2017 (2) TMI 852 - AT - Income Tax

Denial of exemption claimed under section 11 & 12 - registration granted to the Society under section 12A has not been withdrawn - whether assessee society is a charitable institution and is existing for charitable purpose within the meaning of section 2(15)? - Held that - On the similar issues, the appeals of the assessee were allowed by the ITAT for the assessment year 2009-10 2016 (8) TMI 865 - ITAT DELHI wherein it has been held that invocation of proviso to section 2(15) of the Act to deny claim of exemption under section 11 and 12 of the Act is not justified. Accordingly, grounds of appeal are allowed.

Issues Involved:
1. Denial of exemption claimed under sections 11 and 12 of the Income Tax Act.
2. Validity of the registration under section 12A.
3. Charitable nature of the assessee society under section 2(15) of the Income Tax Act.
4. Applicability of the proviso to section 2(15) and its impact on the assessee’s exemption claim.
5. Basis and material for the findings of the Commissioner of Income Tax (Appeals).
6. Sustenance of interest levied and rejection of various grounds of appeal.

Issue-wise Detailed Analysis:

1. Denial of exemption claimed under sections 11 and 12 of the Income Tax Act:
The learned Commissioner of Income Tax (Appeals) upheld the denial of exemption claimed under sections 11 and 12 of the Income Tax Act. The assessee argued that the denial was unjustified as the registration under section 12A was still valid and the society’s objects were charitable. The ITAT in its previous order dated 27.5.2016 for the assessment year 2009-10 had allowed the assessee’s appeal on similar grounds, stating that the invocation of the proviso to section 2(15) to deny the exemption was not justified.

2. Validity of the registration under section 12A:
The assessee contended that the registration under section 12A had not been withdrawn, thus confirming its charitable status. The Tribunal noted that the registration under section 12A was valid and had not been revoked, supporting the assessee’s claim of being a charitable institution.

3. Charitable nature of the assessee society under section 2(15) of the Income Tax Act:
The assessee argued that it was a charitable institution existing for charitable purposes within the meaning of section 2(15). The Tribunal, referencing the previous order and the Hon’ble High Court’s affirmation, concluded that the assessee’s activities fell within the scope of education and other charitable purposes as defined under section 2(15).

4. Applicability of the proviso to section 2(15) and its impact on the assessee’s exemption claim:
The CIT(A) had found that the assessee was hit by the proviso to section 2(15), justifying the denial of exemption under sections 11 and 12. The Tribunal, however, noted that the proviso to section 2(15) applies only to entities engaged in trade, commerce, or business. It emphasized that the dominant activity of the institution must be examined, and if it is not business, trade, or commerce, the incidental or ancillary activities would not disqualify it from being a charitable institution. The Tribunal followed the precedent set in the case of Indian Trade Promotion Organization v. DGIT(E) and other relevant judgments, concluding that the proviso did not apply to the assessee’s activities.

5. Basis and material for the findings of the Commissioner of Income Tax (Appeals):
The assessee argued that the CIT(A) had reached its findings without considering the merits of the case and had relied entirely on the previous year’s order. The Tribunal found that the CIT(A)’s conclusions were not based on a thorough examination of the assessee’s submissions and activities. It noted that the assessee’s activities were consistently accepted as educational and charitable in nature in previous assessments.

6. Sustenance of interest levied and rejection of various grounds of appeal:
The assessee challenged the interest levied and the summary rejection of various grounds of appeal by the CIT(A). The Tribunal, considering the overall facts and previous judgments, set aside the CIT(A)’s order, allowing the assessee’s appeal and holding that the demand raised was unsustainable both in law and on facts.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, setting aside the order of the CIT(A) and directing the Assessing Officer to allow the exemption claimed under sections 11 and 12 of the Income Tax Act. The Tribunal’s decision was based on the consistent acceptance of the assessee’s activities as charitable and educational in nature, the validity of the registration under section 12A, and the inapplicability of the proviso to section 2(15) to the assessee’s activities. The Tribunal’s order was affirmed by the Hon’ble Jurisdictional High Court, further supporting the assessee’s position.

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