2021 (5) TMI 1002 - AT - Income Tax

Exemption u/s 11 denied - addition applying principle of mutuality - AO denied exemption primarily on the reasoning that the assessee exists only for its members and its activities are directed only to the members; hence, it is a mutual concern - revenue bringing to tax the income earned by the assessee from interest and donation from non-members by applying the principles of mutuality - HELD THAT - In the facts of the present case, it is very much clear that the assessee has carried out activities in furtherance of its objects. In the process, the assessee might have earned some income by way of subscriptions, sale of publications, etc. However, this income earning activities of the assessee cannot be treated to be in the nature of trade, commerce or business. In any case of the matter, from its very inception the assessee has been granted exemption under section 11 of the Act. Only, in the impugned assessment years its claim of exemption has been denied. Though, it may be a fact that while granting exemption in earlier as well as subsequent assessment years no scrutiny assessment has been made; however, fact remains that assessee's claim of exemption has been accepted over the years - the activities/objects on the basis of which claim of exemption under section 11 of the Act was accepted in other assessment years have not changed in the impugned assessment years. In fact, the registration granted under section 12A of the Act still continues. That being the case, even applying the rule of consistency, assessee's claim of exemption under section 11 of the Act has to be allowed. The decisions relied upon by the learned counsel for the assessee clearly supports this view. Assessee having maintained its status as charitable organization is entitled for exemption under section 11 of the Act, subject to fulfillment of conditions prescribed under sections 11, 12 and 13 of the Act. However, in the facts of the present appeals there is no allegation by the departmental authorities that the assessee has violated any of the conditions of the aforesaid provisions, except, the allegation that the assessee is a mutual concern. That being the case, all its income including the interest and donations received from non-members would also be exempt from taxation. Addition to the income on the allegation that the surplus funds accumulated in assessment year 2005-06 has not been utilised before 2010-11 - contention of assessee that the assessee has already offered the amount of ₹ 1 lakh as income in the return of income filed for the assessment year 2010-11, therefore, no further addition should have been made - HELD THAT - Having considered rival submissions, I direct the assessing officer to verify assessee's claim and in case it is found that the assessee has already offered the amount of ₹ 1 lakh as income in assessment year 2010-11, addition should be deleted. This ground is allowed for statistical purpose.

Summary

Issues Involved:
1. Denial of exemption under section 11 of the Income-tax Act, 1961.
2. Application of the principles of mutuality.
3. Disallowance of ?1 lakh due to alleged non-utilization of accumulated funds.

Detailed Analysis:

1. Denial of Exemption under Section 11:
The core issue in the appeals revolves around the denial of the assessee's claim of exemption under section 11 of the Income-tax Act, 1961. The assessing officer contended that the assessee's activities primarily benefit its members, treating it as a mutual concern. Consequently, the interest income earned on deposits and part of the donations received from non-members were taxed, leading to the disallowance of the exemption under section 11. The Commissioner of Income-tax (Appeals) upheld this decision, emphasizing that mere registration under section 12A does not guarantee exemption unless the conditions of sections 11, 12, and 13 are fulfilled. The Commissioner further noted that the assessee's income from commercial activities disqualified it as a charitable organization under the proviso to section 2(15).

2. Application of the Principles of Mutuality:
The assessing officer and the Commissioner of Income-tax (Appeals) treated the assessee as a mutual concern, arguing that its activities were confined to its members. However, the assessee's counsel argued that the assessee's activities extend to the general public, including conducting seminars, webinars, and moot court competitions accessible to all. The counsel emphasized that the assessee's primary object is to spread education in tax laws and accountancy, qualifying it as a charitable organization under section 2(15). The Tribunal found that the assessee's activities were not limited to its members and were aimed at the general public, thus not falling under the principle of mutuality.

3. Disallowance of ?1 Lakh Due to Alleged Non-Utilization of Accumulated Funds:
For the assessment year 2011-12, an additional issue involved the disallowance of ?1 lakh on the grounds of non-utilization of accumulated funds. The assessee contended that this amount had already been offered as income in the return filed for the assessment year 2010-11. The Tribunal directed the assessing officer to verify this claim and, if found accurate, to delete the addition.

Conclusion:
The Tribunal held that the assessee maintained its status as a charitable organization and was entitled to exemption under section 11, subject to fulfilling the conditions of sections 11, 12, and 13. The Tribunal noted that the assessee's activities were not confined to its members and were aimed at the general public, thus not governed by the principle of mutuality. Additionally, the Tribunal directed the assessing officer to verify the assessee's claim regarding the ?1 lakh disallowance and delete the addition if the claim was substantiated. Consequently, ITA No. 4940/Mum/2019 was partly allowed, and ITA No. 4941/Mum./2019 was allowed.