Jt. Commissioner of Income-tax (OSD) (Exemptions Circle, Pune V. Mahratta Chamber of Commerce, Industries & Agriculture, Pune

ITA 80/PUN/2021

AI Insights

The case involves the Mahratta Chamber of Commerce, Industries & Agriculture (the assessee), which appealed against the decision of the Assessing Officer (AO) who denied them exemption under section 11 of the Income Tax Act, 1961 for the assessment year 2016-17. The AO's decision was based on the grounds that the assessee's activities, which included renting out halls and leasing properties, were in the nature of trade or business and not charitable. The Commissioner of Income Tax (Appeals) initially allowed the exemption, referencing earlier ITAT decisions. However, the Revenue challenged this decision, leading to the current appeal where the Tribunal, referencing a Supreme Court decision, overturned the CIT(A)'s decision and ruled against the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134157 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-12-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 23-03-2021
• Other Referred Cases: ACIT Vs. Ahmedabad Urban Development Authority
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Charitable institution; Benefit of exemption
• Section: 2; 11; 143(3); 12AA

Judgement Text

आयकर अपीलीय अिधकरण “ए” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.80/PUN/2021 िनधाᭅरण वषᭅ / Assessment Year : 2016-17 The Jt. Commissioner of Income Tax(OSD) (Exemption) Circle, Pune. Vs Mahratta Chamber of Commerce, Industries & Agriculture, B Wing, 4 th Floor, 403A, MCCIA Trade Tower, ICC Complex, S B Road, Pune – 411016. PAN: AAATM 5559 Q Appellant/ Revenue Respondent / Assessee Assessee by Shri Nikhil S Pathak – AR Revenue by Shri Ramnath Murkunde - IRS Date of hearing 05/12/2022 Date of pronouncement 03/03/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Revenue is directed against the order of ld.Commissioner of Income Tax(Appeal), Pune-10 dated 24.02.2020 for A.Y.2016-17 emanating from the order under section 143(3) dated 25.12.2018. The Revenue has raised the following grounds of appeal: “1. On facts and circumstance of the case, the Ld. Commissioner of Income Tax(Appeals) [hereinafter CIT(A) in short] erred in allowing the benefit of exemption u/s 11 of the Income Tax Act, 1961 [hereinafter I.T. Act in short] to the assessee, even though the activities of the assessee trust are intended for the purpose of earning profit. ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 2 2. On facts and circumstance of the case, the Ld. CIT(A) erred in allowing the benefit of exemption u/s 11 of the I.T. Act to the assessee, after treating the activities of the assessee to be falling under the limb of ‘Advancement of any other object of general public utility’ of Section 2(15) of the I.T. Act, though the proviso to Section 2(15) of the Act debars this benefit when such receipts exceed Rs. 25 lakhs, as is in the assessee’s case. 3. On facts and circumstance of the case, the Ld. CIT(A) erred in over-looking the Hon’ble CBDT New Delhi’s explanatory Circular No. 11 of 2008 dated 19.12.2008, which stated that if the charitable organization has transactions / dealings with non members then their claim to be charitable organization will be governed by the provisions of Section 2(15) of the I.T. Act. 4. The appellant craves leave to add, alter, amend or omit any or all the grounds of appeal.” Brief Facts of the Case : 2. The assessee is a Company registered under section 25 of the Companies Act 1956.It filed return of Income on 29/09/2016 for A.Y. 2016-17 declaring total income at NIL. The case of the assessee was selected for scrutiny. The Assessing Officer(AO) passed the assessment order under section 143(3) after giving opportunity of hearing to the assessee. The AO denied exemption claim under section 11 of the assessee. The relevant para 6.2 is reproduced here as under : “6.2 It is also seen from the income & expenditure for AY 2016-17 furnished by assessee that the assessee has carried out activity of renting out halls, program fees, publication of books and other activities like conducting seminars , exhibitions etc. It is also important to mention here that activity of renting out hall and leasing premises cannot be treated as charitable activity, more so, ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 3 when said premises are rented out with motive of earning huge profits. Income from leased premises of assessee during the year was Rs. 2,23,17,651/-. Income from hall charges was Rs. 1,03,58,851/-. Out of gross total income, above two income along with interest income constitutes almost 49.18%. It clearly shows that leasing of premises and renting out hall constitutes major income earning activity of the assessee which concludes that assessee is carrying on activity in the nature of business and commerce. Further, when bifurcation of said receipts from members and non-members was asked, assessee failed to submit the same and just submitted huge ledgers (in pen drive) which do not show case any information on receipts / bifurcation of receipts from members & non-members. During the year, assessee had actually earned the exorbitant surplus of Rs.3,05,98,600/- which is almost 28.85% of gross receipts of I & E account. Further, the assessee was generating huge surplus in earlier years as well and thus the activities are carried out & arranged in such a systematic manner so as to earn more and more profit and the surplus so earned is invested in various funds / bank deposits / capital assets. Therefore, the Trust works on the principles of profit motive and not on charitable purposes, as per requirement of sec 2(15) of the act......... 6.3 .......... 6.4 To sum-up, for the reasons discussed herein above, it is clear that the activity of the assessee MCCIA are falling in the nature of activities of rendering services in relation to any trade, commerce or business for a fee or any other consideration and thereby contravening the provisions of section 2(15) of the I T Act, 1961. Therefore, considering all the above facts, the exemption claimed by the assessee u/s 11 of the I T Act, 1961 in its return of income is hereby denied for AY under consideration.” ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 4 3. Aggrieved by the order of the AO, the assessee filed appeal before the Commissioner of Income Tax(Appeal). The Ld.CIT(A) allowed the appeal of the assessee following decision of ITAT Pune in the case of the assessee for earlier years. 4. Aggrieved by the order of the Ld.CIT(A) the Revenue has filed appeal before this Tribunal. Departmental Representative’s (DR) Submission : 5. Ld.DR explained that the assessee is engaged in carrying out business activities. Ld.DR, Mr.Murkunde took us through the assessment order, P&L Account to demonstrate that assessee is earning income from Renting out hall, from leasing its property. The assessee is charging substantial amount for renting the hall. The assessee has also earned income from other activities like issuing certificate, seminars, conferences. The receipts of the assessee are from members as well as non-members. Assessee has not provided break up of receipts from members and Non-members to AO. The activities of renting out Hall, Leasing out property, Charging for Seminar are nothing but activities in the nature of Trade Commerce. Therefore, it is not eligible for exemption u/s 11 in view of the Section 2(15) Proviso. The Ld.DR invited our attention to the recent decision of the Hon’ble Supreme Court in the case of ACIT Vs. Ahmedabad ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 5 Urban Development Authority, Civil Appeal No. 21762 of 2017 order dated 19/10/2022. Submission by Authorized Representative (AR) of the Assessee : 6. Ld.AR submitted that the ITAT Pune in assessee’s own case for AY 2014-15, 2013-14 on identical facts have allowed exemption u/s 11 to the assessee. The Ld.AR submitted that hence Ld.CIT(A) was right in allowing the appeal of the assessee. Ld.AR submitted that assessee is a charitable organization duly registered u/s 12AA of the Act. All the activities of the assessee are as per the objects of the assessee. The ld.AR submitted that the income earned from publication, trade exhibitions, seminars, issuing certificates, advertisements etc., were earned while performing the main objects of the assessee i.e. to promote Trade, Commerce Industry, Agricultural and Agricultural Business in India, particularly in the state of Maharashtra. The Ld.AR tried to distinguish the decision in the case of ACIT Vs. Ahmedabad Urban Development Authority (supra). Findings and Discussion: 7. We have heard both the parties and perused the records. It is observed from the Profit and Loss Account that the assessee has shown following receipts: Income from Leasing of premises 2,23,17,651/- Hall Charges 1,03,58,851/- ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 6 Programme Fee & Activities Revenue 1,68,22,412/- Publication Revenue 26,29,456/- Fee for Certificate of Origin 61,66,907/- Total Receipts shown in the P& L accounts are Rs.10,60,58,855/- The Net Profit is 28% for AY 2016-17. Reserves and Surplus as per Balance Sheet - Rs.37,13,44,294/- 8. The Hon’ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority in Civil Appeal Number 21762 of 2017 has explained the entire law applicable to Charitable trust/institutions/organizations. The Hon’ble Supreme Court has held as under: Quote ,“150. Therefore, what Parliament intended - through the amendments in question was to proscribe, involvement or engagement of GPU charities, from any form ("in the nature of") of activities that were trade, business or commerce, or engage or involve in providing services in relation to trade, business or commerce- for a fee, cess or other consideration. The inclusion of the term "in the nature of" was by design, to clarify beyond doubt, that not only business, trade or commerce, but all activities in the nature of, or resembling them, were proscribed. Likewise, service in relation to such activities, i.e., services relating, or pertaining to, such proscribed activities, too were forbidden. 151. The reference to fee or cess, is in the opinion of the court, only to emphasize that even a statutory consideration, for a service to business, trade or commerce, would take the activity outside the definition of a GPU charity. The sense in which the expressions "cess, fee or other consideration" are used, is that if any amount, is received for trading, or business or commercial activity, or any services to such activity, then, notwithstanding their nomenclature (as fee or cess, i.e. that they are fixed under a law) the GPU charity ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 7 cannot claim tax exempt status. To bring home this even more pointedly- and underline a break from the past, the application of such amounts (received in the course of trade, commerce, or business, or towards services in relation thereto) would be irrelevant, as evidenced by the term "irrespective", in the fourth limb of reading section 2(15). 152................... 153. The paradigm change achieved by section 2(15) after its amendment in 2008 and as it stands today, is that firstly a GPU charity cannot engage in any activity in the nature of trade, commerce, business or any service in relation to such activities for any consideration (including a statutory fee etc.). This is emphasized in the negative language employed by the main part of section 2(15). Therefore, the idea of a predominant object among several other objects, is discarded. The prohibition is relieved to a limited extent, by the proviso which carves out the condition by which otherwise prohibited activities can be engaged in by GPU charities...................... (c) Both parts of the proviso: (i) and (ii) (to Section 2 (15)) have to be read conjunctively-given the conscious use of "or" connecting the two of them. This means that if a charitable trust carries on any activity in the nature of business, trade or commerce, in the actual course of fulfilling its objectives, the income from such business, should not exceed the limit defined in subclause (ii) to the proviso.... ............... 167. Thus, the journey which began with Surat Art Silk was interpreted in Thanthi Trust to mean that the carrying on of business by GPU charity was permissible as long as it inured to the benefit of the trust. The change brought about by the amendments in questions, however, place the focus on an entirely different perspective: that if at all any activity in the nature of trade, commerce or business, or a service in the nature of the same, for any form of consideration is permissible, that activity should be intrinsically linked to, or a part of the GPU category charity's object. Thus, the test of the charity ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 8 being driven by a predominant object is no longer good law. Likewise, the ambiguity with respect to the kind of activities generating profit which could feed the main object and incidental profit-making also is not good law. What instead, the definition under section 2(15) through its proviso directs and thereby marks a departure from the previous law, is - firstly that if a GPU charity is to engage in any activity in the nature of trade, commerce or business, for consideration it should only be a part of this actual function to attain the GPU objective and, secondly - and the equally important consideration is the imposition of a quantitative standard - i.e., income (fees, cess or other consideration) derived from activity in the nature of trade, business or commerce or service in relation to these three activities, should not exceed the quantitative limit of Rs. 10,00,000 (w.e.f. 1-4-2009), Rs. 25,00,000 (w.e.f. 1-4-2012), and 20% (w.e.f. 1-4-2016) of the total receipts. Lastly, the "ploughing" back of business income to "feed" charity is an irrelevant factor - again emphasizing the prohibition from engaging in trade, commerce or business. 168. If one understands the definition in the light of the above enunciation, the sequitur is that the reference to "income being profits and gains of business" with a further reference to its being incidental to the objects of the Trust, cannot and does not mean proceeds of activities incidental to the main object, incidental objects or income derived from incidental activities. The proper way of reading reference to the term "incidental" in section 11(4A) is to interpret it in the light of the sub-clause (i) of proviso to section 2(15), i.e., that the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the GPU object, and the income, profit or surplus or gains can then, be logically incidental. The amendment of 2016, inserting sub clause (i) to proviso to section 2(15) was therefore clarificatory. Thus interpreted, there is no conflict between the definition of charitable purpose and the machinery part of section 11(4A). Further, the obligation under section 11(4A) to maintain separate books of account in respect of such receipts is to ensure that the quantitative ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 9 limit imposed by sub-clause (ii) to section 2(15) can be computed and ascertained in an objective manner.”Unquote. 9. Thus, the Hon’ble Supreme Court has clearly held that Parliament has proscribed involvement or engagement of GPU in any activities in the nature of trade, commerce or business or involve in providing services in relation to trade, business or commerce for fee, cess or other consideration. The limited relief granted by Parliament is that if such activities are carried out in the course of actual carrying on objects of GPU (general Public Utilities) then the quantum of receipts shall not exceed 20% of the total receipt. 10. Section 2(15) of the Act applicable for A.Y.2016-17 is reproduced here as under: 15) "charitable purpose "includes relief of the poor, education, 9 [yoga,] medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility: [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, unless— (i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 10 (ii) the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year;] 11. Now applying the said proposition of law as explained by the Hon’ble Supreme Court(supra) to the present case under consideration, it is observed that the activities of Renting Hall, Leasing Property, Charging Fees for Certifications, Charging fees for Programs etc. is nothing but activity in the nature of Trade, Commerce, Business or providing services in relation to Trade, Commerce, Business by charging fee, cess. However, the basic fact in this case is that the quantum of receipt from such activities is more than 20% of the total receipt. For Example, the Leasing Income is Rs.2,23,17,651/- out of total income of Rs.10,60,58,855/- which is 21% of the total receipts. In addition to the leasing income there are other receipts like hall charges, programme fees etc. However, we are sure that these receipts are in the nature of trade, business or commerce or providing services in relation to Trade, Commerce, Business for fee. Thus, the receipts from these activities which is in the nature of trade business, or commerce is definitely more than 20% of the total receipts, hence, as per proviso to section 2(15) of the Act, the activities are not for charitable purpose. Therefore, as per Section 2(15) of the Act, the activities of the assessee are not for charitable ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 11 purpose. Therefore, the Assessee is not eligible for exemption under section 11 of the Act. Therefore, we hold that the assessee is not eligible for exemption under section 11 of the Act. Hence, appeal of the Revenue is allowed. 12. It is also observed that the net profit is 28%. The Reserve & Surplus is Rs.37,13,44,294/-. This also explains that the assessee’s main aim is to earn profit. 13. The assessee has earned income from leasing out its immovable property. As per the Return of Income of the assessee, the assessee has leased out certain parts of its property called MCCIA Trade Tower, Senapati Bapat Road, Pune and Mahratta Chamber Bhavan, Tilak Road, Pune. Earning income from leasing property is not one of the objects of the trust. The assessee has shown value of office building at Rs.12,06,66,047/- and claimed depreciation. In the notes, it is categorically mentioned that, that part of the office building which has been leased out have been classified as fixed assets. Also, earning income from leasing out immovable property is definitely not intrinsically linked to the Objects or activities of the Assessee company. Therefore, as held by the Hon’ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority (supra) mainly para 167, 168 of the order., it is not a charitable activity ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 12 permissible under Section 2(15) of the Act. Therefore, as per first proviso to Section 2(15) of the Act, the advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on any activity in the nature of trade, commerce, or business. The Hon’ble Supreme Court in para 150 of the order in the case of Ahmedabad Urban development Authority (supra) has observed as Under : Quote “ 150. Therefore, what Parliament intended – through the amendments in question was to proscribe, involvement or engagement of GPU charities, from any form (“in the nature of”) of activities that were trade, business or commerce, or engage or involve in providing services in relation to trade, business or commerce- for a fee, cess or other consideration. The inclusion of the term “in the nature of” was by design, to clarify beyond doubt, that not only business, trade or commerce, but all activities in the nature of, or resembling them, were proscribed. Likewise, service in relation to such activities, i.e., services relating, or pertaining to, such proscribed activities, too were forbidden.” Unquote. 13.1 Thus any activity even resembling trade commerce or business is forbidden. Therefore, the activity of Leasing out immovable property is not a charitable activity and it is outside the scope of Section 2(15) of the Act. The Assessee has earned income of Rs.2,23,17,651/- from leasing out immovable property. Hence, the Assessee is not eligible for exemption under section 11 of the Act. ITA No.80/PUN/2021 Mahratta Chamber of Commerce, Industries & Agriculture [R] 13 14. The Ld.AR has relied on the order of this ITAT in assessee’s own case for earlier years. However, those orders were delivered prior to the Hon’ble Supreme Court’s decision in the case of Ahmedabad Urban Development Authority(supra). Once the entire law on the impugned issue has been explained by the Hon’ble Supreme Court, it is our duty to respectfully follow the law as explained by the Hon’ble Supreme Court. The LD.AR has not pointed out any distinguishing feature. Accordingly, grounds of appeal raised by the Revenue are allowed. 15. In the result, appeal of the Revenue is Allowed. Order pronounced in the open Court on 3 rd March, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 3 rd Mar, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “ए” बᱶच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.