Bharat Diamond Bourse Vs DCIT(E) (ITAT Mumbai)
Proviso 2(15) Cannot Cut Genuine GPU: Diamond Bourse Shines Again- Trade Promotion is NOT Trade- ITAT Cuts Through 2(15) Misuse
Bharat Diamond Bourse (BDB) was conceived and established with the active support of the Government of India to promote diamond exports, provide world-class infrastructure, and set up customs clearance facilities for smooth import/export operations. Initially operated by MMTC (a government undertaking), the Bourse was later taken over by the assessee and registered as a non-profit Section 25 company. Its primary object has always been advancement of general public utility (GPU), i.e., promotion of trade in the national interest
The assessee was granted registration u/s 12A and was allowed exemption u/s 11 in earlier years. When the Assessing Officer denied this exemption in AYs 1989-90 and 1990-91 alleging commercial activity, the matter travelled up to the ITAT, Bombay High Court, and ultimately the Supreme Court, all of which unanimously held that the assessee’s objects are charitable (GPU), its activities are not commercial, and any incidental income is ancillary to its dominant charitable purpose. Thus, BDB was legally recognized as a charitable institution.
However, in AY 2009-10, the proviso to Section 2(15) (inserted w.e.f. 01.04.2009) came into play. The AO held that the assessee charges “service charges” for handling, customs, security and related facilities from members and non-members, which constitutes “trade, commerce or business”, and therefore the assessee is hit by the proviso and is not eligible for exemption u/s 11. The CIT(A) upheld this view.
