2018 (11) TMI 509 - HC - Income Tax

Charitable activities - exemption u/s 11 and 12 denied - Held that - As in assessee s own case for immediately preceding assessment years 2018 (1) TMI 189 - ITAT DELHI held assessee is engaged in research based activity which is highly cost intensive and requires continuous spending on the innovation and new developments as it is concerning with the education of the society. The Assessee has categorically stated before the Id AO as well as before Ld CIT (A) that it is charging subscription as well as consultancy fees on actual, which fact is not denied. Therefore merely earning the surplus does not result in to the conclusion, that assessee is carrying on its activities, which can be termed as business, trade, or commerce. - Decided in favour of assessee

Summary

Issues:
- Eligibility of the assessee for exemption under sections 11 and 12 of the Income Tax Act, 1961.
- Whether the activities of the society are commercial in nature.
- Application of income for assets purchased during the financial year 2010-11.

Eligibility for Exemption under Sections 11 and 12:
The case involved an appeal by the revenue against the order passed by the Ld.CIT(A)-40 for the Assessment Year 2011-12. The assessee, formed as an autonomous society by the Government of India, was engaged in Research and Development in the communication sector. The Ld. AO contended that the assessee was not eligible for exemption under sections 11 and 12 of the Act due to its main objective falling outside the scope of general public utility as per section 2(15) of the Act. However, the Ld.CIT(A) granted exemption under section 11 of the Act to the assessee. The revenue then filed an appeal against this decision.

Nature of Activities - Commercial or Charitable:
The revenue argued that although the objects of the assessee may seem charitable, the activities carried out by the society that yielded income were commercial in nature. The Tribunal, after considering the facts and the order of the Ld.CIT(A) in the impugned order, observed that the facts were identical to the assessee's own case for the preceding assessment years. The Tribunal emphasized that the assessee was engaged in research-based activities that were highly cost-intensive and required continuous spending on innovation and development. It was noted that merely earning a surplus does not necessarily mean the activities are commercial in nature. The Tribunal, relying on the decision of the Honorable Delhi High Court, found no infirmity in the order of the Ld.CIT(A) and dismissed the revenue's grounds of appeal.

Application of Income for Assets Purchased:
The revenue also raised an issue regarding the application of income for assets purchased during the financial year 2010-11, contending that the expenditure was allowed as capital expenditure for earlier years. However, the Tribunal, in line with its decision on the eligibility for exemption, dismissed all grounds of appeal raised by the revenue. The Tribunal upheld the order of the Ld.CIT(A) based on the discussions and observations made in the assessee's own case for the preceding assessment years. Consequently, the appeal filed by the revenue was dismissed, affirming the decision of the Ld.CIT(A) to grant exemption to the assessee under section 11 of the Act.