2018 (11) TMI 1118 - AT - Income Tax

Charitable activity - applicability of provisions of section 2(15) - allegation of the AO that the assessee was established for the purpose of promoting Indian Industry and trade and to enhance its global competitiveness by conducting and participating in Industrial trade fairs and exhibitions Indian and abroad - Held that - The assessee is not doing any activity in respect of its stated main objects i.e. to promote training and the diffusion of knowledge relating to standards in the manufacture of Tools and Gauges to improve the standards or the connected trade therewith or with allied industries and to impart relevant and appropriate training to all those engaged in the manufacture of tools and gauges. As seen that in the present case, the assessee has taken a hall on rent and the assessee is earning huge amount of income on account of Stall Space Charges and no expenditure is incurred for carrying out the said activities as per the objects of the assessee and therefore, in the present case, we hold this that the assessee is not eligible for exemption u/s. 11 and for this, help of any authority is not required and therefore, we do not enter into this aspect of examining the applicability of various judicial pronouncements cited revenue. This is a settled position of law that at the stage of granting registration u/s 12A, only the objects as per the relevant Deed i.e. Trust Deed etc. are required to be seen and if the objects are charitable, such registration has to be granted but granting of such registration is not final and binding for granting exemption u/s 11 in assessment proceedings. In course of assessment proceedings, actual activities are to be examined and if such actual activities are not found to be charitable, exemption u/s 11 is not allowable although registration u/s 12A was granted on the basis of stated objects. We have to examine as to whether the actual activities are charitable or not and when we do so, we find that the only activity undertaken by the assessee is to take a hall on rent for ₹ 125 lacs and realize huge amount of receipts for Stall space charges ₹ 4,82,47,599/-, power ₹ 18.99 Lakhs and ₹ 4,74,305/- from Directory, total ₹ 506,20,904/-. These activities cannot be said to be charitable particularly in the absence of its correlation with the stated main objects to promote training and the diffusion of knowledge relating to standards in the manufacture of Tools and Gauges to improve the standards or the connected trade therewith or with allied industries and to impart relevant and appropriate training to all those engaged in the manufacture of tools and gauges. In view of above discussion, we reverse the order of CIT(A) and restore that of AO. - Decided in favour of revenue.

Issues Involved:
1. Applicability of Section 2(15) of the Income Tax Act.
2. Entitlement of the assessee to exemption under Section 11 of the Income Tax Act.
3. Evaluation of the activities of the assessee in relation to its stated objects.
4. Examination of factual inaccuracies in the assessment order.

Issue-wise Detailed Analysis:

1. Applicability of Section 2(15) of the Income Tax Act:
The primary issue raised by the revenue was whether the provisions of Section 2(15) are applicable to the assessee's case. The AO contended that the assessee was involved in activities that constituted trade, commerce, or business, specifically by providing/letting out space for organizing exhibitions and related events. The AO argued that these activities fell under the definition of "advancement of any other object of general public utility," thereby invoking the proviso to Section 2(15). The CIT(A) disagreed, stating that the objects mentioned by the AO did not figure in the list of objects for which the assessee trust was established. However, the Tribunal found that the CIT(A) did not provide sufficient reasoning for this conclusion and noted that the AO's assessment focused on the activities rather than the objects.

2. Entitlement of the Assessee to Exemption under Section 11:
The CIT(A) held that the assessee was entitled to exemption under Section 11, following the decision of the ITAT, Delhi Bench in the case of Society of Indian Automobile Manufacturers Vs. ITO and other similar cases. The CIT(A) reasoned that the receipts declared by the assessee did not partake the character of income relatable to trade. However, the Tribunal found that the CIT(A) did not adequately address the AO's objections and did not provide a detailed analysis of how the assessee's activities aligned with its stated charitable objects. The Tribunal concluded that the assessee's activities, primarily involving renting out hall space and earning significant income from stall space charges, did not correlate with its stated objects of promoting training and diffusion of knowledge in the manufacture of tools and gauges.

3. Evaluation of the Activities of the Assessee in Relation to its Stated Objects:
The Tribunal examined the income and expenditure account of the assessee and found that the major income was from stall space charges, and the major expense was hall rent. There was no evidence of activities related to the stated objects of promoting training and diffusion of knowledge. The Tribunal noted that the assessee had not shown any expenditure for imparting training or diffusion of knowledge, which were the main objects of the trust. The Tribunal compared this case with other judicial pronouncements cited by the assessee and found that those cases involved activities directly related to the charitable objects, unlike the present case.

4. Examination of Factual Inaccuracies in the Assessment Order:
The assessee contended that the AO made several factually incorrect statements in the assessment order. The CIT(A) accepted this contention without providing a detailed basis for this conclusion. The Tribunal found that the CIT(A) failed to substantiate the claim of factual inaccuracies and did not address the AO's detailed analysis of the assessee's activities. The Tribunal emphasized that the actual activities of the assessee must be examined to determine eligibility for exemption under Section 11, irrespective of the registration under Section 12A.

Conclusion:
The Tribunal reversed the order of the CIT(A) and restored the AO's decision, concluding that the assessee's activities did not qualify as charitable under Section 2(15) and that the assessee was not entitled to exemption under Section 11. The appeal filed by the revenue was allowed.

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