2020 (6) TMI 603 - AT - Income Tax

Exemption u/s 11 - activity of the assessee of letting out gallery frequently for a price - Whether qualify as being called in the nature of charity - AO, applying the amended provisions of section 2(15) of the Act and CBDT Circular No.11/2008, denied the exemption claimed u/s 11 of the Act to the society on the ground that the activities of the assessee society are not charitable - CIT(A) allowed the claim of exemption u/s 11 - HELD THAT - As decided in own case 2019 (6) TMI 991 - ITAT DELHI Proviso to Section 2(15) of the Act, which was inserted by Finance Act, 2008, was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity in the object of a general public utility but was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions. Therefore, after duly considering the objects of the assessee society, the settled legal position with respect to interpretation of proviso of Section 2(15) of the Act and respectfully following the ratio of India Trade Promotion Organisation vs. DGIT (Exemption) 2015 (1) TMI 928 - DELHI HIGH COURT we are unable to concur with the observations and findings of both the lower authorities and while setting aside the orders of the Ld. CIT (Appeals), we direct the AO to allow the assessee the benefit of exemption u/s 11 12 - Decided in favour of assessee.

Issues Involved:
1. Whether the activity of letting out a gallery for a price qualifies as a charitable activity.
2. Whether the assessee is entitled to exemption under sections 11 and 12 of the Income Tax Act.
3. Whether the accumulation of income under section 11(2) amounting to ?1,53,50,000/- was justified.

Issue-wise Detailed Analysis:

1. Whether the activity of letting out a gallery for a price qualifies as a charitable activity:

The Revenue argued that the activity of letting out the gallery frequently for a price does not qualify as charitable under the amended section 2(15) of the Income Tax Act, which applies from A.Y. 2009-10 onwards. The Assessing Officer (AO) observed that the assessee's activities fall under the category of 'advancement of object of general public utility' and its income, including rental income, is in the nature of business, trade, or commerce. The AO held that the activity of letting out the gallery for a price is a business activity and thus hit by the amended provisions of section 2(15). However, the CIT(A) allowed the claim of the assessee, stating that the assessee should not be termed as a non-charitable organization as it is not primarily driven by a profit motive. The CIT(A) noted that the receipts from gallery rent and sale of paintings were minimal compared to the overall expenditure, indicating no profit motive.

2. Whether the assessee is entitled to exemption under sections 11 and 12 of the Income Tax Act:

The AO denied the exemption under sections 11 and 12, arguing that the activities of the assessee society are not charitable and that the rental income has no nexus with the objective of promoting fine arts and crafts. The AO also noted that the rent received is subject to TDS as pure rent and not linked to the main activities of the society. However, the CIT(A) allowed the exemption, and the Tribunal upheld this decision. The Tribunal noted that for past assessment years, the rental income was always taken as income from property held under society and allowed application of rent therefrom to the objects of the society. The Tribunal cited the memorandum of association of the society, which includes objects like purchasing or acquiring property for the society's purposes and selling or managing such property. The Tribunal also referenced the Hon'ble Delhi High Court's judgment in India Trade Promotion Organisation vs. DGIT (E), which held that merely collecting a fee or consideration does not mean the institution is involved in trade, commerce, or business if the dominant activity is not business.

3. Whether the accumulation of income under section 11(2) amounting to ?1,53,50,000/- was justified:

The AO argued that the assessee failed to utilize the accumulated income within the prescribed time, thus disqualifying it for exemption under section 11(2). However, the CIT(A) allowed the accumulation, and the Tribunal upheld this decision. The Tribunal found no infirmity in the CIT(A)'s order, noting that the activities of the assessee of letting out the gallery for a price qualify as charitable and that the assessee is entitled to exemption under sections 11 and 12.

Conclusion:

The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decision to allow the claim of exemption under sections 11 and 12 and the accumulation of income under section 11(2). The Tribunal relied on previous decisions in the assessee's own case and the Hon'ble Delhi High Court's judgment in India Trade Promotion Organisation vs. DGIT (E), concluding that the assessee's activities are charitable and not primarily driven by a profit motive.

← Previous Next →