2016 (2) TMI 1151 - AT - Income Tax

Disallowing exemption u/s 11 - appellant has not followed its objectives in letter & spirit without specifying any basis that objective of the appellant falls in the proviso to Sec. 2(15) i.e. appellant is carrying on activity in the nature of trade commerce or business - Held that - Since as stated above the facts in the present case are identcial to that in the case of Hoshiarpur Improvement Trust (2015 (9) TMI 902 - ITAT AMRITSAR) respectfully following the same we hold that the assessee trust is carrying out charitable activity of advancement of public utility and the business activity carried out by it are incidental to the attainment of its main object and thus the proviso to section 2(15) is not attracted in the assessee case. We therefore hold that the assessee is entitled to claim exemption u/s 11. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of exemption under Section 11 of the Income Tax Act.
2. Determination of whether the appellant's activities constitute trade, commerce, or business under Section 2(15) of the Income Tax Act.
3. Confirmation of addition of Rs. 974,000.
4. Imposition of penalty under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of exemption under Section 11 of the Income Tax Act:
The assessee, engaged in the business of planning, development, and improvement of the city, was denied exemption under Section 11 by the Assessing Officer, citing that the activities were in the nature of trade, commerce, or business. The CIT (Appeals) upheld this view, leading to the assessee's appeal. The appellant argued that their activities were charitable, aimed at the advancement of general public utility, and thus should qualify for exemption under Section 11. The Tribunal referred to the case of The Improvement Trust, Sangrur, where similar activities were deemed charitable and incidental to the main objective of public utility. The Tribunal concluded that the assessee's activities were indeed charitable and not merely a mask for business, thereby allowing the exemption under Section 11.

2. Determination of whether the appellant's activities constitute trade, commerce, or business under Section 2(15) of the Income Tax Act:
The Tribunal examined whether the appellant's activities fell under the proviso to Section 2(15), which excludes activities in the nature of trade, commerce, or business from being considered charitable. Drawing from the Hoshiarpur Improvement Trust case, the Tribunal emphasized that activities incidental to the main objective of public utility do not attract the proviso to Section 2(15). The Tribunal noted that the primary objective of the appellant was the advancement of general public utility, and the business activities were incidental to this objective. Consequently, the appellant's activities did not fall under the proviso to Section 2(15), thus maintaining their charitable status.

3. Confirmation of addition of Rs. 974,000:
The CIT (Appeals) had confirmed an addition of Rs. 974,000, which the appellant contested, arguing that the plot was restored to the applicant upon full payment, and no income was derived. Given that the Tribunal upheld the appellant's eligibility for exemption under Section 11, this issue became infructuous, leading to the deletion of the addition.

4. Imposition of penalty under Section 271(1)(c) of the Income Tax Act:
The appeal against the imposition of penalty under Section 271(1)(c) was linked to the disallowance of exemption under Section 11. Since the Tribunal deleted the addition in the quantum proceedings, the penalty under Section 271(1)(c) did not survive. The penalty was thus annulled.

Conclusion:
The Tribunal allowed all three appeals filed by the assessee, granting exemption under Section 11, determining that the activities were charitable and incidental to public utility, deleting the addition of Rs. 974,000, and annulling the penalty under Section 271(1)(c). The order was pronounced in open court on February 15, 2016.

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