2020 (9) TMI 919 - AT - Income Tax

Exemption u/s 11 12 - Assessee failed to qualify as an organization for charitable purposes - charitable activity u/s 2(15) - assessee association is receiving some charges or fees for rendering services on non- commercial principles to State Road Transport Undertakings and other concern members for a fee or charges - HELD THAT - There is evidence and material to show that the activity were carried out on sound and recognized business principles and persuaded with reasonable continuity then it would constitute business even if there is no profit motive as we have already noted that in assessee's own case for A.Y. 1989-90, 1990-91 and 1993-94 2000 (12) TMI 225 - ITAT DELHI-E it was held that the aims and objects of the assessee were to render common services to members and assist them in such matters as standardization of equipment, purchase of materials for thereon use at economical prices, promotional efficiency of Road Transport Services and deduction is operational cost of member State Road Transport Undertakings are the activities of charitable purpose towards promotion of main objects set out in the Memorandum of Association of the assessee association, thus, in absence of any substantial allegation or incriminating material. We are unable to accept view of the CIT that the assessee association is conducting these activities with the main object of earning profits. In the present case, the activities of the assessee's association cannot be termed either trade , commerce or business simply because the assessee association is receiving some charges or fees for rendering services on non- commercial principles to State Road Transport Undertakings and other concern members for a fee or charges. As Indian Trade Promotion Organisation vs. DGIT 2015 (1) TMI 928 - DELHI HIGH COURT wherein it was held that thus, first proviso to section 2(15) of the Act would have been to be read down and interpreted in the context of section 10 (23C) (iv) of the Act as the context requires such interpretation where assessee is not driving primarily by desired or motive to earn profit but to pursue activities in furtherance of its objects of general public utility then it must be recognized as an institution established for charitable purposes. Hon'ble Delhi High Court in the case of Institute of Chartered Accountant of India vs. DGI 2011 (9) TMI 77 - DELHI HIGH COURT held that the object of the first proviso to section 2(15) of the Act is to include any transaction for a fee or money and the activity would be business if it is undertaken with the profit motive but in some cases this fact must be determinative and the profit motive test should be specified and viewed in the context of section 10 (23C) (iv) - Decided against revenue.

Summary

Issues Involved:
1. Whether the activities of the assessee fall under the definition of "charitable purpose" as per Section 2(15) of the Income Tax Act.
2. Whether the assessee is entitled to exemption under Sections 11 & 12 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Definition of Charitable Purpose:
The primary issue revolves around whether the activities of the assessee qualify as "charitable purposes" under Section 2(15) of the Income Tax Act. The Assessing Officer (AO) determined that the assessee's activities were in the nature of trade, commerce, or business, thus not qualifying as charitable. The AO noted that the assessee had revenue from test laboratory and consultancy receipts, which were deemed commercial in nature. The assessee argued that its activities were aimed at improving the public transport system and were conducted without a profit motive. The CIT(A) and the Tribunal in earlier years ruled in favor of the assessee, recognizing its activities as charitable. The Tribunal reiterated that the dominant object of the assessee was charitable and any incidental activity for furtherance of the object would not fall within the expressions "business", "trade", or "commerce".

2. Entitlement to Exemption under Sections 11 & 12:
The AO denied the benefit of exemption under Sections 11 & 12, concluding that the assessee failed to qualify as an organization for charitable purposes. The CIT(A) and the Tribunal in earlier years had allowed the exemption, stating that the activities of the laboratory testing and consultancy were in furtherance of the main charitable object of the assessee. The Tribunal noted that the assessee's activities did not have a profit-earning motive and were conducted in line with its charitable objectives. The Tribunal followed its earlier decisions and the principles laid down by higher judicial authorities, including the Hon'ble Delhi High Court, which emphasized that activities carried out in furtherance of charitable objectives should not be considered as trade or business merely because they generate revenue.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, affirming that the assessee's activities were indeed charitable and not in the nature of trade, commerce, or business. Consequently, the assessee was entitled to the exemption under Sections 11 & 12. The appeals filed by the Revenue were dismissed for both assessment years 2013-14 and 2014-15, as no distinguishing features were presented by the Revenue to differentiate the facts from earlier years. The Tribunal's order was pronounced in the open court on 21.09.2020.