Gem & Jewellery Export Promotion Council Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that conducting or participating in exhibitions within India or overseas for promotion of Gem and Jewellery Industry couldn’t be regarded as commercial activity for the purpose of proviso to section 2(15) of the Income Tax Act.
Facts- Briefly stated facts of the case are that the assessee is a company registered u/s. 25 of the Companies Act, 1956 with the main object to support, protect, maintain, increase and promote the export of gems and jewellery etc. ROI filed by the assessee was selected for scrutiny assessment and the statutory notices under the Income-tax Act, 1961 were issued and complied with.
In the scrutiny proceedings, AO observed receipts from membership, subscription fees, grants from Government of India, income from publication, exhibitions, award functions etc. Regarding the activity of conducting exhibitions, AO was of the view that it was a commercial activity, which prima-facie falls in the nature of trade or business, in view of expression “ Business” having wide meaning in fiscal statues. He also inferred profit motive to the assessee based on the fact that term deposits placed with the banks at the end of the year was of ₹33,20,71,475/- giving rise to interest of ₹6,13,47,543/-. According to AO, the assessee was generating huge profit year after year from its activities. AO referred to amendment to the definition of charitable purpose to section 2(15) of Act with effect from 01/04/2009, wherein it is prescribed that advancement of any other object of the General Public Utility (GPU) shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business, irrespective of the nature of use or application of the income from such activity.
AO added the excess of income over expenditure to the total income of the assessee. The deficit claimed by the assessee was accordingly rejected.
Aggrieved with denial of benefit of provisions of section 11 and carryforward of deficit, the assessee is before the Tribunal.
Conclusion- Held that we are of the opinion that the assessee is not hit by the proviso to section 2(15) of the Act as far as the activity of conducting or participating in exhibitions within India or overseas and therefore the disallowance of exemption claimed by the assessee made by the Assessing Officer and the finding of the Ld. CIT(A) on the issue in dispute is set aside and matters restored back to grant the benefit of sections 11 and 12 as per provisions of law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These three appeals by the assessee are directed against three separate orders dated 11/11/2016 ; 23/01/2019 and 26/02/2019 passed by the Ld. Commissioner of Income -tax (Appeals) -1, Mumbai [in short ‘the Ld. CIT(Appeals)’] for assessment year 2012 -13, 2013-14 and 2014-15 respectively. As common grounds are involved in these appeals, same were heard together and disposed off by way of this common order for convenience.
2. Firstly, we take up the appeal of the assessee for assessment year 2012-13. The grounds raised by the assessee in its appeal are reproduced as under:
The Appellant appeals against the impugned order dated 11.11.2016 passed by the Commissioner of Income-tax (Appeals)-1, Mumbai (the CIT(A)) (received by it on 12.12.2016), under section 253 of the Income–tax Act (the Act), on the following amongst other grounds each of which is in the alternative and without prejudice to any others:
1. Whether the CIT(A) erred in upholding the action of the learned Assessing Officer (AO) in denying the Appellant’s claim for exemption under section 11 of the Act and thereby assessing it on a total income of Rs.21,78,74,270/ -.
2. Whether the CIT(A) ought to have held that the object of general public utility pursued by the Appellant did not involve 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 and, therefore, proviso to section 2(15) of the Act had no application to its case.
3. Whether the CIT(A) ought to have held that activities of the Appellant in the form of organising exhibitions, trade fairs and receipt of membership fees and subscription from its members or grant-in-aid from the Government of India were pursuant to the objects pursued by the Appellant for promotion of the Gems and Jewellery industry and could not be regarded as commercial activities for the purposes of proviso to section 2(15) of the Act.
4. Whether the CIT(A) erred in holding that proviso to section 2(15) of the Act was applicable to the Appellant’s case as it was allegedly engaged in commercial activities which were pursued with profit motive.
5. In the alternative and without prejudice to the above, whether in view of Circular No. 11 of 2008 dated 19.12.2008 issued by the CBDT, the CIT(A) ought to have held that tax under the Act.
6. In the alternative and without prejudice to the above, whether the CIT(A) ought to have held that if exemption under section 11 of the Act is denied to the Appellant, then, its income would be chargeable to tax as business income and such income could not be Rs. 21.78.74,270/ -,
7. Whether the CIT(A) erred in upholding the action of the AO in denying the Appellant’s claim for accumulation of income to the extent of 15% of the surplus for the year.
8. Whether the CIT(A) erred in upholding the action of the AO in denying the Appellant’s claim for deduction in respect of amount of Rs. 13,50,25,483/ – spent towards acquisition of fixed assets for pursuing its objects.
9. Whether the CIT(A) erred in upholding the denial of carry forward of deficit relating to the earlier years contrary to the binding judgment of the jurisdictional High Court in the Appellant’s own case for assessment year 2004 -05.
10. Whether the CIT(A) ought to have held that the Appellant was entitled to set–off of deficit of the earlier years against its income for the year.
3. Briefly stated facts of the case are that the assessee is a company registered on 27/04/1966 under section 25 of the Companies Act, 1956 with the main object to support, protect, maintain, increase and promote the export of gems and jewellery etc. For the assessment year under consideration, the assessee filed return of income on 28/09/2012 along with income and expenditure account, balance sheet and audit report in prescribed form No. 10B of Income-tax Rules, 1962 (in short, the ‘Rules’) declaring deficit of ₹8,97,94,173/ -. The return of income filed by the assessee was selected for scrutiny assessment and the statutory notices under the Income-tax Act, 1961 (in short, the ‘Act’) were issued and complied with. In the scrutiny proceedings, the Assessing Officer observed receipts from membership, subscription fees, grants from Government of India, income from publication, exhibitions, award functions etc. Regarding the activity of conducting exhibitions, the Assessing Officer was of the view that it was a commercial activity, which prima-facie falls in the nature of trade or business, in view of expression “ Business” having wide meaning in fiscal statues. He also inferred profit motive to the assessee based on the fact that term deposits placed with the banks at the end of the year was of ₹33,20,71,475/- giving rise to interest of ₹6,13,47,543/-. According to the Assessing Officer, the assessee was generating huge profit year after year from its activitie. The learned Assessing Officer referred to amendment to the definition of charitable purpose to section 2(15) of Act with effect from 01/04/2009, wherein it is prescribed that advancement of any other object of the General Public Utility (GPU) shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business, irrespective of the nature of use or application of the income from such activity.
3.1 The Assessing Officer after considering submissions of the assessee, held that the assessee has been registered for the charitable purpose of advancement of any other object of general utility for promotion of export of gems and Jewellery, there, fore the activity of conducting exhibitions being in the nature of trade, commerce or business, the assessee is not entitled for exemption under section 11 of the Act in view of section 13(8) of the Act, which prescribe for such denial of benefit of exemption u/s 11 and 12 in case of assessee(s) hit by proviso to section 2( 15) of the Act. Accordingly, in the assessment order passed under section 143(3) of the Act on 28/03/2015, the Assessing Officer added the excess of income over expenditure amounting to ₹ 21, 78, 74, 270/ -to the total income of the assessee. The deficit claimed by the assessee was accordingly rejected.
3.2 The assessee preferred further appeal before the Ld. CIT(A) and filed detailed submissions, which have been summarised by the Ld. CIT(A) in the impugned order. After considering the submission of the assessee, the Ld. CIT(A) rejected those submissions and upheld the finding of the Assessing Officer in view of re, asonings firstly: revenue from operation of conducting exhibition etc is of ₹109.8 crore, which constitute more than 77% of the total revenue during the year under consideration, which is the reason of surplus as against claim that surplus was on account of membership fee, subscription etc., secondly :Provisions of section 11 are applicable to all companies including those registered under section 25 of the Companies Act including the organizations promoted by the Government of India. The Ld. CIT(A) referred to the decision of the coordinate bench of Tribunal in the case of Indian Machines Tools Manufacturers Association (supra)to conclude that holding of an exhibition and generation of profit thereof would be regarded as a business activity in the case of a trade association. He further referred to the decision of the Tribunal in the case of Entertainment Society of Goa Vs CIT (2013) 23 ITR (Trib ) 635 . He further held that the registration under section 12 A of the Act would not ipso facto entitle the assessee for claim of exemption under section 11 of that unless conditions stipulated therein and other relevant provisions in this behalf are fulfilled by the assessee. The reliance placed by the assessee on the order of first appellate authority and the Tribunal for assessment year 2009 -10 and 201011 was not found to be relevant by him in view of the proviso to section 2(15) of the Act and rejected the plea of the assessee of application of rule of consistency. The Ld. CIT(A) finally upheld the action of the Assessing Officer for:
(i) disallowance of benefit under section 11 of the Act in respect of the income including income from exhibition, in view of express provision of section 13(8) of the act.
(ii) denial of carryforward of deficitby in the year under consideration, holding that facts of the assessment year 2004-05, where the ITAT allowed such carryforward , are different
3.3 Aggrieved with denial of benefit of provisions of section 11 and carryforward of deficit, the assessee is before the Tribunal by way of raising grounds as reproduced above.
4. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record including the paperbook containing pages 1 to 289 filed by the assessee. Before us, both the parties relied on the decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban development authority in civil appeal No. 21762 of 2017 . According to the ld . counsel of the assessee, firstly after the insertion of the proviso to section 2(15) of the Act, in assessment year 2009 -10 and 2010-11 the Ld. CIT(A) allowed the benefit of exemption under section 11 and against which no appeal was preferred by the Revenue and thus following the rule of consistency, the Revenue should be prohibited from raising the very same issue in subsequent assessment proceedings. Secondly, there is deficit in the activity of conducting exhibitions, thus, there being no profit motive, it was not in the nature of trade, commerce or business or activity of rendering services in relation to trade, commerce or business and thus the proviso to section 2(15) of the Act is not attracted in the case of the assessee. According to learned Departmental Representative (DR), however the case of the assessee being identical to the facts of Apparel Export Promotion Council, (AEPC) before the Hon’ble Supreme Court in the batch of cases decided alongwith the Ahmedabad Urban Development authority (supra), the ratio of the finding of the Hon’ble Supreme Court is squarely applicable over the facts of the instant case.
4.1 The grounds raised by the assessee relate mainly to two issues. The first issue is denial of benefit under section 11 and 12 of the Act. The second issue relates to denial of carryforward of deficit.
5. As far as first issue is concerned, in nutshell the issue is , that the assessee has been denied benefit of section 11 and 12 of the Act by the ld. Assessing Officer and said action of the Assessing Officer has been upheld by the Ld. CIT(A) on the ground that activities of conducting exhibitions and trade fair is in the nature of trade, commerce or business and therefore invoking proviso to section 2(15) of the Act read with section 13(8) of the Act, benefit of application of income (receipt) for the charitable purpose under the provisions of section 11 and 1 2 of the Act can’t be allowed to the assessee. Therefore, the moot question which arises before us is whether the activity of conducting exhibitions & trade fair by the assessee amounts to trade, commerce or business or activity of rendering services in relation to trade, commerce or business.
5.1 In this regard, the ld . consul of the assessee has brought our attention to the historical background leading to establishing of the assessee organisation. Prior to the assessee came into existence, the role of promotion of the export of gems and jewellery products was with the Director General of Foreign Trade (DGFT) i.e. an organisation under the control of Ministry of Commerce and Industry, Government of India. As a part of export promotion, the trade exhibitions used to be conducted by the DGFT and said conducting of exhibitions by DGFT continued till the assessee came into existence in the year 1966.
5.2 Further, the ld. counsel of assessee referred to copy of certificate of incorporation (PB -13), according to which the company i.e. the Gem and Jewellery Export Promotion Council (GJEPC) has been incorporated under section 25 of the Companies Act, 1956 on 27/04/1966 as company limited by guarantee. In the memorandum of association (PB: 15 -22) main objects (clause 3a); ancillary objects (clause 3b) and other objects (clause 3c) have been mentioned. As per clause 3(a) of memorandum of association, main objects of the assessee company include support, protect, maintain, increase and promote the exports of Gem and jewellery including pearls, coloured gemstone, diamonds, synthetic stone, costume(fashion) jewelry, gold and other precious metal jewelry and articles thereof by such methods as may be necessary or expedient. The clause 3b which contains ancillary object include sending out trade missions to foreign countries, to conduct propaganda regularly and continuously for bringing the advantage of trade and commerce with India in gems and jewellery to the notice of the dealers and the public in foreign countries. The clause 3c under the other objects include purchase, hire or otherwise acquire and maintain suitable buildings, apartment, furniture and other fittings in any country for the establishment of showroom, Emporia or the agencies for publicity in regard to gems and jewellery for the purpose of achieving objects of the company; to convene conferences, seminars, workshops or other kinds of meeting at such place and such time as considered desirable for furtherance of the object of the company and to provide, set up, establish and manage such infrastructural, institutional and administrative framework as may be necessary for achieving the objective the company. Clause 6 of the memorandum of association mandates that the income and property of the assessee shall be applied solely for the promotion of its objects and set forth therein, with a bar on distribution thereof by way of dividends, bonus or otherwise by way of profit. Lastly, clause 7 (seven) of the said memorandum of association mention that upon winding up or dissolution of the assessee, there remains, after the satisfaction of all debts and liabilities, any property whatsoever, the same shall not be distributed amongst its members but shall be transferred to such other company having objects similar to that of the assessee.
5.3 The Ld. Counsel of the assessee, in the light of objects mentioned above brought to our attention that the activity of organising exhibitions and trade fairs is very much a part of the general public utility (GPU) activity of the assessee for which the assessee has been registered as charitable institution. He referred to an annual feature of the EP(G &J) division in the Department of commerce, Ministry of commerce and industry, government of India, which issues calendars for each year, wherein it approves the exhibitions for gems and jewellery product. The Ld. Counsel referred to copy of such approval for overseas exhibitions and domestic exhibitions placed at paperbo ok pages 182 to 186 and 187 to 203 respectively. A copy of such approval of international exhibition and domestic exhibition available on pages 185 to 186 and 187 is reproduced as under :
International Exhibition :
“F.No. 12/32/2011-EP(G&J)
Government of India
Ministry of Commerce & Industry
Department of Commerce
EP(G&J) Division
New Delhi, 13th December, 2011.
To
1. Shri Raiv Jain
Chairman,
Gem & Jewellery Export Promotion Council
Mumbai
2. Chairman-cum-Managing Director
MMTC Limited,
New Delhi
3. Shri Nirmal Sinha
Chairman,
HHEC of India Limited
NOIDA
Subject: Calendar of Overseas Exhibitions for the year 2012.
Sir,
I am directed to inform that the following Calendar exhibitions in Gem & Jewellery Products has been approved by the Department of Commerce for the calendar year 2012:
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