2016 (6) TMI 782 - AT - Income Tax

Eligibility for exemption under section 11 denied - as per revenue assessee is charging fees for issuing certificate of origin, it amounts to commercial activity, therefore, no element of charity remains in the object of the assessee - Held that - Once the High Court in assessee s own case for the assessment years 1967-68 to 1969-70 found that the fees received by the assessee for arbitration and issuance of certificate are incidental to the main activity, the Revenue cannot contend now that the activity of issuing certificate of origin amounts to trade or commerce. Therefore, this Tribunal is of the considered opinion that even though the assessee is receiving fees for issuing certificate of origin, that does not amount to a commercial activity. As found by the Madras High Court, the activity of receiving fee and issuing certificate of origin is only incidental to the main activity. Therefore, this Tribunal is of the considered opinion that the assessee is eligible for exemption under section 11 of the Act. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow the exemption under section 11 of the Act to the assessee provided the income is applied for charitable activity in furtherance to its objects. - Decided in favour of assessee

Summary

Issues:
- Disallowance of exemption claim under section 11 of the Income-tax Act, 1961 for a charitable institution due to exceeding receipts and nature of activities.

Analysis:
The judgment deals with appeals by a charitable institution against the disallowance of exemption under section 11 of the Income-tax Act for the assessment years 2009-10 and 2010-11. The main issue revolves around whether the institution's activities, specifically charging fees for services like certificate of origin, fall within the scope of commercial activities, thereby disqualifying it from claiming the exemption.

The assessee, a charitable institution registered under section 12AA of the Act, claimed exemption under section 11 but faced disallowance by the Assessing Officer due to exceeding receipts and the nature of its activities. The Commissioner of Income-tax (Appeals) upheld the disallowance, stating that charging fees for services like certification of origin is akin to a business receipt, thus not qualifying for exemption under section 11.

The senior counsel for the assessee argued that the institution's activities, including issuing certificates of origin, are incidental to its main charitable purpose, citing a judgment by the Madras High Court in the institution's favor for previous assessment years. The counsel contended that the fees received for issuing certificates are not commercial in nature but rather ancillary to the primary charitable objective.

On the contrary, the Departmental representative argued that the institution's activities, such as charging fees for certificates of origin, are profit-motivated and commercial in nature, making it ineligible for exemption under section 11. The representative emphasized that even with registration under section 12AA, the Assessing Officer must independently assess the institution's eligibility for exemption.

The Tribunal, after considering both sides' submissions and the Madras High Court's judgment in the institution's favor for previous years, concluded that the fees received for issuing certificates of origin are incidental to the institution's main charitable activity. As per the Tribunal, this activity does not amount to trade or commerce, and the institution remains eligible for exemption under section 11. Therefore, the Tribunal set aside the lower authorities' orders and directed the Assessing Officer to allow the exemption under section 11, provided the income is utilized for charitable purposes in line with the institution's objectives.

In conclusion, the Tribunal allowed both appeals of the assessee, emphasizing that the institution's activities, including charging fees for services like certificate of origin, do not disqualify it from claiming exemption under section 11, as these activities are deemed incidental to its primary charitable purpose.