2019 (1) TMI 880 - AT - Income Tax

Charitable activity u/s 2(15) - exemption u/s 10(23C)(iv) - benefit of section 11 - activities of the assessee also include providing of services such as accommodation, food and beverages, etc., for payment of charges - Held that - Admittedly there is no funding from government or any other outside bodies to sustain activities of promotion of cultural and intellectual activities and, therefore, the assessee had to be totally self supporting and self financing and for this purpose, in order to achieve its main objective, it had to charge and earn receipts from members so that the activities could be carried out. Admittedly, the assessee is disseminating knowledge to general public on subjects ranging from art, dance, urban development means etc. through conferences, lectures etc. As further pointed out before AO that even while charging the members, there was no commercial motive in fixing the rates. The rates were nowhere near the commercial rates and were generally fixed to recover the cost and cost of activities to run the centre. These activities could not be treated in the nature of trade or commerce. As regards hostel accommodation, there were number of rooms and guidelines for hiring of the accommodation and also there were restrictions. It was also pointed out that, as could be seen from the list of programmes, the assessee conducted very large number of programmes during the year which covered discussions, music, dances, exhibitions and also certain special programmes such as festivals during the course of the year. These programmes were published through the newspapers and website. Further e-mails were sent to members as well as non-members. Periodical articles also appeared in the various newspapers highlighting some of the special programmes conducted by the centre. As regards DIT(E) s objection with regard to the membership of the centre, the assessee had pointed out before the AO itself that individual membership was open to all persons of India or foreign origin. Tribunal in assessee s own case for assessment year 2011-12, while deciding the issue of allowing benefit of section 11 and 12 read with section 2(15) of the IT Act, following the decision of the Tribunal for assessment year 2009-10, has decided the issue in favour of the assessee.

Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under section 143(3) was erroneous and prejudicial to the interests of the Revenue.
2. Applicability of section 2(15) and its provisos concerning the activities of the assessee.
3. Eligibility for exemptions under sections 11, 12, and 10(23C)(iv) of the Income Tax Act.
4. Principle of mutuality and its application to the assessee's activities.
5. Jurisdiction under section 263 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Erroneous and Prejudicial Order:
The CIT(E) held that the AO's order was erroneous and prejudicial to the interests of the Revenue because the AO accepted the nil income filed by the assessee without adequately examining the nature of receipts and the claim of exemption. The CIT(E) noted that the AO failed to consider whether the activities of the assessee were exempt in nature and did not examine the applicability of section 2(15) and its provisos.

2. Applicability of Section 2(15) and Provisos:
The CIT(E) observed that the assessee's activities included providing services such as accommodation, food, and beverages for payment of charges, which fall within the mischief of provisos 1 and 2 to section 2(15) read with the 3rd proviso to section 143(3). The CIT(E) concluded that the assessee's activities were not on a no-profit/no-loss basis, as there was a continuous surplus, negating the charitable character of the trust. Therefore, the exemption under section 10(23C)(iv) was not allowable.

3. Eligibility for Exemptions under Sections 11, 12, and 10(23C)(iv):
The CIT(E) rejected the assessee's claim for exemption under sections 11 and 12, stating that the assessee's activities were hit by the proviso to section 2(15) and thus, exemption under section 11 was not admissible. The CIT(E) also noted that the assessee had shown compliance with conditions only with respect to part of its income. The CIT(E) held that the assessee's claim of exemption under section 10(23C)(iv) was limited to the income of ?8,07,18,905/- and not the entire income.

4. Principle of Mutuality:
The CIT(E) rejected the assessee's claim that its income was not taxable based on the principle of mutuality. The CIT(E) noted that the assessee's activities were hybrid, partly covered by section 10(23C)(iv) and partly by the principle of mutuality. However, the CIT(E) held that the assessee could not compartmentalize its activities and income arising therefrom under charitable and mutual activities. The CIT(E) concluded that there was no complete identity between contributors and participators, thus the principle of mutuality was not applicable.

5. Jurisdiction under Section 263:
The CIT(E) invoked jurisdiction under section 263, stating that the AO's order was erroneous and prejudicial to the interests of the Revenue. The CIT(E) relied on various judicial precedents, including the decision of the Hon'ble High Court of Rajasthan in the case of Smt. Renu Gupta and the Hon'ble Karnataka High Court in the case of Infosys Technologies Ltd., to support the stand that the AO's failure to examine relevant details and apply the law justified the invocation of section 263.

Tribunal's Findings:
The Tribunal found that the issues raised by the CIT(E) had already been considered in the assessee's own case for the preceding assessment year, where the Tribunal had quashed the order passed under section 263. The Tribunal noted that the AO had issued specific queries regarding the applicability of section 2(15) and had accepted the assessee's explanations after due application of mind. The Tribunal held that the CIT(E) was not justified in invoking section 263, as the AO had taken one of the possible views after considering the assessee's replies. The Tribunal also referred to the decision of the Hon'ble Delhi High Court in the case of India Trade Promotion Organization, which supported the assessee's claim that its activities were charitable and not hit by the proviso to section 2(15).

Conclusion:
The Tribunal set aside the order passed by the CIT(E) under section 263 and allowed the appeal filed by the assessee, holding that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue.

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