Income Tax Appellate Tribunal - Delhi
Ito (E), New Delhi vs Delhi Chamber Of Commerce,, New Delhi on 22 August, 2017
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "SMC": DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA. No. 466/Del./2017
Assessment Year 2013-14
ITO(E), Ward 1(3) Delhi Chamber of
E 2 Block, Room Commerce
no.2419 vs. 49, 2nd floor
24th Floor, Rani Jhansi road
Pratyaksh Kar New Delhi 110 055
Bhawan
Civic Centre PAN: AAATD 3885 A
JLN Marg
New Delhi 110 002
(Appellant) (Respondent)
Cross Objection No. 133/Del/2017
(In ITA. No. 466/Del./2017)
Assessment Year 2013-14
Delhi Chamber of Commerce vs. ITO(E), Ward 1(3)
New Delhi New Delhi
(Appellant) (Respondent)
For Assessee : Sh.Manu Monga, Adv.
For Revenue : Shri T. Vasanthan, Sr.
D.R.
Date of Hearing : 17.08.2017
Date of Pronouncement : 22.08. 2017
ORDER
The departmental appeal as well as Cross Objection of the assessee are directed against the order of Ld.CIT(A)-40, Delhi dated 09.11.2016 for the Assessment year 2013-14. 2 The departmental appeal is filed on the following grounds.
1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in law and on facts in holding that assessee is a charitable institution within the meaning of s.11(1) of the Income Tax Act, 1961 (the Act.).
2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in law and on facts in not appreciating the facts that the assessee was engaged in commercial activities and proviso to s.2(15) was clearly applicable in this case.
3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in law and on facts in holding that the AO has not brought out any material on record to prove that luxury items purchased by the assessee were being misused by the persons covered u/s 13(3) of the Act. The Cross Objection is filed on the following grounds. 1(A) That the Ld.CIT(A) has failed to adjudicate ground of appeal no.4 specifically raised in the memo of appeal filed before the Ld.CIT(A). The said ground of appeal challenging the additions and disallowances made by the Ld.AO have been omitted from consideration by the Ld.CIT(A). 1(B) That adjustment to Income and expenditure account by the AO i.e. adding sale proceeds of assets of Rs.2,76,899/- and disallowing loss on sale of assets of Rs.44,690/- and not allowing depreciation is erroneous. The impugned order passed by the AO in computing the taxable income of the 3 assessee is also not based on any discussion or reasoning and therefore the additions/disallowances made therein need to be deleted.
2. I have heard the Ld. Representatives of both parties and perused material on record.
3. The facts of the case are that the assessee is a company registered under section 26 of the Indian Companies Act, 1913 which corresponds to Section 25 of the Indian Companies Act,1956. The assessee filed its return of income on 27.09.2016 declaring Nil income. The assessee is registered u/s 12A of the Income Tax Act. The main objects of the assessee company are to promote and protect trade, commerce and manufacturers in Delhi and to watch over and protect the general commercial interest in Delhi or any part thereof in the interest of persons engaged in trade, commerce or industry in the adjoining places or areas. Since the activities of the assessee did not fall in the field of education or medical relief or relief to poor, the AO was of the view that the assessee can be considered for benefit of exemption under section 11 and 12 after verifying the applicability of the proviso to section 2(15), the explanation of the assessee was called for. The reply of the assessee that 4 receipts from membership, subscription fee and issuance of certificate of origin do not involve any commercial activity resulting in directly or indirectly in any private gain to any individual but are applied for the objects of the assessee Chamber of Commerce and that the receipts are as per rules and guidelines laid down by the government authorities applicable was not accepted by the Assessing Officer(AO). Since it was observed that the assessee was charging fee from both members and non members for issue of certificate of origin, it was held that the assessee is providing services in relation to business and not doing any sort of charity. Further, it was held that no direct payment out of profit is being given to the office bearers yet some indirect benefits of personal nature are definitely being given to members/office bearers covered under section 13(3). This inference has been drawn from the fact that during the year under consideration, luxury items like vehicles, mobile phones, tablets etc. have been purchased. Hence exemption under section 11 was denied mainly on the ground that the assessee was involved in business activities and also since undue benefits of 5 personal nature to persons covered under section 13(3) were being given.
4. The assessee challenged the findings of the AO before the Ld.CIT(A). Same facts were reiterated as were submitted before the AO. It was submitted that the main object of the assessee is to promote trade, commerce and protect the general commercial interest of the persons who are engaged in trade, commerce and industry. The assessee charge nominal fees as per the guidelines provided by Ministry of Commerce, Government of India. The nominal fees are incidental to the main objects of the assessee. The issue is covered by the decision of Hon'ble Delhi High Court in the case of PhD Chamber of Commerce and Industry vs DIT(Exemption) reported in 212 Taxman 192. The motive of the assessee is not to earn any profit since there are no profit that can be distributed. The surplus or profit remains with the assessee and is applied solely towards promotion of its objects and no portion is transferred to members. In earlier AYs 2009-10, 2010-11, 2011-12 and 2012-13 , the AO had denied exemption under section 11(1) of the Act but the same had been allowed by the Ld.CIT(A). With regard 6 to purchase of vehicles and other articles, it was stated that these were necessary for officials of chamber and are used for meetings with delegations and for attending/visiting conferences, seminars and keeping with the times and advancement of Technology, these tools are necessary and they are not luxury items. The order of the AO is based on surmises and conjectures and not on actual facts.
5. The ld.CIT(A) considering the issue in the light of judgement of Honourable Delhi High Court in the case of PhD Chamber of Commerce and Industry (supra) allowed the appeal of the assessee. His findings recorded in para 4.1 to 4.2.7 are reproduced hereunder.
"I have considered the assessment order and the submissions of the appellant. Order of the Hon'ble ITAT in ITA no. 6519/Delj2013 for assessment year 2009-10 and orders of Id. CIT(A)-XXI/40 for assessment year 2009-10 (Appeal No. 216/2011-12), assessment year 2010-11 (appeal No. 8/2013-
14), assessment year 2011-12 (Appeal No.93/2014-15) and assessment year 2012-13 (Appeal No. 02/2015-16) have also been perused.
4.2 Grounds Nos. I, 2 and 3 challenge the denial of exemption under section 11. Ground No. 4 challenges certain disallowances made to the income as per the income and expenditure account.
74.2.1 Since these grounds are interlinked, these are being adjudicated together.
4.2.2 The main activity of the appellant is to promote, trade and commerce of its members. During the year under consideration, as was the case in earlier years also wherein relief had been allowed by my Id. predecessors on similar facts, the appellant had receipts from services provided to both members and non-members. The Assessing Officer has held that the income/fee received from members and non- members are purely commercial. The submission of the appellant that the surplus is not distributed amongst the members has also not been considered by the Assessing Officer in view of the insertion of the proviso to section 2(15) and also in view of the fact that receipts are commercial. 4.2.3 The Hon'ble Delhi High Court, in the case of PHD Chamber of Commerce and Industry vs. Director of Income Tax (Exemption) [357 ITR 296 (Del)]have examined the question as to whether by rendering specific services to members and non-members for a fee, a trade, professional or similar association can be said to be carrying on a business activity. The Hon'ble Delhi High Court in this case have observed as under:
"8. The nice question as to whether by rendering specific services to members and non-members for a fee, a trade, professional or similar association can be said to be carrying on a business activity needs to be examined. The further question to be addressed, with reference to section 11(4A), would be whether such activities (which amount to a 8 business) were incidental to the attainment of the objectives of trust or institution and whether separate books of account were maintained in respect of such activities. There can be no doubt that the activities of the nature described above, in the case of an assessee such as the present one, which is a trade association-Chamber of Commerce and Industry, established to protect the interests of trade and industry in Punjab, Haryana and Delhi - were activities which are incidental to the attainment of the objects of the chamber. We do not think that the Tribunal is justified in taking the view that the assessee, which is a chamber of commerce and industry, is carrying on business activities which require compliance with the conditions of section 11 (4A). In CIT v. Andhra Chamber of Commerce [1965} 55 ITR 722, it was held by the Supreme Court that advancement or promotion of trade, commerce and industry leading to economic prosperity ensured for the benefit of the entire community; that prosperity would be shared also by those who engaged in trade, commerce and industry, but on that account the purpose was not rendered any the less an object of general public utility. Echoing these sentiments another Bench of equal strength of the Supreme Court in CIT v. Federation of Indian Chambers of Commerce and Industries [1981} 130 ITR 186 (SC) held that where the main object of the assessee was the promotion, protection and development of trade, commerce and industry in India, its income from conducting a trade fair, rent for space allotted and sale of entry and gate tickets, fees for arbitration, etc., would be exempted from tax under section 11 read with 9 section 2(15) of the Act. The 11 dominant purpose 11 test was applied to hold that the activities to earn income were not driven with the motive of profit-making. In this judgment, separate opinions were expressed by each of the three learned judges and while Justice Pathak (as his Lordship then was) considered the matter to be covered by the majority opinion of the Supreme Court in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980} 121 ITR 1 (SC), Sen J. and Venkataramiah J. held different opinions but considered themselves bound by the majority opinion in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association supra). It would, therefore, appear that judicial thinking was never in favour of the view that the services performed by a trade, professional or similar association, such as a chamber of commerce and industry, 'were in pursuit of a business or trade with a profit motive." The Hon'ble Delhi High Court, in this case, have held that- " ... Having regard to the authorities which we have noticed above it is not proper to characterise the activities of the chamber as activities amounting to a business in the generally understood sense of the word, the most important feature of business being profit motive. It has not been suggested by the Income-tax authorities that the activities carried out by the assessee-chamber were propelled by any profit motive. In such circumstances, it is proper to view the activities as driven by a charitable motive in the sense in which a charitable purpose is defined in section 2(15) of the Act. In this view of the matter, we are satisfied that the provisions of section 11 (4A) are not attracted to the present 10 case and a remand to the Assessing Officer for finding out whether the activities were incidental to the objectives of the trust and separate books of account were maintained for such business was unnecessary. We accordingly answer the substantial question of law framed by us in the negative, in favour of the assessee and against the . Revenue ... "
4.2.4 The Hon'ble ITAT Delhi Bench "B", in the case of Disha India Micro Credit Vs. CIT in ITA No. 1374/Delj2010 (dated 28.01.2010), inter alia, examined the issue whether profit, even if to be ploughed back, would be liable to income-tax or not. The Hon'ble Tribunal, in para 22 of the order observed as under:
"22. It is well settled that when a profit is used towards the achievement of the charitable objects of the trust, it would be considered to be incidental to the achievements of the objects of the trust notwithstanding the profit and gain involved therein. In this respect, a reference may be made to the decision of Hon'ble Supreme Court in the case of Asstt. CIT vs, Thanthi Trust (2001) 247 ITR 785(SC). Thus, mere because there was a surplus from the activity of micro financing, that by itself cannot be a ground to say that the assessee does not exist for charitable purpose particularly when under the Memorandum of Association and Articles of Association, it has been clearly provided that the profit shall not be distributed amongst the members but shall be utilized towards its objects, and in the case of dissolution, any property remaining after meeting out the liability shall be transferred to the association having similar object. Therefore, 11 the rejection of the registration of trust on this score is also unjustified."
4.2.5 The other issue raised by the Assessing Officer is regarding possible use of assets purchased during the year which includes SUV vehicle, iPhone and Tabs etc. which are luxury items as per the Assessing Officer, it is observed that no specific material has been brought on the record to show that there was indeed misused. Hence, this cannot be considered as a ground for withdrawing exemption under section 11.
4.2.6. On similar facts, my ld.predecessor in the appeal for assessment year 2012-13 in Appeal No. 02/2015-16 held as under:
3.5 I have considered the order of the AO and the submissions of the Assessee and I find considerable merit in the submissions of the Assessee. The main activity of the Assessee is to promote trade, commerce and business of its members and the nominal fee received by the Assessee are only incidental and subservient to the main objects of the Assessee. So, it cannot be said that the Assessee is involved in any business activity. It is apparent that the society is existing primarily for the we1fare of its members and there is nothing on record to suggest that the Assessee is involved in any business activity. The case laws relied upon by the Assessee also supports the case of the assessee. After considering all the facts and circumstances of the case, I am of the view that the Assessee is a charitable institution within the meaning of section 11 (1) and the appeal of the Assessee 12 is allowed the following the appellate order of AY. 2009-10, AY. 2010-11 and AY. 2011-12 on the principle of consistency and accordingly the AO is directed to allow the exemption and as such the appeal of the Assessee is allowed.
4.2.7 Keeping in view all the facts of the case, more so the facts that the Assessing Officer has brought nothing on record to show that the activities of the appellant were driven by a profit motive and the fact that the surplus is not distributed amongst members, and respectfully following the decision of the Hon'ble Delhi High Court in the case of PHD Chamber of Commerce and Industry v. Director of Income-Tax (Exemptions) (supra), decision of the Hon'ble Delhi IT AT in the case of Disha India Micro Credit Vs. CIT (supra) and following the appellate orders of my Id. predecessors CIT (A)-XXI/40 for assessment years 2009-10, 2010-11, 2011-12 and 2012-13 on the principle of consistency, the Assessing Officer is directed to allow the exemption under section 11. These grounds of appeal are, therefore, allowed."
6. Ld.D.R. relied upon the order of the AO and submitted that the departmental SLP is pending before the Honorable Supreme Court in the case of PhD Chamber of Commerce and Industry (supra). On the other hand Ld.Counsel for the assessee reiterated the submissions made before the authorities below and submitted that in the assessment year 2009-10 the department appealed against order of Ld.CIT(A) 13 before the Tribunal, but the departmental appeal has been dismissed because of the low tax effect vide order dated 30th December,2015, a copy of which is placed on record.
7. I have considered rival submissions and do not find any merit in the departmental appeal. It is an admitted fact that the assessee is registered under section 12A of the act.
The main objects of the assessee are to promote and protect trade, commerce and manufacture in Delhi and to watch over and protect the general commercial interest in Delhi and adjoining area and to protect the interest of persons engaged in trade, commerce and industry. The assessee charge nominal fee for admission fee, subscription fee and certificate of origin fee as per the guidelines of Ministry of Commerce , Government of India. The motive of the assessee is not to earn any profit since there are no profit that can be distributed. The surplus or the profits remain with the assessee chamber and is applied towards achieving the objects. So it cannot be said that the assessee is involved in any business activity. It is apparent that the assessee exists only for the Welfare of its 14 members and there is nothing on record to prove that the assessee is involved in any business activities. In the assessment years 2009-10 to 2012-13, the AO similarly denied exemption under section 11 of the act. However the Ld.CIT(A) allowed the appeals of the assessee in all these years, copies of the orders are placed in the paper book. The assessee in all these years submitted before the Ld.CIT(A) that the issue is covered by the judgement of Delhi High Court in the case of PhD Chamber of Commerce and Industry vs. DIT(E) (supra) and the Ld.CIT(A) allowed the claim of the assessee. In the Assessment Year 2009-10 the department filed an appeal before the Tribunal which was dismissed vide order dated 30th December, 2015 finding the tax effect being below Rs.10 lakhs. However, nothing is explained about the remaining years. It is well settled law that the rule of consistency do apply to the income tax proceedings and I rely on the decision of the supreme court in the case of Radha Soami Satsang reported in 193 ITR 321. It may also be noted here that the claim of the assessee has been denied under section 13(3) of the Act. However it was explained by the assessee all these 15 items have been purchased and used for meetings with delegations and attending conferences. These items are necessities and could not be considered as luxury because of the development of day today technology. Therefore there is nothing wrong if the assessee purchased these items for achieving its objects. Admittedly the issue is covered in favour of the assessee by the judgement of Hon'ble Delhi High Court in the case of Phd Chamber of Commerce and Industry (supra) wherein on identical facts the claim of the assessee for exemption u/s 11 have been allowed. The AO has not brought any evidence on record as to what business activities are conducted by the assessee with a profit motive and whether the items purchased for achieving the objects are misused by any of the persons covered u/s 13(3) of the Act. Merely because SLP of the department is pending before the Hon'ble Supreme Court in the case of Phd Chamber of Commerce and Industry (supra) is no ground to take a different view against the assessee. Considering the facts and circumstances I do not find any merit in the departmental appeal and the same is dismissed. 16
8. As regards the cross objection of the assessee, it is stated that Ground number 4 of the appeal of the assessee has not been decided by the Ld.CIT(A). I therefore restore this issue to the file of the Ld.CIT(A) with a direction to decide ground no.4 in accordance with law by passing reasoned order by giving reasonable and sufficient opportunity of being heard to the assessee. Thus the Cross Objection is allowed for statistical purposes.
9. In the result the appeal of the department is dismissed and the Cross Objection of the assessee is allowed for statistical purposes.
Order pronounced in the open Court.
Sd/-
(BHAVNESH SAINI) JUDICIAL MEMBER Dated : the 22nd August, 2017 *gmv 17 Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT 'SMC' Bench, Delhi
6. Guard File.