Organisation with main objective of protecting trade or commerce would be eligible for exemption
Fact and Issue of the case
Brief facts as narrated by assessee and not disputed by revenue are that the assessee is a non-profit company incorporated in 1924, inter alia for the purposes of promoting and protecting the trade, commerce and manufacturers of India and in particular the trade, commerce and manufacturers of the Bombay Presidency. It is registered as a section 25 company under the erstwhile Companies Act, 1956. The assessee was registered as a charitable trust under section 12A of the Act by order dated 22.09.1998. Upto and including the assessment year 2008-2009 the assessments were made granting exemption under section 11 of the Act. For the assessment year under consideration, the assessee filed its return of income on 30.09.2009 claiming exemption under section 11 of the Act. A copy of the computation of income and the audited financials for the assessment year under consideration is enclosed at pages 1 to 10 of the paper book of the assessee. The assessee’s return was selected for scrutiny assessment. The ITO called for various details, which were submitted from time to time. Meanwhile the Director of Income-tax (Exemptions) Mumbai [in short DIT(E)] passed an order dated 16.12.2011 under section 12AA(3) of the Act withdrawing the registration under section 12A of the Act on the ground that the assessee is not covered under the term “charitable purpose” as defined in section 2(15) of the Act. The assessee filed an appeal before the Income-tax Appellate Tribunal (ITAT).
Observation of the Tribunal
The Hon’ble Tribunal noted that the relevant Clause 4 of the MOA provides that the income and property of the Association whensoever derived shall be applied solely towards the promotion of the objects of the Association and no portion thereof shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise howsoever by way of profit to the persons who at any time are or have been members of the Association or to any person claiming through any of them. Further, Clause 8 of the MOA provides that on winding up, the surplus property remaining after satisfaction of all the debts, shall not be paid or distributed among the members, but shall be transferred to some other institution or institutions having similar objects similar to the objects of the Association which is to be determined by the members of the Association.
Therefore, it was observed that the members of the assessee chamber do not stand to gain personally since no portion of the income or property is paid or transferred directly or indirectly by way of dividend or bonus or otherwise. Further, even on winding up, the members cannot claim any share in the surplus assets. These facts highlight the fundamental fact that the assessee by and large strives to promote and protect the trade, commerce and manufacturers of India without seeking to make profits for its members.
The Hon’ble Tribunal then interpreted Section 2(15) of the Act and the amendment therein and have observed that the intent behind the amendment was that only such entities which are carrying on regular trade, commerce or business would not fall within the definition of the term ‘charitable purpose’. It was never intended to affect genuine charitable organizations in any way.
The term “not involving any activity for profit” came up for discussion before the Supreme Court in ACIT v. Surat Art Silk Cloth Manufacturers Association (121 ITR 1) (SC). The majority view was that the condition that the purpose should not involve the carrying on of any activity for-profit would be satisfied if profit-making is not the real object. The theory or dominant or primary object of the trust has, therefore, been treated to be the determining factor, even in regard to the fourth bead of charity, viz the advancement of any other object of general public utility, so as to make the carrying on of business activity merely ancillary or incidental to the main object.
The Hon’ble Tribunal relied on the Judgment of India Trade Promotion Organization V. DGIT(E) (371 ITR 333) (Del) and have observed that the assessee ought to be regarded as established for charitable purpose as its primary or dominant objects are inter alia to promote and protect the trade, commerce and manufacturers of India and in particular trade, commerce and manufacturers of the Bombay presidency and hence is entitled to exemption under section 11 of the Act.
Further, the Hon’ble Tribunal observed that the amounts received by the assessee are not in nature of trade (since there is no exchange of goods either for goods in return or money) or commerce (since it is not engaged in purchase and sale of goods) or business (since we are a non-profit making body formed with the promotion of protecting the trade, commerce and manufacture in India and in particular the Bombay Presidency). Therefore, while allowing appeals of the Assessee it was held that the activities carried out by the assessee chamber continue to be charitable in nature even under the amended definition under section 2(15) of the Act and assessee is entitled for exemption under section 11 of the Act.
In the result the tribunal allowed the petition and ruled in favour of the assessee