2014 (2) TMI 371 - AT - Income Tax

Admitting additional evidence - Held that - Proper opportunity of being heard was not given to the appellant - A perusal of the reply dated December 31, 2007 and the evidences enclosed therewith show that all these documents and evidences were necessary for the ld. A.O. to adjudicate the issues on which additions to the income of the appellant was made - The assessee was not given sufficient time and opportunity to reply to the queries of AO and file documentary evidence in support - The order of CIT(A) was justified in admitting the additional evidence filed before him, keeping in view the principles of natural justice - Decided against Revenue. It cannot be said that a purpose would cease to be charitable even if public welfare is intended to be served; that if the primary purpose and the predominant object are to promote the welfare of the general public, the purpose would be a charitable purpose; and that when an object is to promote or protect the interest of a particular trade or industry, that object becomes an object of public utility. Whether the activities of the trust are charitable in nature - Held that - The assessee society was a member of the World LPG Association to achieve its object of providing an update on the events and development in the field of oil and gas applicable to Government regulators and its members and to conduct studies of public utility - The World LPG Gas Association also became a member of the assessee society - The membership was required for attaining the objects of the assessee society - as regards the payment received by the assessee during World LPG Association, this amount was towards membership fee and did not quality to be a foreign contribution. - Decided in favor of assessee. Violations of the provisions of section 13 - Assessee organized seminar alongwith CA firm, which was devoted to enhancing education on the subject of E&P Accounting in India, a matter of public interest - The seminar was not only for members but for non-members as well including professionals - The rent paid by the assessee to IOC was reasonable as the valuation of the rent was done by a Government approved valuer - The assessee paid charges to IOC for conducting guest lectures which were also at arms length price - The assessee had duly furnished supporting documents before the Ld. CIT (A), showing that the payment was less than the charges of other conference halls like under the Habitat Centre and Scope Complex - These payments have been found to be in accordance with the services rendered - The department has failed to refute the findings of CIT(A) - Decided against Revenue.

Summary

Issues Involved:
1. Whether the CIT (A) erred in admitting additional evidence under Rule 46A.
2. Whether the activities of the assessee are charitable in nature and eligible for exemption under Section 11 of the IT Act, 1961.
3. Whether the payments made by the assessee to its members were reasonable and did not attract the provisions of Section 13(1)(c) of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence under Rule 46A:
The department contended that the CIT (A) erred in admitting additional evidence which was not submitted before the Assessing Officer (AO) despite adequate opportunity. The assessee argued that proper and sufficient opportunity was not provided by the AO for compliance with the order sheet noting dated 24.12.2007. The AO had rejected the assessee's request for a short adjournment to submit explanations/information regarding remaining inquiries, leading to an ex parte assessment order. The CIT (A) found that proper opportunity of hearing was not given to the assessee and admitted the additional evidence under Rule 46A. The Tribunal upheld this decision, noting that the department could not rebut the factual position that the assessee was not afforded adequate opportunity by the AO.

2. Charitable Nature of Activities and Eligibility for Exemption under Section 11:
The AO denied exemption under Section 11, asserting that the assessee's activities were not charitable and benefitted its members rather than the general public. The CIT (A) observed that the assessee society was registered under the Societies Registration Act and Section 12AA of the IT Act, and its claim of exemption under Section 11 had been consistently allowed in earlier years. The CIT (A) found that the assessee's activities, such as organizing seminars, conducting studies on petroleum products, and providing recommendations to the government, were for the benefit of society at large and in the national interest of policy-making in the energy sector. The Tribunal agreed, noting that the activities were in the nature of advancement of an object of general public utility and not for earning profit or benefiting any particular member. The Tribunal cited the decision in 'CIT vs. Gujarat Maritime Board', 295 ITR 561 (SC), which held that promoting the welfare of the general public constitutes a charitable purpose.

3. Reasonableness of Payments to Members and Applicability of Section 13(1)(c):
The AO questioned the payments made by the assessee to its members, including amounts paid to M/s PriceWater House Coopers (PWC) for conducting studies, membership fees to World LPG Association, and rent paid to Indian Oil Corporation (IOC). The CIT (A) found these payments to be reasonable, supported by voluminous documentary evidence, and necessary for achieving the assessee's objectives. The Tribunal upheld these findings, noting that the payments were made at arm's length and were for services rendered. The Tribunal also rejected the AO's contention that the provisions of Section 13(1)(c) were attracted, as the payments were not shown to be unreasonable or excessive. The Tribunal found that the decision in 'CITA vs. Employees Death and Superannuation Relief Fund', 234 ITR 308 (Kar), cited by the department, was not applicable as the assessee's objects were for public benefit and constituted an object of general public utility.

Conclusion:
The Tribunal dismissed both appeals filed by the department, upholding the CIT (A)'s decisions on all grounds. The Tribunal found no error in the CIT (A)'s order regarding the admission of additional evidence, the charitable nature of the assessee's activities, and the reasonableness of payments made to its members. The order was pronounced in the open court on 31.01.2014.