2019 (7) TMI 620 - HC - Income Tax

Exemption u/s 11 - denial of exemption - continued availability of registration u/s 12A(a) of the Act for the appellant as a Public Charitable Trust - CIT-A allowed exemption - finding recorded by the Tribunal is that from the objectives of the assessee trust, it is evident that trading activities indulged by them is not mentioned in the objectives of the society - the activities of the assessee society namely, procuring raw material from abroad and distributing the same will amount to pure commercial transaction because it is purely a trading activity generating substantial profit - HELD THAT - This finding is insufficient to dislodge the order passed by the CIT(A). We say so for more than one reason. Firstly, the Tribunal was required to take note of the legal position, which prevailed at the relevant time, in fact, one of the decisions of the Tribunal which considered similar case in respect of The ACIT(Exemptions) Vs. All India Skin and Hide Tanners and Merchants Association in 2017 (10) TMI 1466 - ITAT CHENNAI was available when the Tribunal decided the impugned appeals. In the said decision, the Tribunal elaborately discussed the issue, examined the memorandum of association of the said assessee association and held in favour of the assessee. In this case also the earlier decision of the Tribunal has been referred to. We have pointed out these orders only for the purpose that in those cases the objectives of the concerned assessee were analysed by the Tribunal. However, we find such exercise was not done in the instant case, which was required to be done. We also make it clear that we have not expressed any opinion on the merits of the matter but, what we are concerned is that, an exercise should be done to examine the contention advanced by the assessee. More particularly, the contention which were raised in this appeal and the decisions which were cited at the bar. As per assessee proceeding proposing to cancel the said registration u/s 12AA was dropped and till date the assessee is enjoying such registration. However, Mr.J. Narayanaswami, learned Senior Standing Counsel, does not have any instructions in that regard but would submit that in any event, the facts of the case is only relevant factor to be gone into. Matter requires reconsideration by the Tribunal by examining the factual matrix in greater depth. For the above reason, this appeal is allowed. The order passed by the Tribunal is set aside and the matter is remanded back to the Tribunal for fresh consideration to consider all issues that may be raised by the assessee as well as by the Revenue.

Summary

Issues:
1. Denial of tax exemption under Section 11 of the Income Tax Act for the Assessment Years despite registration under Section 12A(a) as a Public Charitable Trust.
2. Misconstruction of provisos under Section 2(15) of the Act leading to denial of tax exemption for trading activities.
3. Confirmation of assessment orders without examining the objects and financial statements for tax exemption based on the principle of mutuality.

Issue 1: Denial of Tax Exemption under Section 11 despite Registration under Section 12A(a):
The Tax Case Appeals questioned the correctness of denying tax exemption under Section 11 despite the availability of registration under Section 12A(a) as a Public Charitable Trust. The Assessing Officer recommended cancellation of registration due to profits earned from selling wattle extract, despite the appellant's claim of distribution activity. The CIT(A) allowed the appeals, but the Tribunal focused on the commercial nature of the activities, leading to the denial of tax exemption. The Court found the Tribunal's findings insufficient and emphasized the need to consider legal precedents and the objects of the Association to determine charitable status.

Issue 2: Misconstruction of Provisos under Section 2(15) for Trading Activities:
The Tribunal's decision was based on the trading nature of the appellant's activities, falling under the proviso to Section 2(15) of the Act. However, the Court highlighted the need for a comprehensive analysis, citing previous Tribunal decisions and Circular No.11 of 2008. The Court emphasized the importance of examining whether the activities fell within the scope of advancing general public utility and the principle of mutuality. The Court referenced various legal precedents to support the need for a detailed evaluation of the appellant's activities.

Issue 3: Confirmation of Assessment Orders without Examining Objects and Financial Statements:
The Tribunal's confirmation of assessment orders without a thorough examination of the appellant's objects and financial statements for tax exemption based on the principle of mutuality raised concerns. The Court stressed the importance of analyzing the objectives of the Association and considering the contentions raised by the appellant. The Court highlighted the need for a detailed review of the factual matrix to ensure a fair assessment. The Court remanded the matter back to the Tribunal for a fresh consideration, leaving the substantial questions of law open and emphasizing the need for a more in-depth examination of the case.

In conclusion, the High Court of Madras set aside the Tribunal's order, remanding the matter for a more detailed review to consider all issues raised by both the appellant and the Revenue. The Court underscored the significance of examining the factual matrix and legal principles to determine the eligibility for tax exemption under the Income Tax Act.