Builders Association India, Mumbai vs Assessee

The aforesaid appeal has been filed by the Assessee, against order dated 08.12.2011, passed by the Director of Income Tax [Exemption] Mumbai, u/s 12AA(3) for withdrawal/cancellation of registration granted u/s 12A, w.e.f. A.Y. 2009-10.

2. Brief facts of the case are that the assessee Builders of Association of India is a pan-India Trade Organization for civil and construction industry. It is registered as an association under Societies Registration Act, 1860, as well as under the Bombay Public Trust Act, 1950. The main objects for which the assessee's society was constituted were as under:

"(a)To promote and foster feelings of intuitions, laboratories, buildings, test unity, co-operation and mutual help and to houses, libraries, collection of models, eliminate unhealthy competition and designs, drawings, articles of interest and unfair trade practices among the such other information. contractors.

(h) To improve and elevate the technical (b) To encourage the trade, industry and and general knowledge of persons profession of construction works and all engaged in or about to be engaged in the other ancillary and allied trades an building trade or in any employment in industries. connecti9on therewith by arranging lectures, conducting classes, exhibitions, (c) To advise and assist the members in meetings, seminars, etc and to award

technical, non-technical and legal matters. certificates of distinction and medals, trophies and prizes and also institute and

(d) To encourage adoption and promotion establish or to help in establishing funds of correct business practices according to for scholarships, rewards and other ethical code of correct business practices benefactions.

as enumerated in Appendix C to the Rules and Regulations of the Association and (i) To provide means for enabling persons maintain efficiency, dignity and integrity engaged in building trade and industry of the profession. and profession ;to take collective action in all matters concerning the dignity and

(e) To set up arbitration machinery interest of the building trade and industry independently or jointly with other or and to initiate and assist all such actions others for settlement of disputes between to protect and safeguard the profession of members and/or members and non- construction industry and such other members arising out of or in any way trades connected with building materials.

connected with or touching the trade and/or services rendered by such trade (j) To provide first hand training or skilled and industry. training to construction workers.

(f)To promote science of building and/or (k) To nominate representatives of construction industry and with that end in Association or Institution having similar view to collect and disseminate amongst or allied objects on the Committee or the members, statistical and technical Board of or Committee or Governing Body information affecting the interests of the of other Associations and Institutions

trade in general and construction industry, whenever invited to do so in the interest of trade and profession in particular and for the trade or industry. that purpose to print, publish, issue and circulate papers, periodicals, books (l) To organize conferences, exhibitions, circulars and other literature and hold film shows, seminars, tours, delegations, seminars, meetings, conferences, etc. in India or abroad and to nominate discussions etc, and to produce films etc. delegates and advisers and to take steps which may promote and support the

(g) To encourage and conduct research for building trade and industry and progress in building and construction profession.

trade and industry and any other profession connected therewith and for (m) To establish or encourage that purpose to establish, construct, establishment of Banking and/or Insurance promote form and maintain testing Institutions for financing or assisting in ITA No. 550/Mum/2012 3 Builders Association of India Assessment Year: 2009-10

any manner the activities of the member s the objects of the Association in of the Associations or other affiliated accordance with the provisions made in organizations. the Rules and Regulations of the Association.

(n) To encourage exports of building and construction industry and services and to (q) To do all other lawful acts and things help solving the problems relating to as may be incidental or conducive to the export promotion in all possible manners. realization or attainment of all or any of the aforesaid objects of the Association

(o) To held and promote the production directly or indirectly and to incur requisite and distribution of basic materials in short expenditure thereon. supply, particularly with regard to construction industry. (r) To surplus of the Association shall be utilized for furtherance of all or any of the

(p) To open and conduct branches and objects hereinabove mentioned and shall Centres and to undertake such other not be distributed amongst the members." activities for furtherance of all or any of

Looking to the aforesaid objects, it was granted registration under 12A vide certificate dated 24.04.1989 by the DIT (E). Thus all its income and expenditure account was subject to computation and exemption under sections 11 to 13.

3. A proposal was received from ITO(E)1(1), Mumbai for cancellation of registration granted to the assessee, on the ground that assessee has been carrying on activities in the nature of trade, commerce or business, etc. and its gross receipts from such activities are in excess of Rs.10 lakhs and therefore under proviso to section 2(15), the assessee is carrying out commercial activities. Accordingly a show cause notice dated 31.10.2011 was issued by the Ld. DIT(E) to the assessee, as to why registration granted earlier should not be withdrawn u/s 12AA(3) w.e.f. A.Y. 2009-10, in view of proviso to section 2(15). The Ld.DIT observed in his show cause notice that, income and expenditure account revealed that the assessee had earned following the income:-

(i) Membership subscription Rs.115.37 lakhs (ii) Rent and maintenance Rs.8.89 lakhs ITA No. 550/Mum/2012 4 Builders Association of India Assessment Year: 2009-10

(iii) Contribution by centre for holding Exhibition and conference Rs.42.22 lakhs (iv) Contribution received towards Calendar, diary, journal Rs.37.76 lakhs (v) Contribution for programs, Seminars, awards Rs.38.01 lakhs (vi) Sponsorship and training Rs.19.30 lakhs (vii) Hospitality charges Rs.3.46 lakhs (viii) Miscellaneous charges Rs.4.12 lakhs

In response, the assessee after explaining the background of the activities carried out by the assessee and its objects submitted:-

Firstly, regarding 'membership subscription', association incurs certain expenditure for administrative and establishment cost for its functioning to achieve its objects for which it is formed. Such an expenditure is contributed by its members in the form of annual subscription. It is a national level organization having 93 centers and a head office for which it requires substantial expenses to meet the cost therefore, subscription money is received from the members.

Secondly, regarding 'exhibition and conference', it was submitted that it held exhibitions, conferences and seminars for the benefit of its members, which is one of the main objects of the assessee. Details of such exhibition and conference events and how it is relevant for attaining its objects was explained. To meet out such expenses, the members used to contribute for holding such conferences. Thus, there is no commercial activity in such contribution from its members for holding exhibitions, conference and seminars which was for their benefit and information.

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Thirdly, regarding calendar, diary and journal, it was submitted that it was for the benefit of its members to educate its members and to make them aware of the latest trends and happenings in the construction industries. Publishing calendar, diary and journal is one of the objects of the association. Detailed explanation and justification for such publication was made before the DIT to show that it was not a commercial activity, but only for the benefit and circulation for the members.

Fourthly, regarding the programs, seminars, awards and training and sponsorship the assessee submitted that they were conducted to educate the members and appraise the latest development in the Government laws and up-gradation in the system of overall functioning of the construction industry. This is also one of the objects of the assessee to conduct such programs for its members. For conducting these programs the assessee received contribution from its members, hence there is no commercial activity involved.

Lastly, regarding other miscellaneous charges and rent received, it was submitted that they were not in the nature of any activity carried out by the assessee but merely on ancillary activity to attain main object of the association. Renting of some premises for certain occasions was merely to augment financial resources to meet its expenditure and the office space was mainly given to non-profit trade organizations.

Thus neither of the above activities or receipts were outside the scope of objects, nor it was for carrying out any commercial activity as stipulated in proviso to section 2(15).

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4. The Ld.DIT however rejected the assessee's contention and held that the proviso to section 2(15) makes it very clear that, while carrying out the objects of advancement of general public utility, if it is in the nature of any trade, commerce or business for any fees or consideration, then it does not fall within the definition of "charitable purposes". He further observed that assessee's activities as stated in the foregoing paragraph are in the nature of business income and hence in violation of proviso to section 2(15). Once a charitable trust/institution is hit by proviso, then such an entity is not for charitable purpose and the trust itself become non genuine for the purpose of section 11 and the registration can be cancelled u/s 12AA(3). Accordingly he cancelled the registration w.e.f. A.Y. 2009-10.

5. Before us, learned counsel, Shri A.H. Dalal after referring to the objects of the assessee trust and the activities carried out by it, submitted that none of the activities of the assessee can be said to be in the nature of trade or business. The receipts of the assessee is from the members only and the same has been utilized for the benefit of the members for which assessee trust came into existence. The conditions mentioned in 12AA(3) for cancelling the registration cannot be said to be fulfilled, as it has not been found by the Ld. DIT(E) that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. In support of his contention he has relied upon catena of Tribunal decisions, the compilation of 30 such cases have been filed before us. Alternatively, he submitted that, if the department is of the view that any particular activity is for any commercial purpose, then income is to be taxed for that year only and registration granted cannot be cancelled u/s 12AA(3).

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6. On the other hand, Ld. DR submitted that, even if there is one commercial activity then the genuineness of the trust for which registration was granted cannot be accepted. If the gross receipts from any such activity carried out by the assessee, which are in the nature of business or trade, exceeds Rs.10 lakhs, then the entire activity of the trust cannot be held for charitable purposes. Thus, he strongly relied upon the order of the DIT.

7. We have heard the rival submissions, and perused the relevant finding given in the impugned order and the material placed on record. Assessee is an association of builders which has been registered under the Societies Registration Act, 1860 and also under Bombay Public Trust Act, 1950. Looking to its object, which were mainly for advancement of general public utility, it was granted registration u/s 12, vide certificate dated 24.04.1989. The solitary reason for cancelling the registration u/s 12AA(3) by the Ld. DIT is that, in view of proviso to section 2(15) brought in the statute w.e.f. A.Y. 2009-10, the registration granted earlier should be cancelled, because some of the receipts of the assessee are in the nature of trade, commerce, or business. Under the provisions of section 12AA(3), registration granted earlier u/s 12A or u/s 12AA can be cancelled only if the CIT or DIT is satisfied that firstly, the activities of such trust or institution are not genuine or secondly, are not being carried out in accordance with the objects of the trust or institution. Thus, power to cancel registration can be exercised only under these two conditions. From the perusal of the impugned order, it is seen that Ld. DIT has not recorded any satisfaction that assessee activities is either no genuine or are not being carried out in accordance with the objects for which it was granted registration u/s 12A. The ITA No. 550/Mum/2012 8 Builders Association of India Assessment Year: 2009-10

nature of receipts as highlighted by the Ld. DIT, that is, membership subscription, contribution by members for holding exhibition and conference contribution for programs , seminars and awards, etc., sponsorship and training, distribution of calendar, diary and journal and others, it is seen that the assessee has carried out these activities as per its objects only which is evident from the objects incorporated above. Most of the receipts have been received from the members either in the way of subscription or contribution for holding exhibition, conferences, seminars, training and sponsorship programs etc. It is not the case of the Ld. DIT that these activities were carried out for the outsiders and that to be for the commercial purpose solely to earn business receipts. Even the small amount of rental income is mainly to augment the financial resources to meet the cost of the assessee. To be hit by proviso to section 2(15), the dominant object of general public utility should be in the nature of trade, commerce or business. Herein this case, none of the activities like holding conferences, seminars, publishing journals for its member etc. can be held to be in the nature of business trade or commerce. All its activities are for its members only as a part of its objects.

8. The effect of proviso to section 2(15) inserted w.e.f. 01.04.2009 has been subject matter of judicial scrutiny by various Tribunals. The Hon'ble Delhi High Court in the case of Institute of Chartered Accountants of India Vs. DGIT (E) reported in (2011) 245 CTR (Del) 541 has discussed and analyzed the effect of proviso to section 2(15) in great detail, wherein it was held and observed as under:-

ITA No. 550/Mum/2012 9 Builders Association of India Assessment Year: 2009-10

"2. As the first proviso was introduced with effect from I" April, 2009, the scope and ambit of the said proviso to section 2(15) of the Act has to be examined and considered. Earlier orders under section 10(23C)(iv) are not relevant and are inconsequential, as they have not examined the scope and ambit of the first proviso. The proviso applies only if an institution is engaged in advancement of any other object of general public utility and postulates that such an institute is not "charitable" if it is involved in carrying on 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. The second part, "any activity of rendering any service in relation to any trade, commerce or business" obviously intends to expand the scope of the proviso to include services, which are rendered in relation to any trade, commerce or business. The proviso further stipulates that the activity must be for a cess or fee or any other consideration. The last part states that the proviso will apply even if the cess or fee or any other consideration is applied for a charitable activity/purpose. The proviso has to be given full effect to. Thus, even if cess, fee or consideration is used or utilized for charitable purposes the proviso and the bar will apply. An institution not be regarded as established for charitable purpose/activity under the last limb, if cess, fee or consideration is received for carrying on any activity in nature of trade, commerce or business or for any activity of rendering of any service in relation to any trade, commerce or business, even if the consideration or the money received is used in furtherance of the charitable purposes/activities. In view of the first proviso, the decisions that the application of money/profit is. relevant for determining whether or not a person is carrying on' charitable activity, are no longer relevant and apposite. Even if the profits earned are used for charitable purposes, but fee, cess or consideration is charged by a person for carrying on any activity in the nature of trade, commerce or business or any activity of rendering of any service in addition to any trade, commerce or business, it would be covered under the proviso and the bar/prohibition will apply.

14. The most material and relevant words in the proviso are 'trade, business or commerce ". The activities which are undertaken by the an activity of rendering any service in relation to any trade, commerce or business. "

Thereafter the Hon'ble High Court referred and analyzed the meaning of trade, business, commerce which have been elaborated by the Constitutional Bench of Hon'ble Supreme Court in the case of Addl. CIT vs. Surat Art and Silk Manufacturers Association 121 ITR 1, and other Supreme Court decisions; Sole Trustee Loka Shikshan Trust 101. ITR 234, State of Punjab vs. Bajaj Electrical Ltd. (1968) 2 see 536, Khodey Distillary Ltd. vs. State of Kerala (1975) 1 see 574 and CST vs. Sai Publication Fund (2002) 4 see 57 and also referred to various other dictionary meaning and commentary and held that:

"18. The word "business" is the broadest term and it encompasses trade, commerce and other activities. Sec. 2(13) of the IT Act defines the term 'business' as under "2 Definition-

"(13) "business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. "

ITA No. 550/Mum/2012 10 Builders Association of India Assessment Year: 2009-10

19. The word "business" is a word of large and indefinite import. Sec. 2(13) defines business to include any trade, commerce or manufacture or nay adventure or concern in the nature of trade commerce or manufacture. The intention of the legislature is to make the definition extensive as the term "inclusive" has been used. The legislature has deliberately departed from giving a definite import to the term "business" hut made reference to several other general terms like '.'trade ". "commerce ". "manufacture" and "adventure or concern in the nature of trade, commerce and manufacture. "

29. It may be, however, pointed out that the term "profit motive" is not only the sole or relevant consideration that has to be kept in mind. It is one of the aspects. Normally intention to earn profit is required. Emphasis, however, it does appear, has shifted and the concept and principle of "economic activity"

has gained acceptability. The definition of the term "business " may also vary when we are examining taxability under Sales-tax, Excise Duty, Value Added Tax, etc. because these are not taxes on income but the taxable even occurs because of the "economic activity" involved. Even if a person/an organization is carrying on trading on the principle of "no loss no profit ", it may be liable to pay taxes or comply with the statute when the charge and incidence of tax, is on the economic activity". This concept is today well recognized in European Union and England [see Riverside Housing Association Ltd. vs. Revenue Customs Commr. (2006) EWHC 2383 (Ch and the case law cited therein). It may also be also appropriate here to refer the decision of the House of Lords in town Investments ltd. & Ors. Vs. Department of the Environment (1977) 1 All ER 813. In this case, a Government Department was' claiming benefit under a legislation that protected "business tenancies"

from increase in rent. The term _in !~e said -case by a majority decision was held to include chameleon; it suits its meaning to the context in which it is found. It is not the term of legal art but in its dictionary meaning it includes anything which is an occupation, as distinguished from pleasure-anything which is an occupation or a duty which requires attention is business. It was also observed that business conveys in ordinary meaning the notion of a distinct enterprise (not necessarily for profit) having its distinct object, distinct management and distinct assets and liabilities.

Section 2(15) defines the term 'charitable purpose ', Therefore, while construing the term 'business' for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term 'business' is intended for the purpose of interpreting and applying the first proviso to section 2(15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The test as prescribe in Raipur Mfrs. Co. 's case (supra) and Sai Publications Fund's case (supra) can be applied. The six indicia stipulated in Lord Fish; Each case, therefore, has to be examined on its own facts.

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If the principle and ratio laid down by the Hon'ble High Court is applied in the instant case, it would be seen that none of its receipts can be said to be arising or accruing from the activities which can be said to be for the purpose of business or in the nature of trade or commerce. Here in this case all the activities are carried out in accordance with the objects and none of its activities have been found to be non genuine. The assessee's explanation before the DIT regarding nature of receipts clearly shows that they have been received from the members while pursuing objects of the society, specifically mentioned in the "objects"

for which it was granted registration u/s 12A.

9. Otherwise also, if any transaction of the trust which are incidental or ancillary towards fulfillment of the objects of other general public utility, will not normally amount to business trade or commerce, unless there is some intention to carry out business, trade or commerce on a permanent basis or for a reasonable continuity. The LD. DIT has not brought any evidence or material on record to show that the assessee was carrying out the activities on business or commercial principle or outside its objects. Thus on the facts of the present case it cannot be held that assessee's case is hit by proviso to section 2(15) or the registration granted earlier can be canceled within the ambit of section 12AA(3). In view of our aforesaid findings, we are not adjudicating the alternative plea raised by the assessee. Thus, the appeal of the assessee is allowed.

ITA No. 550/Mum/2012 12 Builders Association of India Assessment Year: 2009-10

10. In the result, the appeal filed by the Assessee is allowed.

Order pronounced in the open court on this 12th day January, 2015.

Sd/- Sd/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 12.01.2015 *Srivastava Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT(A) Concerned, Mumbai The DR "B" Bench //True Copy//

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.