2019 (6) TMI 1516 - AT - Income Tax

Exemption u/s 11 - Assessee registered under section 12A under sixth limb of the definition of charitable purposes as given in section 2(15) - HELD THAT - It is pertinent to note that registration under section 12A was granted to the assessee by the Income Tax Department after considering its objects which, inter alia, included to assist and encourage the application of science and scientific methods to the manufacture and utilization of leather and allied products by the publication of journal and other literature or by the holding of meeting from time to time, or otherwise to organize exhibitions, symposium etc. for defusing among the technologists knowledge and information relating to leather and allied industries to create public interest in leather science by organizing popular scientific talks and by defusing basic and applied scientific knowledge and in pursuance of these objects, which were considered as charitable while granting registration u/s 12A to the assessee, exhibitions were organized by the assessee known as LEXPO during the year under consideration and income from Stalls rent and entry ticket charges was generated. There was also income generated by the assessee from sale of publication. In the return of income filed for the year under consideration, exemption under section 11 was claimed by the assessee for the said income but the said exemption was denied by the AO in the assessment completed under section 143(3) by relying on the proviso to section 2(15) as amended w.e.f. A.Y. 2009-10 as well as the provisions of section 28(iii) of the Act. Similar issue was involved in the case of Credai Bengal 2016 (11) TMI 600 - ITAT KOLKATA it was held by the Tribunal that where assessee s object of promotion of construction industry in India had been accepted by the Revenue for granting registration under section 12AA, merely because the assessee held fairs in India and abroad which generated surplus fund to the assessee, it being incidental to main object of the assessee could not be said to be commercial activity of the assessee and there was no violation of the provisions of section 2(15). Ratio of the decision of the Tribunal rendered in the case of Indian Chamber of Commerce 2014 (12) TMI 256 - ITAT KOLKATA as well as in the case of Credai Bengal 2016 (11) TMI 600 - ITAT KOLKATA is squarely applicable in the present case and respectfully following the same, I set aside the impugned orders of the ld. CIT(Appeals) on the issue under consideration and direct the Assessing Officer to grant exemption under section 11 to the assessee for both the years under consideration as claimed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under section 11 of the Income Tax Act, 1961.
2. Application of the 1st Proviso to section 2(15) of the Income Tax Act, 1961.
3. Classification of income from organizing events (LEXPOs) as trade, commerce, or business.
4. Characterization of activities (stall hiring, entry ticket fees) as adventures in the nature of trade with profit motive.
5. Invocation of section 28(iii) of the Income Tax Act, 1961.
6. Levy of interest under section 234B.

Detailed Analysis:

1. Denial of Exemption under Section 11:
The assessee, an institution registered under section 25 of the Companies Act, 1956, and section 12A of the Income Tax Act, 1961, claimed exemption under section 11 for income generated from organizing exhibitions and sale of publications. The Assessing Officer (AO) denied this exemption, citing the amended section 2(15) which excludes activities involving trade, commerce, or business from being considered charitable purposes if they involve a cess, fee, or other consideration. The AO classified the income from organizing exhibitions as business income under section 28(iii), thus denying the exemption.

2. Application of the 1st Proviso to Section 2(15):
The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] applied the 1st Proviso to section 2(15), arguing that the assessee's activities were in the nature of trade, commerce, or business. The CIT(A) upheld the AO's decision, stating that the services provided were limited to those engaged in the leather business and not for the general public utility. The CIT(A) emphasized that the activities were commercial, as fees were charged for stalls and entry tickets.

3. Classification of Income from Organizing Events (LEXPOs):
The income from organizing LEXPOs, including stall rent and entry ticket charges, was treated as business income by the AO. The CIT(A) confirmed this classification, noting that the activities were aimed at promoting leather business and involved charging fees, thus indicating a profit motive.

4. Characterization of Activities as Trade with Profit Motive:
The CIT(A) characterized the activities of stall hiring and collection of entry ticket fees as adventures in the nature of trade with a profit motive. This characterization contributed to the denial of the exemption under section 11.

5. Invocation of Section 28(iii):
The AO invoked section 28(iii), which includes income derived by a trade, professional, or similar association from specific services provided to its members. The CIT(A) upheld this invocation, asserting that the income was derived from business activities aimed at specific services for members of the leather trade.

6. Levy of Interest under Section 234B:
The CIT(A) also confirmed the levy of interest under section 234B amounting to ?85,140/-, which was consequential in nature.

Tribunal's Decision:
The Tribunal examined the arguments and relevant judicial pronouncements. It noted that the assessee was granted registration under section 12A after considering its charitable objects. The Tribunal referenced the case of Indian Chamber of Commerce vs. ITO, where it was held that income from specific services to members, even if treated as business income under section 28(iii), would still qualify for exemption under section 11 if there was no profit motive. The Tribunal also cited the case of Credai Bengal vs. CIT (Exemption), where it was held that surplus generated from fairs incidental to the main charitable object did not constitute commercial activity.

Conclusion:
The Tribunal concluded that the primary purpose of the assessee was charitable, and the activities carried out were incidental to this purpose. The income generated from these activities did not constitute business income under the amended section 2(15) or section 28(iii). Consequently, the Tribunal set aside the orders of the CIT(A) and directed the AO to grant the exemption under section 11 for both assessment years. The appeals of the assessee were allowed.