2015 (5) TMI 187 - AT - Income Tax

Exemption u/s 11 or 12 - whether income earned by the assessee from rendering legal consultancy is to be treated as exempt under section 11 or 12 of the Act - Held that - assessee is carrying out an educational activity inasmuch as in the process of giving the legal advice to, and carrying out legal work for, the clients, the junior professionals are getting very useful legal education and hands on experience - In the view expressed by Supreme Court in 1975 (8) TMI 1 - SUPREME Court , on the job training to young professionals, even if that be so, is not covered by 'education' in the sense in which income tax law recognizes it. In any event, the activity which is carried out by the assessee is a purely commercial activity, howsoever altruistic be the motive, and it cannot be treated as an educational or charitable activity. - carrying out of the business activity is not incidental to achievement of the main objectives of the trust and, therefore, profits and gains of this business activity cannot be covered by the scope of section 11(4A) either. Just because the profits generated by a business activity are used also for charitable activities does not, by itself, entitle the business profits to be exempted from tax under section 11(4A). - Decided against Assessee.

Summary

Issues involved:
1. Applicability of proviso to Sec. 2(15) of the Income Tax Act 1961.
2. Allowance of exemption u/s. 11 and 12 of the Income Tax Act 1961 for a Registered Charitable Trust.
3. Benefit of accumulation of income u/s. 11(1)(a) of the Income Tax Act 1961.
4. Whether income from legal consultancy is exempt under section 11 or 12 of the Act.

Detailed Analysis:
1. The first issue pertains to the applicability of the proviso to Sec. 2(15) of the Income Tax Act 1961. The assessee challenged the Assessing Officer's decision that the proviso is applicable to them. The Assessing Officer noted that the assessee is engaged in commercial activities like providing legal and consultancy services, not educational or medical relief activities. The CIT(A) upheld this decision, stating that the appellant's activities did not fall under the first three limbs of section 2(15) and were more in the nature of trade or business. The Tribunal affirmed this decision, dismissing the appellant's contentions.

2. The second issue involves the allowance of exemption u/s. 11 and 12 of the Income Tax Act 1961 for a Registered Charitable Trust. The appellant, a charitable trust, claimed exemption under these sections. However, the Assessing Officer denied the exemption due to the nature of the trust's activities being commercial rather than charitable or educational. The CIT(A) supported this denial, citing the Finance Act, 2012 amendment and the retrospective effect of section 13(8). The Tribunal concurred with the CIT(A) and upheld the denial of exemption under sections 11 and 12.

3. The third issue concerns the benefit of accumulation of income u/s. 11(1)(a) of the Income Tax Act 1961. The appellant contended that they should be allowed the benefit of accumulating income under this section. However, the Assessing Officer did not grant this benefit due to the nature of the trust's income-generating activities. The CIT(A) dismissed the appellant's arguments, leading to the Tribunal's decision to uphold the denial of the benefit of accumulation of income under section 11(1)(a).

4. The final issue revolves around whether income earned by the assessee from rendering legal consultancy should be treated as exempt under section 11 or 12 of the Act. The Tribunal had to determine if the income from legal and consultancy services provided by the trust could qualify for exemption under these sections. The Tribunal found that the trust's activities did not align with the definitions of educational or charitable activities under the Income Tax Act. Despite the appellant's arguments regarding educational benefits to junior professionals, the Tribunal held that the trust's activities were commercial in nature and not eligible for exemption under section 11 or 12.

In conclusion, the Tribunal dismissed the appeal, affirming the decisions of the Assessing Officer and CIT(A) regarding the denial of exemptions and benefits under the Income Tax Act 1961. The judgment emphasized the commercial nature of the trust's activities and the inapplicability of exemptions meant for charitable or educational endeavors.