2020 (9) TMI 199 - AT - Income Tax

Exemption u/s 11 - surplus from exhibition activity - assessee is a registered trust engaged in the activity of promoting and fostering feelings of unity and cooperation and mutual help and to eliminate unhealthy competition and unfair trade practices among the Promoters and Builders Association of Pune - HELD THAT - Holding of exhibition by the assessee trust is only furtherance of the charitable activity of the trust wherein, the healthy environment is provided for businessmen so that all the stake holders i.e. businessmen and customers are benefited and they also make aware of various activities like pollution control, city development, legal assistance etc which are in the nature of charitable activities and these certainly reached out to the greater number of people of the society. It is not disputed that clause (vii) in the Memorandum of Objects is one of the pertinent object of the assessee trust and fulfillment of such object benefited the public at large by holding the exhibition and therefore, is a part of charitable activity conducted by the assessee trust. Merely having surplus in one year does not change the character of the trust to a business or profit making entity which is otherwise a charitable trust advancing work of general public utility and certainly not hit by the first proviso to Section 2(15) of the Act. Since the Assessing Officer has denied the benefit of sections 11 and 12 which has been upheld by the Ld. CIT(Appeals) also on the ground that the assessee did not fall within the scope of charitable purposes defined in section 2(15) of the Act because of carrying on or rendering of any services in business, trade and commerce and this in our considered opinion is not a correct interpretation of the provision. Set aside the order of the Ld. CIT(Appeal) and direct the Assessing Officer to grant benefit of exemption u/s.11 and 12 of the Act to the assessee. - Decided in favour of assessee.

Summary

Issues Involved:
1. Entitlement of the assessee trust to exemption under Sections 11 or 12 of the Income Tax Act, 1961.
2. Determination of whether the assessee is a charitable trust under Section 2(15) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Sections 11 or 12:
The primary question was whether the assessee trust qualified for exemption under Sections 11 or 12 of the Income Tax Act, 1961. The Assessing Officer (AO) denied the exemption, citing that the trust's activities involved trade, commerce, or business, which disqualified it under the proviso to Section 2(15). The AO noted that the trust had a surplus from exhibition activities and charged subscription fees, indicating a profit motive. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this view, emphasizing that the trust's activities primarily benefited its members rather than the public at large.

2. Determination of Charitable Status under Section 2(15):
The AO and CIT(A) both concluded that the trust's activities did not qualify as charitable under the amended Section 2(15), which excludes entities involved in trade, commerce, or business from being considered charitable. The AO argued that the trust's surplus from exhibition activities and subscription charges indicated commercial activity. The CIT(A) further noted that the trust did not incur expenses for the welfare of the labor class, which was one of its stated objectives, suggesting a lack of public utility.

Tribunal's Findings:

Exemption under Sections 11 or 12:
The Tribunal found that the AO and CIT(A) had not provided evidence that the trust charged subscription fees or operated with a profit motive. The Tribunal emphasized that merely having a surplus in one year does not change the trust's charitable nature. It noted that the trust's exhibitions included activities beneficial to the public, such as lectures on city development, pollution control, and legal assistance, which align with its charitable objectives.

Charitable Status under Section 2(15):
The Tribunal referred to similar cases, such as the Society of Indian Automobile Manufacturers and the Mahratta Chamber of Commerce Industries and Agriculture, where entities engaged in activities that generated surplus were still considered charitable as long as the primary objective was public utility. The Tribunal concluded that the trust's activities were aimed at benefiting the public and maintaining a fair business environment, which qualifies as a charitable purpose under Section 2(15).

Conclusion:
The Tribunal set aside the orders of the AO and CIT(A), directing the AO to grant the benefit of exemption under Sections 11 and 12 to the assessee for both assessment years 2011-12 and 2012-13. The Tribunal's decision was based on the lack of evidence for commercial activity and the trust's alignment with its charitable objectives.

Result:
Both appeals of the assessee were allowed, and the trust was granted the exemption under Sections 11 and 12 of the Income Tax Act, 1961.