2021 (2) TMI 220 - AT - Income Tax

Exemption u/s 11 - Claim denied as activities of the assessee involve rendering of services in relation to carrying on of commerce or business - HELD THAT - In A.Y. 2012-2013 own case the ITAT as well as Hon ble Delhi High Court has considered both the issues with regard to applicability of proviso to Section 2(15) in the case of the assessee-society and exemption claimed under Section 11 as well as the issue of principle of mutuality and the Hon ble Delhi High Court dismissed the Departmental appeal. These issues are covered by the aforesaid decisions of the Tribunal as well as Hon ble Delhi High Court in the case of the same assessee-society. The Revenue in its grounds of appeal has referred to the decision of Hon ble Supreme Court in the case of Bangalore Club vs.. 2013 (1) TMI 343 - SUPREME COURT which is also considered by the Hon ble Delhi High Court. Thus, the issue is covered by the Order of the Tribunal as well as Hon ble Delhi High Court in favour of the assessee-society. The history of the assessee-society as noted in the submissions of Learned Counsel for the Assessee also clearly show that all the issues raised in the Departmental appeal have been considered and decided in earlier years, therefore, principle of consistency do apply to the same facts. No material is brought on record to distinguish the facts in the case of the assessee-society considered in earlier years as well as in assessment year under appeal. In A.Y. 2010-2011, the Order under section 263 of Income Tax Act, 1961 have been set aside by the Tribunal and Departmental appeal have been dismissed by the Hon ble Delhi High Court as well. The subsequent Order passed under section 143(3)/ 263 have become infructuous and vide separate Order the Departmental appeal have also been dismissed by the Tribunal in 2021 (2) TMI 173 - ITAT DELHI Considering the above background and history of the assessee-society in the light of various Orders referred to by the Learned Counsel for the Assessee during the course of arguments and the recent Order of the ITAT and Hon ble Delhi High Court in A.Y. 2012-2013 we do not find any infinity in the Order of the Ld. CIT(A) in allowing the appeal of assessee-society.

Summary

Issues Involved:
1. Applicability of Section 2(15) of the Income Tax Act, 1961.
2. Deletion of addition on account of bank interest and principle of mutuality.

Detailed Analysis:

Issue 1: Applicability of Section 2(15) of the Income Tax Act, 1961

The primary contention was whether the activities of the assessee-society fall under the proviso to Section 2(15) of the Income Tax Act, 1961, thus disqualifying it from being considered a charitable organization. The Assessing Officer (A.O.) argued that the activities were commercial in nature, thus invoking the proviso to Section 2(15). However, the assessee-society contended that its activities were not profit-driven and were conducted on a no-profit no-loss basis, thus qualifying as charitable under Section 2(15).

The CIT(A) and ITAT both held that the assessee-society's activities were charitable, noting that the Hon'ble Delhi High Court had previously accepted this position for prior assessment years. The ITAT emphasized the principle of consistency, as there was no change in the nature of activities from earlier years where the assessee-society was treated as charitable. The ITAT also referenced the Hon'ble Supreme Court's judgment in Radhasoami Satsang vs. CIT, which supports maintaining consistency in the absence of material changes in facts.

Issue 2: Deletion of Addition on Account of Bank Interest and Principle of Mutuality

The A.O. had added ?1,21,38,992/- to the income of the assessee-society, arguing that the bank interest was not covered under the principle of mutuality, referencing the Supreme Court's judgment in Bangalore Club vs. CIT. The assessee-society claimed that its activities and income were covered by the principle of mutuality and that the bank interest should not be taxable.

The CIT(A) and ITAT found in favor of the assessee-society, holding that the principle of mutuality applied. The ITAT noted that once the income is computed under Sections 11, 12, and 13 of the Income Tax Act, 1961, as a charitable institution, the principle of mutuality becomes superfluous. The ITAT referenced earlier decisions, including those of the Hon'ble Delhi High Court, which had upheld the principle of mutuality for the assessee-society in similar contexts.

The ITAT and CIT(A) also noted that the Hon'ble Delhi High Court had dismissed the Department's appeals in earlier years on similar grounds, reinforcing the principle of consistency. Additionally, the ITAT highlighted that the assessee-society's registration under Section 12A was still in force, further supporting its charitable status.

Conclusion

The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order that the assessee-society's activities were charitable and that the principle of mutuality applied to its income, including bank interest. The ITAT emphasized the importance of consistency in tax treatment across assessment years, especially when there were no material changes in the facts or nature of activities of the assessee-society. The decision was supported by multiple precedents, including judgments from the Hon'ble Delhi High Court and the Supreme Court.