2016 (9) TMI 696 - AT - Income Tax

Eligible for exemption u/s.11 denied - contention of the ld. Departmental Representative that the activities are not charitable - Held that - Denial of exemption treating as Association of Person(AOP) is not appropriate considering the status and objects of this Sabha which is in existence for morethan three decades and rendering services to the society with Music and Arts, we are of the opinion that society is not be affected by the amendment to Sec. 2(15) of the Act effective from 01.04.2009 and on this issue of trade, business and commerce. We rely on the decision of Delhi High Court in the case of The Institute of Chartered Accountants of India & ANR vs. Director General of Income Tax (Exemptions) & ORS 2011 (9) TMI 77 - Delhi High Court where it was held that the Director General of IT(Exemptions) was not justified in refusing exemption u/sec. 10(23C) (iv) to the assessee ICAI by a cryptic order on the ground that by imparting education for free, it was engaged in business without considering whether it was engaged in trade, commerce or business within the meaning of first proviso to Sec. 2(15) and further without considering the plea of assessee that it had not violated Sec. 11(5) or third proviso to Sec. 10 (23C) (iv) of the Act. So, considering the judicial aspects and objectives, we are of the opinion that the activities are within the ambit of charitable purpose and we upheld the order of Commissioner of Income Tax (Appeals) who has dealt on subject and its implication and grounds viz-a-viz explanations of the assessee and allowed the assessee appeal and we upheld the order of Commissioner of Income Tax (Appeals) and dismiss the grounds of the Revenue. - Decided in favour of assessee

Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act.
2. Classification of activities as charitable under Section 2(15) of the Act.
3. Distinction between dominant and incidental activities.
4. Profit generation and its impact on charitable status.
5. Prerequisites for denial of exemption under Section 11.
6. Payment of service tax by the assessee.
7. Reliance on previous Tribunal decisions.
8. Deletion of corpus donations under Section 13(8).
9. Depreciation claims by the assessee.

Detailed Analysis:

1. Eligibility for Exemption under Section 11:
The Revenue contended that the assessee was not eligible for exemption under Section 11 of the Act, arguing that the activities of the Sabha constituted trade, commerce, or business. The Tribunal upheld the CIT(A)'s decision, which recognized the Sabha's activities as charitable, promoting music and fine arts, and thus eligible for exemption under Section 11.

2. Classification of Activities as Charitable under Section 2(15):
The Assessing Officer argued that the Sabha's activities fell under the residual clause of Section 2(15) concerning objects of general public utility and involved trade or commerce. The Tribunal referenced previous decisions, including those in the cases of Mylapore Fine Arts Club and Hamsadhwani, to conclude that promoting music and fine arts could not be considered trade or commerce, affirming the charitable nature of the Sabha's activities.

3. Distinction Between Dominant and Incidental Activities:
The CIT(A) distinguished between dominant activities (promoting music and fine arts) and incidental activities (selling tickets and organizing events). The Tribunal agreed with this distinction, noting that incidental activities naturally arose from the dominant charitable activities and did not negate the charitable status.

4. Profit Generation and its Impact on Charitable Status:
The Revenue argued that the Sabha's income from various sources indicated a profit motive, which should disqualify it from charitable status. The Tribunal found that the Sabha's income, excluding interest receipts, resulted in a loss, and thus, the activities were not profit-driven. Consequently, the Sabha's charitable status was upheld.

5. Prerequisites for Denial of Exemption under Section 11:
The Tribunal noted that the Assessing Officer should have initiated action to cancel the registration under Sections 12AA and 80G before denying exemption under Section 11. The CIT(A) had observed that without such cancellation, treating the Sabha as an Association of Persons (AOP) was improper.

6. Payment of Service Tax by the Assessee:
The Assessing Officer pointed out that the Sabha paid service tax on rental receipts, suggesting commercial activity. The Tribunal did not find this sufficient to negate the charitable status, as the primary activities remained charitable.

7. Reliance on Previous Tribunal Decisions:
The CIT(A) and the Tribunal relied on decisions in the cases of Mylapore Fine Arts Club and Hamsadhwani, which had similar facts and upheld the charitable status of organizations promoting music and fine arts. These precedents supported the Tribunal's decision to dismiss the Revenue's appeal.

8. Deletion of Corpus Donations Under Section 13(8):
The Assessing Officer had added corpus donations to taxable income, arguing they were received in lieu of hall rent. The Tribunal upheld the CIT(A)'s decision to delete this addition, noting that the donations were for charitable purposes and exempt under Section 11(1)(d).

9. Depreciation Claims by the Assessee:
The Assessing Officer disallowed depreciation on assets for which the cost had been claimed as an application of income in earlier years. The Tribunal upheld the CIT(A)'s decision to allow the depreciation claim, aligning with judicial precedents that permitted such claims for charitable organizations.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that recognized the Sabha's activities as charitable and eligible for exemption under Section 11. The Tribunal emphasized the importance of the Sabha's primary objective of promoting music and fine arts, which aligned with the definition of charitable purpose under Section 2(15).

← Previous Next →