The order of the Bench was delivered by
V. Durga Rao, Judicial Member-Both cross appeals filed by the Revenue and the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) XII, Chennai, dated 20.12.2012 relevant to the assessment year 2009-10.
2. Brief facts of the case are that the assessee is a Trade Association registered under Tamil Nadu Societies Registration Act XXVII of 1975 Serial No. 25 of 1958 and also registered under section 12A(a) of the Income Tax Act 1961 dated 17.12.1986. The assessee filed its return of income for the year under consideration by admitting NIL income. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued and assessment was completed under section 143(3) of the Act. In the assessment proceedings, the Assessing Officer has observed that the Memorandum and Article of Association filed by the assessee depicts that the Association is having six objects.
3. From the objects of the assessee, the Assessing Officer came to a conclusion that the assessee is coming under the limb"object of general public utility" under section 2(15) of the Act. The Assessing Officer further observed that the assessee is a business oriented organization formed to organize service of labour for clearing and forwarding and allied operations for the promotion of Custom House Agents Trade. The activity of the Association to gather the members and educate them in the line of the trade is within the object of general public utility and not for education purpose. The purpose is only for the betterment of the business. The contributors to the Golden Jubilee celebrations are mostly non-members who stand to be benefited by the Association. The Golden Jubilee celebrations were conducted in two parts at two places. The meeting and the affair of the trade were conducted at Hotel Lee Royal Meridian. The entertainment part of the celebration was at Trade Centre with dance programmes of the cine artists, food, video stage performance, etc. This part of the programme was spent mostly on which, comes to Rs. 35,51,166/- out of Rs. 46,99,110/-. The payments by sponsors are in the nature of business promotion expenses. Thus, the assessee has rendered service in relation to trade, business or commerce. The activity of celebration itself is of business promotion for the members whose activities are business/profession. The Golden Jubilee celebration was viewed as a business promotion campaign in the name of the age of the organization. The contributors certainly stand to be benefited as could be seen from the list of the sponsors. All of them are related to the business of clearing and forwarding activity. The Association has earned a good profit of Rs. 13,05,976/- from the functions, in addition to spending a considerable part of the collection on food and entertainment of the members and their family. Accordingly, the Assessing Officer has denied the claim of the assessee under section 11 of the Act.
4. So far as mutuality claim of the assessee, the Assessing Officer has observed by following various judicial precedents and held that since there is no identity between the contributors and participants, the assessee is not eligible for considering under the principles of mutuality. Accordingly, the assessment was completed.
5. On appeal before the ld. CIT(A), the assessee has submitted that the assessee is committed for the cause and development of Custom House Agents in India and the main objectives are to diffuse knowledge and encourage and develop the Custom House Agents in the fields of clearing and forwarding and allied operations and therefore, the assessee is eligible for exemption under section 11 of the Act, the assessee, being enjoying 12A registration.
6. The ld. CIT(A), by considering the submissions of the assessee and also section 2(15) of the Act, has observed that the meaning or definition of"advancement of object of general public utility" for the purpose of section 2(15) underwent a clear change consequent to the amendment i.e. insertion of proviso to section 2(15) of the Act w.e.f. 01.04.2009. Prior to the amendment (i.e. upto 31.03.2009), all the"objects of any general public utility" is eligible to be classified as a charitable purpose under section 2(15) of the Act. However, after the amendment, certain classes of general public utility activities are kept outside the scope of section 2(15) of the Act. The activities which are excluded from the list of general public utility are provided in the proviso to section 2(15). As per the proviso, any activity in the nature of carrying on any trade, commerce, business or services in relation to any trade, commerce and business from such activity, are excluded from the definition of general public utility for the purpose of section 2(15) of the Act. The ld. CIT(A) has further observed that the assessee is rendering services to its members (Custom house agents), to carry out their business/professional activities. The activities of the assessee directly amount to the services rendered by it in relation to the trade, business and commerce. Therefore, the assessee is considered to be engaged in the activities which are in the nature of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration, the second limb of proviso to section 2(15) of the Act. Hence, the assessee is directly covered by the proviso to section 2(15) and not eligible for the benefits under section 2(15) of the Act. Accordingly, the ld. CIT(A) has denied that the assessee is not eligible to claim exemption under section 11 of the Act.
7. In so far as mutuality is concerned, the ld. CIT(A) has observed that the assessee has received contribution from the members of Rs. 23,51,000/- and from non-members Rs. 36,54,087/- and the total amount received for the purpose of Golden Jubilee celebration at Rs. 60,05,087/-. The ld. CIT(A), on the basis of contribution received and after reducing the proportionate allowable expenses from the contribution of non-members of Rs. 6,98,522/-, directed the Assessing Officer to assess the taxable income at Rs. 36,08,385/- and the calculation is given as under:
| Interest on FDs etc. from banks |
Rs.4,76,040/- |
Rental income |
Rs.1,76,780/- |
Non-member silver jubilee income |
Rs.29,55,565/- |
Total |
Rs.36,08,385/- |
8. Accordingly, the ld. CIT(A) directed the Assessing Officer to calculate the taxable income of Rs. 36,08,385/- being income from non-members as against Rs. 47,30,060/- assessed by him. Accordingly, the ld. CIT(A) rejected the claim of exemption under section 11 of the Act. However, the ld. CIT(A) has allowed the claim of principles of mutuality to the extent of income received from the members.
9. On being aggrieved, the Revenue as well as assessee carried the matter in appeal before the Tribunal.
10. The ld. DR has submitted that the assessee is not carrying any charitable activity and therefore, not eligible for claiming exemption under section 11 of the Act. He further submitted that consequent to the amendment i.e. insertion of proviso to section 2(15) of the Act with effect from 01.04.2009, the assessee will come under the purview under general public utility and not as charitable organization. Therefore, the claim of exemption under section 11 cannot be allowed. In so far as application of mutuality is concerned, once the assessee is already a registered charitable organization, mutuality cannot be claimed and submitted that the order passed by the ld. CIT(A) may be reversed to the extent of application of mutuality principle is concerned.
11. On the other hand, the ld. Counsel for the assessee has submitted that the assessee is recognized as charitable organization since 1986 onwards and exemption section 11 cannot be denied by virtue of proviso to section 2(15) w.e.f. 01.04.2009. In so far as silver jubilee celebration is concerned, the ld. Counsel for the assessee has submitted that as a mark of remembrance some silver mementos were purchased and gifted to the members and the assessee society has not violated any of the provisions and exemption under section 11 has to be given.
12. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The assessee, M/s. The Chennai Custom House Agents Association, is registered under section 12A(a) of the Act dated 17.12.1986. 12A registration was also granted to the assessee for the following objects:
(1) To diffuse knowledge to the members and to run and maintain library and other institutions for their training.
(2) To arrange, secure and organize service of labour for clearing and forwarding and allied operations for the promotion and help, encouragements and development of Custom House Agents Trade on such terms and conditions that the Association may think fit.
(3) To regulate, coordinate and formulate rules and regulation for proper working of the Custom House Agents Trade and to take all necessary steps for promoting or securing proper legislation affecting the afore said interest.
(4) To encourage and promote a friendly feeling and unanimity on all subjects involving common good.
(5) To ventilate legitimate grievances and difficulties that may be experienced by members.
(6) To evolve, formulate and administer the welfare scheme for the labourers working in Chennai port area and the staff of officers working in such scheme.
13. From the above objects, it is clear that the assessee is existed for the purposes of development of Custom House Agents Trade in India. The main objects are to diffuse knowledge and encourage and develop the Custom House Agents in the fields of clearing and forwarding and allied operations. Therefore, the assessee has claimed that it is qualified to be an organization engaged in advancement object of general public utility. The point for consideration before us is whether the assessee is a charitable organization for the purpose of claiming exemption under section 11 of the Act in view of the proviso of section 2(15) brought to substitute w.e.f. 01.04.2009? The provisions of section 2(15) both prior to 01.04.2009 and after 01.04.2009 are extracted as under:
"Section 2(15) prior to 01.04.2009 (pre-amendment)
Section 2(15)"Charitable purpose" includes relief of the poor, education, medical relief and the advancement of any other object of general public utility.
Section 2(15) w.e.f. 01.04.2009 (Post amendment)
Section 2(15)"Charitable purpose" includes relief of the poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility.
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of 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, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.
Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lah rupees or less in the previous year."
14. From the above, it is very clear that prior to the amendment ie upto 31.03.2009, all the objects of any general public utility is eligible to be classified as charitable purpose under section 2(15) of the Act. After 01.04.2009, as per the second limb of section 2(15), any activity of rendering any services in relation to any trade, commerce and business for a cess or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity cannot come under the purview of charity. In the present case, the assessee is rendering services to its members custom house agents], to carry out their business/professional activities. Therefore, the activities of the assessee directly amount to the services rendered by it in relation to the trade, business and commerce. Hence, the assessee cannot be considered as a charitable organization and therefore, the Assessing Officer as well as the ld. CIT(A) rightly denied the exemption claim of the assessee under section 11 of the Act.
15. In so far as principle of mutuality is concerned, the Assessing Officer has denied the claim of principles of mutuality to the assessee by following various judicial precedents by observing that the assessee is not eligible for benefit of mutuality. On appeal, the ld. CIT(A), by taking into consideration of the contribution received from the members and the non-members, by disallowing proportionate expenditure to the extent of contribution received from the members, held that mutuality is applicable and directed the Assessing Officer to consider the same. We find that the contribution received by the assessee from the members of Rs. 23,51,000/- and from nonmembers Rs. 36,54,087/- are put in a common kitty and the assessee has incurred the expenditure out of the funds received from the members as well as non-members. Therefore, it is difficult to identify the expenditure because both the contributions i.e. from members as well as non-members are kept in common kitty. Therefore, the ld. CIT(A) went in wrong to decide after reducing proportionate allowable expenditure from the contributions received from non-members and directed the Assessing Officer to assess the net tax of Rs. 36,08,385/-. Further, we find that the assessee having 12A registration and claiming as a charitable organization not eligible to be claimed again under principles of mutuality. The assessee being charitable organization cannot claim the benefit under principles of mutuality for the reason that the charitable organization is for the purpose of the third parties and not for its own members. The principles of mutuality passed on the benefits to the members themselves. Therefore, the assessee being registered charitable organization, we find that the concept of charity and principles of mutuality are mutually excessive. Hence, the assessee is denied the benefit under section 11 of the Act, the assessee cannot be permitted to claim benefit under the principles of mutuality. The assessee cannot blow hot and cold at the same time. Further, the assessee, on the occasion of Golden Jubilee celebration, has purchased 650 silver mementos and distributed amongst the members of the society. Therefore, the assessee society, by gifting the mementos and the members are benefitted, which is clearly in violation of the provisions of section 13(1)(c) of the Act.
16. The Hon'ble Kerala High Court in the case of Investors Club, Trissur v. CIT 318 ITR 427 has observed that "we do not know how the assessee can claim principles of mutuality when the assessee has entitled to claim exemption under charitable organization, it has got registration under section 12A of the Act".
17. In view of the above, we find that the assessee is not eligible for claiming exemption under section 11 of the Act and also not eligible for claiming principles of mutuality.
18. In so far as depreciation is concerned, in the assessment order, the Assessing Officer has observed that the assessee has claimed Rs. 1,57,788/- as depreciation in the income and expenditure statement. The assessee follows the practice of claiming the capital expenditure on acquisition of assets as application of income. In this year also the assessee has claimed Rs. 53,718/- as deduction on capital expenses. The value of the assets on which depreciation has been claimed has been fully allowed as expenditure/ application in the earlier years. Hence, the present claim is only a double deduction over and above the full value of the assets. Accordingly, he denied the depreciation claim of the assessee.
19. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer by observing that the assessee has already claimed the purchase/ acquisition of all fixed assets as application of income [by way of capital expenditure] in the earlier years [i.e. in the year in which these assets are acquired] while claiming the exemption of income under section 11 of the Act in the concerned years. Hence, allowing depreciation once again on the said fixed assets is not only allowable, but also amounts to double deduction, which is not permitted under the provisions of the Income Tax Act.
20. We find that the ld. CIT(A), after considering the entire provisions of the Act, denied the claim of the assessee. The assessee has not provided any material to show that he is entitled to claim depreciation again on the same assets. He has only relied on the orders of the Tribunal, the case of Great Lakes Institute of Management v. DCIT(E) in I.T.A. Nos. 931 & 932/Mds/2012 dated 22.06.2012 has no application. Therefore, we find no infirmity in the order passed by the ld. CIT(A). That apart, once the exemption claimed by the assessee under section 11 of the Act is disallowed, the claim of depreciation has to be calculated as per the regular provisions of the Act. Accordingly, this ground of appeal of the assessee is also dismissed.
21. In the result, the appeal filed by the Revenue is allowed and the appeal filed by the assessee is dismissed.
The order pronounced in the open court on 22.7.2015.