2019 (7) TMI 2003 - AT - Income Tax

Exemption u/s 11 - assessee received corpus contribution from Govt. of India and corpus contribution from SIDBI - charitable activity u/s 2(15) - AO held receipts are liable to be taxed as income u/s 2(24)(iia) of the Act and accordingly passed assessment order u/s 143 (3) - Whether assessee performs charitable activities within the meaning of proviso to section 2(15)? - as per DR the activities of the assessee are akin to those of a mutual association and do not fall within the definition of charitable purposes - HELD THAT - As decided in assessee own case for the AY 2010-11. 2017 (1) TMI 1145 - ITAT MUMBAI prescribed in the trust-deed that the Government of India was liable to make up the deficit, if any, incurred in the overall operation of the scheme by providing the necessary budgetary support to the Trust. It is also prescribed in the trust-deed that the entire income arising out of corpus fund shall be spent towards fulfilling the objectives of the Trust and even savings effected in any year were to be transferred to the corpus fund to be spent towards fulfilling the objectives of the Trust. The trust- deed also prescribes the manner in which the scheme is to be implemented and it also provides for a Board of Trustees, whereby the Chairman Managing Director of SIDBI is to be its Ex- officio Chairman and other members being drawn from the officials of the Government of India. The Management and administrative affairs of the Trust are under the overall supervision and superintendence of the Board of Trustees. Thus object and purpose of the Trust is focussed on small scale industries and micro enterprises and is not available to entrepreneurs at large. Apart there-from, it is also prescribed in the scheme operationalized by the Trust that the benefits are to be made available only to credit facilities aggregating upto Rs.10.00 lacs sanctioned and disbursed by the lending institutions. Therefore, considering the focused area of the Trust, it could not be inferred that there is any profit motive so as to view the activities to be 'trade, commerce or business as understood for the purposes of proviso to section 2(15) of the Act. Therefore, in our considered opinion, on facts, it is not possible to infer that assessee Trust is carrying on any regular 'trade, commerce or business' and on the contrary it is an entity which is essentially existing for charitable purposes but conducting some activities for consideration or fee. In this background, the proviso to section 2(15) of the Act cannot be invoked to exclude assessee Trust from the purview of section 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business cannot be invoked to exclude assessee Trust from the purview of section 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee performs charitable activities within the meaning of proviso to section 2(15) of the Income Tax Act, 1961.
2. Whether the assessee is entitled to exemption under section 11 of the Income Tax Act, 1961.
3. Whether the activities of the assessee, involving guarantees or counter guarantees for credit facilities against fees, indicate a profit motive.
4. Whether corpus donations received by the assessee should be treated as taxable income.

Issue-wise Detailed Analysis:

1. Charitable Activities under Section 2(15):
The revenue challenged the CIT(A)'s reliance on the ITAT's decision in the assessee's case for AY 2010-11, which held that the assessee performs charitable activities. The ITAT had previously examined the trust's formation and objectives, noting that it was established by the Government of India and SIDBI to support small scale industries facing credit access issues. The ITAT concluded that the trust's activities, aimed at facilitating credit for small industries without collateral, were charitable in nature despite the collection of fees, as there was no profit motive.

2. Exemption under Section 11:
The CIT(A) directed the AO to allow exemption under section 11, following the ITAT's earlier decision. The ITAT had found that the trust's objectives aligned with charitable purposes, focusing on aiding small scale industries and micro enterprises. The ITAT emphasized that mere fee collection did not imply a profit motive, and thus, the trust was entitled to exemption under sections 11 and 12.

3. Profit Motive and Fee Collection:
The revenue argued that the trust's fee-based activities for providing guarantees indicated a profit motive, violating the proviso to section 2(15). However, the ITAT reiterated that the trust's primary objective was to support small industries, not to conduct business for profit. The ITAT noted that the trust's activities were not regular trade, commerce, or business but were conducted for charitable purposes, thus not triggering the proviso to section 2(15).

4. Taxability of Corpus Donations:
The AO had treated corpus donations from the Government of India and SIDBI as taxable income. The ITAT, referencing its earlier decision, directed that such contributions to the corpus should not be taxed, as they were intended to support the trust's charitable objectives. The ITAT instructed the AO to recompute the income, excluding these corpus donations, in line with the benefits of sections 11 and 12.

Conclusion:
The ITAT upheld the CIT(A)'s order, dismissing the revenue's appeal. The ITAT confirmed that the assessee's activities were charitable, entitled to exemption under section 11, and that corpus donations should not be treated as taxable income. The decision was consistent with the ITAT's ruling in the assessee's case for AY 2010-11, with no changes in facts warranting a different conclusion.

Order:
The appeal filed by the revenue for assessment year 2014-2015 is dismissed. The order was pronounced in the open court on 30th July, 2019.