Bombay Chamber of Commerce & Mackinnon Mackenzie Building v. ITO(E)

Case snapshot

Sections / provisions: 11

Questions before the Court / Tribunal

• S. 11 : Property held for charitable purposes-Charitable purpose- Strive to promote the trade, commerce and manufacturers of India without seeking to make profits for its members is charitable purpose-Denial of exemption is held to be not justified. [S. 2(15)] The AO denied the exemption under section 11 of the Act by holding that the proviso to section 2(15) of the Act was applicable in the case of assessee as it had rendered services in relation to commercial activity for which fees were charged. The Order of the AO is affirmed by the CIT(A). On appeal allowing the appeal of the assessee the Tribunal held that the main object of the assessee is to promote and protect the trade, commerce and manufacturers of India and in particular the trade, commerce and manufacturers of the Bombay Presidency. The Tribunal also held that the amounts received from the members are not in nature of trade…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

Bombay Chamber of Commerce & Mackinnon Mackenzie Building, 4, Shoorji Vallabhdas Marg, Ballard Estate, Mumbai -400 001 फनाभ/ Vs. The Income -tax Officer (Exemptions) -1(1), Room No. 508, 5 th Floor, Piramal Chambers, Lalbaug, parel, Mumbai -400 012 (अऩीराथी / Appellant) (प्रत्मथी/ Respondent) स्थामी रेखा िं./PAN No. AABCB2270M

अऩीराथी की ओय े/ Appellant by : Shri Niraj Sheth, AR प्रत्मथी की ओय े/ Respondent by : Ms. Shreekala Pardeshi & Ms. Kavita P. Kaushik, DRs’

भहावीय स िंह, उऩाध्मक्ष के द्वाया / PER MAHAVIR SINGH, VP: This appeal of assessee is arising o ut of the order of the Commissioner of Income Tax (Appeals)] -3, Mumbai, [in short CIT(A)], in appeal No. CIT(A) -3/IT-10441/2017-18 dated 31.07.2019. The assessment was framed by the Income Tax Officer (E ) (in short

Page | 2 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 DCIT/ITO/ AO) , Ward-1(1), Mumbai for the A.Y. 2009-10 vide order dated 18.08.2016 under section 143(3) of the Income -tax Act, 1961 (hereinafter ‘the Act’). 2. The only issue in this appeal of assessee is against the order of CIT(A) in confirming the action of the Assessing Officer in denying exemption under section 11 of the Act by holding that the proviso to section 2(15) of the Act was applicable in the case of assessee as it had rendered services in relation to commercial activity for which fees were charged. For this issue the assessee has raised the following grounds: - ―Denial of exemption under section 1 of the Income -tax Act, 1961 (the Act) 1. The CIT(A) erred in confirming the action of the Income-tax Officer (Exemptions) -1(1), Mumbai (hereinafter referred to as the ITO) in denying exemptio n under section 11 of the Act. Applicability of the proviso to section 2(15) of the Act. 2. The CIT(A) erred in holding that proviso to section 2(15) of the Act was applicable to the appellant as it had rendered services in relation to a commercial activit y for which fees were charged. 3. The CIT(A) erred in holding that the appellant had not brought any evidence which proved that activities carried out by it were non -commercial and without profit motive.

Page | 3 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 4. The CIT(A) erred in holding that the appellant is engaged in doing regular business activities which are in the nature of ―business‖ and ―commerce‖ by arranging seminars, collecting fees from participants, interest income and sale of publications and hence the objects of the appellant are not charitable. 5. The CIT(A) erred in holding that the case laws relied by the appellant were distinguishable as the same were decided without considering the decision of the Hon’ble Supreme Court in the case of Sole Trustee, Loka Shikshana Trust v. CIT (101 ITR 234). ‖ 3.

Appellant / petitioner / assessee submissions

Page | 17 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic o r historic interest, and the advancement of any other object of' general public utility: Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the na ture of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is ten lakh rupees or less in the previous year". 11. Further, learned counsel for the assessee invited our att ention to the speech of Finance Minister and the relevant extract of the speech is reproduced hereunder:- "180. 'C haritable purpose' includes relief of the poor, education, medical relief and other object of general public utility. These activities are tax exempt, as they should be. However, some entities carrying on regular trade, commerce or business or providing services in relation to any trade, commerce or business and earning

Page | 18 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 incomes have sought to claim that their purposes would also fall under 'char itable purpose'. Obviously, this was not the intention of the Parliament and, hence. I propose to amend that law to exclude the aforesaid cases. Genuine charitable organizations will not in any way be affected. I once again assure the House that genuine ch aritable organizations will not in any way be affected. The C BDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether an entity is carrying on any activity in the nature of trade, commerce or busin ess or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as ―advancement of any other object of general public utility‖ (Emphasis supplied,)‖ 12. From a perusal of the FM's speech it is apparent th at the intent behind the amendment was that only such entities which are carrying on regular trade, commerce or business would not fall within the definition of the term 'charitable purpose. It was never intended to affect genuine charitable organizations in any way. The learned Counsel for the assessee stated that as discussed above, the terms "trade",

Page | 20 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 the interpretation of the words "not involving the carrying on of an y activity for profit" in the definition of "charitable purpose" contained in section 2(15) of the Act. 15. The learned Counsel for the assessee relied on the decision of Hon’ble Delhi High Court in the case of India Trade Promotion Organization V. DGIT(E) ( 371 ITR 333) (Del) and argued that the petitioner had challenged the constitutional validity of the proviso to section 2(15) of the Act on the ground that it was arbitrary, unreasonable and thus violative of Article 14 of the Constitution of India dealing with "equality before law".

Page | 26 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 other interested individuals from the member organizations. Some of these reports are given out to the applicants on a cost basis. The appellant also provides e-information to its members about the latest changes in law etc. at a nominal cost. The membersh ip directory in a published form and a Table listing is also offered for sale on cost basis. 18. The learned counsel for the assessee before us explained that the appellate orders for earlier years i.e. AYs 2009 -10, 2010-11 and 201112 cannot be followed for t he assessment year under consideration because the benefit of the decision of the Delhi High Court in India Trade Promotion Organization (supra) was not available before the CIT(A) while passing the order and the CIT(A) in para 5.3.12 and 5.3.14 of its ord er dated 19 .12.2014 for AYs 2010 -11 and 2011 -12 respectively has held that the decision of the Kolkata Tribunal in Indian Chamber of Commerce vs.

Revenue / respondent submissions

The judgment does not separately label the respondent’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Court / Tribunal analysis and reasoning

Page | 4 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 assessment. The ITO called fo r various details, which were submitted from time to time. Meanwhile the Director of Income -tax (Exemptions) Mumbai [ in short DIT(E)] passed an order dated 16 .12.2011 under section 12AA(3) of the Act withdrawing the registration under section 12A of the Ac t on the ground that the a ssessee is not covered under the term "charitable purpose" as defined in section 2(15) of the Act. The assessee filed an appeal before the Income -tax Appellate Tribunal (ITAT). 4. We noted the fact that the assessee received an assessment order dated 29.12.2011 passed by the ITO under section 143(3) of the Act wherein the ITO denied exemption under section 11 of the Act.

Page | 10 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 The Larger Bench of the Supreme Court in the case of Surat Art Silk Cloth Mfgrs. Associat ion (supra) has approved the observations of J Ben rendered in the above case, though the judgment was overruled. The above observations therefore hold importance to understand the concept of charity. Similarly, the provision u/s 11 (4A) which provides tha t the provisions of section 11 would apply to any business income if it is incidental to the attainment of the objects of the trust. The Proviso inserted in 2008 has also not been amended. In this situation, the only conclusion or interpretation of the ame ndment is that the reiteration of the existing or prevailing principle, that any commercial activity under the garb of charitable activity would only be affected and for that purpose, one has to look into the dominant object of the Trust. the manner and fo rm in which the objects are achieved Needless to say, the concept of charity as explained by the Supreme Court in the case of Sole Trustee, Lok Shikshana Trust (supra) has to be kept in mind The only meaning that can be drawn is that the amendment does not apply to every income from business that is earned by the trust.

Page | 11 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 carrying out the charitable objects and the income is utilized for charity, such income would still be eligible for exemption u/s 11. In the final analysis, however whether the assessee has for its object the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to c laim that its object is charitable purpose. In such a case, the object of general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce o r business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessee, who claim that their object is 'charitable purpose" within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business. [Circular No. 11 of 2008, dated 19th December, 2008]. I had also gone through the order of A' Bench of ITAT, Chandigarh in the case of Chandigarh Lawn Tennis Association v. lTO(E), Chandigarh (ITA No.1382/CHD/2016) for AY 2013 -14., wherein

Page | 12 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 amendment to proviso to section 2(15) was thoroughly analysed and discussed. As per the clarification, the dealings of trade and industry associations with any nonmembers for activities in the nature of trade commerce or busin ess would not qualify for tax exemption and would be liable to tax under section 28(iii) of the Act. Each case would, therefore, be decided on its own facts and no generalization is possible. The circular also cautions that the assessee, who claim that the ir object is 'charitable purpose' within the meaning of section 2(15), would be well -advised to eschew any activity which is in the nature of trade. commerce or business or the rendering of any service in relation to any trade, commerce or business. While the body like Board of Control for Cricket in India (BCCI) which promotes cricket as a public utility, is to be taxed for sale of television rights, tickets, advertisement, other institutions like chambers and association (e.g. CII, FICCI) will be liable to pay tax for renting their facilities to non-members A thorough analysis of the above shows the intent of legislation to curb the practice of claiming exemption on the pretext of carrying out objects of general public utility

Page | 13 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 and thereby taking the benefi t of exemption in respect of business carried out in the mask of charity. The proviso mentions that advancement of object of general public utility shall not be a charitable purpose if it involves the carrying 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 for a cess or fee or any other consideration irrespective of the nature of use or application or retention of the income from such activity. In the case u nder consideration, the appellant has rendered services in relation to a commercial activity for which fee has been charged and thus, is hit by this provision The Very Concept of Charity denotes altruistic thought and action i.e. to benefit others rather t han oneself and the beneficiaries must not be able to claim the benefit as was held by Hon'ble courts in the cases of Chamber of Commerce Vs. CIT 4 ITR (Alld.), and also in Sole Trustee Lok Shikshan Trust Vs. CIT (SC) 101 ITR. Contention of the appellant is therefore rejected. The judicial decisions relied upon by Ld. AR are distinguishable and had been decided without considering the Apex court's decision cited supra. The Hon'ble Supreme Court in the case of A. Distributors (Baroda) Pvt. Ltd vs. Union of I ndia reported in 155 ITR 120 had decided that the powers of the CIT(A) exists to

Page | 14 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 decide the issue which had not been considered by the higher authority. In view of the above, I hold that the appellant's claim u/s 11 is not allowable for the year under cons ideration i.e for AY 2009-10. Accordingly, grounds of appeal nos. 1 to 3 are dismissed‖ Aggrieved, assessee came in appeal before tribunal on this very issue. 7. We have heard the rival contentions and gone through the facts and circumstances of the case. We have noted the objectives of the assessee which inter alia are as under: o to promote and protect the trade, commerce and manufacturers of India and in particular the trade," commerce and manufacturers of the Bombay Presidency; o to consider all questions con nected with trade, commerce and manufacture; o to collect and circulate statistics and other information relating to trade, commerce and manufacture; o to promote or oppose legislative and other measures affecting trade, commerce and manufacture;

Operative decision and relief

However, exemption under the principle of mutuality was granted only to membership subscription but Surplus from no n-members was taxed alongwith interest Income, unutilized accumulation of earlier years and disallowance under section 14A of the Act. Aggrieved, assessee preferred the appeal before Commissioner of Income Tax (Appeals). 5. The CIT(A) vide order dated 28 .08.2014 dismissed the assessee’s appeal. On further appeal, the ITAT vide its common order dated 15.01.2016 has remanded the matter to the file of the ITO to decide the issue afresh considering that it had re -stored the assessee’s registration under section 12 A of the Act. The ITAT also heard the appeal of the assessee against the DIT(E)'s order cancelling 12A registration, the ITAT held that for cancellation of registration under section 12AA(3) of the Act , the provisions of section 2(15) of the Act

Page | 29 ITA No. 5832/Mum/2019 Bombay Chamber of Commerce & Mackinnon Mackenzie Building; AY 09-10 22. Since, we have held that the assessee is entitled for exemption under section 11 of the Act, we need not adjudicate any other issue on this. 23. In the Result, the appeal of the assessee is allowed. Order pronounced in the open court 30.09.2021.

Ratio and legal principle

The narrow proposition associated with Bombay Chamber of Commerce & Mackinnon Mackenzie Building v. ITO(E) concerns s. 11 : property held for charitable purposes-charitable purpose- strive to promote the trade, commerce and manufacturers of india without seeking to make profits for its members is charitable purpose-denial of exemption is held to be not justified. [s. 2(15)] the ao denied the exemption under section 11 of the act by holding that the proviso to section 2(15) of the act was applicable in the case of assessee as it had rendered services in relation to commercial activity for which fees were charged. the order of the ao is affirmed by the cit(a). on appeal allowing the appeal of the assessee the tribunal held that the main object of the assessee is to promote and protect the trade, commerce and manufacturers of india and in particular the trade, commerce and manufacturers of the bombay presidency. the tribunal also held that the amounts received from the members are not in nature of trade… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in ITA No. 5832 /Mum/ 2019.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Disposed / relief as recorded” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: S. 11 : Property held for charitable purposes-Charitable purpose- Strive to promote the trade, commerce and manufacturers of India without seeking to make profits for its members is charitable purpose-Denial of exemption is held to be not justified. [S. 2(15)] The AO denied the exemption under section 11 of the Act by holding that the proviso to section 2(15) of the Act was applicable in the case of assessee as it had rendered services in relation to commercial activity for which fees were charged. The Order of the AO is affirmed by the CIT(A). On appeal allowing the appeal of the assessee the Tribunal held that the main object of the assessee is to promote and protect the trade, commerce and manufacturers of India and in particular the trade, commerce and manufacturers of the Bombay Presidency. The Tribunal also held that the amounts received from the members are not in nature of trade… Its practical value lies in the way the ITAT Mumbai connected the governing provisions—11—to the procedural posture and evidence before it.

The authority level is ITAT / Tribunal. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of 11 and the decision date 2021-09-30; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

Does this case match your facts?

Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is Bombay Chamber of Commerce & Mackinnon Mackenzie Building v. ITO(E), the proceeding is ITA No. 5832 /Mum/ 2019, and the decision is dated 2021-09-30. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as SRI MAHAVIR SINGH, VP AND SRI MANOJ KUMAR AGGARWAL, AM. A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with 11. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Disposed / relief as recorded. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is RECTIFICATION_HIGH_COURT_APPEAL_SLP_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• 11 — apply the exact version considered in the judgment.

Case network

• Heart Foundation of India v. CIT — ITAT Mumbai · Operative order controls
• ACIT CIR 6(1) VS ASAHI INFRA & PROJECTS LIMITED — ITAT Mumbai · Remanded / restored
• ITO CIR 6(1)-4 VS ASAHI INFRA & PROJECTS LIMITED — ITAT Mumbai · Quashed / set aside
• ITO 32(2)(3) VS MAYUR R KAMDAR — ITAT Mumbai · Dismissed

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