2018 (11) TMI 1645 - AT - Income Tax

Exemption u/s 11 - activities are charitable in nature or purely commercial - proviso to Section 2(15) - procuring raw material from African countries and distributing the same to its members as well as other concerns which has similar nature of business as those of the members of the assessee society. - HELD THAT - From the objects of the assessee society it is evident that such trading activity indulged by the assessee society is not mentioned in the objects of the assessee society. The activity of the assessee society viz. procuring raw materials from abroad and distributing the same will amount to pure commercial transaction because it is purely a trading activity generating substantial profits. There is no element of charity in this kind of activity indulged by the assessee society. It is not a case where the assessee had imported raw materials and distributed the same amongst its members and other commercial entities having same kind of business on cost to cost basis. The activity carried out by the assessee at the most benefit the members of the assessee society and certain commercial entities having same kind of business as that of the members of the assessee society and the public who purchases the produce of these entities. Hence this venture of the assessee society cannot be inferred beyond the scope of Advancement of any other object of general public utility - the proviso to section 2(15) would be applicable in the case of the assessee and accordingly the surplus earned by the assessee deserves to be brought under the ambit of tax - Decision in the assessee s own case 2016 (8) TMI 1445 - ITAT CHENNAI followed.. - Decided against assessee.

Summary

Issues:
1. Denial of benefit under Section 11 of the Act by holding activities as not charitable but commercial.

Analysis:

Issue 1: Denial of benefit under Section 11 of the Act by holding activities as not charitable but commercial

The case involved an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-17, Chennai, for the assessment year 2012-13, where the key issue was the denial of the benefit under Section 11 of the Act. The Assessing Officer (AO) held that the activities of the assessee were not charitable but purely commercial, thereby bringing the entire income under the tax ambit. The Tribunal referred to a previous case where it was observed that the assessee's trading activity of procuring raw materials from abroad and distributing them was purely commercial, generating substantial profits without any element of charity. The Tribunal concluded that the proviso to Section 2(15) of the Act applied to the assessee, and the surplus earned deserved to be taxed. The Commissioner, following the Tribunal's decision, confirmed the AO's order for the relevant assessment year, as the facts were similar to previous years. Consequently, the appeal was dismissed, as there was no infirmity in the Commissioner's order.

In conclusion, the Tribunal upheld the denial of the benefit under Section 11 of the Act, as the assessee's activities were deemed commercial rather than charitable, based on the trading nature of procuring and distributing raw materials without charitable intent. The decision was based on the proviso to Section 2(15) of the Act, and the appeal was dismissed accordingly.