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2015 (5) TMI 862 - AT - Income TaxBenefit of Section 11 - whether Registration U/S 12A does not automatically guarantee exemption from income tax U/S 11 of the Act? - whether registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order? - Held that - The impugned order passed by the Ld. CIT(A) is contrary to the law and facts and on the file by holding that once registration has been granted u/s. 12A of the I.T. Act, AO cannot override exemption while passing the assessment order. We have discussed in detail assessee-trust u/s 12AA of the Act as has been granted in the present appeal, then it will not be precluded to the AO to examine in details the every object of the society and to give finding in the assessment order as to whether the assessee has complied with the requirement of section 11 of the Act or not as to when the assessee is seeking exemption u/s. 11 of the I.T. Act. The registration granted u/s. 12AA of the Act to the assessee should not be obstacle in the way of AO, at the time when the assessment proceedings are to be taken and to decide as to whether the assessee is entitled for the benefit of section 11 and 12 of the I.T. Act as the case may be. After examining the Income and Expenditure Statement of the assessee for the asstt. year in dispute, we are of the view that the assessee has not incurred any expenditure for charitable purpose, as per their aims and objects. Therefore, the activities of the assessee is not charitable in nature and is commercial in nature. In view of the aims and objects of the assessee-society and the activities done by the assessee, we are of the view that the printing and stationery of the books fall under the general public utility limb of definition u/s. 2(15) of the I.T. Act, 1961 and not an education, because the activities of the society is not pertaining to systematic instructions school or training. After going through the orders passed by the Revenue Authorities as well as the documentary evidence filed by the assessee in the shape of Paper Book, we are of the considered view that assessee has not proved that activities done by the assessee for the asstt. years in dispute is charitable in nature, as per the provisions of section 2(15) of the I.T. Act. We find that the Ld. First Appellate Authority has passed the impugned order and granted the exemption u/s. 11 and 12 of the I.T., Act to the assessee, which is contrary to the law and facts on the file, therefore, the order is not sustainable in the eyes of law, hence, we cancel the impugned orders by allowing all the appeals filed by the Revenue. - Decided against assesse.
Issues Involved:
1. Whether the activities of the assessee society are charitable in nature under Section 2(15) of the Income Tax Act. 2. Whether the assessee is entitled to exemption under Sections 11 and 12 of the Income Tax Act. 3. Whether the assessee has violated the provisions of Section 11(4A) by not maintaining separate books of accounts. 4. Whether the accumulation of funds by the assessee is in accordance with Section 11(2) of the Income Tax Act. Detailed Analysis: 1. Charitable Nature of Activities: The primary issue was whether the activities of the assessee society, which involved the publication and sale of textbooks, were charitable in nature under Section 2(15) of the Income Tax Act. The Assessing Officer (AO) argued that the activities were commercial since the society earned substantial profits (around 40%) from the sale of books. The AO held that such profit-oriented activities could not be considered charitable. The Tribunal upheld this view, stating that the activities were in the nature of business and not charitable, as they involved systematic trade and commerce. 2. Entitlement to Exemption under Sections 11 and 12: The AO denied the exemption under Sections 11 and 12, arguing that the assessee's activities did not qualify as "education" under the Income Tax Act. The AO cited various judgments, including the Supreme Court's decision in Sole Trustee, Loka Shikshana Trust vs. CIT, which defined "education" narrowly as systematic instruction and training. The Tribunal agreed with the AO, stating that the publication and sale of textbooks did not fall under the educational limb of Section 2(15) and were instead activities of general public utility. 3. Violation of Section 11(4A): The AO also contended that the assessee violated Section 11(4A) by not maintaining separate books of accounts for its business activities. The Tribunal supported this view, emphasizing that maintaining separate books is mandatory for claiming exemption under Section 11. The failure to do so disqualified the assessee from the exemption benefits. 4. Accumulation of Funds under Section 11(2): The AO observed that the assessee accumulated funds without specifying the purposes, which violated Section 11(2). The Tribunal agreed, noting that the accumulation was not wholly for charitable purposes and exceeded the permissible limit of 15%. The Tribunal cited the Supreme Court's decision in Nachimuthu Industrial Association vs. CIT to support its view that such unspecified accumulation disqualified the assessee from claiming exemption. Conclusion: The Tribunal concluded that the activities of the assessee society were commercial and not charitable. It held that the assessee was not entitled to exemption under Sections 11 and 12 due to the commercial nature of its activities, the failure to maintain separate books of accounts, and the improper accumulation of funds. The Tribunal canceled the order of the CIT(A) and restored the AO's assessment, denying the exemption to the assessee. Order: All four appeals filed by the Revenue were allowed, and the Tribunal's order was pronounced in the Open Court on 23/4/2015.
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