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2021 (4) TMI 157 - AT - Income TaxExemption u/s 11 - Charitable activity u/s 2(15) - activities of organizing seminars - assessee s receipts / Income from activities and interest income was treated as Income of the assessee and taxed accordingly - AO mentioned that in this case registration under section 12A was cancelled by DIT (exemptions) as assessee has engaged itself in commercial activities - HELD THAT - Assessee trust was established to promote internet and e-commerce. In order to promote and popularize the objects, assessee has to arrange and organize the seminars and other medium of promotion. In that process, assessee has organized some sponsorship and collected fees. The existence of these kind of trust depends upon the systematic programs and organizing seminars in that process, they have to collect fees for that effort. In that process, we would not say profit but surplus in order to survive self-reliant and meet out the administration cost of the trust. Hon ble Bombay High Court adjudicated in the case of Shree Nashik Panchvati 2017 (3) TMI 1262 - BOMBAY HIGH COURT held that the presence of the trading activity by the respondent assessee is an activity incidental to its primary/ principal activity of providing asylum to old, maimed, sick and disabled cows. The activity is almost compelled upon the trust, in the process of giving asylum to the cows. Similarly in the given case, the activities of organizing seminar is incidental to primary objective of promotion of Internet and e-Commerce among the members and public at large. Without these activities of organizing seminars, the existence of the trust is impossible. Activities of organizing seminars are integral part of objects of the trust. We notice that even tax authorities agree that the activities of the trust may fall under 4th limb of section 2(15) of the Act i.e. for general public utility. The AO treated the assessee s activities under mutuality concept. We are aware that in order to claim the mutuality, assessee has to maintain the separate books for the service rendered to members and non-members. Even the assessee has to prove that the identities of the contributors to the common fund must be entitled to participate in the surplus and the participators to the surplus must be the same persons who have contributed to the common fund. Unless these conditions are satisfied, the assessee cannot be treated as mutual organization. In the given case, AO has not verified nor assessee has claimed any benefit under mutuality. We notice that the assessee has not maintained any separate register for the services rendered to members and non-members. Therefore, it cannot be classified under mutuality. Registration under section 12AA is restored and the Co-ordinate Bench has already adjudicated that mere holding seminars cannot be termed a commercial or business activity. Therefore, the registration granted after evaluating the objects of the trust as charitable and now merely because of organizing seminars itself cannot make the trust non charitable or commercial. Invoking of section 2(15) of the Act merely because of revenue from organizing seminar cannot make the trust looses the character of charity. The AO himself classified the activities under objects of general public utility. Therefore, the activities carried on by the assessee is only incidental to the main object and the ratio laid down in the case of Shree Nashik Panchvati (supra) is applicable to this case. Therefore, we are inclined to accept the plea of the assessee and accordingly, all the grounds raised by the assessee are allowed
Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act. 2. Applicability of Section 2(15) of the Income Tax Act. 3. Classification of activities as business income. 4. Mutuality principle and its applicability. Detailed Analysis: 1. Denial of Exemption under Section 11: The Assessing Officer (AO) denied the exemption under Section 11, citing that the assessee's activities of organizing seminars and collecting fees are in the nature of business activities. The AO argued that the trust's activities are not educational but fall under the category of "advancement of any other object of general public utility," which is subject to the proviso to Section 2(15). The AO also mentioned that the registration under Section 12A was canceled by the Director of Income Tax (Exemptions) [DIT(E)] due to the assessee engaging in commercial activities. 2. Applicability of Section 2(15): The AO scrutinized Section 2(15) and concluded that the assessee's activities fall under the sixth category: "advancement of any other object of general public utility." The AO emphasized that the trust's activities are commercial in nature, generating significant income from seminars and sponsorships, which disqualifies it from being considered a charitable institution under the amended Section 2(15). 3. Classification of Activities as Business Income: The AO classified the income from seminars, sponsorships, and other related activities as business income. The AO argued that the assessee systematically generated income through these activities, which are commercial and not educational. The AO relied on various judicial precedents, including the Sole Trustees Loka Shikshana Trust and Bihar Institute of Mining and Mine Surveying, to support this classification. 4. Mutuality Principle and Its Applicability: The AO observed that the assessee's institution is predominantly a mutual association, where members contribute for their own benefit, contradicting the principles of charity. The AO argued that the concept of charity involves altruism and benefit to others, which is not the case with the assessee's activities. Therefore, the AO treated the assessee as a mutual association and not a charitable institution. Appellate Tribunal's Findings: Denial of Exemption under Section 11: The Tribunal noted that the Hon’ble ITAT had previously restored the registration under Section 12A, observing that holding seminars cannot be termed a commercial or business activity as the trust was established for this specific purpose. The Tribunal found that the assessee had incurred a loss on conducting seminars, which further supports the non-commercial nature of its activities. Applicability of Section 2(15): The Tribunal referred to various judicial precedents, including the decisions of the Hon’ble Bombay High Court in the cases of DIT(E) vrs. Shri Vile Parle Kelavani Mandal and DIT(E) vrs. Shree Nashik Panchvati Panjrapole. These decisions emphasized that incidental activities generating income do not necessarily classify an institution as commercial if the primary objective remains charitable. The Tribunal concluded that the assessee's activities of organizing seminars are integral to its primary objective of promoting internet and e-commerce, thus falling under the category of "general public utility." Classification of Activities as Business Income: The Tribunal disagreed with the AO's classification of the assessee's income as business income. It emphasized that the activities of organizing seminars are incidental to the primary objective of the trust and do not constitute a business. The Tribunal highlighted that the trust's activities are aimed at promoting internet usage and e-commerce, which aligns with its charitable objectives. Mutuality Principle and Its Applicability: The Tribunal found that the AO's application of the mutuality principle was incorrect. It noted that the assessee did not claim any benefit under mutuality, nor did it maintain separate records for services rendered to members and non-members. The Tribunal concluded that the assessee's activities could not be classified under mutuality. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the activities of organizing seminars are incidental to its primary objective of promoting internet and e-commerce. It restored the exemption under Section 11 and rejected the AO's classification of the assessee's income as business income. The Tribunal emphasized that the mere generation of surplus from incidental activities does not disqualify an institution from being considered charitable under Section 2(15).
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