| COURT: | ITAT Kolkata |
| CORAM: | Mahavir Singh (JM), Shamim Yahya (AM) |
| SECTION(S): | 11, 2(15) |
| GENRE: | Domestic Tax |
| CATCH WORDS: | Charitable purpose |
| COUNSEL: | S. K. Tulsiyan |
| DATE: | December 2, 2014 (Date of pronouncement) |
| DATE: | December 4, 2014 (Date of publication) |
| AY: | 2008-09 & 2009-10 |
| FILE: | Click here to download the file in pdf format |
| CITATION: | |
| S. 2(15)/ 11: Entire law on what is "charitable purpose" and scope of Proviso inserted by Finance (No.2) Act 2009 w.r.e.f. 01.04.2009 explained | |
(i) The purpose for which the assessee association, i.e. The Indian Chamber of Commerce, was established is a charitable purpose within the meaning of S. 2(15) of the Act. The assessee is carrying out the said activities which are incidental to the main object of the Association and which are conducted only for the purpose of securing the main object which is the advancement and development of trade and commerce and industry in India. The activities are not in the nature of business and there is no motive to earn profit. The income arising to the assessee is only incidental and ancillary to the dominant object for the welfare and common good of the county’s trade, commerce and industry. The profits earned are utilized only for the purpose of feeding its dominant object and no part of such profit is distributed amongst its members. Profit making is not the object of the assessee. Profit is merely a by-product which resulted incidentally in the process of carrying out the charitable purpose. Thus the income of the assessee for AY 2008-09 is exempt from tax u/s 11 of the Act.
(ii) As regards the newly inserted proviso by the Finance (No.2) Act in section 2(15) of the Act w.r.e.f. 01.04.2009, from the Memo Explaining the provisions of Finance Bill 2008 & CBDT Circular dated 19-12-2008, what will be position of an entity engaged in the ‘advancement of any other object of general public utility’, whether the same will be hit by commercial activities in view of the newly inserted proviso to section 2(15) of the Act or not? The proviso was introduced with the sole aim of bringing into ambit of taxation such entities which were engaged in commercial activities. Here, we need to appreciate the concept of an “entity engaged in commercial activities”. In very simple words, any entity whose main or dominant object is commercial can only be said to be a commercial entity. An entity whose main purpose is undoubtedly charitable in nature without an iota of commerciality in it cannot be said to be engaged in commercial activity. Also we need to note that another point that emerges from the above is that whether an entity is carrying on an activity in the nature of trade, commerce or business always remains a question of fact which will have to be determined on the basis of the facts of the individual case. No generalization for such determination is possible. In view of the above, it is seen that the proviso can be applied to fact based on the facts and the past history of the assessee, which is discussed in detail above. From the above facts, we are clear that the assessee has never been dominantly engaged in any commercial activities and is a Charitable Institution registered as such u/s 12A of the Act, set up for the promotion and protection of Indian business and industry. The main purpose of this Institution is promotion and protection of trade and commerce in the country and not to conduct any commercial activities. Further, it has also never been the contention of the revenue that the assessee is engaged in commercial activities but it is hit by the proviso to section 2(15) of the act and thus will be deemed to be engaged in commercial activities. What will be the position to an institution engaged in advancement of any other object of general public utility, which lays down that such an institute will be deemed to be not “charitable” if it is involved in carrying on “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.” According to us, part of the proviso being “any activity of rendering any service in relation to any trade, commerce or business” intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity in relation to the trade commerce or business must be for a cess or fee or any other consideration. From the proviso, it is seen that the most material and relevant words in the proviso are “trade, business or commerce”. The activities which are undertaken by the institute should be in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business.
(iii) The logical corollary which inexorably flows is that in the cases of many institutions / associations whose main activity is not ‘business’ the connected incidental or ancillary activities of sales carried out in furtherance of and to accomplish their main objects would not, normally, amount to business, unless an independent intention to conduct ‘business’ in these connected, incidental or ancillary activities is established by the revenue. Therefore, the issue whether a professional institution is or is not hit by the proviso to section 2(15) of the Act will essentially depend upon the individual facts of the case of the institutions wherein discussing the nature of the individual activities it will have to be decided whether the same form incidental, ancillary and connected activities and whether the same were carried out predominantly with a profit motive.
(iv) The activities of conducting Environment Management Centre, Meetings, Conferences & Seminar and issuance of Certificate of Origin, being the activities stated to be “services in relation to trade, commerce or business” were all well covered by the main object being fully connected, incidental and ancillary to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists 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 authorized the Chamber “to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them.” Thus it was only for the purpose of securing its primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit 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 receipts 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 said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object 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 to business, trade or commerce.”
very good explanation by ITAT to revenue. see sir, CIDCO sold flats on hire purchase basis, and deemed sales where in the agreements there is an insertion consultancy by an individual is permitted but not any business that way many advocates CAs and other professionals served the society and so it is very clear that such professional activities if done as service to the society then it was classified as consultancy but not management consultancies.
then again why Advocates are not charged service tax under central excise Act, as they serve the society as practising advocacy at courts and they cannot deny any one poor man the advocate cannot say that unless he pays he cannot serve that poor man and that is Advocates’ Act but CA Act does not have such provision, so other professions, whererver the object of any profession is to serve the society even free it is said to be not a business or a commercial activity is to be borne in mind.
true the tax law is complicated by virtue of Art 265 of the constitution of India and Art 38, 39 of Part IV of the constitution of India and Art 51A is tslking about duties that means taxation without representation is not tenable principle surfaced every where but in USA the constitution started with the principle No Taxation without representation and the effects can be seen when we go through various taxation judgements all over the world besides under indian constitution which is a combi of the best constitutions of the world that has to be duly noted by revenue man, yes very difficult for an AO to properly apply his mind but he has no other go, if he fails to follow or his controlling authority fails to guide him naturally litigation surfaces, though we have transactional advocacy but none cares, so litigation is simply multiplying.
i commend the judgement for taking so much pain to explain to the revenue the hon ITAT did an yeoman’s service to the country. So one can say ITAT is indeed a good body if it really appreciates and explains to revenue the things in right perspective.
kudos to ITAT calcutta
very good explanation by ITAT to revenue. see sir, CIDCO sold flats on hire purchase basis, and deemed sales where in the agreements there is an insertion consultancy by an individual is permitted but not any business that way many advocates CAs and other professionals served the society and so it is very clear that such professional activities if done as service to the society then it was classified as consultancy but not management consultancies.
then again why Advocates are not charged service tax under central excise Act, as they serve the society as practising advocacy at courts and they cannot deny any one poor man the advocate cannot say that unless he pays he cannot serve that poor man and that is Advocates’ Act but CA Act does not have such provision, so other professions, whererver the object of any profession is to serve the society even free it is said to be not a business or a commercial activity is to be borne in mind.
true the tax law is complicated by virtue of Art 265 of the constitution of India and Art 38, 39 of Part IV of the constitution of India and Art 51A is tslking about duties that means taxation without representation is not tenable principle surfaced every where but in USA the constitution started with the principle No Taxation without representation and the effects can be seen when we go through various taxation judgements all over the world besides under indian constitution which is a combi of the best constitutions of the world that has to be duly noted by revenue man, yes very difficult for an AO to properly apply his mind but he has no other go, if he fails to follow or his controlling authority fails to guide him naturally litigation surfaces, though we have transactional advocacy but none cares, so litigation is simply multiplying.
i commend the judgement for taking so much pain to explain to the revenue the hon ITAT did an yeoman’s service to the country. So one can say ITAT is indeed a good body if it really appreciates and explains to revenue the things in right perspective.
kudos to ITAT calcutta
Its a very good decision on the subject matter and issue and much help of the organisations faced by them after the amendment in section 2(15) of the Income Tax Act. Further the most important fact is that what should have been verified by the revenue department while dealing with the cases like organisation is that whether they are properly functioning for the benefit of general public or not under the shape of charity. That has never been done and blindly apply the provisions of the Act which is not correct. The Government should have re-considered the issue and further clarified the provisions of the Act.
you will observe judicial members being basically law men you will observe their perceptions are legions away from taxation accountant like account members.
in a S C decision Katju J in one of his decisions properly quoted several English judgements like hon SC quotes, in one of the hon SC judgements it was quoted that Law many a time may not be logical that every advocate/lawyer need to know per several PC or HL decisions… so the hon SC correctly observed in NTT v Madras Bar Assn that Advocates (obviously highly practiced ones) only can interpret laws and statutes so SC ruled CAs/CSs are professional experts in Accounting but not in interpretation of statutes that was not to mean to say anything low of CAs/CSs but professions differ tangentially like a dot it a line is drawn some mili-meter difference, the road it takes several legions away to its fellow another line that started at the dot!
so i said when Jaitley made some speech in parliament or else where i could not help commenting i doubt whether he is a legal lun=minary or something else, that was not offend him but to say when once you change your profession he changed politics so obviously lost tracks of legal lumine!
Pl see the case Adler v Food (1895)AC1 PC decision very well discussed the case then, but today in 21st century may be we lost track of law as law is an out and out philosophy and theology based study that way beyond reasonable doubt if the crime is proved court overturns conviction , same view president John Adams stated in Boston Massacre case…Adams was a top attorney in US then and he told jurors unless you are satisfied of the crime beyond any reasonable doubt you can acquit the accused persons of crime!
practice of law is altogether a different cup of tea
you will observe judicial members being basically law men you will observe their perceptions are legions away from taxation accountant like account members.
in a S C decision Katju J in one of his decisions properly quoted several English judgements like hon SC quotes, in one of the hon SC judgements it was quoted that Law many a time may not be logical that every advocate/lawyer need to know per several PC or HL decisions… so the hon SC correctly observed in NTT v Madras Bar Assn that Advocates (obviously highly practiced ones) only can interpret laws and statutes so SC ruled CAs/CSs are professional experts in Accounting but not in interpretation of statutes that was not to mean to say anything low of CAs/CSs but professions differ tangentially like a dot it a line is drawn some mili-meter difference, the road it takes several legions away to its fellow another line that started at the dot!
so i said when Jaitley made some speech in parliament or else where i could not help commenting i doubt whether he is a legal lun=minary or something else, that was not offend him but to say when once you change your profession he changed politics so obviously lost tracks of legal lumine!
Pl see the case Adler v Food (1895)AC1 PC decision very well discussed the case then, but today in 21st century may be we lost track of law as law is an out and out philosophy and theology based study that way beyond reasonable doubt if the crime is proved court overturns conviction , same view president John Adams stated in Boston Massacre case…Adams was a top attorney in US then and he told jurors unless you are satisfied of the crime beyond any reasonable doubt you can acquit the accused persons of crime!
practice of law is altogether a different cup of tea