2019 (11) TMI 1232 - AT - Income Tax

Charitable activities u/s 2(15) - exemption u/s 11 - assessee is engaged in providing education and promoting research, training and education for peoples participation in developmental processes nationally and internationally - HELD THAT - Invocation of proviso to section 2(15) of the Act to deny the claim of exemption u/s.11 and 12 was not justified and same has been rightly allowed by the ld.CIT(A). Further, the AO himself accepted the charitable character in subsequent assessment proceedings. In view of these facts, we do not find any infirmity in the order of the ld.CIT(A), therefore same is upheld, consequently the appeal of the Revenue is dismissed.

Issues Involved:
1. Whether the activities of the assessee fall under the scope of "advancement of any other object of public utility" as per the proviso to section 2(15) of the Income Tax Act.
2. Whether the assessee is entitled to exemption under sections 11 and 12 of the Income Tax Act.
3. Whether the surplus generated by the assessee affects its eligibility for exemption under section 11 and 12.

Issue-Wise Detailed Analysis:

1. Scope of "Advancement of Any Other Object of Public Utility" under Section 2(15):

The primary issue revolved around whether the activities of the assessee, a society established in 1982 and registered under section 12A, fall within the scope of "advancement of any other object of public utility" as per the proviso to section 2(15) of the Income Tax Act. The Assessing Officer (AO) had denied the exemption under sections 11 and 12, arguing that the activities were not purely educational but included participatory research and other developmental activities.

The Tribunal referred to its previous decision for the assessment year (A.Y.) 2009-10, where it was held that the activities of the assessee were within the scope of education under section 2(15) and section 10(22) of the Act. The Tribunal noted that participatory research and training activities were integral to the assessee's educational objectives and were not commercial in nature. It was emphasized that these activities were aimed at benefiting poor and deprived communities and were conducted in collaboration with other charitable organizations like WHO and UNICEF.

2. Entitlement to Exemption under Sections 11 and 12:

The Tribunal examined whether the assessee was entitled to exemption under sections 11 and 12 of the Income Tax Act. The CIT(A) had allowed the exemption, referencing the Tribunal's decision for A.Y. 2009-10 and subsequent affirmations by the Delhi High Court for A.Y. 2010-11 and A.Y. 2011-12. The Tribunal found that the AO had accepted the charitable character of the assessee in subsequent assessment years (A.Y. 2013-14, 2014-15, and 2015-16), thereby allowing the exemptions.

The Tribunal reiterated that the activities of the assessee were not in the nature of trade, commerce, or business. It relied on the case of Praxis Institute of Participatory Practices v. DIT(E), where similar activities were held to be charitable and not commercial. The Tribunal concluded that the assessee's activities were educational and charitable, thus qualifying for exemption under sections 11 and 12.

3. Impact of Surplus on Eligibility for Exemption:

The Tribunal addressed the issue of whether generating a surplus affects the assessee's eligibility for exemption. The Tribunal cited the Supreme Court's judgment in Queen’s Educational Society v. CIT, which clarified that the mere generation of surplus does not imply that an institution ceases to exist solely for educational purposes. The predominant object test must be applied to determine whether the purpose of education is overshadowed by a profit-making motive.

The Tribunal noted that the assessee's activities resulted in incidental surpluses, which were reinvested in furthering its educational and charitable objectives. It was highlighted that no part of the surplus was distributed to members or used for non-charitable purposes. The Tribunal concluded that the surplus did not disqualify the assessee from exemption under sections 11 and 12.

Conclusion:

The Tribunal upheld the CIT(A)'s order, affirming that the invocation of the proviso to section 2(15) to deny exemption under sections 11 and 12 was not justified. The Tribunal emphasized that the assessee's activities were educational and charitable, and the surplus generated was incidental and reinvested in charitable purposes. Consequently, the appeal of the Revenue was dismissed, and the assessee's entitlement to exemption under sections 11 and 12 was upheld. The order was pronounced in the open court on 05-11-2019.

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