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2014 (6) TMI 1025 - AT - Income TaxExemption u/s 11 denied - cancellation of the registration u/s. 12AA (3) - AO brought to tax the income of the assessee as AOP denying the benefit - whether activities of the society are in the nature of general public utility generating profit ? - HELD THAT - As decided in assessee's own case 2013 (3) TMI 823 - ITAT CHENNAI we are of the view that the assessee is entitled for exemption under sections 11 12 of the Act and accordingly, allow the appeal of the assessee and further hold that the reference made by the Ld.AO to the Ld.DIT (E) recommending cancellation of the registration U/s. 12AA (3) of the Act to be erroneous. It is pertinent to mention that the Tribunal has been persistently holding that the assessee society functions under the concept of Mutuality and the activities embedded in the Memorandum of Association of the society are charitable. Further the decisions of the case relied upon by the Revenue is not applicable to the facts of the relevant case before us. Therefore we hereby direct the Revenue to delete the tax imposed on the assessee by withdrawing the benefit U/s. 11 12 - Decided in favour of assessee.
Issues Involved:
1. Applicability of the principle of mutuality to the assessee society. 2. Eligibility of the assessee society for exemption under Sections 11 and 12 of the Income Tax Act. 3. Applicability of Circular No.11/2008 dated 19.12.2008 issued by CBDT. 4. Determination of whether the assessee society's activities fall under 'general public utility'. 5. Relevance of the assessee's previous Tribunal decisions. 6. Recommendation for cancellation of registration under Section 12AA(3) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Applicability of the Principle of Mutuality: The assessee society argued that it operates under the principle of mutuality, as it consists solely of members engaged in the leather and tannery industry, and its main activity is to import and distribute wattle extract among its members. The society retains only a minimal surplus to cover its operational expenses. The Tribunal found that the society's activities were restricted to its members, and there was no clear evidence of trading with non-members. Thus, the principle of mutuality applies, and the proviso to Section 2(15) of the Act does not apply. 2. Eligibility for Exemption under Sections 11 and 12: The Tribunal noted that the assessee society was registered under Section 12A(a) and had not violated any of its charitable objectives. The society's predominant object was charitable, and any surplus generated from its activities was incidental to its primary purpose. The Tribunal cited previous decisions where the assessee was granted exemption under Sections 11 and 12, reinforcing that the society is entitled to such exemptions. 3. Applicability of Circular No.11/2008: The Tribunal referred to CBDT Circular No.11/2008, which clarifies that entities claiming to be charitable and mutual organizations, with activities restricted to their members, do not fall under the proviso to Section 2(15). Since the assessee society's activities were confined to its members, the circular was deemed applicable, supporting the society's claim for exemption. 4. Activities Falling Under 'General Public Utility': The Tribunal observed that the society's objects, such as importing and distributing wattle extract among its members, were aligned with its charitable purpose. The society's activities did not constitute a business carried out for profit but were incidental to its primary charitable objective. Thus, the society's activities were considered to fall under 'general public utility'. 5. Relevance of Previous Tribunal Decisions: The Tribunal referred to its earlier decision in the assessee's case for the assessment years 1989-90 to 1991-92, where it was held that the society's activities were charitable and entitled to exemption under Sections 11 and 12. The Tribunal found the facts and circumstances for the relevant assessment year to be identical to those in the previous decision, reinforcing the applicability of the earlier ruling. 6. Recommendation for Cancellation of Registration under Section 12AA(3): The Tribunal found the Assessing Officer's recommendation for cancellation of the society's registration under Section 12AA(3) to be erroneous. The society's registration had not been canceled or amended, and its activities were consistent with its charitable objectives. Therefore, the recommendation for cancellation was not justified. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the society is entitled to exemption under Sections 11 and 12 of the Income Tax Act. The principle of mutuality applies, and the proviso to Section 2(15) does not. The Tribunal directed the Revenue to delete the tax imposed by withdrawing the benefit under Sections 11 and 12 and found the recommendation for cancellation of registration under Section 12AA(3) to be erroneous. The appeal was allowed in favor of the assessee.
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