Conclusion: Order under section 143(1) denying benefit of exemption under section 11 in case of granting of deemed registration by CIT after expiry of time limit of six months was contrary to the legal principles and thus, rejection of assessee’s application for rectification under section 154 was invalid.
Held: In the instant case, AO rejected assessee’s rectification application against the intimation u/s 143(1) denying exemption claimed by the assessee u/s. 11. It was held the application for registration under section 12A dated 28.06.1973 ought to have been disposed by the Commissioner with six months i.e. on or before 28.12.1973 and in its absence the registration was deemed to be granted to the assessee on expiry of the said period of six months. Therefore, the order u/s 143(1) denying the benefit of exemption u/s 11 was contrary to the legal principle and therefore, the rejection of assessee’s application for rectification u/s 154 was not justified.
FULL TEXT OF THE ITAT JUDGEMENT
Both these appeals preferred by the assessee are against the separate orders of the Ld. CIT(A)-25, Kolkata dated 31.01.2019 for AYs 2011-12 and 2012-13. Since issues are identical and facts are common, we dispose, both these appeals by this consolidated order. For the sake of convenience we take up the appeal for AY 2011-12 in I.T.A. No. 705/Kol/2019 as the lead case, the result of which will be applicable in equal force to the other appeal also.
2. Ground Nos. 1 to 10 taken in appeal are in substance against the action of the Ld. CIT(A) upholding the order passed by the AO u/s 154 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) wherein the AO rejected the appellant’s rectification application against the intimation u/s 143(1) denying exemption claimed by the assessee u/s. 11 of the Act.
3. The brief facts of the case are that the appellant is a company, formed in June, 1893 as a non-profit organization for encouraging, promoting and protecting trade & industries in India, particularly in the state of West Bengal. In its return of income for the relevant year the appellant had shown income from rent derived from its members as well as nonmembers. Besides, the appellant also disclosed income for rendering secretarial and allied services to various trade organizations who were members. According to Ld. AR the appellant always claimed itself to be an organization pursuing charitable objects of general public utility and therefore qualified for exemption u/s 11 of the Act. He submitted that till AY 1973/74, the appellant’s claim for the exemption u/s 11 was never disputed. He further submitted that even though the appellant always claimed the exemption u/s 11, no certificate of registration as a charitable institution was obtained till 1973 because the extant provisions of the Act as were in force till 1973,did not contain any provision requiring charitable institutions to obtain registration under the Act. The ld. AR submitted that by the Finance Act, 1972, Section 12A was inserted in the I T Act with effect from 01.04.1973 requiring the Trusts or Institutions claiming benefit of Section 11 & 12 to apply for the registration. Section 12A provided that Section 11 & 12 would not apply in relation to the income of any Trust or institution unless the person in receipt of the income had made an application for registration of the trust or institution in the prescribed form and in the prescribed manner, to the Commissioner before the 1st day of July 1973 or before the expiry of period of one year from the date of creation of the trust or the establishment of the institution, whichever is later. He brought to our attention that in compliance to the newly enacted Section 12A of the Act, the appellant applied for registration in the prescribed form as a charitable institution on 28.06.1973, copy of which is placed at pages 5 and 6 of the paper book. The ld. AR further submitted that although Section 12A required the institutions claiming exemption u/s 11 to file application for registration in the prescribed form & manner, the said Section however did not contain any specific statutory procedure to be followed by the concerned CIT, requiring him to pass an order within the specified time. It also did not prescribe the procedure or the manner in which the application for registration filed by the institution to be disposed by the concerned CIT. In the foregoing circumstances the ld. AR submitted that once the appellant filed the application in prescribed form on 28.06.1973, it had complied with the statutory requirement of S 12A and nothing more was required to be done or performed by the appellant. Accordingly even after AY 1973-74, the appellant continued to claim exemption u/s 11 of the Act. The ld. AR brought to our attention that in the assessment for AY 1974-75, being the year in which Section 12A became operational, the appellant’s claim for exemption u/s 11 was denied on the ground that the activities of the appellant being for furtherance of trade & industry, did not come within the ambit of Section 2(15) of the Act. In the assessment order for that year, the AO noted that the objects for which the assessee was formed were identical to the objects of Indian Chamber of Commerce. Relying on the judgment in the case of Indian Chamber of Commerce Vs CIT (101 ITR 796), the AO as well as the Ld. CIT(A) therefore denied the exemption u/s 11. The Ld. AR brought to our attention that even though the assessment orders for the AYs 1974/75 and 1975/76 were passed after insertion of Section 12A in the Ac and the CIT had not granted registration despite application being filed, the exemption was not denied on the ground that the appellant was not granted registration by the Ld. CIT u/s 12A of the Act. Being aggrieved by the orders denying exemption u/s 11, the matter was carried in appeal to this Tribunal and the coordinate Bench in its order dated 18.06.1980 in ITA Nos. 1585 & 1586/Kol/1979, which is available at Pages 7 to 13 of the paper book, was pleased to grant exemption taking note of the judicial pronouncement rendered by the Hon’ble Supreme Court in the case of Surat Arts & Silk Cloth Manufacturers Association (121 ITR 01). The ld. AR drew to our attention to the decision of this Tribunal in which the coordinate Bench took note of the fact that the appellant was providing executive machinery and secretarial services to various trade associations whose offices were located in the appellant’s premises. As such a large source of appellant’s income was by way of contributions received for such services and these receipts were assessed under the head ‘Business’. The Tribunal also took note of the fact that the Ld. CIT(A) had himself inspected premises of the appellant and reached his conclusions on spot verification. Taking note of these factual matters, the coordinate Bench held that the appellant’s objects were covered by Section 2(15) of the Act and therefore it qualified for exemption/s 11 of the Act.
4. The ld. AR submitted that Section 12AA was enacted by the Finance (No.2) Act, 1996 with effect from 01.04.1997 which provided that the CIT should pass an order in writing on receipt of an application for registration u/s 12A(1) of the Act. The newly enacted provision also required the CIT to give opportunity of hearing in case the CIT wanted to reject an application. Drawing our attention to Section 12AA(1A) of the Act, the ld. AR pointed out that all pending applications before the CIT on which order had been passed u/s 12A before 1st June 1999 stood transferred on that day to the Commissioner who was required to proceed with such an application from the stage at which they were on that date. The ld. AR submitted that the appellant had filed an application for registration on 28.06.1973 which had remained pending on 1st June 1999 and therefore the CIT was under legal obligation to proceed with the pending application in accordance with provisions of Section 12AA of the Act. The ld. AR submitted that despite enactment of Section 12AA the CIT did not pass any order either approving or rejecting the pending application. Inviting our attention to the decision of the Hon’ble Supreme Court in the case of CIT Vs Society for the Promotion of Education, Adventure Sport & Conservation of Environment dated 18.02.2016, he claimed that since no order rejecting the appellant’s application was passed by the CIT, it was to be statutorily deemed that the registration was granted by the Revenue. To buttress the argument, the ld. AR invited our attention to Pages 16 & 17 of the paper book to point out that income-tax assessment of the appellant for AY 1997-98 was completed u/s 143(3) on 28.03.2000 in which the claim for exemption u/s 11 was allowed by the AO. He further submitted that upto AY 2009-10, the Department did not deny exemption to the appellant. However, from AY 2010-11 onwards the AO denied the exemption only on the ground that the assessee was not having a registration certificate u/s. 12A. It is noted that for the AY 2011-12, the appellant filed return of income u/s 139 on 29.09.2011 claiming exemption u/s 11 of the Act which was denied in the intimation issued u/s 143(1) dated 28.03.2013. Aggrieved by the said intimation, the appellant moved an application u/s 154 before the AO on 24.12.2013. In the order dated 17.11.2016, the AO rejected the application on the ground that in absence of any registration certificate u/s 12A of the Act the appellant’s claim would not come under the purview of mistake apparent from record u/s 154 of the Act. Aggrieved by this order, the appellant preferred an appeal before the Ld. CIT(A) who dismissed the same by holding that the AO was justified in not allowing the benefit of exemption u/s 11 in absence of any registration certificate u/s 12A. Besides he also held that the activities of the appellant did not come within the purview of Section 2(15) which was substantially amended by the Finance Act, 2008. Being aggrieved by the orders of the lower authorities, the appellant is now in appeal before us.
5. We have heard the rival submissions of both the parties. The short point before us is whether the AO could have denied the benefit of exemption claimed u/s 11 by the appellant while processing the return of income u/s. 143(1) which otherwise permits the AO to only make the following adjustments to the income returned:
(i) any arithmetical error in the return;
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;
(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under subsection (1) of section 139;
(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return;
(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or
(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:
6. In the instant case while processing the return u/s 143(1) the AO denied the exemption claimed by the assessee u/s. 11 of the Act which otherwise required application of mind. We note that in the present case the appellant was a pre-existing assessee when Section 12A of the Act was enacted requiring the charitable institutions to obtain registration under the Act. We find that in compliance with the procedure prescribed in Section 12A, the appellant filed an application before the CIT on 28.06.1973. No action on this application was taken by the CIT, as admitted by the Revenue in it’s reply to the RTI application which is available at of the paper book. We find that the provisions of Section 12A on its insertion in the Act in 1972 cast legal obligation on any person claiming benefit of Section 11 & 12 to make application for registration and this legal obligation was admittedly discharged by the assessee in June 1973. Once this fact is not in dispute then the assessee could not have been penalized by the Revenue authorities for the inaction on the part of the Commissioner in not disposing the application validly made. We also find that at the stage of grant of registration under Section 12A of the Act, the Commissioner was obliged to consider only whether the objects for which the Trust or institution was established, were charitable in nature and nothing more was required to be ascertained. We find that the coordinate Bench of this Tribunal while deciding the appeal of the appellant for AY 1974-75 had taken note of the objects of the appellant as incorporated in its Memorandum of Association, which were as follows:
(1) To promote and protect the trade, commerce and manufactures of India and in particular the trade, commerce and manufactures of Calcutta.
(2) To watch over and protect the general commercial interests of India or any part thereof and the interests of persons engaged in trade, commerce or manufactures in India and in particular in Calcutta.
(3) To consider all the question connected with trade, commerce and manufactures.
(4) To collect and circulate statistics and other information relating to trade, commerce and manufactures.
(5) To promote and oppose legislative and measures affecting trade, commerce and manufactures.
(6) To adjust controversies between members of the Association.
(7) To arbitrate in the settlement of disputes arising out of commercial transactions between parties willing or agreeing to abide by the judgement and decision of the Association.
(8) To establish just and equitable principles in trade.
(9) To form a code of conduct of practice to simplify and facilitate transaction of business.
(10) To maintain uniformity in rules, regulations and facilitate transaction of business.
(11) To communicate with Chamber of Commerce and other mercantile and public bodies throughout the world, and concort and promote measures for the protection of trade, commerce and manufactures, and persons therein.
(12) To provide, regulate and maintain a suitable building or room or suitable building or rooms for a Commercial Exchange in Calcutta.
7. The AO’s finding in the assessment order for the relevant year was that the constitution as well as objects of the appellant was identical with that of Indian Chamber of Commerce. The AO & the CIT(A) had therefore held the assessee to be in-eligible for exemption u/s 11 for the reasons set out in the judgment of the Hon’ble Supreme Court in the case of Indian Chamber of Commerce Vs CIT (supra). We however note that Larger Bench consisting of Five Judges of the Hon’ble Supreme Court in the case of CIT Vs Surat Arts & Silk Cloth Manufacturers Association (supra) did not agree with the view expressed by the Hon’ble Supreme Court in the case of Indian Chamber of Commerce Vs CIT and declined to follow the said judgement. The relevant extracts of the judgment is reproduced below:
“The test which has, therefore, now to be applied is whether the predominant object of the activity involved in carrying out the object of general public utility is to subserve the charitable purpose or to earn profit. Where profit-making is the predominant object of the activity, the purpose, though an object of general public utility, would cease to be a charitable purpose. But where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character of a charitable purpose merely because some profit arises from the activity. The exclusionary clause does not require that the activity must be carried on in such a manner that it does not result in any profit. It would indeed be difficult for persons in charge of a trust or institution to so carry on the activity that the expenditure balances the income and there is no resulting profit. That would not only be difficult of practical realisation but would also reflect unsound principle of management. We, therefore, agree with Beg’ J. when he said in Sole Trustee, LokaShikshana Trust’s case  101 ITR 234, 256 (SC) that :
‘If the profits must necessarily feed a charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust. The test now is, more clearly that in the past, the genuineness of the purpose tested by the obligation created to spend the money exclusively or essentially on charity’.”
8. We find that while deciding the appeals of the appellant for the AYs 1974-75 & 1975-76, this Tribunal took note of the fact that the ratio laid down by the Hon’ble Supreme Court in the case of Indian Chamber of Commerce (supra) was no longer a good law in view of the later judgment of the Hon’ble Supreme Court in the case of CIT Vs Surat Arts & Silk Cloth Manufacturers Association (supra) and accordingly held that the activities of the appellant being charitable in nature, the assessee was entitled for exemption u/s 11 of the Act. It is not the Revenue’s case that the objects and the activities of the appellant during the years under consideration were different from the earlier years. We note that the nature of the appellant’s activities as well as sources of income in the relevant year as well as in the earlier years were same and identical. As observed by the coordinate Bench of this Tribunal in the appellant’s case for AY 1974-75, the activities of the appellant and the income derived therefrom came within the ambit of Section 2(15) of the Act and therefore the appellant was held to be eligible for exemption u/s 11 of the Act. We also note that in the regular assessments u/s 143(3) for AYs 1994-95 & 1997-98 the exemption was allowed u/s 11 of the Act. We therefore find sufficient force in the submissions of the ld. AR, that the objects and the nature of activities of the appellant as well as sources of income, in the past as well as in the year under consideration, were same. In the past assessments such objects and the activities were held to be charitable in nature. The only ground on which the Ld. CIT(A) distinguished the appellant’s case for the relevant years is that the legal provisions of Section 2(15) underwent substantial amendment in 2008 and in terms of the amended legal provisions of 2(15) of the Act, activities & objects of the appellant could no longer be considered to be charitable in nature. We however find that on the same ground and reasoning the Revenue had rejected the claim for exemption in the case of Indian Chamber of Commerce Vs ITO (52 taxmann.com 52) for the AYs 2008-09 & 2009-10 respectively. In that case also it was argued by the Revenue that consequent to amendment in Section 2(15), the assessee i.e. Indian Chamber of Commerce was not eligible for exemption u/s 11 because its activities & objects were primarily for promotion of trade & industry and therefore did not come within the ambit of the word ‘charitable purpose’ as defined in the amended Section 2(15) of the Act. The coordinate Bench of this Tribunal however did not agree with the Revenue’s view, and observed as under:
“35. In view of the above, we thus now turn to examine and analyse in full details the particular facts of the present case. That the assessee association is a Charitable Institution, duly registered as such u/s. 12A of the Act, carrying on its main object of development of trade, industries and commerce. The main objects for which the association came into existence, are clearly set out in clause 3 of the Memorandum of Association which duly records and reads as under:
“3(a) To promote and protect the trade, commerce and industries and in particular the trade, commerce and industries in or with which Indians are engaged or concerned”
The activities of conducting Environment Management Centre, Meetings, Conferences & Seminar and issuance of Certificate of Origin, being the activities stated to be “services in relation to trade, commerce or business” were all well covered by the main object being fully connected, incidental and ancillary to the main purpose and were conducted solely for the empowerment, betterment and for creating awareness amongst the industrialists in order to bring about the development of trade and industries in India. Further it is to be noticed that the Memorandum has also specifically authorized the Chamber “to do all other things as may be conductive to the development of trade, commerce and industries, or incidental to attainment of the above objectives or any of them.” Thus it was only for the purpose of securing its primary aims of proper development of business in India that the assessee was taking the said ancillary steps. The said activities were not carried out independent of the main purpose of the association of the institution being the development and protection of trade. There was no independent profit motive in any of the said activities. The surplus arising out of the same was merely incidental to the main object to charity. The majority of the receipts in the said activities were out of the sponsorships and donations. The expenses incurred on the said activities as and when incurred were all separately debited to the said accounts and the balance was shown as surplus over receipts. Thus in view of the above it is clear that the alleged activities were all merely incidental to the main object of the assessee and the predominant object of the association being the promotion development and protection of trade and commerce which is an object of general public utility, it can never be the case that it is engaged in “business, trade or commerce” or in any “service in relation to business, trade or commerce.” The individual nature and purpose of the specific activities, it is stated that the activities held by AO and the (A) to be business in nature, were as follows:
(a) Meetings, Conferences & Seminars
(b) Environment Management Centre
(c) Fees for Certificate of origin
Facts relating to these activities are discussed in detail in paras 23 to 25 of this order above, which need not be repeated.
36. From facts in entirety, now the question arises is whether principle of consistency will apply or not? From AY 1985-86 to 2007-08 exemption u/s 11 of the Act was allowed. Now, having extensively with the newly amended section 2(15) of the Act and its absolute inapplicability to the case of assessee supported by various judicial decisions, we will discuss this issue. We find that CIT(A) without appreciating that the basis principle underlying the definition of “charitable purpose” remained unaltered, and on amendment in the section 2(15) of the Act w.e.f. 01/04/2009, whereby the restrictive first proviso was inserted therein, lower authorities held that the same substantially changed the position of law and thus the principle of consistency did not apply. But we are of the view that a detailed reading of the various judicial decisions through the years, interpreting the definition of “charitable purpose” as laid out in section 2(15) of the Act and also the definition of “business” in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was “charitable” in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be “charitable” in nature. Hon’ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) 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 even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. It was laid out by the Court that,
“That if the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose, e.g. promotion of or opposition to legislation concerning that purpose, was contemplated.”
It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufactures. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object.” In connection to the above case it is laid out the said case dealt with the assessment of the assessee in the A.Ys 1948-49 to wherein relevant to the said AYs 1948-49 to 1952-53, by the last paragraph of sub-section (3) of the IT Act, 1922″, charitable purposes” was defined as
“… … In this sub-section “Charitable purpose” includes relief of the poor, education, medical relief and the advancement of any other object of general public utility, but nothing contained in clause (i) or clause (ii) shall operate to exempt from the provisions of this Act part of the income from property held under a trust or other legal obligation for private religious purposes which does not enure for the benefit of the public. “
The adding of the words “not involving the carrying on of any activity for profit: was introduced by the Income tax Act, 1961. Hon’ble Apex court in the earliest decision in the case of Surat Art Silk Cloth Manufacturers Association (Supra) held the theory of dominant or primary object of the trust to be the determining factor so as to take the carrying on of the business activity merely ancillary or incidental to the main object.
It was held as follows:—
(i) That the dominant or primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth a set out in clause (a) and the objects specified in clauses (b) to (e) were merely powers incidental to the carrying out of that dominant and primary purpose;
(ii) That the dominant or primary purpose of the promotion of commerce and trade in art silk, etc., was an object of public utility not involving the carrying on of any activity for profit within the meaning of s.2(15) and that the assessee was entitled to exemption under s 11(1)(a) ”
Again the Hon’ble Apex Court in the case of Federation of Indian Chambers of Commerce & Industry (supra) held that
“that the dominant object with which the Federation was constituted being a charitable purpose viz. promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, the respondent was not engaged in any activity in the nature of business or trade, and, if any income arose from such activity it was only incidental or ancillary to the dominant object for the welfare and common good of the country’s trade, commerce and industry, and its income was, therefore, exempt from tax under s.11 of the IT Act, 1961”
Again reiterating the dominant purpose theory, the Hon’ble SC in the case of Sai Publication Fund (supra) laid out as follows:
“… If the main activity is not business, then any transaction incidental or ancillary would not normally amount to “business” unless an independent intention to carry on “business” in the incidental or ancillary activity is established. In such cases, the onus of proof of an independent intention to carry on “business “: connected with or incidental or ancillary sales will rest on the Department.
Thus, if the main activity of a person is not trade, commerce etc., ordinarily incidental or ancillary activity may not come within the meaning of “business”.
In the recent decision which deals specifically with the newly amended section 2(15) of the Act, in the case of Institute of Chartered Accountants of India v. Director General of Income-tax (Exemptions)  347 ITR 99/202 Taxman 1/13 taxmann.com 175 Delhi HC, laying down the very same principle it was again laid:
“that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants. A very narrow view had been taken that the Institute was holding coaching classes and that this amounted to business. “
Again, Hon’ble Bombay High Court in the WP of Baun Foundation Trust (Writ Petition No. 1206 of 2010 in the High Court of judicature At Bombay 27 March 2012) it was held that
“4… It is a well settled position in law that the dominant nature of the purpose for which the trust exists has to be considered. The Chief Commissioner has not doubted the genuineness of the trust or the fact that it is conducting a hospital. “
Thus from all the above it is seen that though the definition of “charitable” purpose under section 2(15) has undergone changes, the principle underlying the same has remained the same. In context of the above, with regard to the “principle of consistency” it would be of relevance here to quote the decision of the Apex Court in the case of Radhasoami Satsang (supra) wherein it was held that:
“…. (ii) That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assessee appellant should not have been reopened.
Strictly speaking, res judicata does not apply to income-tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the ordered, it would not be at all appropriate to allow the position to be changed in a subsequent year. “
37. Now coming to application of section 28(iii) of the Act. We find that section 28(iii) of the Act provides that the income derived by a trade, professional or similar association from specific services performed for its members will be brought to charge under the head “profits and gains of business or profession”. The underlying idea behind s. 28(iii) is that there must be a business from which income is derived and that in the course of such business specific services must be rendered for its members. The concept behind s.28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the assessee was actually deriving income or making profits as a result of rendering specific services for its members in a commercial way. The reason for the introduction of Section 28(iii) of Act, to ignore the principle of mutuality and reach the surplus arising to the mutual association and this is clear from the fact that these provisions are 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 the question whether the activities of the association with the non-members amount to a business or otherwise. Section 28(iii) constitutes certain income of the association to be business income without affecting the scope of the exemption under Section 11. Section 2(15) which incorporates the definition of “charitable purposes” simply shows that several mutual associations may also fall within the definition. 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 r.w.s. 2(15) of the Act, provided there is no profit motive. Thus, assessee being a charitable Institution carrying on the object of promotion and development of trade and commerce and which is not involved in the carrying on of any activity in the nature of “business”, the said section 28(iii) of the Act does not apply.
38. In view of the above discussion, we are of the considered view that in the given facts and detailed reading of the various judicial decisions through the years, interpreting the definition of “charitable purpose” as laid out in section 2(15) of the Act and also the definition of “business” in relation to the said section amply revels that the theory of dominant purpose has always, all through the years, been upheld to be the determining factor laying down whether the Institution is Charitable in nature or not. Where the main object of the Institution was “charitable” in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be “charitable” in nature. Hon’ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) 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 even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view 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. Accordingly, in the given facts of the case as discussed above in detail, the assessee association’s primary purpose was advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act. This issue of assessee’s appeal is allowed.”
9. Since the facts of the appellant’s case are admittedly analogous to the facts involved in the case of Indian Chamber of Commerce (supra), we hold that no material change took place in the legal position even after the amendment was brought in Section 2(15) by the Finance Act, 2008. We therefore do not find merit in the findings of the Ld. CIT(A) that the assessee would not be eligible for exemption u/s 11 because it is primarily set up with the object of promoting trade & commerce. Since we find that the objects and the activities of the appellant were for charitable purpose, then there should be no reason for the Revenue to reject the appellant’s application for registration u/s 12A of the Act and therby deny the benefit of Section 11 which was admittedly granted till AY 2009/10.
10. As regards the AO’s case that the appellant was not eligible for exemption u/s 11 in absence of grant of registration certificate u/s 12A by the Ld. CIT, we find that this issue is dealt by the Hon’ble Allahabad High Court in its judgment in the case of Society for the Promotion of Education, Adventure Sport & Conservation of Environment Vs CIT (171 Taxman 113) wherein the Hon’ble high court held that if the application for registration u/s 12A is not disposed by the Commissioner within six months then the registration will be deemed to have been granted. The judgment of the Hon’ble Allahabad High Court was affirmed by the Hon’ble Supreme Court by an order in Civil Appeal No. 1478 of 2016 dated 16.02.2016. The relevant findings of the Hon’ble Apex Court are as follows:
“3. The short issue is with regard to the deemed registration of an application under Section 12AA of the Income Tax Act. The High Court has taken the view that once an application is made under the said provision and in case the same is not responded to within six months, it would be taken that the application is registered under the provision.
4. The learned Additional Solicitor General appearing for the appellants, has raised an apprehension that in the case of the respondent, since the date of application was of 24.02.2003, at the worst, the same would operate only after six months from the date of the application.
5. We see no basis for such an apprehension since that is the only logical sense in which the Judgment could be understood. Therefore, in order to disabuse any apprehension, we make it clear that the registration of the application under Section 12AA of the Income Tax Act in the case of the respondent shall take effect from 24.08.2003.”
11. Applying the ratio laid down in the judgment of the Hon’ble Apex Court to the facts of the appellant’s case, we find merit in the ld. AR’s claim that the application dated 28.06.1973 ought to have been disposed by the Commissioner with six months i.e. on or before 28.12.1973 and in its absence the registration was deemed to be granted to the appellant on expiry of the said period of six months. We therefore hold that the order u/s 143(1) denying the benefit of exemption u/s 11 of the Act was contrary to the legal principle laid down by the Hon’ble Supreme Court (supra). Consequently therefore we do not find merit in the orders of the lower authorities upholding the intimation u/s 143(1) and rejecting the appellant’s application for rectification u/s 154 of the Act.
12. For the reasons set out in the foregoing therefore the orders of the lower authorities as well as the adjustments carried out by the AO in the intimation u/s 143(1) are set aside. Ground Nos. 1 to 10 is therefore allowed.
13. Ground No. 11 is against short credit of TDS allowed by the AO in the intimation u/s 143(1) of the Act. The AO is directed to grant credit of TDS as per law. This ground therefore stands allowed for statistical purposes.
14. We now take up the appeal of the appellant in ITA No.706/Kol/2019 for AY 2012-13
15. Ground Nos. 1 to 10 taken by the appellant are against the Ld. CIT(A)’s action of upholding the order passed by the AO u/s 154 of the Act, rejecting the appellant’s rectification application against the intimation u/s 143(1) denying the exemption claimed by the assessee u/s. 11 of the Act. After hearing the rival submissions and perusing the relevant material available on record, we find that all the material facts relevant to this issue as involved in the year under consideration as well as the arguments raised by both the sides are similar to that of A.Y. 2011-12. The conclusion drawn on this issue in A.Y. 2011-12 shall apply mutatis mutandis in this year as well. The AO is accordingly directed to vacate the adjustments made in the intimation issued u/s 143(1) of the Act. These grounds therefore stand allowed.
16. Ground No. 11 is against short credit of TDS allowed by the AO in the intimation u/s 143(1) of the Act. The AO is directed to grant the credit of TDS as per law. This ground therefore stands allowed for statistical purposes.
17. In the result, both the appeals of the assessee are allowed.
Order is pronounced in the open court on 20th September, 2019.