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2016 (7) TMI 107 - AT - Income TaxExemption u/s.11 declined - whether proviso to section 2(15) was applicable to the assessee which was introduced w.e.f. assessment year 2009-2010? - The main objects of the assessee trust inter alia are to promote, advance and protect trade, commerce and industry in India - Held that - Respectfully following the decision of co-ordinate bench in the case of Indian Chambers of Commerce & Industry 2014 (12) TMI 256 - ITAT KOLKATA , wherein after discussing various High Court and Supreme Court judgement the Tribunal reached to the conclusion that even after amendment of section 2(15) of the Act w.e.f. 01.04.2009, assessee association s having primary purpose of advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act. - Decided in favour of assessee
Issues Involved:
1. Decline of exemption under Section 11. 2. Applicability of proviso to Section 2(15). 3. Nature of activities conducted by the assessee. 4. Interpretation of "charitable purpose" and "business" under IT Act. 5. Principle of consistency in tax assessments. 6. Application of Section 28(iii). Detailed Analysis: 1. Decline of Exemption under Section 11: The assessee was aggrieved by the decline of exemption under Section 11 on the grounds that the proviso to Section 2(15) was applicable. The AO held that the assessee was not imparting education as per its objects and classified its activities of organizing seminars and conducting examinations as non-educational. Consequently, the AO denied the exemption, asserting that the activities were in the nature of business, earning huge profits systematically. 2. Applicability of Proviso to Section 2(15): The AO and CIT(A) held that the assessee's activities fell under "advancement of any other object of general public utility" and were thus not entitled to exemption due to the newly inserted proviso to Section 2(15) effective from 01.04.2009. This proviso excludes entities from being charitable if they engage in trade, commerce, or business activities for a fee or consideration. 3. Nature of Activities Conducted by the Assessee: The assessee argued that its activities, including seminars, training programs, and examinations, were not in the nature of business but were incidental to its main charitable purpose. The Tribunal examined the facts and concluded that these activities were ancillary to the primary objective of promoting trade and commerce, which is a charitable purpose. 4. Interpretation of "Charitable Purpose" and "Business" under IT Act: The Tribunal referred to various judicial decisions, including those of the Supreme Court, to interpret "charitable purpose" and "business." It emphasized the "dominant purpose" test, which states that if the primary purpose is charitable, incidental activities resulting in profit do not change the charitable nature. The Tribunal cited the Andhra Chamber of Commerce case, which held that incidental profitable activities do not negate the charitable purpose. 5. Principle of Consistency in Tax Assessments: The Tribunal highlighted the principle of consistency, noting that the assessee had been granted exemption under Section 11 from AY 1985-86 to 2007-08. It held that the basic principle underlying the definition of "charitable purpose" remained unaltered even after the amendment to Section 2(15). Therefore, the CIT(A)'s decision to deny exemption based on the amendment was incorrect. 6. Application of Section 28(iii): Section 28(iii) pertains to income derived by trade or professional associations from specific services performed for members. The Tribunal clarified that this section does not apply to the assessee since its primary purpose was charitable, and the activities in question were incidental to this purpose. The income from these activities was not derived from a business carried out with a profit motive. Conclusion: The Tribunal concluded that the assessee's primary purpose was the advancement of objects of general public utility, which remained charitable even if incidental activities were profitable. Therefore, the assessee was not hit by the proviso to Section 2(15), and the appeal was allowed, restoring the exemption under Section 11. Order Pronounced: The appeal of the assessee was allowed, and the order was pronounced in the open court on 29/06/2016.
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