2021 (3) TMI 772 - AT - Income Tax

Exemption u/s 11 - interest received from bank deposit as Commercial or Business Income - assessee is a charitable society having registration under 12AA - HELD THAT - The assessee had been established by Government of Karnataka vide GO No.CI-69-SPC-92 dated 22.05.1992 as a society registered under the Karnataka Societies (Registration) Act, 1960. The assessee has been established for charitable purposes and is registered u/s 12AA of the I.T.Act. The assessee acts as a single window facilitation for the purpose of establishing industries in the State of Karnataka. The income received during the assessment year 2013-2014 consisted of single window facilitation and interest on fixed deposit. AO had treated the entire income as commercial / business, falling under the first proviso to section 2(15) of the I.T.Act and denied exemption u/s 11 - AR had relied on various case laws for the proposition that when the dormant object of the assessee is not to make profit, proviso to section 2(15) of the I.T.Act does not have application. This specific plea of the assessee has not been adjudicated by the A.O. nor by the CIT(A). Therefore, we are of the view that the matter needs to be examined de novo by the A.O. Accordingly, the issues raised in this appeal are restored to the files of the A.O. The A.O. shall afford a reasonable opportunity of hearing to the assessee and take a decision in accordance with law. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Denial of exemption u/s 11 of the Income Tax Act, 1961 based on proviso to section 2(15).
2. Classification of interest received from bank deposit as 'Commercial or Business Income' and denial of exemption under section 11.

Analysis:

Issue 1: Denial of exemption u/s 11 based on proviso to section 2(15):
The appellant, a charitable society registered under 12AA of the Income Tax Act, filed a return of income for the assessment year 2013-2014 claiming exemption u/s 11. The Assessing Officer denied the exemption citing the proviso to section 2(15) of the Act, stating that the appellant was involved in activities akin to trade or business. The CIT(A) upheld this decision, referring to the CBDT Circular and concluded that the appellant did not qualify for the exemption. The appellant contended that it operated without a profit motive and hence the proviso to section 2(15) should not apply. The Tribunal observed that this specific argument was not addressed by the lower authorities and remanded the matter to the Assessing Officer for a fresh examination, emphasizing the need to consider the absence of profit motive.

Issue 2: Classification of interest as 'Commercial or Business Income' and denial of exemption under section 11:
The Assessing Officer treated the entire income of the appellant, comprising single window facilitation and interest on fixed deposits, as commercial/business income under the first proviso to section 2(15), leading to the denial of exemption u/s 11. The Tribunal noted that the Assessing Officer did not address the appellant's argument that the proviso to section 2(15) should not apply due to the absence of a profit motive. Consequently, the Tribunal remanded the matter to the Assessing Officer for a fresh decision, emphasizing the need for a comprehensive examination considering the charitable nature of the appellant's activities.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing a fresh assessment by the Assessing Officer to consider the appellant's charitable nature and absence of profit motive while determining eligibility for exemption u/s 11 of the Income Tax Act, 1961.