ITO, CHENNAI v. The All India Skin & Hide Tanners & Merchants Association, CHENNAI

ITA 1241/CHNY/2016 | 2011-2012
Pronouncement Date: 29-09-2016 | Result: Dismissed

Appeal Details

RSA Number 124121714 RSA 2016
Assessee PAN AAATA0492J
Bench Chennai
Appeal Number ITA 1241/CHNY/2016
Duration Of Justice 4 month(s) 24 day(s)
Appellant ITO, CHENNAI
Respondent The All India Skin & Hide Tanners & Merchants Association, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Assessment Year 2011-2012
Appeal Filed On 05-05-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH CHENNAI . ' # . $ & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY JUDICI AL MEMBER ./ I.T.A.NOS.1240 TO 1242/MDS/2016 ( / ASSESSMENT YEARS: 2010-11 TO 2012-13) THE INCOME TAX OFFICER (EXEMPTIONS) WARD-2 AAYAKAR BHAVAN ANNEXE BUILDING 4 TH FLOOR CHENNAI-34. VS M/S. ALL INDIA SKIN & HIDE TANNERS & MERCHANTS ASSOCIATION 43/53 RAJA MUTHIAH ROAD PERIMAET CHENNAI-600 003. PAN: AAATA0492J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. SUPRIYO PAL JCIT /RESPONDENT BY : MRS. S.VIDYA C.A. /DATE OF HEARING : 20 TH JULY 2016 /DATE OF PRONOUNCEMENT : 23 RD SEPTEMBER 2016 / O R D E R PER A. MOHAN ALANKAMONY AM:- THESE THREE APPEALS ARE FILED BY THE REVENUE AGGRIEVED BY THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-17 CHENNAI ALL DATED 29.01.2016 IN ITA NOS.37 38 & 11/CIT(A)-17/1 3-14 /14-15 /15-16 PASSED UNDER SECTION 143(3) R.W.S. 2 50(6) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEALS HOWEVER THE CRUX OF THE COMMON ISSUE IN THESE THRE E APPEALS IS AS FOLLOWS:- 2 ITA NOS. 1240 TO 1242/MDS/2016 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY HOLDING THAT THE ASSESSEE SOCIETY IS A MUTUAL ORGANIZATION AS WELL AS CHARITABLE INSTITUTION REGISTERED UNDER SECTION 12AA OF THE ACT AND BY VIRTUE OF CIRCULAR NO.11/2008 DATED 19.12.2008 ISSUED BY CBDT ENTITLED TO CONTINUE THE BENEFIT ENJOYED UNDER SECTION 2(15) OF THE ACT AS THE PROVISO TO SECTION 2(15) OF THE ACT WOULD NOT BE APPLICABLE TO THE CASE OF THE ASSESSEE SOCIETY. 3. AT THE OUTSET THE LEARNED AUTHORIZED REPRESENT ATIVE SUBMITTED THAT THE SAME ISSUE WAS DECIDED BY THE C HENNAI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2009-10 IN ITA NO.1751/MDS/2013 VID E ORDER DATED 06.06.2014. HE THEREFORE PRAYED THAT SI MILAR ORDER MAY BE PASSED IN THESE APPEALS. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE THOUGH C OULD NOT CONTROVERT TO THE SUBMISSION OF THE LD.A.R. VE HEMENTLY ARGUED IN SUPPORT OF THE ORDER OF THE LD.A.O. 5. ON HEARING BOTH THE SIDES AND PERUSING THE MATER IALS ON RECORD WE FIND THAT THE IDENTICAL ISSUE WAS DEC IDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN ITA 3 ITA NOS. 1240 TO 1242/MDS/2016 NO.1751/MDS/2013 VIDE ORDER DATED 06.06.2014 FOLLO WING THE DECISION OF THEIR PREDECESSORS IN THE ASSESSEE S OWN CASE IN ITA NO.2749 TO 2751/MDS/1994 FOR THE ASSESS MENT YEARS 1998-99 1990-91 AND 1991-92 BEING ORDER DATE D 25.03.2013 WHEREIN THE TRIBUNAL OBSERVED AS UNDER: - 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM TH E ORDER OF THE LD. ASSESSING OFFICER IT IS EVIDENT THAT TH E TRADING ACTIVITIES OF THE ASSESSEE SOCIETY WITH ITS MEMBERS DURING THE ASSESSMENT YEARS 2008-09 & 2009-10 GENERATED TH E FOLLOWING FINANCIAL RESULTS:- A.Y. SALES PROFIT % OF NET PROFIT 2008-09 6 40 80 198 49 56 056 7.74% 2009-10 7 27 60 326 43 78 226 6.02% FROM THE ABOVE IT IS OBVIOUS THAT THE ASSESSEE SOCI ETY HAD RETAINED ONLY MINIMUM MARGIN FROM ITS ACTIVITY OF IMPORT OF MATERIALS AND DISTRIBUTION OF THE SAME AM ONG ITS MEMBERS. RETAINING OF A MINIMUM AMOUNT OF SURPLUS IS ESSENTIAL FOR ATTENDING THE DAY TO DAY ACTIVITIES O F THE ASSESSEES SOCIETY AND TO MEET OUT ITS OTHER CHARIT ABLE OBJECTS. THOUGHT THE LD. ASSESSING OFFICER AND THE LD. CIT (A) HAVE BEEN POINTING OUT THAT THE ASSESSEE SO CIETY WAS ENGAGED IN TRADING ACTIVITY WITH THE NON-MEMBER S THEIR FINDINGS POINT OUT ONLY WITH RESPECT TO INTER EST RECEIVED FROM THE AMOUNT ADVANCED TO THEM AND NOT TRADING WITH NON-MEMBERS. PRECISELY THERE IS NO CLE AR CUT FINDING FROM BOTH THE REVENUE AUTHORITIES THAT THE ASSESSEE SOCIETY WAS INDULGING IN ANY TRADE ACTIVIT Y WITH NON-MEMBERS. FURTHER THE CIRCULAR REFERRED BY THE LD. A.R. IS VERY RELEVANT TO THE CASE OF THE ASSESSEE S OCIETY CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WHICH IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 4 ITA NOS. 1240 TO 1242/MDS/2016 CBDT CIRCULAR F.NO.134/34/2008-TPL DATED 19 TH DECEMBER 2008 3. THE NEWLY INSERTED PROVISO TO SECTION 2(15) WIL L APPLY ONLY TO ENTITIES WHOSE PURPOSE IS ADVANCEMENT OF A NY OTHER OBJECT OF GENERAL PUBLIC UTILITY I.E. THE FO URTH LIMB OF THE DEFINITION OF CHARITABLE PURPOSE CONTAINED IN SEC.2(15). HENCE SUCH ENTITIES WILL NOT BE ELIGIBL E FOR EXEMPTION U/S. 11 OR U/S. 10(23C) OF THE ACT IF THE Y CARRY ON COMMERCIAL ACTIVITIES. WHETHER SUCH AN ENT ITY IS CARRYING ON AN ACTIVITY IN THE NATURE OF TRADE COMMERCE OR BUSINESS IS A QUESTION OF ACT WHICH WIL L BE DECIDED BASED ON THE NATURE SCOPE EXTENT AND FREQUENTLY OF THE ACTIVITY. 3.1. THERE ARE INDUSTRY AND TRADE ASSOCIATIONS WHO CLAIM EXEMPTION FROM TAX U/S. 11 ON THE GROUND THAT THEIR OBJECTS ARE FOR CHARITABLE PURPOSE AS THESE ARE COV ERED 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 RELA TIONS 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 IDENTIFY BETWEEN THE CONTRIBUTORS AND THE PARTICIPANTS. THEREFORE WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL A S 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 SEC 2(15) OWNING 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 T HE ADDITIONAL CONDITIONS STIPULATED IN THE PROVISO TO SEC 2(15). 3.2. IN THE FINAL ANALYSIS HOWEVER WHETHER THE AS SESSEE HAS FOR ITS OBJECT THE ADVANCEMENT OF ANY OTHER OBJEC T OF GENERAL PUBLIC UTILITY IS A QUESTION OF FACT. IF S UCH ASSESSEE IS ENGAGED IN ANY ACTIVITY IN THE NATURE O F TRADE COMMERCE OR BUSINESS OR RENDERS ANY SERVICE IN RELATION TO TRADE COMMERCE OR BUSINESS IT WOULD N OT BE ENTITLED TO CLAIM THAT ITS OBJECT IS CHARITABLE PUR POSE. IN 5 ITA NOS. 1240 TO 1242/MDS/2016 SUCH A CASE THE OBJECT OF GENERAL PUBLIC UTILITY WILL BE ONLY A MASK OR A DEVICE TO HIDE THE TRUE PURPOSE WH ICH 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 F ACTS AND NO GENERALIZATION IS POSSIBLE. ASSESSEES WHO CLAIM THAT THEIR OBJECT IS CHARITABLE PURPOSE WIT HIN THE MEANING OF SEC.2(15) WOULD BE WELL ADVISED TO ESCH EW ANY ACTIVITY WHICH IS IN THE NATURE OF TRADE COMME RCE OR BUSINESS OR THE RENDERING OF ANY SERVICE IN RELATIO N TO ANY TRADE COMMERCE OR BUSINESS. THE AFORESAID CIRCULAR HAD MADE IT ABUNDANTLY CLEAR THAT WHERE INDUSTRY OR TRADE ASSOCIATIONS CLAIM BOTH TO BE CHARITABLE INSTITUTIONS AS WELL AS MUTUAL ORGANIZAT IONS 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 SEC. 2(15) OWNING TO THE PRINCIPLE OF MUTUALITY. I N THE PRESENT CASE BEFORE US SINCE THE ASSESSEE SOCIETY H AD BEEN ONLY IMPORTING RAW MATERIALS FOR DISTRIBUTION AMONGST ITS MEMBERS THE PRINCIPLES OF MUTUALITY WILL SQUAR ELY APPLY AND THEREFORE THE PROVISOS OF SEC.2 (15) OF THE AC T WOULD NOT BE APPLICABLE. AT THIS JUNCTURE WE ALSO ARE OF THE CONSIDERED VIEW THAT THE MATTER NEED NOT BE REMITTE D BACK TO EXAMINE THE TRADING ACTIVITY WITH NON-MEMBERS BE CAUSE THERE IS NO SPECIFIC FINDINGS BY BOTH THE REVENUE A UTHORITIES THAT THE ASSESSEE SOCIETY WAS ENGAGED IN TRADING AC TIVITY WITH NON-MEMBERS. FURTHER AS POINTED OUT BY THE LD . A.R. THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.2749 TO 2751/MDS./1994 FOR THE ASSESSMENT YEARS 1998-99 1990-91 & 1991-92 VIDE ORDER DATED 25.03. 2013 HAS CATEGORICALLY HELD THAT:- 23. THERE IS NO DISPUTE THAT ASSESSEE WAS NOT A PU BLIC RELIGIOUS ORGANIZATION. HENCE SUB-CLAUSE (A) ABOV E WILL NOT APPLY TO IT. THE ONLY QUESTION IS WHETHER IT W ILL FALL WITHIN SUB-CLAUSE (B). AS POINTED OUT BY THE LEARN ED A.R. ASSESSEE IS THE APEX ASSOCIATION OF VARIOUS TANNERS ASSOCIATION. THE WORK IN CONNECTION WITH T HE IMPORT OF WATTLE EXTRACT WAS ONLY CARRIED OUT BY TH E OFFICE-BEARERS OF THE ASSESSEE WHO WERE NOMINATED BY ITS MEMBERS OR APPOINTED BY ITS MEMBERS. SO WE CANNOT SAY THAT EVEN IF THE IMPORT OF WATTLE EXTRAC T IS CONSIDERED AS A BUSINESS IT WAS NOT A BUSINESS CAR RIED OUT BY THE BENEFICIARIES OF THE ASSESSEE. WHEN VIE WED 6 ITA NOS. 1240 TO 1242/MDS/2016 AGAINST THE PREDOMINANT AND PRIMARY OBJECTS OF THE ASSESSEE WE CANNOT SAY IT WAS ENGAGED IN AN ACTIVI TY WHICH WAS NOT PURSUED AS A MEANS TO ACCOMPLISH SUCH PREDOMINANT OBJECT. AS HELD BY HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V. AYANADAR CHARITABL E TRUST (TCA NO.259 TO 261/04 AND 987 TO 991/05 DATED 16.8.12) WHEN THE PREDOMINANT OBJECT WAS TO CARRY O UT CHARITABLE PURPOSE AND NOT TO EARN PROFIT THE EXCL USIVE CLAUSE UNDER SECTION 2(15) WHICH WOULD OTHERWISE BE AVAILABLE TO A CASE OF GENERAL PUBLIC UTILITY WOUL D NOT STAND IN THE WAY OF AN ASSESSEE CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT. 24. THERE IS NO FINDING BY THE ASSESSING OFFICER TH AT THE AMOUNTS UTILIZED BY THE ASSESSEE OR THE WORK DONE B Y THE ASSESSEE WAS IN VIOLATION OF ANY OBJECTS OF THE ASSESSEE ENUMERATED AT PARA 17 ABOVE. THE COMPETENT AUTHORITY NEVER CANCELLED OR ATTEMPTED TO CANCEL THE REGISTRATION GRANTED UNDER SECTION 12A(A ) OF THE ACT. THE SAID REGISTRATION REMAINS INTACT FROM THE DATE OF GRANT NAMELY 4.7.1983. ADMITTEDLY THERE HAS BEEN NO AMENDMENT TO THE OBJECTS OF THE TRUST. NO DOUBT AS POINTED OUT BY THE LEARNED D.R. OBJECTS OF THE ASSESSEE NAMELY THOSE MENTIONED IN CLAUSES 6 11 13 14 15 AND 16 DO ENABLE IT TO GIVE CERTAIN SERV ICES ONLY TO ITS MEMBERS. IN OUR OPINION WHAT IS TO BE CONSIDERED IS THE PREDOMINANT OBJECT OF THE ASSESSE E AND THE PREDOMINANT NATURE OF THE OBJECTS DOES SHOW CHARITY AS ALREADY MENTIONED BY US AT PARAS 17 & 1 8 ABOVE. AS HELD BY HON'BLE APEX COURT IN THE CASE O F ADDL. CIT V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (121 ITR 1) DEFINITION OF CHARITABLE PURPOSE WOULD STILL BE SATISFIED EVEN IF AN ACTIVI TY FOR PROFIT IS CARRIED ON IN THE COURSE OF ACTUALLY CARR YING OUT THE PRIMARY PURPOSE OF THE TRUST OR INSTITUTION. W E CANNOT SAY THAT IMPORT OF WATTLE EXTRACT AND DISTRI BUTION OF IT AMONG ITS MEMBERS WAS AN ACTIVITY NOT CONNECT ED TO THE PRIMARY PURPOSE OF THE ASSESSEE ORGANIZATION . TO CONSTITUTE A VALID CHARITY IT IS NOT NECESSARY THAT ONE SHOULD PROVIDE SOMETHING FOR NOTHING OR FOR LESS TH AN ITS COST OR FOR LESS THAN ITS ORDINARY PRICE. IN OTHER WORDS ELEEMOSYNARY ELEMENT IS NOT ESSENTIAL AS HELD BY PR IVY COUNCIL IN THE CASE OF THE TRUSTEES OF THE TRIBUNE IN RE (7 ITR 415). THEREFORE JUST BECAUSE SURPLUS HAS B EEN GENERATED WOULD NOT MAKE AN OTHERWISE CHARITABLE PURPOSE UNCHARITABLE. IN ORDER TO CONSTITUTE A VALID CHARITY AS HELD BY HONBLE SUPREME COURT IN THE CA SE 7 ITA NOS. 1240 TO 1242/MDS/2016 OF CIT V. ANDHRA CHAMBER OF COMMERCE (55 ITR 722) IT IS NOT NECESSARY THAT OBJECTS SHOULD BE BENEFIT THE WHOLE OF MANKIND OR ALL PERSONS LIVING IN A PARTICU LAR COUNTRY OR PROVINCE. IT IS SUFFICIENT IF THE INTEN TION IS TO BENEFIT A SUFFICIENTLY LARGE SECTION OF THE PUBLIC AS DISTINGUISHED FROM SPECIFIED INDIVIDUALS. BUT THE SECTION OF THE COMMUNITY SOUGHT TO BE BENEFITTED MUST BE SUFFICIENTLY DEFINED AND IDENTIFIABLE BY SOME QUALI TY OF PUBLIC OR PERSONAL NATURE. HON'BLE GUJARAT HIGH CO URT IN THE CASE OF HIRALALBHAGWATI V. CIT (246 ITR 188) HELD A GUJARAT LAW SOCIETY TO BE ENTITLED FOR REGISTRATI ON UNDER SECTION 12A(A) OF THE ACT DESPITE ITS OBJECT BEING ONLY TO GRANT FINANCIAL AID TO EMPLOYEES IN THE EVE NT OF THEIR DEATH DURING EMPLOYMENT ILLNESS OR PERMANENT DISABILITY. PROVISO TO SECTION 2(15) WHICH PLACE F ETTERS ON AN ASSOCIATION HAVING AN OBJECT OF GENERAL PUBL IC UTILITY WAS NOT AT ALL THERE IN THE IMPUGNED ASSES SMENT YEARS. 25. WE ARE THEREFORE OF THE VIEW THAT ASSESSEE WA S ENTITLED TO EXEMPTION UNDER SECTIONS 11 AND 12 OF T HE ACT AND COULD NOT HAVE BEEN DENIED SUCH EXEMPTION F OR THE IMPUGNED ASSESSMENT YEARS. FOR THE SAME REASONS ASSESSEE COULD NOT BE SUBJECTED TO LEVY OF WEALTH-TAX ALSO. 8. SINCE THE FACTS AND CIRCUMSTANCES OF THE CASE FO R THE RELEVANT ASSESSMENT YEAR ARE IDENTICAL TO THE CASE DECIDED BY THE TRIBUNAL CITED SUPRA VIDE ORDER DATED 25.03.201 3 WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED FOR EXEMP TION UNDER SECTIONS 11 & 12 OF THE ACT AND ACCORDINGLY ALLOW THE APPEAL OF THE ASSESSEE AND FURTHER HOLD THAT THE REFERENCE MADE BY THE LEARNED ASSESSING OFFICER TO THE LEARNED DIRECT OR OF INCOME TAX (EXEMPTIONS) RECOMMENDING CANCELLATION OF THE REGISTRATION UNDER SECTION 12AA(3) OF THE ACT TO BE ERRONEOUS. IT IS PERTINENT TO MENTION THAT THE TRIBUNAL HAS BE EN PERSISTENTLY HOLDING THAT THE ASSESSEE SOCIETY FUNC TIONS FALL UNDER THE CONCEPT OF MUTUALITY AND THE ACTIVITIES EMBEDDED IN THE MEMORANDUM OF ASSOCIATION OF THE SOCIETY ARE CH ARITABLE. FURTHER THE DECISIONS RELIED UPON BY THE REVENUE A RE NOT APPLICABLE TO THE FACTS OF THE RELEVANT CASE BEFORE US. THEREFORE WE HEREBY DIRECT THE REVENUE TO DELETE T HE TAX IMPOSED ON THE ASSESSEE BY WITHDRAWING THE BENEFIT UNDER SECTION 11 & 12 OF THE ACT. 8 ITA NOS. 1240 TO 1242/MDS/2016 FOLLOWING THE ABOVE SAID DECISIONS WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) FOR ALL THE T HREE RELEVANT ASSESSMENT YEARS. 6. IN THE RESULT ALL THE THREE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 23 RD SEPTEMBER 2016 SD/- SD/- ( ' # . $ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI ( /DATED 23 RD SEPTEMBER 2016 SOMU *+ + /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF