2013 (3) TMI 823 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility of the assessee to claim exemption u/s 11 of the Income Tax Act.
2. Applicability of the principle of mutuality to the assessee's income.
3. Whether the assessee's income is liable for wealth tax.

Summary:

Issue 1: Eligibility for Exemption u/s 11 of the Income Tax Act
The assessee, a society registered under the Societies Registration Act, 1975, and also u/s 12A(a) of the Income Tax Act since 4.7.1983, claimed exemption u/s 11 and 12 based on its charitable activities. The Assessing Officer denied the exemption for the assessment years 1986-87 to 1993-94, stating that the assessee's predominant activity was importing and distributing wattle extract to its members, resulting in surplus income. The CIT(Appeals) ruled in favor of the assessee, stating that its primary object was research and development for the leather industry, which is charitable in nature. The Tribunal upheld this view, emphasizing that the assessee's activities, including the import and distribution of wattle extract, were incidental to its charitable purpose of reducing pollution and benefiting the public. The Tribunal concluded that the assessee was entitled to exemption u/s 11 and 12.

Issue 2: Applicability of the Principle of Mutuality
The CIT(Appeals) and the Tribunal held that the principle of mutuality applied to the assessee. The surplus arising from the distribution of wattle extract among its members was not due to any profit motive but was incidental to the recovery of costs. The Tribunal noted that the assessee was a mutual benefit society, and its activities did not constitute a business. The High Court remitted the matter back to the Tribunal to specifically address the eligibility for exemption u/s 11, without disturbing the finding on mutuality.

Issue 3: Liability for Wealth Tax
The CIT(Appeals) and the Tribunal ruled that since the assessee was eligible for exemption u/s 11 and 12, it was not liable for wealth tax. The High Court directed the Tribunal to pass appropriate orders under the Wealth Tax Act, consequent to its findings on the Income Tax exemption.

Conclusion:
The Tribunal, after considering the directions from the High Court, reaffirmed that the assessee was eligible for exemption u/s 11 and 12 of the Income Tax Act for the relevant assessment years. Consequently, the assessee was also not liable for wealth tax. The appeals of the Revenue were dismissed.