2019 (6) TMI 1448 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - whether or not the CIT(A) was justified the expenses like assistance to voluntary agencies management assistance and training public education programme research and publications and expenses for community service as application of income for the purposes of Section 11 of the Act.? - HELD THAT - As we have noted earlier one of the major object of the assessee society is mobilizing resources from the local communities and the people having affiliation and concern for India in general and Gujarat in particular residing in India or abroad and to apply them for strengthening the services in education health and human care and other social sectors existing in Baroda and State of Gujarat and there is also no dispute that considerable work in this area has been carried out in this area as evident from the material produced before the Assessing Officer copies of which have been filed before us as well. The genuineness of this object and furtherance of this object cannot even be doubted. We are satisfied that the activities carried out by the assessee are in the nature of education medical relief and help to poor which are specifically covered by section 2(15) and not by its residuary segment. The proviso to Section 2(15) thus indeed has no application in the matter. As for the denial of deduction in respect of expenses like assistance to voluntary agencies management assistance and training public education programme research and publications and expenses for community service that is only consequential in nature inasmuch as the deductions were declined in computation of business income from garba event but then once the proviso to Section 2(15) is held to be inapplicable on the facts of this case these expenses are to be treated as application of income. Learned representatives do not dispute this position.

Summary

Issues Involved:
1. Justification of CIT(A) in giving the benefit of Section 11 of the Income Tax Act by deleting the addition of Rs. 1,85,46,802/-.
2. Justification of CIT(A) in treating certain expenses as application of income for the purposes of Section 11 of the Income Tax Act.
3. Whether the order of the Assessing Officer should be upheld.

Detailed Analysis:

Issue 1: Justification of CIT(A) in Giving the Benefit of Section 11 by Deleting the Addition of Rs. 1,85,46,802/-
The primary contention was whether the CIT(A) was justified in holding that the proviso to Section 2(15) of the Income Tax Act would not apply to the assessee's case, thereby allowing the benefit of Section 11. The assessee, a society registered as a charitable institution under Section 12AA, filed a return showing NIL income and claimed exemption under Section 11. The Assessing Officer (AO) noted that a significant portion (71.72%) of the assessee's revenue was from organizing a garba event, which he deemed a commercial activity. The AO invoked the proviso to Section 2(15) and disallowed the exemption under Section 11.

The CIT(A) reversed the AO's decision, noting that the assessee's primary objectives included education, health, and human care, which fall under the first three limbs of "charitable purpose" as defined in Section 2(15). The CIT(A) argued that the garba event was a fundraising activity to support these charitable objectives and not a commercial activity. The Tribunal upheld the CIT(A)'s decision, emphasizing that the proviso to Section 2(15) applies only to activities under the fourth limb, "advancement of any other object of general public utility," and not to activities related to education, medical relief, or relief to the poor.

Issue 2: Justification of CIT(A) in Treating Certain Expenses as Application of Income for the Purposes of Section 11
The AO had disallowed several expenses, including assistance to voluntary agencies, management assistance and training, public education programs, research and publications, and community service expenses, treating them as non-charitable. The CIT(A) held these expenses as application of income for charitable purposes under Section 11, given that the primary objectives of the assessee were charitable.

The Tribunal agreed with the CIT(A), noting that these expenses were in line with the assessee's charitable objectives. Since the proviso to Section 2(15) was deemed inapplicable, these expenses were rightly treated as application of income.

Issue 3: Whether the Order of the Assessing Officer Should be Upheld
The AO's order was based on the premise that the garba event was a commercial activity. However, the CIT(A) and the Tribunal found that the primary objectives of the assessee were charitable and that the garba event was a means to raise funds for these charitable activities. The Tribunal upheld the CIT(A)'s decision, rejecting the AO's view that the assessee's activities were commercial in nature.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, granting the benefit of Section 11 to the assessee and treating the disputed expenses as application of income for charitable purposes. The appeals by the AO were dismissed, and the CIT(A)'s order was affirmed in all respects. The Tribunal emphasized that the proviso to Section 2(15) does not apply to activities related to education, medical relief, or relief to the poor, even if they generate surplus funds.