2017 (9) TMI 1892 - AT - Income Tax

Exemption u/s 11 - treating the activities as not being charitable - revenues earned from trade exhibitions, program fees, publication revenue, revenue from use of facilities, advertisement on website video cassettes hiring charges etc. fell under clause a, b and c of proviso of Sec.2(15) - HELD THAT - We find that as per the Memorandum of Association, the income / profit of the assessee are to be applied solely for the promotion of the objects set forth in its Memorandum and no portion of income of the property can be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to any person. Before us, no material has been placed by Revenue to demonstrate that the assessee has in any way distributed or paid bonus or dividends. Further, before us, no material has been placed on record by Revenue to show that the dominant activity of the assessee was trade, business or commerce and the driving force was to earn profit. We find that Ld.CIT(A) while deciding the issue has given a finding that the activities undertaken by the assessee seen with reference to the dominant activity of the Trust shows that it has been carried out for the advancement of the dominant object of the Trust and the fees generation is only incidental to the activities carried out by the assessee and are not hit at all by the proviso to Sec.2(15) of the Act. Before us, Revenue has not placed any material on record to controvert the findings of Ld.CIT(A). Inview of the aforesaid facts, we find no reason to interfere with the order of Ld.CIT(A) and thus the grounds of Revenue are dismissed.

Summary

Issues Involved:
1. Whether the activities of the assessee trust are intended for the purpose of earning profit, thereby affecting its claim for exemption under section 11 of the Income Tax Act.
2. Whether the activities of the assessee fall under the category of 'advancement of any other object of general public utility' as per section 2(15) of the Income Tax Act, which would disqualify it from exemption if receipts exceed ?25 lakhs.

Issue-wise Detailed Analysis:

1. Profit Motive and Exemption under Section 11:
The primary issue was whether the activities of the assessee trust were intended to earn profit, which would affect its claim for exemption under section 11 of the Income Tax Act. The assessee, a company registered under section 25 of the Companies Act, 1956, claimed to operate as a "not for profit" organization promoting trade, industry, commerce, and agriculture. The Assessing Officer (AO) observed that the assessee had substantial receipts from various activities, which he believed were commercial in nature, and thus denied the exemption under section 11. The Commissioner of Income Tax (Appeals) [CIT(A)], however, found that the activities were carried out for the advancement of the dominant objective of the trust, and any surplus generated was incidental and not with a profit motive. The Tribunal upheld the CIT(A)'s decision, noting that no evidence was presented by the Revenue to show that the assessee distributed profits or that its dominant activity was profit-driven.

2. Advancement of General Public Utility and Proviso to Section 2(15):
The second issue was whether the assessee's activities fell under the proviso to section 2(15) of the Income Tax Act, which excludes entities from being considered charitable if they engage in trade, commerce, or business activities and their receipts exceed ?25 lakhs. The AO argued that the assessee's activities, such as trade exhibitions and program fees, were commercial. However, the CIT(A) and the Tribunal found that these activities were conducted to advance the dominant objective of promoting trade, commerce, and industry, and any surplus was incidental. The Tribunal referenced various judicial decisions, including those from the Delhi High Court and Gujarat High Court, which supported the view that incidental generation of surplus does not disqualify an entity from being considered charitable if the dominant objective is not profit-driven.

Conclusion:
The Tribunal concluded that the assessee's activities were not intended for profit and were conducted to advance its dominant objective of promoting trade, commerce, and industry. The surplus generated was incidental and did not affect its charitable status. Thus, the assessee was entitled to exemption under section 11, and the appeals of the Revenue were dismissed for both assessment years 2010-11 and 2011-12. The Tribunal's decision was based on the lack of evidence from the Revenue to counter the findings of the CIT(A) and the consistent judicial interpretation supporting the assessee's position.