2020 (2) TMI 15 - AT - Income Tax

Eligibility of exemption u/s 11 - whether the assessee trust is entitled to exemption under s.11 of the Act on surplus arising from carrying on of activities in the nature of safety training programme etc. ? - HELD THAT - In the instant case as the income of the trust are being stated to be ploughed back for the furtherance of objects of the trust, such activities would not portray the character of commercial nature. Therefore, applying the principles, the activities of the trust cannot be deemed to be a commercial venture. Thus, in our considered view, the activities of the assessee cannot be excluded from the ambit of definition of Section 2(15) of the Act where the registration of the assessee is in force. The assessee, in our view, would be entitled to deduction under s.11 of the Act on surplus as claimed. Viewed from a different angle, multifaceted activities in the form of handbook/literature published together with stated activities like holding conferences on industrial safety programmes, public talks, seminars, workshops etc. on ongoing basis to inculcate safety measures would also be bracketed in the league of educational activities when tested in the light of the decision in the case of Ahmedabad Management Association 2014 (8) TMI 638 - GUJARAT HIGH COURT took note of the changing times and ever widening of horizon of knowledge, rapid changes in the method of teaching for constituting the word education used u/s .2(15) of the Act. Thus, on a fair reading of the activities carried out, the assessee, in our view, would be entitled for exemption under s.11 of the Act without any demur. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of exemption under Section 11 of the Income Tax Act, 1961.
2. Disallowance of prior period expenses.

Detailed Analysis:

1. Eligibility of Exemption under Section 11 of the Income Tax Act, 1961

Background:
The assessee, a public charitable trust registered under the Bombay Public Trust Act, 1950, and Section 12(A)(a) of the Income Tax Act, 1961, claimed exemption under Section 11 of the Act for the assessment years (AY) 2011-12 and 2012-13. The Assessing Officer (AO) denied the exemption, asserting that the surplus income of ?19,86,737/- from safety training programs was not charitable but commercial in nature, thus taxable under normal provisions.

CIT(A) Findings:
The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the trust's activities did not qualify as "education" under Section 2(15) of the Act. The CIT(A) referenced the Supreme Court decision in Sole Trustee, Lok Shikshna Trust vs. CIT (1975) 101 ITR 234, which defined "education" as normal schooling, and concluded that the trust's safety training programs, workshops, and seminars did not meet this criterion.

Tribunal’s Analysis:
The Tribunal reviewed the objects of the trust and the nature of its activities. The trust's primary activities included conducting safety training programs, seminars, workshops, and publishing educational materials on safety. The Tribunal considered the argument that these activities were educational and fell under the main provision of Section 2(15) of the Act, thus qualifying as charitable.

Key Arguments by Assessee:
- The trust’s activities were educational as they provided knowledge and awareness about safety measures, which should be considered under the broader definition of "education" as per Section 2(15).
- Even if categorized under "advancement of any other object of general public utility," the activities were non-commercial, as the primary aim was not profit generation but public welfare.

Citations:
The Tribunal referenced the Gujarat High Court decisions in:
- Director of Income-tax (Exemption) vs. Ahmedabad Management Association [2014] 366 ITR 85 (Guj.)
- Ahmedabad Urban Development Authority vs. ACIT (Exemption) [2017] 396 ITR 323 (Guj.)
- Director of Income-tax (Exemption) vs. Sabarmati Ashram Gaushala Trust [2014] 362 ITR 539 (Guj.)

These cases supported the broader interpretation of "education" and emphasized that incidental profits from charitable activities do not negate their charitable nature.

Conclusion:
The Tribunal concluded that the trust’s activities were educational and charitable. The surplus income was ploughed back into the trust’s activities, and there was no commercial motive. Therefore, the trust was entitled to exemption under Section 11 for both AY 2011-12 and 2012-13.

2. Disallowance of Prior Period Expenses

Background:
The assessee claimed prior period expenses of ?4,905/-, which the AO disallowed.

CIT(A) Findings:
The CIT(A) confirmed the disallowance due to a lack of sufficient explanation and evidence from the assessee.

Tribunal’s Analysis:
The Tribunal noted that the assessee failed to provide adequate justification or evidence to support the claim for prior period expenses.

Conclusion:
The Tribunal upheld the disallowance of ?4,905/- for prior period expenses due to insufficient explanation.

Final Judgment:
- The appeal for AY 2011-12 was partly allowed: exemption under Section 11 was granted, but the disallowance of prior period expenses was upheld.
- The appeal for AY 2012-13 was fully allowed, granting exemption under Section 11.

This Order pronounced in Open Court on 29/11/2019.