2019 (2) TMI 905 - AT - Income Tax

Charitable activity - benefit u/s 11 and 12 - whether activities of the society fell in the category advancement of an object of general public utility - whether the income from art gallery and sale of paintings, considered to be business income - Held that - The assessee society has carried out activities in the form of annual art exhibitions, camps for senior and junior artists, providing maintenance to aged artists etc. It is also not the department s case that any part of surplus was diverted from the society and applied for any personal benefit of any member or office bearer of the society. Therefore, it can be safely concluded that the dominant activity of the assessee society is not business, trade or commerce and, accordingly, any incidental or ancillary activity like hiring out of art gallery or selling paintings would not also fall within the categories of trade, commerce or business. Proviso to Section 2(15) of the Act, which was inserted by Finance Act, 2008, was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity in the object of a general public utility but was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. After duly considering the objects of the assessee society, the settled legal position with respect to interpretation of proviso of Section 2(15) of the Act and respectfully following the ratio of the judgment of the Hon ble Delhi High Court in the case of India Trade Promotion Organisation vs. DGIT (Exemption) 2015 (1) TMI 928 - DELHI HIGH COURT we are unable to concur with the observations and findings of both the lower authorities and while setting aside the orders of the Ld. CIT (Appeals), we direct the AO to allow the assessee the benefit of exemption u/s 11 & 12 of the Act for assessment year 2009-10. - Decided in favour of assessee.

Issues Involved:
1. Whether the activities of the assessee society fall within the ambit of "advancement of an object of general public utility" and are hit by the proviso to Section 2(15) of the Income Tax Act, 1961.
2. Whether the assessee society is engaged in activities in the nature of trade, commerce, and business.
3. Whether the assessee society is eligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961.
4. Whether the assessment of income and disallowance of depreciation by the AO was justified.
5. Whether the interest under Section 234B was correctly charged.
6. Whether the credit for tax paid or tax deducted at source was correctly given.

Detailed Analysis:

Issue 1: Proviso to Section 2(15) of the Income Tax Act, 1961
The AO contended that the activities of the assessee society, which included organizing art exhibitions, selling paintings, and renting out art galleries, fell within the category of "advancement of an object of general public utility" and were therefore hit by the proviso to Section 2(15) of the Act. The AO noted that the society had recovered maintenance charges and earned income from the sale of art objects, which exceeded the statutory threshold limit of ?10,00,000/-. Consequently, the AO disallowed the exemption under Sections 11 and 12 of the Act.

Issue 2: Nature of Activities
The CIT(A) upheld the AO's view that the society's activities were in the nature of trade, commerce, and business. This included the sale of paintings and the renting out of art galleries, which were considered commercial activities.

Issue 3: Eligibility for Exemption under Sections 11 and 12
The assessee argued that its activities were charitable in nature and were covered by the judgment of the Hon'ble Delhi High Court in the case of India Trade Promotion Organisation vs. DGIT (Exemptions), which held that merely collecting fees or other considerations does not negate the charitable purpose. The ITAT agreed with the assessee, noting that the dominant activity of the society was not business but the promotion of art, craft, and culture. The ITAT concluded that the incidental activities of renting out galleries and selling paintings did not fall within the categories of trade, commerce, or business.

Issue 4: Assessment of Income and Disallowance of Depreciation
The AO assessed the income at ?4,82,24,468/- for AY 2009-10 and ?19,99,86,200/- for AY 2010-11 after disallowing the exemption under Sections 11 and 12. The AO also disallowed depreciation on the grounds that it would amount to double deduction. The ITAT, however, set aside the orders of the CIT(A) and directed the AO to allow the exemption under Sections 11 and 12, thereby nullifying the additions made by the AO.

Issue 5: Interest under Section 234B
The assessee contended that the interest under Section 234B was wrongly charged. However, this issue was not specifically addressed in the ITAT's final order, as the primary focus was on the eligibility for exemption under Sections 11 and 12.

Issue 6: Credit for Tax Paid or Tax Deducted at Source
The assessee argued that the AO had erred in not giving credit for tax paid or tax deducted at source. This issue was also not specifically addressed in the ITAT's final order.

Conclusion:
The ITAT allowed both appeals of the assessee for AY 2009-10 and AY 2010-11. The ITAT set aside the orders of the CIT(A) and directed the AO to allow the assessee the benefit of exemption under Sections 11 and 12 of the Income Tax Act, 1961. The ITAT relied on the judgment of the Hon'ble Delhi High Court in the case of India Trade Promotion Organisation vs. DGIT (Exemptions), which held that merely collecting fees or other considerations does not negate the charitable purpose. The ITAT concluded that the dominant activity of the assessee society was charitable and not commercial.

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