2019 (1) TMI 289 - AT - Income Tax

Charitable activity - benefits u/s. 11 & 12 denied - Held that - The expression charitable purpose should be construed not in a vacuum, but in the specific context of section 10(23C)(iv), which specifically deals with the income received by any person on behalf of, inter-alia, an institution established for charitable purposes. Therefore, the meaning of the expression charitable purposes has to be examined in the context of section 10(23C)(iv). We are of the view that since the object of promoting employments/educational institutions/govt. schemes for the general public is a charitable purpose, the expression charitable purpose , as defined in section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of section 10(23C)(iv) as also held in the above judicial pronouncements. On consideration of these facts we are of the view that the authorities below are not justified in disallowing the entire exemption. We, therefore, direct the Assessing Officer to delete the disallowances. - Decided in favour of assessee.

Issues Involved:
1. Applicability of the first proviso to Section 2(15) of the I.T. Act.
2. Eligibility for benefits under Sections 11 & 12 of the I.T. Act.
3. Nature of activities (whether charitable or commercial).
4. Treatment of excess income over expenditure as business income.
5. Deduction claims under Sections 11(1)(a) and cost of assets acquired.
6. Credit of TDS.
7. Levy of interest under Section 220(2) and Section 234D.

Issue-wise Detailed Analysis:

1. Applicability of the First Proviso to Section 2(15) of the I.T. Act:
The Tribunal examined whether the activities of the assessee fell within the ambit of the first proviso to Section 2(15), which excludes entities engaged in trade, commerce, or business from being considered as having a 'charitable purpose'. The Assessing Officer (AO) held that the assessee’s activities, such as publishing newspapers and acting as an advertising agency, were commercial in nature. However, the Tribunal found that the assessee’s primary objective was to provide information regarding employment, educational institutions, and government schemes, which is a charitable purpose. The Tribunal referenced the Delhi High Court's judgment in India Trade Promotion Organization vs. DGIT(E) and GS1 India vs. DGIT(E), which emphasized that the dominant objective should be considered, and a nominal fee does not convert charitable activities into business.

2. Eligibility for Benefits Under Sections 11 & 12 of the I.T. Act:
The AO and CIT(A) denied the benefits under Sections 11 & 12, asserting that the assessee’s activities were commercial. The Tribunal, however, concluded that the assessee was established for charitable purposes and had not changed its activities since inception. It was held that the income generated was fully utilized for charitable purposes, and thus the assessee was eligible for the benefits under Sections 11 & 12. The Tribunal directed the AO to allow the deductions claimed by the assessee.

3. Nature of Activities (Whether Charitable or Commercial):
The AO considered the assessee's activities as commercial due to the generation of surplus income and operating receipts from advertisements and newspaper sales. The Tribunal, however, found that the assessee’s activities were aimed at public welfare and not profit-making. The Tribunal noted that the activities were in line with the objectives of providing information to the general public, which qualified as charitable under Section 2(15).

4. Treatment of Excess Income Over Expenditure as Business Income:
The AO treated the surplus of ?1,26,93,882 as business income. The Tribunal disagreed, stating that the surplus was a result of charitable activities and should not be treated as business income. The Tribunal directed the AO to delete the assessment of the surplus as business income.

5. Deduction Claims Under Sections 11(1)(a) and Cost of Assets Acquired:
The assessee claimed deductions for application of income and cost of assets acquired during the year. The AO disallowed these deductions. The Tribunal found that these deductions should be allowed as they were in line with the charitable purposes of the assessee. The Tribunal directed the AO to allow the deductions claimed.

6. Credit of TDS:
The assessee claimed full credit of TDS amounting to ?41,52,136, which was not fully allowed by the AO. The Tribunal restored the issue to the AO to verify the TDS claims and grant credit if the TDS was deducted and paid in accordance with the law.

7. Levy of Interest Under Section 220(2) and Section 234D:
The assessee contested the levy of interest under Section 220(2) amounting to ?60,080. The Tribunal upheld the CIT(A)'s decision, stating that interest under Section 220(2) is compensatory and mandatory, and not appealable. Regarding the levy of interest under Section 234D, the Tribunal noted that it was consequential and did not require separate adjudication.

Conclusion:
The Tribunal allowed the appeals in part, directing the AO to delete the disallowances related to Sections 11 & 12, verify and grant TDS credit, and upheld the levy of interest under Section 220(2). The Tribunal emphasized the charitable nature of the assessee’s activities and the applicability of the judgments in similar cases.

← Previous Next →