2020 (10) TMI 1094 - HC - Income Tax

Exemption u/s 11 - income received by the appellant such as advertisement income from the souvenir, seminar surplus etc. are in the nature of commercial transaction and cannot be considered as charitable purpose - Tribunal held that the appellant is not entitled for the benefit of Section 11, merely because the appellant received certain additional amounts - what was dominant object of the trust? - organisations which were having their objects of general public utility - HELD THAT - Fact remains that the assessee is a non-profit entity viz., a charitable public trust and in the light of being a such organisation/institution, the registration of the assessee has not been cancelled or withdrawn till date. Unless and until there is a factual finding rendered by the authority, benefit could not have been denied to the assessee. As we have found that both the authorities or the Tribunal have examined this aspect and merely gone by the first proviso to Section 2(15) of the Act, we are inclined to interfere with the orders passed by the authorities and the Tribunal and remand the matter for fresh consideration. Appeal is allowed and the impugned order passed by the Tribunal as well as the order passed by CIT(A) and the assessment order are set aside and the matter is remanded to the Assessing Officer to take a fresh decision bearing in mind the legal principles laid down by the Courts and Tribunal in various decisions as referred.

Issues Involved:
1. Applicability of the decision of the Co-ordinate Bench based on the nature of income.
2. Entitlement for the benefit of Section 11 despite receiving additional amounts.
3. Classification of income from advertisements, seminars, etc., as commercial transactions.
4. Applicability of the concept of mutuality to receipts from members.

Issue-wise Detailed Analysis:

1. Applicability of the decision of the Co-ordinate Bench based on the nature of income:
The Tribunal held that the decision of the Co-ordinate Bench would apply only if the nature of income is identical. The Assessee argued that their activities were incidental to their main object, but the Tribunal disagreed, stating that the income from advertisements, seminars, and other sources were commercial in nature and not incidental to the charitable purpose.

2. Entitlement for the benefit of Section 11 despite receiving additional amounts:
The Tribunal ruled that the Assessee was not entitled to the benefit of Section 11 because they received additional amounts from non-members, which were considered commercial transactions. The Assessee contended that their dominant object was charitable, but the Tribunal found that their activities were predominantly commercial, thus disqualifying them from the exemption under Section 11.

3. Classification of income from advertisements, seminars, etc., as commercial transactions:
The Tribunal determined that the income received from advertisements, seminars, and other sources were in the nature of commercial transactions. The Assessee argued that these activities were part of their charitable purpose, but the Tribunal concluded that these activities were commercial and not incidental to the main charitable object.

4. Applicability of the concept of mutuality to receipts from members:
The Tribunal held that the receipts from members did not fall under the concept of mutuality because the Assessee had dealings with non-members. According to the Tribunal, the principle of mutuality requires complete identity between contributors and participants, which was not the case for the Assessee.

Additional Analysis:
The Assessing Officer (AO) treated the Assessee as an Association of Persons (AOP) and taxed the excess income over expenditure. The AO also referred the case for consideration of withdrawal/cancellation of registration under Section 12AA, but the registration was not cancelled. The CIT(A) upheld the AO's decision, citing Circular No.11/2008, which states that entities engaged in commercial activities are not eligible for exemption under Section 11.

The Tribunal confirmed the CIT(A)'s order, emphasizing that the Assessee's activities were predominantly commercial. The Tribunal distinguished the decisions relied upon by the Assessee, noting that the conduct of seminars and conferences was their major activity and involved substantial sums of money.

The Court referred to Circular No.11/2008, which clarifies that entities carrying on commercial activities are not eligible for exemption under Section 11. The Court noted that whether an entity is engaged in trade, commerce, or business is a question of fact, and each case must be decided on its own facts.

The Court found that the AO, CIT(A), and Tribunal did not render a finding of fact on whether the Assessee's activities were commercial. Citing several decisions, the Court emphasized that an institution not driven by profit motive but by charitable purposes should be regarded as established for charitable purposes. The Court concluded that the authorities failed to examine the facts and merely applied the first proviso to Section 2(15), leading to the denial of exemption.

Conclusion:
The appeal was allowed, and the orders of the Tribunal, CIT(A), and the assessment order were set aside. The matter was remanded to the AO for fresh consideration, with instructions to consider the legal principles laid down by the Courts and Tribunal. The substantial questions of law were left open, and no costs were awarded.

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