2018 (12) TMI 915 - AT - Income Tax

Charitable activity - exemption u/s 11 - whether activities of the assessee did not fall within the definition of preservation of environment as it was inserted in section 2(15) with effect from 01/04/2009 - Held that - As regards the contention of Revenue that activities of the assessee do not fall within the definition of preservation of environment, we find that learned CIT(A), after relying on the decision of Hon ble I.T.A.T., as upheld by Hon ble Supreme Court, has held that the activities of the assessee are charitable in nature. Whether the assessee was granted 12A registration for preservation, supervision and development of forest and not for the exploitation of forest produce? - Held that - Once the activities of appellant are held to be in the nature of Preservation of environment therefore these activities are held to be Charitable in Nature and the same cannot be categorized partly as charitable and partly as non-charitable as they are covered within the objects for which it was incorporated and is functioning on those lines. Addition on account of prior period expenses - Held that - There being no change in rate of taxes, the amount incurred under the said head has to be allowed in the AY under consideration as the said expenses were determined and crystallized during the AY under consideration. Accordingly, the disallowance made by the AO under the head Prior Period expenses is hereby deleted. The said expenses are allowed for the reason that these expenses were determined and crystallized only during the AY under consideration. - Decided against revenue

Issues Involved:

1. Whether the activities of the assessee fall within "Preservation of environment (including watersheds, forest and wildlife)" as per Section 2(15) of the Act.
2. Whether the activities of the assessee are commercial and in the nature of trade, commerce, or business, thus not qualifying as 'charitable purpose' under Section 2(15) of the Act.
3. Whether the Registration u/s 12A of the I.T. Act was granted for "Preservation, supervision and development of forest" and not for the exploitation of forest produce.
4. Whether the deletion of addition/disallowance made by the AO on account of prior period expenses amounting to ? 6,63,812/- was justified.
5. Whether the assessee is involved in activities of trade/commerce/business and thus hit by the provisions of the first proviso to Section 2(15) of the I.T. Act, 1961.
6. Whether the expenses are allowed for the reason that these expenses were determined and crystallized only during the assessment year under consideration.

Detailed Analysis:

Issue 1 & 2: Activities under Section 2(15) and Charitable Purpose

The Revenue argued that the activities of the assessee did not fall within the definition of "Preservation of environment" as per Section 2(15) of the Act and were commercial in nature. The Tribunal noted that the assessee was granted registration u/s 12A for activities considered charitable and of general public utility. Before 01/04/2009, there was no bar on business activities carried out in achieving the objects of the society. The CIT(A) held that the AO's interpretation was incorrect as the phrase "not involving activities for profit" was not part of the Act for the period under consideration. The CIT(A) also noted that the activities of the assessee were charitable in nature, as upheld by the Hon'ble Supreme Court. Therefore, the Tribunal dismissed these grounds of appeal by the Revenue.

Issue 3 & 5: Registration under Section 12A and Exploitation of Forest Produce

The Revenue contended that the assessee was granted 12A registration for preservation, supervision, and development of forest, not for the exploitation of forest produce. The CIT(A) examined the functions of the assessee and concluded that the primary purpose was the preservation of the environment, not commercial exploitation. The Tribunal noted that the CIT(A) relied on the decision of the Hon'ble ITAT and the Hon'ble Supreme Court, which held that the activities of the assessee were charitable. The Tribunal found no infirmity in the order of the CIT(A) and dismissed these grounds of appeal.

Issue 4 & 6: Prior Period Expenses

The AO disallowed certain expenses as prior period expenses, arguing that the assessee, following the mercantile system of accounting, should have made provisions for these expenses in the respective financial years. The CIT(A) noted that the liability for these expenses crystallized after the balance sheet date and relied on several case laws to support this position. The Tribunal agreed with the CIT(A) that the expenses were determined and crystallized during the assessment year under consideration and thus allowed. The Tribunal found no infirmity in the CIT(A)'s order and dismissed these grounds of appeal.

Conclusion:

The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)'s findings that the activities of the assessee were charitable, the expenses were correctly allowed, and the registration under Section 12A was appropriately granted. The Tribunal emphasized that the CIT(A)'s findings were supported by judicial precedents and were not to be interfered with.

← Previous Next →