2019 (10) TMI 508 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15 ) - Assessee society has been set up with all forms of humanitarian grounds to take care of the physically and mentally challenged persons for their up lifting, survival and further establishment in life spread over throughout West Bengal specially in rural areas - HELD THAT - As the predominant object of the assessee is to carry out charitable purpose and not to earn profit, it would not lose its charitable character. The surplus derived from running the STD booths, pharmaceutical shops etc. was incidental and ancillary to the dominant object of taking care of physically and mentally challenged persons and uplifting them and enabling them to survive and live in this society. In view of the above discussion we direct the AO to grant benefit of Section 11 of the Act to the assessee. - Decided in favour of assessee.

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act.
2. Interpretation of "charitable purpose" under Section 2(15) of the Income Tax Act.
3. Applicability of the proviso to Section 2(15) concerning activities in the nature of trade, commerce, or business.

Detailed Analysis:

1. Denial of exemption under Section 11 of the Income Tax Act:
The assessee, a society set up for humanitarian purposes to aid physically and mentally challenged persons, filed its return of income declaring nil income by claiming exemption under Section 11 of the Income Tax Act. The Assessing Officer (AO) denied this exemption, asserting that the society engaged in business activities by running a press, cake shop, pharmacy, and STD booth, which did not fall under the definition of "charitable purpose" as per the amended Section 2(15) of the Act. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Interpretation of "charitable purpose" under Section 2(15) of the Income Tax Act:
The Tribunal analyzed the definition of "charitable purpose" under Section 2(15) of the Act, which includes relief of the poor, education, yoga, medical relief, preservation of the environment, and advancement of any other object of general public utility. The proviso to Section 2(15) states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves trade, commerce, or business activities unless such activities are incidental and the aggregate receipts do not exceed 20% of the total receipts.

The Tribunal noted that the assessee's activities, such as running a nursing training school and a B-Ed special education college, fall within the ambit of "education," a recognized charitable purpose. Therefore, the proviso concerning trade, commerce, or business activities does not apply to these limbs of charitable purposes.

3. Applicability of the proviso to Section 2(15) concerning activities in the nature of trade, commerce, or business:
The Tribunal found that the CIT(A) selectively cited Clause 17B of the assessee's constitution, omitting the part that states these activities were intended to provide employment opportunities for persons with disabilities. This omission led to a misinterpretation of the assessee's objectives. The Tribunal emphasized that the dominant objective of the assessee was charitable, and any incidental business activities were ancillary to this primary purpose.

The Tribunal referred to several case laws, including Divya Yog Mandir Trust vs. JCIT and India Trade Promotion Organization vs. Director General of Income Tax (Exemption), to support the view that incidental business activities do not negate the charitable nature of an organization if the primary objective remains charitable. The Tribunal concluded that the assessee's activities were driven by a charitable purpose, not profit-making, and thus, the benefit of Section 11 should be granted.

Conclusion:
The Tribunal directed the AO to grant the benefit of Section 11 of the Income Tax Act to the assessee, recognizing the society's activities as charitable and the incidental business activities as ancillary to its primary charitable purpose. The appeal of the assessee was allowed.

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