY OF A PERSON IS NOT TRADE , COMMERCE ETC., ORDINARILY INCIDENTAL OR ANCILLARY A CTIVITY MAY NOT COME WITHIN THE MEANING OF 'BUSINESS'.' IN THE RECENT DECISION WHICH DEALS SPECIFICALLY WIT H THE NEWLY AMENDED S. 2(15) OF THE ACT, IN THE CASE OF I CAI & ANR. VS. DIRECTOR GENERAL OF IT (EXEMPTIONS) (2011) 245 CTR (DEL) 541 : (2011) 64 DTR (DEL) 226 : (2012) 34 7 ITR 99 (DEL), LAYING DOWN THE VERY SAME PRINCIPLE I T WAS AGAIN LAID : 'THAT THE FUNDAMENTAL OR DOMINANT FUNCTION OF THE INSTITUTE WAS TO EXERCISE OVERALL CONTROL AND REGULATE THE ACTIVITIES OF THE MEMBERS/ENROLLED CHARTERED ACCOUNTANTS. A VERY NARROW VIEW HAD BEEN TAKEN THAT THE INSTITUTE WAS HOLDING COACHING CLASSES AND THAT THIS AMOUNTED TO BUSINESS.' AGAIN, HON'BLE BOMBAY HIGH COURT IN THE WRIT PETITI ON OF BAUN FOUNDATION TRUST (WRIT PETN. NO. 1206 OF 2010 IN THE HIGH COURT OF JUDICATURE AT BOMBAY, 27TH MARCH 2012) [REPORTED AS BAUN FOUNDATION TRUST VS. CHIEF CIT (2012) 251 CTR (BOM) 237 : (2012) 73 DTR (BOM) 45 ED.], IT WAS HELD THAT '4... IT IS A WELL-SETTLED POSITION IN LAW THAT THE DOMINANT NATURE OF THE PURPOSE FOR WHICH THE ITA NO. 449/MDS/2013. :- 12 -: TRUST EXISTS HAS TO BE CONSIDERED. THE CHIEF CIT HAS NOT DOUBTED THE GENUINENESS 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 S. 2(15) H AS UNDERGONE CHANGES, THE PRINCIPLE UNDERLYING THE SAM E HAS REMAINED THE SAME. IN CONTEXT OF THE ABOVE, WITH RE GARD TO THE 'PRINCIPLE OF CONSISTENCY' IT WOULD BE OF RE LEVANCE HERE TO QUOTE THE DECISION OF THE APEX COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (1991) 100 CTR (SC) 267: (1992) 193 ITR 321 (SC), WHEREIN IT WAS HELD THAT: '... (II) THAT, IN THE ABSENCE OF ANY MATERIAL CHAN GE JUSTIFYING THE DEPARTMENT TO TAKE A DIFFERENT VIEW FROM THAT TAKEN IN EARLIER PROCEEDINGS, THE QUESTIO N OF THE EXEMPTION OF THE ASSESSEE APPELLANT SHOULD NOT HAVE BEEN REOPENED. STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO I T PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' 37. NOW COMING TO APPLICATION OF S. 28(III) OF THE ACT, WE FIND THAT S. 28(III) OF THE ACT PROVIDES THAT THE I NCOME DERIVED BY A TRADE, PROFESSIONAL OR SIMILAR ASSOCIA TION FROM SPECIFIC SERVICES PERFORMED FOR ITS MEMBERS WILL BE BROUGHT TO CHARGE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES OR PROFESSION'. THE UNDERLYING IDEA 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 MUST BE RENDERED FOR ITS MEMBERS. THE CONC EPT BEHIND S. 28(III) IS TO CUT AT THE MUTUALITY PRINCI PLE 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 COMMERCIAL WAY. THE REASON FOR THE INTRODUCTIO N OF S. 28(III) OF ACT, TO IGNORE THE PRINCIPLE OF MUTUALIT Y AND REACH THE SURPLUS ARISING TO THE MUTUAL ASSOCIATION AND THIS IS CLEAR FROM THE FACT THAT THESE PROVISIONS A RE CONFIRMED TO SERVICES PERFORMED BY THE ASSOCIATION 'FOR ITS ITA NO. 449/MDS/2013. :- 13 -: MEMBERS'. SUCH INCOME WOULD EITHER BE CHARGED AS BUSINESS INCOME OR UNDER THE RESIDUAL HEAD, DEPENDI NG UPON THE QUESTION WHETHER THE ACTIVITIES OF THE ASS OCIATION WITH THE NON-MEMBERS AMOUNT TO A BUSINESS OR OTHERW ISE. SEC. 28(III) CONSTITUTES CERTAIN INCOME OF THE ASSO CIATION TO BE BUSINESS INCOME WITHOUT AFFECTING THE SCOPE OF T HE EXEMPTION UNDER S. 11. SEC. 2(15) WHICH INCORPORATE S THE DEFINITION OF 'CHARITABLE PURPOSES' SIMPLY SHOWS TH AT SEVERAL MUTUAL ASSOCIATIONS MAY ALSO FALL WITHIN TH E DEFINITION. THE RECEIPTS DERIVED BY A CHAMBER OF COMMERCE AND INDUSTRY FOR PERFORMING SPECIFIC SERVI CES TO ITS MEMBERS, THOUGH TREATED AS BUSINESS INCOME UNDE R S. 28(III) WOULD STILL BE ENTITLED TO THE EXEMPTION UN DER S. 11 R/W S. 2(15) OF THE ACT, PROVIDED THERE IS NO PROFI T MOTIVE. THUS, ASSESSEE BEING A CHARITABLE INSTITUTION CARRY ING ON THE OBJECT OF PROMOTION AND DEVELOPMENT OF TRADE AN D COMMERCE AND WHICH IS NOT INVOLVED IN THE CARRYING ON OF ANY ACTIVITY IN THE NATURE OF 'BUSINESS', THE SAID S. 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 DETAILE D READING OF THE VARIOUS JUDICIAL DECISIONS THROUGH T HE YEARS, INTERPRETING THE DEFINITION OF 'CHARITABLE PURPOSE' AS LAID OUT IN S. 2(15) OF THE ACT AND ALSO THE DEFINITION OF 'BUSINESS' IN RELATION TO THE SAID SECTION AMPLY RE VELS THAT THE THEORY OF DOMINANT PURPOSE HAS ALWAYS, ALL THRO UGH THE YEARS, BEEN UPHELD TO BE THE DETERMINING FACTOR LAYING DOWN WHETHER THE INSTITUTION IS CHARITABLE IN NATUR E OR NOT. WHERE THE MAIN OBJECT OF THE INSTITUTION WAS 'CHARI TABLE' IN NATURE, THEN THE ACTIVITIES CARRIED OUT TOWARDS THE ACHIEVEMENT OF THE SAID, BEING INCIDENTAL OR ANCILL ARY TO THE MAIN OBJECT, EVEN IF RESULTING IN PROFIT AND EV EN 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 CLEA RLY LAID OUT THE PRINCIPLE THAT IF THE PRIMARY PURPOSE OF AN INSTITUTION WAS ADVANCEMENT OF OBJECTS OF GENERAL P UBLIC UTILITY, IT WOULD REMAIN CHARITABLE EVEN IF AN INCI DENTAL OR ANCILLARY ACTIVITY OR PURPOSE, FOR ACHIEVING THE MA IN PURPOSE, WAS PROFITABLE IN NATURE. IN OUR VIEW THE BASIC PRINCIPLE UNDERLYING THE DEFINITION OF 'CHARITABLE PURPOSE' REMAINED UNALTERED EVEN ON AMENDMENT IN THE S. 2(15 ) OF THE ACT, W.E.F. 1ST APRIL, 2009, THOUGH THE RESTRIC TIVE FIRST PROVISO WAS INSERTED THEREIN. ACCORDINGLY, IN THE G IVEN FACTS OF THE CASE AS DISCUSSED ABOVE IN DETAIL, THE ASSESSEE ASSOCIATION'S PRIMARY PURPOSE WAS ADVANCEM ENT ITA NO. 449/MDS/2013. :- 14 -: OF OBJECTS OF GENERAL PUBLIC UTILITY AND IT WOULD R EMAIN CHARITABLE EVEN IF AN INCIDENTAL OR ANCILLARY ACTIV ITY OR PURPOSE, FOR ACHIEVING THE MAIN PURPOSE WAS PROFITA BLE IN NATURE. HENCE, ASSESSEE IS NOT HIT BY NEWLY INSERTE D PROVISO TO S. 2(15) OF THE ACT. THIS ISSUE OF ASSES SEE'S APPEAL IS ALLOWED. 9. NOW COMING TO CIRCULAR NO.11/2008 (SUPRA) ON WH ICH RELIANCE WAS PLACED BY THE LD. DEPARTMENTAL REPRES ENTATIVE WHAT IS STATED AT PARA 3.1 OF THE SAID CIRCULAR IS REPRODUC ED HEREUNDER:- 3.1. THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WH O CLAIM EXEMPTION FROM TAX U/S 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 PRINCI PLE OF MUTUALITY, IF TRADING TAKES PLACE BETWEEN PERSONS WHO ARE ASSO CIATED TOGETHER AND CONTRIBUTE TO A COMMON FUND FOR THE FI NANCING OF SOME VENTURE OR OBJECT AND IN THIS RESPECT HAVE NO DEALINGS OR RELATIONS WITH ANY OUTSIDE BODY, THEN ANY SURPLUS R ETURNED TO THE PERSONS FORMING SUCH ASSOCIATION IS NOT CHARGEA BLE TO TAX. IN SUCH CASES, THERE MUST BE COMPLETE IDENTITY BETW EEN THE CONTRIBUTORS AND THE PARTICIPANTS. THEREFORE, WHERE INDUSTRY OR TRADE ASSOCIATIONS CLA IM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANI ZATIONS AND THEIR ACTIVITIES ARE RESTRICTED TO CONTRIBUTIONS FR OM AND PARTICIPATION OF ONLY THEIR MEMBERS, THESE WOULD NO T FALL UNDER THE PURVIEW OF THE PROVISO TO SECTION 2(15) OWING T O THE PRINCIPLE OF MUTUALITY. HOWEVER, IF SUCH ORGANIZATI ONS HAVE DEALINGS WITH NON-MEMBERS, THEIR CLAIM TO BE CHARIT ABLE ORGANIZATIONS WOULD NOW BE GOVERNED BY THE ADDITION AL CONDITIONS STIPULATED IN THE PROVISO TO SECTION 2 ( 15). NO DOUBT ASSESSEE FOR ITS RECEIPTS FROM NON MEMBER S COULD NOT CLAIM BENEFIT OF MUTUALITY. HOWEVER, RECEIPTS FROM NON M EMBERS ON ACCOUNT OF ITS ACTIVITIES, AS PER THE ASSESSEE, WAS LESS THAN RS.10,00,000/-. EVEN IF WE CONSIDER THE CLAIM OF MUTUALITY AS NOT A S APPLICABLE FOR ITS ITA NO. 449/MDS/2013. :- 15 -: DEALING WITH NON MEMBERS, STILL GROSS RECEIPTS T HEREFROM WAS LESS THAN RS.10,00,000/- AND THUS ASSESSEE WAS SAVED BY SECOND PROVISO TO SEC.2(15) OF THE ACT. FOR THE ABOVE REASONS, WE AR E OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN GRANTING THE DEDUCTION CLAIMED BY THE ASSESSEE U/S. 11 OF THE ACT. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 10. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 5TH DAY OF APRIL, 2017, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 5TH APRIL, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF