Ashutosh Chandra, Member
1. International Zinc Association, Belgium (the Applicant) has filed an application under section 245Q(1) of the Income tax Act 1961 (for short "the Act"), and the same was admitted on 11.12.2013. The Applicant was incorporated on 24.09.1992 under the laws of Belgium, and registered as an 'International Non-Profit Association' in Brussels. It is a tax resident of Belgium.
2. The Applicant helps sustain long-term global demand for Zinc by creating awareness about the key end uses of Zinc, such as corrosion protection for steel, the essentiality of Zinc in human health and crop nutrition/fertilizers. Its main programs are Sustainability & Environment, Technology & Market Development and Communications. Environment and Sustainability program focuses on identifying, understanding and managing environmental issues that may impact the Zinc industry, through regulatory affairs and research programs; and Zinc deficiency issues in human health and crop nutrition. The main aim of Technology and Market development program is to develop usage of zinc through R&D. Communication program ensures that key messages about Zinc are disseminated globally through its websites, publications, newsletters, press releases, interviews, video conferences, seminars and training courses.
2.1. The Applicant received the permission of the Reserve Bank of India, vide letter dated May 6, 2013, to establish a Liaison Office in India, which plays an important role in educating the importance of zinc in fertilizers so that the likelihood of Zinc based fertilizers being subsidized would increase, as Zinc deficiency is a wide spread problem in agricultural soils causing decreased crop productivity and nutritional quality, and this requires change of policy. The LO plays an important role in increasing the level of knowledge about Zinc deficiency and proper Zinc fertilization techniques. It also promotes Zinc as an agent to galvanize steel to increase the strength of steel. The major projects proposed to be undertaken by the LO in this report, include: Spread of knowledge to government sectors and public authorities; Revision of Codes to include and favour galvanized steel solutions; Construction and infrastructure focused galvanizing seminars; Zinc First User Engagement and Technical Upliftment; i.e. knowledge development, and awareness and communications.
3. On the above facts the Applicant has posed the following questions to us for a Ruling:
(1). Whether on the facts and circumstances of the case, the representative/liaison office (LO) proposed to be established by IZA in India would be liable to income-tax in India under the provisions of the Act or the provisions of Double Taxation Avoidance agreement between India and Belgium ('India - Belgium DTAA")'
(2). Whether on the facts and circumstances of the case, membership fee and contribution from members received by IZA Belgium from the Indian members would be liable to Income-tax in India under the provisions of the Act or the provisions of India-Belgium DTAA?
4. In its report submitted by the Revenue, it
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is stated that the Applicant is offering a variety of services to its members ranging from advocacy for zinc usage, participation in conferences for training knowledge sharing-business networking, technical and marketing services, commercial listing etc. Due to these "specific services" rendered for its members, income derived by IZA, the Applicant, falls under section 28(iii) of the Act, liable for taxation under the head "Profits and Gains of Business and Profession". The services include the following: Representation; Communication Materials; Websites; Conferences; Technical Expertise and Commercial listing.
4.1. The Applicant states that the term 'specific services' is not defined in the Act. However, it is understood to be applicable when in the course of carrying out its general activities, an organization customizes such services for any or some of the recipients of such services and consequently may be able to receive certain extra consideration in return for the same. Further, the 'specific services' as contemplated under section 28(iii) of the Act would mean that the same would be available or would be rendered by the association for only a select number of members and would definitely not be available for all the members. The services which have been alleged by Revenue to fall within the purview of 'specific services within the meaning of section 28(iii) of the Act are in fact services being carried out by the Applicant in the ordinary course of its activities which are available to all its members and are at the core of its objects for which it was formed. Further, it is not correct that all the activities performed by the applicant result in rendering of 'specific services' to its members, as suggested by the Revenue. Revenue has not been able to bring to light any instance where any 'specific service' is being performed by the Applicant for any of its member. The 'Membership Brochure' of the applicant depicts that the activities carried out by the Applicant are meant for its members.
4.2. With regard to communication materials the Applicant states that publishing of communication materials is an important part of meeting the Applicant's objectives, and are available to all members and do not involve any special service. It is providing services in the nature of hosting members? information on its website, publishing of various materials, organizing conferences, and representation to its members etc. for their information as per its objects. In the website maintained by the Applicant, all the member companies are listed with their relevant information. It is a general facility being made available to all its members, and the same cannot be held to be covered by section 28(iii) of the Act.
4.3. The Applicant states that it organizes conferences in the normal course of carrying out its activities in accordance with its objects as outlined in its Articles of Association, and is the only global industry association dedicated exclusively to the interests of Zinc and its users. This requires funds/resources, and the Applicant collects the participation fees for such events, where even some non-members may be allowed to attend. However, it is clear that if members are to attend such events, discounts are allowed to all the members and not on selective basis to a few of them. Accordingly, the provisions of section 28(iii) of the Act cannot be invoked in this case also.
4.4. It is submitted that Representation and Technical Expertise are also not in the nature of 'specific services' being rendered by the Applicant to its members and are performed in the ordinary course of the Applicant's operations for its members.
4.5. Activities like providing training and networking opportunities, technical and marketing materials, organizing conferences and workshops etc, are performed with an objective to create and spread awareness for Zinc and its users which are completely in line with its key aim to help sustain long-term global demand for Zinc by creating awareness about the key end uses of Zinc. It is stated that these services are neither 'specific' nor meant for any 'specific' entities and hence do not fall within section 28(iii) of the Act.
4.6. The Applicant has reiterated that any surplus generated in the course of its activities is to be utilized for the activities of the Applicant. No member would be entitled to get back the surplus even under a situation of dissolution of the Applicant. The motive is not to earn any profit from the same and is working exclusively for the interests of its members in the zinc industry.
4.7. Section 28(iii) read with section 2(24)(iii) of the Act carves out an exception from the doctrine of mutuality to tax as income the receipts from rendering of specific services by a trade, professional or similar association. However, there has to be an existence of profit motive for such doctrine to apply which is not present in the case of the Applicant. Therefore, in the absence of profit motive, the provisions of Section 28(iii)are not applicable to the Applicant's case. The decision in the case of Commissioner of Income Tax v. South Indian Films Chamber of Commerce  129 ITR 22 (Madras) has been cited in support.
4.8. On the issue of Mutuality, the Revenue has submitted that IZA organized the International Zinc Galvanizing Conference in New Delhi, India in July 2014. It collected the participation fees from participants. However, the RBI had granted the aforesaid approval subject to the condition that the statutory auditor of the LO certifies that such funds have been fully spent on meeting the expenses of the Conference and the LO did not make any profits from the same. Besides, the collection of subscription fees from the participants in India is not in conformity with the principle of mutuality, which prohibits transactions with outside parties in lieu of money. With the receipt of outside subscription, the basic condition of common identity of contributors and participants has been violated by IZA and the mutuality principle is breached.
4.9. The Applicant submits that in the course of carrying out its activities, the LO organizes numerous events in India like conferences, seminars, discussions, deliberations etc. with various organizations and research associations. There is no fees or charges which the LO charges or receives in relation to all such events and as a matter of fact, the LO makes contributions for the organization of certain events for the promotion/creating awareness about zinc and its uses by other organizations/associations. The participation/sponsorship fees was collected with the prior approval of the Reserve Bank of India, and was necessitated by the large scale of such event (i.e., IGC-2014). Further, the LO did not make any profits from such receipt and the entire funds collected in relation to the same were spent on organizing it.
4.10. It is therefore stated that the collection of such participation fees/sponsorship fees cannot be held to have violated the doctrine of mutuality which is squarely applicable in the Applicant's case. The case of Commissioner of Income Tax v. Standing Conference of Public Enterprises (SCOPE)  186 Taxman 142 (Delhi) has been cited in this regard.
4.11. It is stated that the facts of the aforesaid case are squarely applicable to its case. The Applicant is the only global industry association dedicated exclusively to the interests of Zinc and its users, and helps sustain long-term global demand for Zinc by creating awareness about the key end uses of Zinc such as corrosion protection for steel, the essentiality of Zinc in human health and crop nutrition/fertilizers. The Article 8 of the Articles of Association provides that in case of dissolution of the Applicant, the surplus (if any) shall be allocated to another non-profit organization having a similar purpose and exercising an activity related to the purpose of the association and will not be available for distribution among the members. It is an International association and does not have a motive to earn profits. Except in the case of the isolated event of IGC-2014, the LO does not earn any income or receives receipts from carrying out its activities in India and accordingly the principle of mutuality cannot be held to be violated on such account. The decision in the case of SCOPE (supra) has been subsequently affirmed by the Hon'ble Supreme Court wherein the Special Leave Petition of the revenue was dismissed in  328 ITR (Stat) 10.
4.12. It is further submitted that the fact that the RBI has never found any irregularity/made any adverse observations in the conduct of the LO's operations in India also points to the fact that all the activities being done by the LO in India are in conformity with its mandate and objectives as approved by the RBI.
4.13. The Revenue has placed reliance on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Royal Western India Turf Club Ltd.  24 ITR 551 (SC) in support of its argument. However, the Applicant submits that the facts of this case are completely different. Royal Western India Turf Club Ltd. was an incorporated company with the objective of, inter alia, to carry on the business of a Race Course Company and of hotel-keepers, tavern keepers etc. Further, the character of charges made by the assessee on members was similar to that of charges made on non-members, in return for same or similar facilities given to both in course of one and same business. It is also submitted that once the principle of mutuality is satisfied, the receipts cannot be held to be 'income' within the meaning of section 2(24) of the Act.
5. Another issue raised by the Revenue is whether the applicant has an intention to earn profit or not is not relevant when the term business is to be interpreted. It is clear that the applicant in the instant case is carrying on the activity continuously and systematically for promotion of zinc. Various conference, trainings have been organized by the applicant for advocacy of zinc, developing new markets, defending the present usage of zinc and providing market opportunities to the members. It is rendering technical expertise to various member entities. These are business activity. The Applicants states that it is a well settled law that where the principle of mutuality is found to be valid in a case, any receipts or income cannot be brought to tax. Without prejudice it is submitted that the ruling of the Hon'ble Delhi High Court in the case of ICAI v. Director General of Income-tax (Exemptions), Delhi  35 taxmann.com 140 (Delhi) relied upon by the Revenue in support of its argument has been selectively quoted.
6. The Revenue has also stated that in the event of dissolution of the Applicant, the surplus (if any) shall be allocated to another non-profit organization with similar objectives and will not be available for distribution among the members of the Applicant, therefore, the principle of mutuality will not be satisfied. In this regard the Applicant has submitted that in the case of SCOPE (supra), the principle of mutuality was upheld despite the fact that treatment of surplus on dissolution of the assessee's case was precisely the same as in the case of the Applicant. Further, dealing with this specific issue as contended by the Revenue, various High Courts have also held that test of mutuality does not require that the contributors to the common fund should distribute the surplus among themselves and it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding-up the surplus will be transferred to a similar organization or used for some charitable objects. It has relied upon the following decisions in this regard: Madras High court in Commissioner of Income Tax v. Madras Race Club [105 ITR 433, 442-43]; Andhra Pradesh High Court in Commissioner of Income Tax v. West Godavari District Rice Millers? Assn, [150 ITR 394]; Punjab and Haryana High Court in Commissioner of Income Tax v. Northern India Assn. [180 ITR 160]: and Calcutta High Court in Commissioner of Income Tax v. Indian Paper Assn. [209 ITR 28].
7. With regard to the Revenue's assertion that the operations of the LO constitute a Permanent Establishment ('PE') of the Applicant in India and thus would be taxable under the India-Belgium Tax Treaty, the Applicant states that the principle of mutuality is satisfied in the Applicant's case in view of the available jurisprudence. It is a settled law that once the principle of mutuality is found to be satisfied by an entity, it cannot be said that such an entity is carrying on any 'business' and where there is no 'business', a PE cannot be considered.
8. We have considered the submissions of the Revenue with reference to the questions raised before us, the observations of the Revenue, and the Applicant's response to the same.
8.1. The Applicant is registered as an 'International Non-Profit Association', and helps sustain long-term global demand for Zinc by creating awareness about the key end uses of Zinc, conducting programmes on its sustainability and environment etc., including regulatory affairs and research; human health and crop nutrition, R&D, and dissemination of information. With the approval of the RBI, it set up a LO in India, for education, inter alia, on the importance of zinc in fertilizers as Zinc deficiency is a wide spread problem in agricultural soils harming crop productivity and nutritional quality; and also to promote Zinc as an agent to galvanize steel to increase its strength and durability. Several seminars have been conducted towards this end.
8.2. The Revenue is of the view that as the Applicant is rendering specific services for its members, income derived by it falls under section 28(iii) of the Act, as "Profits and Gains of Business and Profession". We are unable to agree. The Applicant is a not-for-profit organization and works for the benefit of its members on the principle of mutuality, that is on the dictum that one cannot earn from oneself. Acting as per its objects, it is hosting members' information on its website, publishing various materials, organizing conferences, representing its members etc., not aimed at deriving any profit. Such services may be customized and focused but are not "special services" in the sense that their utility is not restricted to a few beneficiaries, but across the board to all members and those in this industry. Besides, these are rendered in the ordinary course of its activities and are as per its stated objects, which it has been permitted to carry out by the RBI is being allowed to set up the LO in India. There are no services focused at any specific member or the benefit of which is denied to others. Similarly, the use of communication materials and its websites are for the benefit of all the member companies, and general facilities for all its members. The conferences are also organised in the normal course for carrying out its activities in accordance with its objects as outlined in its Articles of Association. Being the only global industry association dedicated exclusively to the interests of Zinc and its users, these activities directly benefit them. The funds raised by the Applicant for the Conferences organized by it are through fees charged from all participants, members and some non-members alike. Here also all the members are eligible to the same services and benefits. The fee charged does not constitute consideration for any specific services performed or for some specific members.
8.3. Other services also, like Representation and Technical Expertise; training and networking opportunities, technical and marketing materials, organizing conferences and workshops; and Commercial listing etc, are performed in fulfilment of its objects for the members in the normal course and there is nothing special about these services nor are they for any specific set of members as contemplated under section 28(iii) of the Act.
8.4. Since the LO in India has been set up on a not-for-profit basis, as is the parent organization in Belgium, we are of the view that the profit, if any, as stated by the Revenue is only in the nature of surplus that would incidentally occur at the end of the financial year, being the difference of the receipts over expenditure. This does not acquire the nature of profit, as contemplated under the Act, since the receipts are from the execution of objects that are not in the nature of business, nor intended to be so. Secondly, such surplus, if any, is ploughed back into the organization, again to be utilized for the same objects, as enumerated earlier. This is the real test in not-for-profit organisations, namely that the surplus is not siphoned off into private hands, especially the settlors/founders of the not-for-profit organisation. The details filed show that the receipts from conferences are either entirely consumed in that same activity, or remain as surplus in the organization for being further applied for its objects. In any case it will not reach some or any of the members as personal gain in any manner. Hence, in the absence of profit motive, and as seen in its actual working, we are of the view that the provisions of Section 28(iii)are not attracted in the Applicant's case.
8.4.1. The above view gets support from decision of the Hon'ble Madras High Court in the case Commissioner of Income Tax v. South Indian Films Chamber of Commerce (supra) wherein the Hon'ble High Court held that the provisions of section 28(iii) of the Act will not be attracted in a case where profit-making was only incidental and not the means of achieving the main objects. So long as the objects of the assessee were charitable and the income arose from the fulfilment of its objects, the receipts so derived could not be brought to tax.
8.5. The other contention of the Revenue is that with the receipt of outside subscription, i.e. from non-members, the mutuality principle has been breached. It is argued before us by the Applicant that in the course of carrying out its activities, the LO organizes numerous events in India like conferences etc. No fees is charged, rather expenditure is incurred. Only in the IGC-2014 participation/sponsorship fees was collected with the prior approval of the RBI, considering the large scale, which required financial support from the participants and stakeholders. The LO did not make any profits from such receipt and the entire funds collected in relation to the same were spent on organizing it. Thus it had not violated the doctrine of mutuality, as the money was spent on the persons/entities from whom it was collected.
8.5.1. In Commissioner of Income Tax v. Standing Conference of Public Enterprises (SCOPE) (Supra), as subsequently affirmed by the Hon'ble Supreme Court, the case was of a society registered under the Societies Registration Act, 1860. It was formed at the behest of the Government of India to improve the performance of public enterprises. The membership of society was open to all public enterprises of Central/State Government. The objects were to settle controversies; convene and hold conference and organize seminars; arrange training programmes; undertake research projects; etc. etc. It was stipulated that if there should be dissolution of the society, society's debt and liabilities and property shall not be paid to or distributed among the members of the society but shall be given or transferred to some other institution or institutions having similar objects. The Society had income from rental income from the use of convention centre from members and nonmembers; and other premises given to the member; License fee from non-members by letting out the premises; Interest income from bank deposits; and from members; contributions and surplus etc. Against the Revenue's contention that all receipts except the members? contribution were taxable, the Hon'ble High Court held as under:
"The membership of the society is open to public sector enterprises of Central/State Governments. It is, thus, formed for the benefit of its members, which are public sector enterprises. It is not indulging in any "commercial activities" in traditional sense, but is catering to the needs of its members. In its building at Lodhi Road, New Delhi, it has convention centre which is normally given to its members for functions. Likewise, other part of the premises are available to the members for their use. Of course, for using convention centre as well as other parts of the building, these members pay some charges which becomes additional source of income. That by itself cannot be treated as commercial activity of the assessee."
8.5.2. The Hon'ble Court further observed that where the main motive is to earn profit and the entity claiming to be mutual concern or club is generating income from members and non-members through the business carried on by it, then only it would be treated as tainted with commerciality. The fact that the assessee-society had let out part of the premises to its members and was receiving rents and also giving the convention centre to non-members was not sufficient to clothe the activity of the assessee-society as commercial activity, which was not the object with which the assessee-society was formed. Simply because some incidental activity of the assessee-society is revenue generating, the same does not provide any justification to hold that it is tainted with "commerciality" and reaches a point where relationship of mutuality ends and that of trading begins.
8.5.3. We agree that the above findings are applicable in the instant case, as the facts are similar. The Applicant has also been created with the objective of providing services for the promotion of zinc. Article 8 of the Articles of Association of the Applicant also provides that in case of dissolution of the Applicant, the surplus (if any) shall be allocated to another non-profit organization having a similar purpose and will not be available for distribution among the members; it does not have its motive to earn profits. Except in IGC-2014, the LO has not earned any income nor received amounts for carrying out its activities in India. Accordingly, the principle of mutuality cannot be held to be violated on such account. The receipts have in any case been employed for the furtherance of its objectives. It is also brought to our notice that the RBI has never found any irregularity in its conduct.
8.6. Revenue's reliance on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Royal Western India Turf Club Ltd. (Supra) also appears to be misplaced. Royal Western India Turf Club Ltd. was a company incorporated to carry on the business of a Race Course Company and of hotel-keepers, tavern keepers, licensed victuallers and refreshment purveyors. This is distinguishable from the facts of the Applicant, which is a not-for-profit organization, and which is not doing any business.
8.6.1. We also do not agree with the Revenue's contention that whether the applicant has an intention to earn profit or not is not relevant when the term business is to be interpreted, since its activities for promotion of zinc; holding conference and trainings for advocacy of zinc, developing new markets, defending the present usage of zinc and providing market opportunities to the members; rendering technical expertise to various member entities etc. point towards running of business activity. Where the principle of mutuality operates, and the profits cannot be distributed, but can only be utilized for the benefit of members and confined to the objects of the organization, receipts or income cannot be brought to tax. We have stated above that the on the facts of the case, the Applicant's activities are on the principle of mutuality, and it is not created for doing business or earning profits.
8.7. In the other case cited by the Revenue, ICAI v. Director General of Income-tax (Exemptions), Delhi  35 taxmann.com 140 (Delhi), while considering whether the ICAI was providing "education", inspite of doing coaching and placement of its students, the Hon'ble High Court finally held that this was an activity ancillary to the educational programme being conducted by the institute and cannot be considered as a business being carried on by a placement agency. It was held that the purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The Applicant's case also is primarily for the service to its members with defined objects to that end, and mere receipts from some non-members, that too for the services rendered to all others in line with its stated objectives, will not convert its activities to business.
8.7.1. During the course of these proceedings, the Applicant was asked whether the objects had any clause that permitted it to provide services to the public at large, or to nonmembers. Our attention was drawn to the Articles of Association to demonstrate that none of the clauses indicate that the Applicant intended to do any business or render services to nonmembers. The extract of the accounts furnished during the course of these proceedings also show that the Applicant's total receipts for the FY 2014-15 from all Indian members and nonmembers (including fees received directly from Indian members in Belgium) was INR 4,92,87,663, against which the receipts in the LO from the non-Members (sponsorship and participation) amounted to INR 36,95,697, which works out to only 7.50%. When seen for the financial years 2012-13 to 2015-16, against total receipts from Indian members and nonmembers of INR 18,04,25,163, the receipts from non-members works out to a mere 2.05%. It is also seen that FY 2014-15 was the only year in which a Conference was held and in which the above collection was made for sponsorship and participation, that too because of the large size of the same, and entirely spent on the same. Thus it was not only a minor event in terms of expenditure, but also an isolated incidence, and cannot be said to be a deviation from the dominant object of the Applicant.
8.8. Revenue has also observed that on dissolution of the Applicant, the surplus (if any) shall be allocated to another non-profit organization with similar objectives and will not be available for distribution among the members of the Applicant, therefore, the principle of mutuality will not be satisfied. In the case of SCOPE (supra), the principle of mutuality was upheld despite the fact that treatment of surplus on dissolution of the assessee's case precisely the same as in the case of the Applicant. We are of the view that the test of mutuality is satisfied if the members agree and exercise their right of disposal of the surplus, in a mutually agreed manner. This view is supported by various High Court decisions, as cited by the Applicant.
8.9. As regards Revenue's assertion that the operations of the LO constitute a Permanent Establishment ('PE') of the Applicant in India and thus would be taxable under the India-Belgium Tax Treaty, we are of the view that for a PE to come into existence, within the meaning of Article 5 of the said DTAA, in the first place there should be a fixed place of business through which the business of an enterprise is wholly or partly carried on. Once we hold that the Applicant works on the principle of mutuality and is not an enterprise set up for the purpose of doing business or earning profit, the question of any PE coming into existence does not arise.
9. In view of the foregoing, the questions posed to us for a Ruling are answered as under:
Question no. (1): The Liaison Office (LO) proposed to be established would not be liable to tax in India under the provisions of the Income-tax Act, 1961 or the India-Belgium DTAA.
Question no. (2): Membership fee and contribution from members received by IZA Belgium from the Indian members would not be liable to Income-tax in India under the provisions of the Income-tax Act, 1961 or the India-Belgium DTAA.
10. This Ruling is given and pronounced on this 24th day of May, 2018