2020 (3) TMI 233 - HC - Income Tax

Exemption u/s 11 and 12 - income received from organizing the event of Garba during the Navratri festival - ITAT allowed the benefit to assessee - charitable activity u/s 2(15) - whether the questions of law as proposed by the Revenue could be termed as substantial questions of law? - HELD THAT - Assessee has been supporting 120 non-government organizations. The assessee is into health and human services for the purpose of improving the quality of life in the society. The objectives of the Society includes mobilizing resources from the local communities. It organizes medical camps for thalassemia affected children. It also provides vocational training to the disabled orphans, undertakes various program for empowering women including providing midday meal to the poor students. The activities like organizing the event of Garba including the sale of tickets and issue of passes etc. cannot be termed as business. The two authorities have taken the view that the profit making is not the driving force or the objective of the assessee. This is indicative of the fact that any income generated by the assessee from events like Garba does not find its way into the pockets of any individual or entities. It is to be utilized fully for the purposes of the objects of the assessee. As held in many pronouncements, the expression trade , commerce and business as occurring in the first Proviso to Section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner. The purpose and the dominant object for which an institution carries on its activities is material to determine whether the same is business or not. The object of introducing the first proviso is to exclude the organizations which are carrying on regular business from the scope of charitable purpose . An activity would be considered business if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case the activity may be regarded as a business even when the profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. Having regard to the concurrent findings recorded by the two authorities, we are of the view that we should not interfere with the order passed by the Appellate Tribunal. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the assessee's activities fall within the ambit of Section 2(15) read with Section 13(8) of the Income Tax Act, 1961.
2. Whether the assessee is entitled to the benefit of Sections 11 and 12 of the Act.
3. Whether the income from organizing the Garba event constitutes business activity.
4. Whether the expenses claimed by the assessee can be considered as application of income.
5. Whether the anonymous donations received by the assessee can be added to its income.
6. Whether the findings of the ITAT are perverse and contrary to the evidence on record.

Detailed Analysis:

1. Applicability of Section 2(15) read with Section 13(8):
The Assessing Officer (AO) concluded that the assessee's activities, particularly the Garba event, are commercial in nature and fall within the proviso to Section 2(15) of the Act, thus disqualifying the assessee from claiming benefits under Sections 11 and 12. The AO noted that 79.85% of the assessee's total income was derived from the Garba event, which involved selling passes and leasing food stalls. The AO argued that these activities are in the nature of trade, commerce, or business, and profit-making is not incidental.

2. Entitlement to Benefits under Sections 11 and 12:
The CIT (A) and the ITAT both held that the assessee's activities could be termed as charitable in nature, thus making the assessee eligible for benefits under Sections 11 and 12. The CIT (A) emphasized that the assessee's primary objective is charitable, involving support to NGOs, health and human services, and other community services. The ITAT concurred, noting that the dominant object of the assessee is not profit-making but charitable activities.

3. Income from Garba Event as Business Activity:
The AO argued that the income from the Garba event constitutes business activity, thus falling within the proviso to Section 2(15). However, the CIT (A) and the ITAT disagreed, stating that the Garba event is not the dominant activity of the assessee and is conducted to support its charitable objectives. The ITAT noted that the income generated from the Garba event is fully utilized for charitable purposes and does not benefit any individual or entity.

4. Application of Income for Expenses:
The AO disallowed several expenses claimed by the assessee, including assistance to voluntary agencies, public education programs, and community services. The ITAT, however, held that these expenses are to be treated as application of income for charitable purposes. The ITAT emphasized that once the proviso to Section 2(15) is held to be inapplicable, these expenses are allowable.

5. Anonymous Donations:
The AO added ?1,67,90,118/- as anonymous donations to the assessee's income. The CIT (A) found that this amount was received as corpus donation and should not be considered as income. The ITAT upheld this view, noting that the amount was a capital receipt and eligible for deduction under Section 11(1)(d).

6. Findings of the ITAT:
The Revenue argued that the ITAT's findings are perverse and contrary to the evidence on record. However, the High Court held that the ITAT's findings are based on a thorough examination of the facts and circumstances, and there is no reason to interfere with the order.

Conclusion:
The High Court dismissed the Revenue's appeal, upholding the concurrent findings of the CIT (A) and the ITAT. The Court held that the assessee's activities are charitable in nature and do not fall within the proviso to Section 2(15). Consequently, the assessee is entitled to the benefits of Sections 11 and 12, and the expenses claimed are allowable as application of income. The anonymous donations received by the assessee are capital receipts and not income. The Court found no substantial questions of law to warrant interference with the ITAT's order.