Thursday, December 4, 2014

Though income of Chamber of Commerce held as business receipt, yet Sec. 11 relief available as profit motive absent

The Tribunal held in favour of assessee as under:

1) The concept behind Section 28(iii) is to overcome the mutuality principle being relied upon in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services to its members in a commercial way.

2) The reason for the introduction of Section 28(iii) of Act was to ignore the principle of mutuality and reach the surplus arising to the mutual association. It was clear from the fact that these provisions were confirmed to services performed by the association "for its members". Such income would either be charged as business income or under the residual head, depending upon whether the activities of the association with the non-members amounted to a business or otherwise.

3) Section 28(iii) constitutes certain income of the association to be business income without affecting the scope of the exemption under Section 11.

4) Section 2(15) incorporates the definition of "charitable purposes" and shows that several mutual associations may also fall within the definition.

5) The receipts derived by a chamber of commerce and industry for performing specific services to its members, though treated as business income under Section 28(iii), would still be entitled to the exemption under Section 11 read with Section 2(15) of the Act, provided there is no profit motive.

6) Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and not involved in the carrying on of any activity in the nature of "business", the said section 28(iii) of the Act would not apply.

7) Hon'ble Apex Court in the earliest case of Andhra Chamber of Commerce had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable in nature even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. The basic principle underlying the definition of "charitable purpose" remained unaltered even on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, though the restrictive first proviso was inserted therein- Indian Chamber of Commerce v. ITO (Exemption) (2014) 52 52 (Kolkata - Trib.)