2016 (7) TMI 733 - AT - Income Tax

Eligibility for exemption as per section 11 - Held that - The status of the assessee in the earlier years was accepted by the Revenue as a charitable in nature having income allowable for exemption u/s 11 of the Act. There was no change in the facts and circumstances during the present assessment year. The Assessing Officer never denied the fact that the assessee is registered u/s 12AA of the Incometax Act. During the year under consideration the activities of the assessee were charitable in nature and as per its object. The main object of town planner has been held to be charitable and at the time of registration u/s 12A was in very much existence. Thus, the Revenue has not made out the case that the condition on which the registration was allowed has changed from earlier year or in subsequent year as well as in the present year. Allahabad High Court ruling in case of CIT vs. Lucknow Development Authority relied upon wherein it was held that the development authorities will not be hit by the proviso to Sec 2 (15). There was no change in the charitable purpose while doing the activity of development by the assessee. It is part of development only which is the object of the assessee since the beginning. - Decided against revenue

Summary

Issues:
1. Interpretation of Section 2(15) of the Income Tax Act, 1961.
2. Application of the case of M/s Safdurjung Enclave Educational Society Vs. Municipal Corporation Delhi (1992) 3 SCC 390.
3. Eligibility of exemption u/s 11 for the trust.
4. Impact of registration u/s 12AA on income exemption.

Analysis:
1. The appeal raised concerns regarding the interpretation of Section 2(15) of the Income Tax Act, 1961, specifically focusing on the applicability of the amended provisions from the assessment year 2009-10. The Revenue argued that the entity's activities, involving the sale of plots, shops, and flats, were commercial in nature, falling under the amended provision of Section 2(15). The Assessing Officer (A.O) contended that the activities did not align with the trust's main object, resembling commercial ventures. However, the CIT(A) noted that the entity was registered u/s 12AA and had a history of being considered a charitable trust eligible for exemption u/s 11.

2. The case of M/s Safdurjung Enclave Educational Society Vs. Municipal Corporation Delhi (1992) 3 SCC 390 was cited to argue that activities conducted on commercial lines do not qualify as charitable objectives. The Revenue challenged the CIT(A)'s decision, claiming that the trust's activities during the assessment year did not conform to its main object. However, the CIT(A) found no change in the trust's status and upheld the registration u/s 12AA, emphasizing the continuity of charitable activities.

3. The eligibility of the trust for exemption u/s 11 was a crucial issue. The A.O raised concerns about the trust's income not falling under the specified sections for exemption. Nonetheless, the CIT(A) acknowledged the trust's history of being recognized as a charitable entity eligible for exemption u/s 11, emphasizing the continuity of its charitable activities and registration u/s 12AA.

4. The impact of registration u/s 12AA on income exemption was debated. The Revenue argued that registration did not automatically confer blanket income exemption, while the trust highlighted previous ITAT decisions supporting the charitable nature of its activities. The ITAT emphasized that the trust's activities were incidental to its charitable objectives, as seen in town planning, and upheld the CIT(A)'s decision to partly allow the trust's appeal for income exemption under u/s 11.

In conclusion, the ITAT dismissed the appeal, affirming the trust's eligibility for income exemption under u/s 11 based on its continuous charitable activities and registration u/s 12AA, emphasizing the incidental nature of its commercial activities in line with its charitable objectives.