2023 (1) TMI 1346 - AT - Income Tax

Benefit of exemption u/s 11 and 12 - exemption denied on income from exhibition - assessee has been registered for the charitable purpose of advancement of any other object of general utility for promotion of export of gems and Jewellery therefore the activity of conducting exhibitions being in the nature of trade commerce or business the assessee is not entitled for exemption - whether the activity of conducting exhibitions trade fair by the assessee amounts to trade commerce or business or activity of rendering services in relation to trade commerce or business? - HELD THAT - The proviso to section 2(15) is attracted in case charitable activity in the nature of general public utility . The issues adjudicated by the Hon ble Supreme Court in Ahmedabad Urban development authority 2022 (11) TMI 255 - SUPREME COURT are related to determining the scope of the phrase general public utility (GPU) in the definition of charitable purposes primarily on the grounds that the institutions were carrying on trade commerce or business for consideration which does not qualify as GPU under the provisions of the Act as amended by Finance Act (FA) 2008 read with subsequent amendments. Before the Hon ble supreme court (supra) in the cases of most of the entities there is no dispute as to the activities involved in the appeal qualified as GPUs within the meaning of the term charitable purposes but the dispute was in respect of the meaning of fee cess or other consideration and its impact on construing whether the activity falls under to the description of trade commerce or business . Hon ble Supreme Court held that where fee cess or other consideration is statutorily fixed or where it represents recoupment of cost or cost with nominal mark up the activity may not be construed as trade commerce or business and will be excluded from the mischief of commercial activity under the amended provision. If however fee cess or other consideration charged is substantially higher over cost it is tainted with trade commerce or business and will qualify for tax exemption only if receipts are within the quantitative limit prescribed by the amended provision. As in the instant case it is evident that assessee has charged fee or consideration for conducting exhibitions or trade fair is slightly below the cost. The Hon ble Supreme Court has held that activity of renting space to individual exhibitors or exporters in the exhibition or trade fair is a service in relation to trade commerce or business but in the instant case there being no markup on consideration charged from the exporter therefore in the broad principles laid down by the Hon ble Supreme Court the activity is beyond the purview of either trade commerce and business or activity of rendering services in relation to trade commerce or business. Counsel also referred to the annual report for the year under consideration having discussion regarding promoting brand India by way of holding of exhibitions and participation in exhibitions held by overseas trade promotion bodies. We are of the opinion that assessee is not hit by the proviso to section 2(15) of the Act as far as activity of conducting or participating in exhibitions within India or overseas and therefore the disallowance of exemption claimed by the assessee made by the Assessing Officer and the finding of the Ld. CIT(A) on the issue in dispute are set aside and matter restore back to grant benefit of section 11 and 12 as per provisions of law. The ground No. 1 to 4 of the appeal of the assessee are accordingly allowed for statistical purposes. Also as the claim of exemption under section 11 has been allowed to the assessee by us therefore the Assessing Officer is directed to allow the claim of the assessee of carryforward of the deficit.

Issues Involved:
1. Denial of exemption under section 11 of the Income-tax Act.
2. Applicability of proviso to section 2(15) of the Income-tax Act.
3. Denial of carryforward of deficit from earlier years.
4. Deduction for acquisition of fixed assets.
5. Set-off of deficit of earlier years against current year's income.

Detailed Analysis:

1. Denial of Exemption Under Section 11 of the Income-tax Act:
The primary issue was whether the assessee's activities, particularly organizing exhibitions and trade fairs, constituted a commercial activity, thereby disqualifying it from the exemption under section 11. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] denied the exemption, asserting that these activities were in the nature of trade, commerce, or business, thus invoking the proviso to section 2(15). The Tribunal examined the historical context, the nature of the assessee's activities, and the Supreme Court's judgment in the Ahmedabad Urban Development Authority case. It concluded that since the exhibitions were conducted at a loss, they did not constitute a commercial activity. Therefore, the exemption under section 11 should be allowed.

2. Applicability of Proviso to Section 2(15) of the Income-tax Act:
The Tribunal analyzed whether the proviso to section 2(15), which excludes entities involved in trade, commerce, or business from being considered charitable, applied to the assessee. The Tribunal referred to the Supreme Court's interpretation, which clarified that activities conducted at cost or with a nominal markup do not fall under trade, commerce, or business. Given that the assessee's exhibitions were conducted at a loss, the proviso to section 2(15) did not apply. The Tribunal emphasized that the assessee's activities were aimed at promoting Indian gems and jewelry, aligning with its charitable objectives.

3. Denial of Carryforward of Deficit from Earlier Years:
The assessee contested the denial of carryforward of deficit, citing a precedent where the jurisdictional High Court allowed such carryforward. The Tribunal upheld the assessee's claim, directing the AO to allow the carryforward of the deficit, consistent with the High Court's ruling. This decision was based on the principle of consistency and the fact that the exemption under section 11 was granted.

4. Deduction for Acquisition of Fixed Assets:
The assessee claimed a deduction for amounts spent on acquiring fixed assets. The CIT(A) upheld the AO's denial of this deduction. However, since the Tribunal granted the exemption under section 11, it directed the AO to reconsider the deduction for fixed assets in light of the allowed exemption.

5. Set-off of Deficit of Earlier Years Against Current Year's Income:
The Tribunal addressed the issue of setting off the deficit of earlier years against the current year's income. The CIT(A) had denied this set-off, but the Tribunal, following the High Court's precedent, directed the AO to allow the set-off. This decision was contingent on the allowance of the exemption under section 11.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO to grant the exemption under section 11, permit the carryforward of the deficit, and reconsider the deduction for fixed assets. The Tribunal's decisions were heavily influenced by the Supreme Court's judgment in the Ahmedabad Urban Development Authority case and the principle of consistency with previous rulings.

← Previous Next →