2019 (2) TMI 231 - AT - Income Tax

Denial of Exemption under Section 11 - action of AO that the activities conducted by the appellant does not fall within the meaning of education as included in the definition of charitable purpose under Section 2(15) - Held that - The nature of this expenditure incurred by the assessee which includes event management expenses, summit expenses, expenditure on food and beverages, videography etc to the tune of ₹ 3 crores also support the case that the assessee is in the business of rendering services for a fee which is like any other business/commercial activity carried out by any business/ entity in the market. Hence, on this account also, proviso to section 2(15) is applicable. The assessee s contention that it is a non-profit entity and it receives funds to meet its operative cost without any motive to earn profit is clearly in contradiction to the surplus of ₹ 1.22 crores generated by the assessee in this year. Here it would be relevant to note that if a charitable organization carrying out objects of advancement of general public utility is involved in carrying on any activity in the nature of trade, commerce, business or is charging fees for services in relation to any trade, commerce, business, it is excluded from being charitable. The assessee s plea that it is covered by mutuality has also been rightly set aside by the CIT(A). There is absence of complete identity between contributors and participants. The contributors and beneficiary are different. Furthermore, the assessee is rendering services to non members for getting profit. CIT(A) has rightly held that the assessee does not fulfill the condition of mutual organization. It is settled law that before one submits to the rule of precedence, the fact of the case has to be taken into account. The assessee has contended that none of its activities are carried out with an object or any motive to earn profit or surplus. That the earning of revenue is only incidental to the predominant object of providing education and skill development to the entrepreneurs. This submission is quite in contradiction to the fact that the assessee is charging huge amounts for sponsorship fee from corporate against which it provides various types of advertisement services and free passes are also provided. These facts clearly also negate the assessee s submission that donations obtained by way of advertisements are purely voluntary in nature and therefore, there is no element of quid pro quo. Making slabs for sponsorship fee and specifying the types of service against it are certainly for commercial gains with predominant objective to make profit. Hence, in our considered opinion, there is no infirmity in the orders of the authorities below. - Decided against assessee.

Summary

Issues Involved:
1. Denial of Exemption under Section 11 of the Income-tax Act, 1961.
2. Non-applicability of the principle of mutuality.

Detailed Analysis:

1. Denial of Exemption under Section 11 of the Income-tax Act, 1961

The primary issue revolves around whether the activities conducted by the appellant fall within the meaning of "education" as included in the definition of charitable purpose under Section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) noted that the appellant trust earned income from organizing seminars, which does not fall within the meaning of "education" as contemplated in Section 2(15). The AO concluded that these activities are commercial and non-charitable, thus rejecting the claim of exemption under Section 11.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the appellant's activities do not constitute "education" as they involve organizing workshops and seminars for a fee, which are not authorized to issue any certificates or degrees. The CIT(A) referenced the Supreme Court's decision in Sole Trustee, Loka Shikshona Trust v. Commissioner of Income Tax, Mysore, which defined "education" as systematic instruction, schooling, or training given to the young in preparation for the work of life.

The appellant argued that its activities fall under the ambit of "education" and cited various judicial precedents to support this claim. However, the Tribunal found that the appellant's activities are essentially networking sessions for entrepreneurs and do not amount to systematic educational activities. The Tribunal upheld the CIT(A)'s decision, stating that the appellant's activities are commercial in nature and do not qualify for exemption under Section 11.

2. Non-applicability of the Principle of Mutuality

The appellant contended that its case is covered by the principles of mutuality, arguing that there is a complete identity between contributors and participants, and no profit motive. The CIT(A) rejected this contention, stating that the appellant receives sponsorship income from third parties and renders services to non-members for profit, which disqualifies it from being considered a mutual organization.

The Tribunal agreed with the CIT(A), noting that the contributors and beneficiaries are different, and the appellant's activities involve rendering services for a fee, which is in the nature of trade, commerce, or business. Therefore, the principle of mutuality does not apply.

Conclusion:

The Tribunal dismissed the appeal, upholding the decisions of the AO and CIT(A). The appellant's activities were deemed commercial and non-charitable, and the principle of mutuality was found inapplicable. Consequently, the appellant was not entitled to exemption under Section 11 of the Income Tax Act, 1961.