Council for Leather Exports Vs DCIT (Exemption) (ITAT Chennai)
Conclusion: Exemption claimed under Section 10(23C)(iv) could not be rejected under second proviso to sec 2(15) if the net surplus was less than 20% of total receipts of the institution and assessee charged/collected only the actual expenditure from Govt as grant and members as participation charges therefore, in respect of these activities which was in furtherance of the objective of assessee, the profit could be considered for Numerator for the purpose compliance of second Proviso to sec 2(15).
Held: Assessee was a non-profit organization registered under Section 25 and was approved U/s.10(23C)(iv). The main activity of the council was to promote exports of leather industries. The Council served as a bridge between Indian exporters and overseas buyers on one hand and between Government and industry on the other hand. Assessee had been granted exemption U/s.10(23C)(iv), for the earlier Assessment years upto 2015-16 based on the ITAT order on the ground that, Council was not carrying out any activity of business, trade or commerce and proviso to Sec. 2(15) would not apply. For the Assessment year 2016-17, AO had held that total receipts of Assessee was Rs.13,25,33,668/-(Taking only Sum of Membership Fee of Rs. 5.14 Crores and Certification fee of Rs. 8.22 Crores and ignoring other receipts – Actual gross receipts of Rs.42.34 Crores) and the surplus of Rs.7.62 crores was in excess of 20% of the receipts and hence was liable to tax, but had held that tax would not be demanded as the exemption had been granted for the earlier years and the issue was before the High Court. On appeal the CIT(A) had applied the ratio of the Apex Court decision in the case of ACIT v Ahmedabad Urban Development Authority (449 ITR 1) and had held that the surplus amount showed that assessee had charged at a high markup and hence the surplus of Rs.7.62 crores was taxable as per Proviso 2 to sec.2(15). The issue was while total receipts was to be taken as the denominator for the second proviso, whether total receipts from different activities had to be aggregated or only the profit element alone had to be taken into consideration as Numerator, for complying with the condition under second proviso. It was held that while actually carrying out the objectives of GPU, if some profit was generated, it could be granted exemption provided the quantitative limit of not exceeding 20% under second proviso to Section 2(15) for receipts from such profits, was adhered to. Therefore, if some profits (nominal) was earned in carrying out the objectives, then only the profits from such activities (and not the entire receipt) should be considered whether it was below the limit of 20% of the entire receipts of the institution. It was noted that, from the financials of the activities that in respect of participation in Trade fairs, Appellant charges/collects only the actual expenditure from Govt as grant and members as participation charges.(Receipts Rs.24,07,51,794/- and expenditure 24,76,65,706/- = Loss of Rs.80,57,912/-). Therefore, in respect of these activities which was in furtherance of the objective of assessee, while the receipts are Rs.24.07 Crores only, the profit (here a loss of Rs.80,57,912/-) could be considered for Numerator for the purpose compliance of second Proviso to sec 2(15). As per second proviso to sec.2(15) these profits has to be maximum cap of 20% of the Total receipts of the Institution. The net surplus of Rs.7.62 crores was less than 20% of the total receipts of the Institution i.e., Rs. 42.82 Crores, by applying the ratio of the Apex Court, the exemption u/s. 10(23C)(iv) could not be rejected under second proviso to sec 2(15). Thus, the orders of the lower authorities were erroneous in denying the exemption and hence, set aside the impugned order by allowing the grounds of appeal of the assessee.
