2017 (1) TMI 1145 - AT - Income Tax

Claim for exemption under section 11 - applicability of the proviso to section 2(15) - non charitable activity - Held that - Mere action of charging fee for services, by itself, would not justify invoking of the proviso to section 2(15) of the Act unless it is established that the purpose and object is profit motive. Considering the entirety of circumstances we are unable to find any credible reasoning taken by the Revenue to say that the purpose and object of the assessee Trust falls within the meaning of expression trade, commerce or business used in the proviso to section 2(15) of the Act. Considering the focused area of the Trust, it could not be inferred that there is any profit motive so as to view the activities to be trade, commerce or business as understood for the purposes of proviso to section 2(15) of the Act. Therefore, in our considered opinion, on facts, it is not possible to infer that assessee Trust is carrying on any regular trade, commerce or business and on the contrary it is an entity which is essentially existing for charitable purposes but conducting some activities for consideration or fee. In this background, the proviso to section 2(15) of the Act cannot be invoked to exclude assessee Trust from the purview of section 2(15) of the Act since the said proviso only seeks to exclude institutions which are carrying on regular business, as inferred by us following the legal position explained by the Hon ble Delhi High Court in the cases referred herein above. We therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to allow the claim of the assessee for exemption under section 11 & 12 of the Act. - Decided in favour of assessee

Issues Involved:
1. Confirmation of addition of amounts accumulated u/s 11(2) for AY 2007-08 and 2008-09.
2. Treatment of contributions received from Government of India (GOI) and Small Industries Development Bank of India (SIDBI) towards the corpus.
3. Applicability of section 11 for deductions claimed.
4. Contradictory decisions by CIT(A) regarding applicability of sections 11, 12, and 13.
5. Disallowance of deduction of 15% of income derived by the trust under section 11(1)(a).

Issue-wise Detailed Analysis:

1. Confirmation of Addition of Amounts Accumulated u/s 11(2) for AY 2007-08 and 2008-09:
The assessee contended that the CIT(A) erred in confirming the addition of ?94,38,84,008/- and ?154,61,77,037/- accumulated u/s 11(2) for AY 2007-08 and 2008-09, respectively. The CIT(A) was criticized for dismissing this ground without appreciating the independent nature of the appeal and not considering the detailed submissions. The assessee argued that the amounts should be taxable only in the year following the expiry of the period allowed u/s 11(3) and that the addition in the current year amounts to double taxation. The tribunal noted that the registration under section 12A was restored, and the CIT(A) should not have held that the trust’s activities did not fall under section 2(15). The tribunal set aside the CIT(A)’s order and directed the AO to allow the claim for exemption under sections 11 & 12.

2. Treatment of Contributions Received from GOI and SIDBI Towards the Corpus:
The assessee argued that the contributions from GOI and SIDBI were not donations but obligations as per the Trust Deed, and thus should not be treated as taxable receipts. The CIT(A) failed to appreciate that these contributions were for the corpus and not income. The tribunal agreed with the assessee, noting that the contributions were part of the initial agreed contribution for the corpus as per the Trust Deed and should not be taxed. The AO was directed to recompute the income accordingly.

3. Applicability of Section 11 for Deductions Claimed:
The CIT(A) held that sections 11, 12, and 13 were not applicable during the year, leading to the denial of deductions claimed by the assessee. The tribunal found that the CIT(A) erred in this regard, as the registration under section 12A was restored, and the trust’s activities should be considered charitable. The tribunal set aside the CIT(A)’s decision and allowed the deductions claimed under sections 11 & 12.

4. Contradictory Decisions by CIT(A) Regarding Applicability of Sections 11, 12, and 13:
The assessee pointed out that the CIT(A) gave contradictory decisions by holding that sections 11, 12, and 13 were not applicable but confirmed additions under sections 11(3) and 12(1). The tribunal agreed with the assessee, noting that the CIT(A) should not have revisited the nature of the trust’s objects during the subsistence of registration under section 12A. The tribunal directed the AO to allow the exemption under sections 11 & 12.

5. Disallowance of Deduction of 15% of Income Derived by the Trust Under Section 11(1)(a):
The CIT(A) disallowed the deduction of ?53,69,84,940/- under section 11(1)(a), holding that the trust’s activities were not charitable. The tribunal disagreed, noting that the trust’s activities fell within the meaning of charitable purpose under section 2(15), and the proviso to section 2(15) did not apply as there was no profit motive. The tribunal directed the AO to allow the deduction.

Conclusion:
The tribunal set aside the CIT(A)’s order, allowing the assessee’s claims for exemption under sections 11 & 12 and directing the AO to recompute the income accordingly. The appeal was allowed in favor of the assessee.

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