2017 (1) TMI 619 - AT - Income Tax

Eligibility to exemption u/s. 11 & 12 - charitable institution - whether assessee s activity falls under the category of advancement of any other object of General Public Utility ? - First Proviso to Section 2(15) challenged as arbitrary and unreasonable and has no rational nexus with the object sought to be achieved and is thus violative of Article 14 of the Constitution of India - Held that - Recently the Hon ble Delhi High Court in the case of India Trade Promotion Organization vs. DGIT(E)(2015 (1) TMI 928 - DELHI HIGH COURT ) has upheld the constitution validity of the proviso of section 2(15) which was under challenge being discriminatory in view of the Article 14 (Equality before law) of the Constitution of India but the Hon ble High Court has read down the strict and literal Interpretation of the Proviso of section 2(15) and has held that mere receipt of fee or charge cannot be said that the assessee involved in any trade, commerce or business and has accordingly allowed the relief to the ITPO. Also further find that after considering all the facts and circumstances of the case and following the order of Ld. CIT(A) for AY 2010- 11 & 2011-12, Ld. CIT(A) has rightly held that the assessee is a charitable institution and accordingly, the AO was directed to allow the exemption u/s. 11 & 12 of the I.T. Act to the assessee alongwith consequential benefits - Decided in favour of assessee

Summary

Issues:
1. Whether the assessee's activities fall under the category of 'advancement of any other object of General Public Utility' and if the last proviso to section 2(15) is applicable.
2. Whether the addition on account of Life Member's Subscription was justified.
3. Whether the assessee is entitled to exemption u/s. 11 & 12 of the I.T. Act.

Analysis:
1. The case involved an appeal by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) concerning the assessment year 2012-13. The assessee, a society engaged in organizing golf tournaments, received various incomes including sponsorship fees and rental income. The Assessing Officer (AO) observed that the surplus generated from these activities should be taxed, denying the benefit of sections 11 & 12 of the I.T. Act due to the applicability of Section 13(8). The AO also added the Life Membership Subscription amount to the total income of the assessee. The Ld. CIT(A) extensively discussed the issue, considering relevant case laws and directed the AO to allow exemption u/s. 11 & 12 to the assessee, holding it to be a charitable institution.

2. The Ld. CIT(A) referenced precedents where similar entities promoting activities like music were considered charitable institutions, not involved in business activities. Citing the judgment of the Hon'ble Delhi High Court, the Ld. CIT(A) upheld the constitutionality of the proviso of section 2(15) but interpreted it leniently, allowing exemptions to organizations not engaged in trade, commerce, or business. Following this reasoning and considering the facts and circumstances of the case, the Ld. CIT(A) concluded that the assessee was indeed a charitable institution, directing the AO to grant exemptions under sections 11 & 12 of the I.T. Act.

3. The Tribunal upheld the order of the Ld. CIT(A), dismissing the Revenue's appeal. The Tribunal concurred with the CIT(A)'s reasoning, emphasizing that the assessee's activities were charitable in nature and did not warrant interference. Consequently, the Tribunal affirmed the decision to grant exemption u/s. 11 & 12 of the I.T. Act to the assessee. The appeal filed by the Revenue was thus dismissed, and the order was pronounced in open court on 03/1/2017.