By TIOL News Service

MUMBAI, MAR 12, 2018: THE issue before the Bench is - Whether activity of holding exhibition by taking space on hire from Trade Fair Authority of India to earn substantial amount of money is a business activity and cannot be termed as an activity for charitable purpose. And the HC verdict is YES.

Facts of the case

The Assessee-company, filed it return for the relevant AY declaring NIL income and gross receipts of Rs.5,52,56,585. On being asked by the AO during assessment proceedings, the Assessee explained that the main source of receipts was by way of 'Income from IMTEX-92' which constitutes 86.29% of the total receipts. According to the Assessee, the IMTEX-92 was the name of a Trade Fair Exhibition organized by the it at Pragati Maidan, New Delhi, in March, 1992.

However, the AO found that the Assessee hired space from the Trade Fair Authority of India at Pragati Maidan, New Delhi and then offered the stall spaces to its members and also to the non-members on rent payments. Therefore, the AO observed that the Assesssee earned a profit of more than Rs.1.72 Crores by holding a Trade Fair Exhibition. The AO further held that the activity of the Assessee appeared to be a business activity which was not incidental to the attainment of the objects of the Assessee and therefore, he asked the Assessee to explain as to why the income earned from IMTEX-92 be not considered as business income and taxed accordingly. Thereafter, the Assessee submitted that the association conducts the exhibition almost every alternate year. The Assessee further contended that the predominant object of the Association was to carry out a charitable purpose of promotion and protection of Indian Machine Tools Industries and not to earn profits. However, the AO rejected the contention of the Assessee and held that the main activity of the Assessee during the year had been to hold trade fair and by doing so, the Assessee had earned handsome profits. The AO further held that the business carried out by the Assessee was an 'independent' activity and not incidental to attainment of the objectives of the association. Therefore, the AO finally held that the Assessee was not entitled to exemption u/s. 11 and accordingly, determined Rs.1,72,15,212 as taxable income. On Assessee's appeal, the CIT(A) held that since separate books of accounts were not maintained, income of the Assessee was taxable for holding exhibition which was in the nature of business. On further appeal, the Tribunal upheld the decision of the CIT(A).

After hearing the parties, the High Court held that,

++ the total receipts from holding the exhibition IMTEX-92 is Rs.4.76 Crores and the net surplus in Rs.1.72 Crores. It involves the activity of taking space on hire from Trade Fair Authority of India. Thereafter, it involves setting out the exhibition tariffs (lower rates for SSI Units), premium for prime location, air conditioning surcharge, rentals to be charged from foreign participants, security charges, telephone charges etc., as the statement of case records. Moreover, the statement of case also states that it is not the first time the Assesssee is holding an exhibition IMTEX-92. On such facts, the Authorities under the Act have all found that holding of an exhibition is a well organized activity, making use of its past experience, so as to earn substantial amount of money. The Tribunal held that it is not an activity carried on no profit no loss basis or only for marginal or nominal gain. It therefore, does satisfy the test of business. Thus, on such facts, the Authorities under the Act have held that holding of exhibition IMTEX-92 is a business activity. This finding of fact has not been shown to be perverse. Therefore, no fault can be found with the view in the given facts that holding of exhibition, is a business activity. In such circumstances, so far as issue (a) above is concerned, the Court is of the opinion that the activities of holding exhibitions IMTEX92 in the subject Assessment Year, was a business activity. Therefore, covered by the first part of Section 11 (4A) of the Act.

(See 2018-TIOL-420-HC-MUM-IT)