2021 (9) TMI 1094 - AT - Income Tax

Exemption u/s 11 - whether any activity of rendering any service in relation to any trade, commerce or business for a cess or fee shall not be charitable if receipt from such activities is more than 25 lacs during the year? - assessee is a society registered u/s. 12A of the Act and is also notified u/s. 80G(5)(vi) - HELD THAT - As on identical facts in A.Y. 2011-12 2019 (11) TMI 1036 - ITAT DELHI his predecessor allowed the appeal of the assessee and directed the AO to allow exemption u/s. 11 - it is held that the assessee is apparently not involved in any trade, commerce or business and as such the proviso to section 2(15) is not applicable. Exemption under section 11(1) is allowed to the assessee. Accordingly, the Assessing Officer is directed to allow exemption under section 11, with all the consequential benefits. Ground of the appeal are allowed.

Summary

Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.
2. Classification of assessee's activities under the sixth limb of charitable activity.
3. Applicability of proviso to Section 2(15) of the Income Tax Act.
4. Determination of whether the assessee is involved in trade, commerce, or business.

Detailed Analysis:

Issue 1: Eligibility for Exemption under Section 11 of the Income Tax Act, 1961
The primary issue in this appeal is whether the assessee is eligible for exemption under Section 11 of the Income Tax Act, 1961. The Assessing Officer (AO) denied this exemption, arguing that the activities of the assessee fall under the category of general public utility and involve rendering services in relation to commerce and business. However, the Commissioner of Income Tax (Appeals) [CIT(A)] reversed this decision, directing the AO to allow the exemption under Section 11 with all consequential benefits. The CIT(A) based this decision on the objects of the society, which include providing professional, technical, and management assistance to various agencies engaged in rural development. The CIT(A) also noted that the assessee had been granted similar exemptions in previous assessment years (2011-12, 2012-13, and 2013-14), and no new facts had been presented to justify a different conclusion for the assessment year 2014-15.

Issue 2: Classification of Assessee's Activities under the Sixth Limb of Charitable Activity
The AO classified the assessee's activities under the sixth limb of charitable activity, i.e., the advancement of general public utility. This classification was based on the nature of services provided by the assessee, such as training, technical know-how, and consultancy, which were considered as business income. However, the CIT(A) and the Income Tax Appellate Tribunal (ITAT) found that the assessee's activities fall under the category of relief of the poor, as the society is engaged in providing relief and livelihood to the poor and rural people. The assessee receives grants from the Central and State Governments and donations from various corporate entities and reputed trusts, which monitor the implementation of funded projects. The ITAT upheld the CIT(A)'s decision, noting that the assessee's activities are charitable in nature and not aimed at profit-making.

Issue 3: Applicability of Proviso to Section 2(15) of the Income Tax Act
The AO argued that the proviso to Section 2(15) of the Income Tax Act applies to the assessee, thereby denying the exemption under Sections 11/12. This proviso excludes entities involved in trade, commerce, or business from being considered as charitable organizations. However, the CIT(A) and ITAT found that the assessee is not involved in any trade, commerce, or business. The ITAT cited previous decisions in the assessee's own case for the assessment years 2011-12, 2012-13, and 2013-14, where it was held that the assessee's activities do not attract the mischief of the proviso to Section 2(15). The ITAT also referred to the Delhi High Court's decision in India Trade Promotion Organisation vs. DGIT(E), which held that mere receipt of fees or charges does not mean that an entity is involved in trade, commerce, or business.

Issue 4: Determination of Whether the Assessee is Involved in Trade, Commerce, or Business
The AO contended that the assessee's activities involve trade, commerce, or business, as they receive consultancy fees for their services. However, the CIT(A) and ITAT concluded that the assessee is not engaged in any trade, commerce, or business. The ITAT noted that the assessee's activities are aimed at providing relief to the poor and rural people, and the receipt of fees or charges is merely incidental to the charitable activities. The ITAT also emphasized that the assessee has been consistently granted exemptions under Section 11 in previous assessment years, and there is no change in the facts to warrant a different conclusion for the assessment year 2014-15.

Conclusion:
The ITAT dismissed the Revenue's appeal and upheld the CIT(A)'s decision to grant exemption under Section 11 of the Income Tax Act, 1961, to the assessee. The ITAT found that the assessee's activities are charitable in nature, aimed at providing relief to the poor and rural people, and do not involve trade, commerce, or business. The ITAT also noted that the facts and circumstances for the assessment year 2014-15 are identical to those of previous years, where similar exemptions were granted. Therefore, the proviso to Section 2(15) does not apply, and the assessee is eligible for exemption under Section 11 with all consequential benefits.