2018 (7) TMI 1890 - AT - Income Tax

Exemption u/s 11(1) - charitable activity - receipt of fee or charge - advancement of object of any other general public utility - Held that - Hon ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(E) 2015 (1) TMI 928 - DELHI HIGH COURT upholding the constitutional validity of proviso to section 2(15) has laid down the strict and literal interpretation of the proviso to section 2(15) and has held that mere receipt of fee or charge will not mean that the assessee is involved in any trade, commerce or business. It is undisputed that the activities of the assessee society have not been doubted by the tax authorities and they continue to be regarded as charitable in nature. Accordingly we find no reason to interfere with the findings of the Ld. CIT (A) in this regard and we dismiss the grounds raised by the department.

Summary

Issues:
Interpretation of proviso to section 2(15) of the Income Tax Act, 1961 regarding charitable societies engaging in business activities.

Analysis:
The judgment dealt with an appeal by the department against an order concerning the assessment year 2010-11. The assessee, a society registered under the Society’s Registration Act, 1860 and u/s 12A of the Income Tax Act, received sponsorship fees during the year. The Assessing Officer contended that the society was engaged in business activities despite being a charitable entity. The issue revolved around the application of the proviso to section 2(15) of the Act, which limits exemption for income generated through business-like activities by charitable organizations.

The Ld. CIT (A) allowed the assessee's appeal, directing the Assessing Officer to grant exemption u/s 11(1) of the Act. The department challenged this decision before the ITAT, arguing that the sponsorship activities of the assessee constituted business operations, falling under the proviso to section 2(15). The Ld. CIT (A) relied on a judgment of the Delhi High Court, emphasizing a strict interpretation of the proviso and the dominant charitable purpose of the institution in question.

The ITAT examined the arguments and upheld the decision of the Ld. CIT (A), citing the Delhi High Court judgment. The High Court's ruling emphasized that the receipt of fees does not automatically classify an institution as engaged in trade, commerce, or business. It highlighted that the primary objective of the institution, not profit-making, determines its charitable status. The ITAT found no reason to interfere with the Ld. CIT (A)'s findings, as the activities of the assessee were considered charitable, and no contradictory judgments were presented.

In conclusion, the ITAT dismissed the department's appeal, affirming the decision of the Ld. CIT (A) based on the interpretation of the proviso to section 2(15) and the dominant charitable purpose of the society's activities. The judgment highlighted the importance of considering the motive behind an institution's actions to determine its charitable status under the Income Tax Act.