M/S.employers Federations Of Southern India2D, Eldorado Building (2[Nd] Floor) v. The Commissioner Of Income Tax (Exemptions) -Iiim.g.road, Nungambakkamchennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE Mr.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE Mrs.JUSTICE V.BHAVANI SUBBAROYAN M/s.Employers Federations of Southern India2D, Eldorado Building (2[nd] Floor)112, Nungambakkam High RoadChennai – 600 034... Appellant / Appellant Versus The Commissioner of Income Tax (Exemptions) -IIIM.G.Road, NungambakkamChennai – 600 034. .. Respondent / Respondent Prayer:- Tax Case Appeal filed under Section 260-A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal, Chennai 'C' (SMC) Bench, dated 31.01.2017 inI.T.A.No.1854/Mds/2014, against the order passed by thecommissioner of Income Tax,(Appeals) VII, Chennai-600 034,dt.08/04/2014 made in ITA.No.668/11-12 and against the orderpassed by the Assistant Director of Income Tax(Exemptions)-III,Chennai-34, dt-30/12/2011 made in PAN/GIR No. for theAssessment year 2009-2010. JUDGMENT[Order of the Court was made by T.S.SIVAGNANAM, J.] This appeal filed by the Assessee, under Section 260A ofthe Income Tax Act, 1961 ('the Act' for brevity) is directedagainst the order dated 30.01.2017 passed by the Income Tax Page numbers https://hcservices.ecourts.gov.in/hcservices/ Appellate Tribunal, Chennai 'C' (SMC) Bench, ('the Tribunal' forbrevity), in I.T.A.No.1854/Mds/2014 for the assessment year2009-10. 2. The appeal was admitted on 07.06.2019 on the followingsubstantial questions of Law: (i)Whether on the facts and circumstance of thecase, the Tribunal was right in law in holdingthat the ratio of the decision of the Co-ordinateBench shall apply only if the nature of income isone and the same even though the activities areincidental to the object?(ii) Whether on the facts and circumstances of thecase, the Tribunal was right in law in holdingthat the appellant is not entitled for thebenefit of Section 11, merely because theappellant received certain additional amountswithout considering the dominant object of thetrust? (iii) Whether on the facts and in the circumstancesof the case, the Tribunal was right in law inholding that the income received by the appellantsuch as advertisement income from the souvenir,seminar surplus etc., are in the nature ofcommercial transaction and cannot be consideredas charitable purpose? (iv) Whether on the facts and in the circumstancesof the case, the Tribunal was right in law inholding that the receipt from members is outsidethe purview of the concept of mutuality? 3. We have elaborately heard Ms.Radhika Chandrasekar,learnedcounselfortheappellant-assesseeandMr.J.Narayanaswamy, learned Senior Standing Counsel for therespondent-Revenue. 4. The Assessee is registered Trust in the name and styleof M/s.Employers Federations of Southern India, who enjoysregistration under Section 12(A)(a) of the Income Tax Act, 1961.The assessee filed the return of income for the assessment yearunder consideration, AY 2009-10, on 22.09.2009, admitting theincome of Rs.37,16,241/- and claimed exemption under Section 11of the Act. The return was processed under Section 143(3) of theAct and subsequently, the case was selected for scrutiny andnotice under Section 143(2) was issued to the assessee anddetails were called for. On perusal of the details, theAssessing Officer held that the Assessee is a Trust, a publiccharitable institution with a main object to consider all Page numbers 4. The Assessee is registered Trust in the name and styleof M/s.Employers Federations of Southern India, who enjoysregistration under Section 12(A)(a) of the Income Tax Act, 1961.The assessee filed the return of income for the assessment yearunder consideration, AY 2009-10, on 22.09.2009, admitting theincome of Rs.37,16,241/- and claimed exemption under Section 11of the Act. The return was processed under Section 143(3) of theAct and subsequently, the case was selected for scrutiny andnotice under Section 143(2) was issued to the assessee anddetails were called for. On perusal of the details, theAssessing Officer held that the Assessee is a Trust, a publiccharitable institution with a main object to consider all Page numbers questions concerning the relations between the employers andemployees in Southern India and to protect their interests.Annual subscription is being collected from the members anddelegate fee is collected for seminars conducted and receiptsfrom advertisement is collected from souvenir brought out by theassessee. The Assessing Officer came to a conclusion that theassessee is carrying on activity of general public utility andreceiving aggregate receipts of more than Rs.10,00,000/- in thenature of fees, as such, it would come within the purview ofsecond proviso under Section 2(15) of the Act. The AssessingOfficer treated the assessee as an Association of Persons (AOP)and the excess of income over the expenditure of it, was taxed.Further, the Assessing Officer referred the case to the DirectorofIncomeTax(Exemptions),forconsiderationofwithdrawal/cancellation of registration under Section 12AA ofthe Act. 5. The fact remains that the assessee is a non-profitentity viz., a charitable public trust and in the light of beinga such organisation/institution, the registration of theassessee has not been cancelled or withdrawn till date. 6. The Assessing Officer after discussing the case withthe authorised representative and on considering the detailsmade available, had passed the assessment order on 30.12.2011,determining the total income as Rs.11,86,560/- and the taxpayable as Rs.3,93,250/-. 7. Aggrieved by the assessment order dated 30.12.2011,passed under Section 143(3) of the Act, the assessee preferredan appeal before the Commissioner of Income Tax (Appeals) -VII,Chennai [ in short 'CIT(A)']. The CIT(A), vide order dated08.4.2014, dismissed the appeal, by referring to CircularNo.11/2008 dated 19.12.2008 issued by the Central Board ofDirect Taxes (CBDT), and held that the assessee has been dealingwith non-members by receiving advertisement income, income fromconduct of seminars and miscellaneous receipts and interestsfrom bank deposits etc., and therefore, they are not governed bythe additional conditions stipulated in the second proviso underSection 2(15) of the Act. 8. Aggrieved by the said order of CIT(A) , the assesseepreferred an appeal before the Tribunal, raising various groundsand in particular, contending that the CIT(A) did not give anyfindings that the activity carried on by the assessee was in thenature of trade, commerce or business; or carrying on anyactivity or rendering any service in relation to trade, commerceor business. The assessee relied on several decisions in Page numbers https://hcservices.ecourts.gov.in/hcservices/ support of their claim. The Tribunal by the impugned order,has dismissed the appeal filed by the assessee. This is howthey are before this Court, by way of present tax case appeal. 8. Aggrieved by the said order of CIT(A) , the assesseepreferred an appeal before the Tribunal, raising various groundsand in particular, contending that the CIT(A) did not give anyfindings that the activity carried on by the assessee was in thenature of trade, commerce or business; or carrying on anyactivity or rendering any service in relation to trade, commerceor business. The assessee relied on several decisions in Page numbers https://hcservices.ecourts.gov.in/hcservices/ support of their claim. The Tribunal by the impugned order,has dismissed the appeal filed by the assessee. This is howthey are before this Court, by way of present tax case appeal. 9. The Tribunal, while confirming the order passed by CIT(A), was also guided by the fact that the assessee conductsconferences, seminars, which are open to persons other thanmembers of the Assessee-Trust and fees is collected from thosepersons, and this being their major activity as projected intheir Annual Report, it cannot be considered as an activityincidental to its main objects, in order to claim that theincome was exempted on the principles of mutuality. Thedecisions relied on by the assessee were distinguished assigningcertain reasons, and in particular, the conduct of seminars andconferences was their predominant activity and substantial sumsof money were received by the assessee. 10. The Central Board of Direct Taxes (CDBT), by CircularNo.11 of 2008 dated 19.12.2008, clarified as to how the caseswhere the exemption is claimed under Section 11 of the Act, areto be dealt with. Paragraph Nos.3, 3.1 and 3.2 of the circularwould be relevant, which are quoted hereunder :“ 3. The newly inserted proviso to section 2(15) willapply only to entities whose purpose is ‘advancement ofany other object of general public utility’ i.e. thefourth limb of the definition of ‘charitable purpose’contained in section 2(15). Hence, such entities willnot be eligible for exemption under section 11 or undersection 10(23C) of the Act if they carry on commercialactivities. Whether such an entity is carrying on anactivity in the nature of trade, commerce or businessis a question of fact which will be decided based onthe nature, scope, extent and frequency of the activity. 3.1. There are industry and trade associations whoclaim exemption from tax u/s 11 on the ground thattheir objects are for charitable purpose as these arecovered under ‘any other object of general publicutility’. Under the principle of mutuality, if tradingtakes place between persons who are associated togetherand contribute to a common fund for the financing ofsome venture or object and in this respect have nodealings or relations with any outside body, then anysurplus returned to the persons forming suchassociation is not chargeable to tax. In such cases,there must be complete identity between thecontributors and the participants. Therefore, where Page numbers industry or trade associations claim both to becharitable institutions as well as mutual organizationsand their activities are restricted to contributionsfrom and participation of only their members, thesewould not fall under the purview of the proviso tosection 2(15) owing to the principle of mutuality.However, if such organizations have dealings with non-members, their claim to be charitable organizationswould now be governed by the additional conditionsstipulated in the proviso to section 2 (15). Page numbers industry or trade associations claim both to becharitable institutions as well as mutual organizationsand their activities are restricted to contributionsfrom and participation of only their members, thesewould not fall under the purview of the proviso tosection 2(15) owing to the principle of mutuality.However, if such organizations have dealings with non-members, their claim to be charitable organizationswould now be governed by the additional conditionsstipulated in the proviso to section 2 (15). 3.2. In the final analysis, however, whether theassessee has for its object ‘the advancement of anyother object of general public utility’ is a questionof fact. If such assessee is engaged in any activity inthe nature of trade, commerce or business or rendersany service in relation to trade, commerce or business,it would not be entitled to claim that its object ischaritable purpose. In such a case, the object of‘general public utility’ will be only a mask or adevice to hide the true purpose which is trade,commerce or business or the rendering of any service inrelation to trade, commerce or business. Each casewould, therefore, be decided on its own facts and nogeneralization is possible. Assessees, who claim thattheir object is ‘charitable purpose’ within the meaningof Section 2(15), would be well advised to eschew anyactivity which is in the nature of trade, commerce orbusiness or the rendering of any service in relation toany trade, commerce or business.”As could be seen from the above circular, the newly insertedproviso to Section 2(15) which was inserted with effect from01.4.2009, would stand attracted to the entities whoseactivities have a commercial flavour in the nature of trade,commerce or business or rendering any service in relation to anytrader, commerce or business. 11. Mr.J.Narayanaswamy, learned Senior Standing Counselappearing for the respondent-Revenue would vehemently contendthat the assessee has accepted the fact that the nature of itsactivity would fall within the fourth limb of charitable purposeas contained in Section 2(15) and having admitted the same,proviso (1) & (ii) of Section 2(15) would stand attracted. Evenassuming that the first proviso is not applicable as contendedby the assessee, the total income of the assessee for theassessment year 2009-2010, appears to be more than the monetary Page numbers https://hcservices.ecourts.gov.in/hcservices/ limit fixed, i.e., Rs.10,00,000/-, thus the assessee is hit bythe second proviso of Section 2(15) of the Act. 11. Mr.J.Narayanaswamy, learned Senior Standing Counselappearing for the respondent-Revenue would vehemently contendthat the assessee has accepted the fact that the nature of itsactivity would fall within the fourth limb of charitable purposeas contained in Section 2(15) and having admitted the same,proviso (1) & (ii) of Section 2(15) would stand attracted. Evenassuming that the first proviso is not applicable as contendedby the assessee, the total income of the assessee for theassessment year 2009-2010, appears to be more than the monetary Page numbers https://hcservices.ecourts.gov.in/hcservices/ limit fixed, i.e., Rs.10,00,000/-, thus the assessee is hit bythe second proviso of Section 2(15) of the Act. 12. As a general preposition, the contention ofMr.J.Narayanaswamy would be right, but there is an importantaspect which needs to be taken note of while applying the firstproviso under Section 2(15). In fact, this has been broughtout very lucidly in Circular No.11/2008. The CBDT explains itby stating that the entities which fall within the fourth limbof charitable purpose under Section 2(15) will not be eligiblefor exemption under Section 11, if they carry on commercialactivity. Further, it is stated that whether such an entity iscarrying on activity in the nature of trade, commerce orbusiness, is a question of fact, which will be decided based onthe nature, scope, expenditure and frequency of the activity.Further, it has been pointed out that whether the assessee hasfor its object 'the advancement of any other object of generalpublic utility' is a question of fact. If the assessee isengaged in an activity in the nature of trade, commerce orbusiness or render any service in relation to trade, commerce orbusiness, it would not be entitled to claim that its object is'charitable purpose' and in such a case, the object of generalpublic utility will be only a mask to hide the true purpose.Thus the Board has clarified that each case would be decided onfacts and no generalization is possible. Thus, the AssessingOfficer as well as the Appellate Authority and the Tribunal areenjoined upon a duty to render a finding of fact, and in respectof the assessees, who fall within the fourth limb of “charitablepurpose” under Section 2(15) to deny exemption, should examinefacts and record a finding that the activity is a commercialactivity, i.e., in the nature of trade, commerce or business orany activity of rendering any service in relation to trade,commerce or trade. 13. We have no hesitation to hold that the AssessingOfficer nor the CIT(A) or the Tribunal has rendered any suchfinding. Thus, in the absence of a finding to the said effect,which is the most essential feature, any amount of legalinterpretation or application of precedents of Courts orTribunals, cannot be effected. This aspect of the matter hasbeen dealt with in the case of India Trade PromotionOrganization Vs. Director General of Income-Tax (Exemptions) andOthers [(2015) 371 ITR 33 (Del)], wherein it was held asfollows : “ If the dominant and the prime objective of theinstitution, which claims to have been established forcharitable purposes, is profit making, whether itsactivities are directly in the nature of trade, Page numbers commerce or business or indirectly in the rendering ofany service in relation to any trade, commerce orbusiness, then it would not be entitled to claim itsobject to be a “charitable purpose”. On the flip side,where an institution is not driven primarily by adesire or motive to earn profits but to do charitythrough the advancement of an object of general publicutility, it cannot, but be regarded as an institutionestablished for charitable purposes.” “ If the dominant and the prime objective of theinstitution, which claims to have been established forcharitable purposes, is profit making, whether itsactivities are directly in the nature of trade, Page numbers commerce or business or indirectly in the rendering ofany service in relation to any trade, commerce orbusiness, then it would not be entitled to claim itsobject to be a “charitable purpose”. On the flip side,where an institution is not driven primarily by adesire or motive to earn profits but to do charitythrough the advancement of an object of general publicutility, it cannot, but be regarded as an institutionestablished for charitable purposes.” In Commissioner of Income Tax Vs. Fertilizers Association ofIndia [(2017) 399 ITR 209 (Del)], the appeal filed by theRevenue was dismissed, on the ground that merely because feeswas collected from members or non-members for rendering serviceslike training, conduction seminars would not ispo facto lead todenial of exemption. In Commissioner of Income-Tax(Exemptions) Vs. National Internet Exchange of India [(2019) 417ITR 436 (Del)], it was held that the services of said assesseewere of general public utility and were towards membership andconnectivity charges, which were incidental to its main objects,which was charity. In PHD Chamber of Commerce and Industry Vs.Director of Income-Tax (Exemptions) [(2013) 357 ITR 296 (Del)],while dealing with more or less identical facts, it was held asfollows :“ Having regard to the authorities which we havenoticed above it is not proper to characterise theactivities of the chamber as activities amounting to abusiness in the generally understood sense of the word,the most important feature of business being profitmotive. It has not been suggested by the Income-taxauthorities that the activities carried out by theassessee-chamber were propelled by any profit motive.In such circumstances, it is proper to view theactivities as driven by a charitable motive in thesense in which a charitable purpose is defined insection 2(15) of the Act. 11(4)A are not attracted tothe present case and a remand to the Assessing Officerfor finding out whether the activities were incidentalto the objectives of the trust and separate books ofaccount were maintained for such business wasunnecessary. We accordingly answer the substantialquestion of law framed by us in the negative, in favourof the assessee and against the Revenue.” 14. We have referred to the above decisions to give abroad overview as to how the Courts have dealt with matters inrespect of organisations which were having their objects ofgeneral public utility. Therefore, unless and until there is a Page numbers factual finding rendered by the authority, benefit could nothave been denied to the assessee. As we have found that boththe authorities or the Tribunal have examined this aspect andmerely gone by the first proviso to Section 2(15) of the Act, weare inclined to interfere with the orders passed by theauthorities and the Tribunal and remand the matter for freshconsideration. 15. In the result, the appeal is allowed and the impugnedorder passed by the Tribunal as well as the order passed by CIT(A) and the assessment order dated 30.12.2014 are set aside andthe matter is remanded to the Assessing Officer to take a freshdecision in the matter and while doing so, the Assessing Officerto bear in mind the legal principles laid down by the Courts andTribunal in various decisions, some of which we have referred toabove. Consequently, the substantial questions of law framedfor consideration are left open. No costs. The MiscellaneousPetition stands closed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar dsTo : 1.The Commissioner of Income Tax (Exemptions)-III M.G.Road, Nungambakkam Chennai – 600 034. 15. In the result, the appeal is allowed and the impugnedorder passed by the Tribunal as well as the order passed by CIT(A) and the assessment order dated 30.12.2014 are set aside andthe matter is remanded to the Assessing Officer to take a freshdecision in the matter and while doing so, the Assessing Officerto bear in mind the legal principles laid down by the Courts andTribunal in various decisions, some of which we have referred toabove. Consequently, the substantial questions of law framedfor consideration are left open. No costs. The MiscellaneousPetition stands closed. Sd/- Assistant Registrar //True Copy// Sub Assistant Registrar dsTo : 1.The Commissioner of Income Tax (Exemptions)-III M.G.Road, Nungambakkam Chennai – 600 034. 2.The Income Tax Appellate Tribunal Chennai, 'C' (SMC) Bench. 3.The Commissioner of Income Tax(Appeals)VII, Chennai-600 034. 4.The Assistant Director of Income Tax(Exemptions)-III, Chennai-34.T.C.A.No.98 of 2018 CA(CO)CB(09/11/2020) Page numbers