2021 (11) TMI 684 - HC - Income Tax

Benefit of exemption u/s 11 - Whether Tribunal erred in treating the assessee as a charitable institution, even when the activities of the assessee fell under the last limb of Section 2(15)? - HELD THAT - The assessee/society is running a printing press and publishing a newspaper. The profit so generated is used for charitable purposes and apparently there is no profit motive in the activities of the assessee. As such it cannot be said that the assessee is involved in any trade, commerce or business. Consequently, the mischief of Proviso to Section 2(15) of the Act is not attracted. The assessee/society is charitable in nature as the profit, if any, made by the assessee/society is being ploughed back for charitable activities. Further, the appellant itself has granted the assessee registration under Section 12A, recognition under Section 10(23C)(vi) and Exemption under Section 80G of the Act. This Court is in agreement with the findings of the CIT(A) and ITAT that the assessee/society does not carry on any business, trade or commerce with the intent of earning and distributing profit. Appeal dismissed.

Issues:
1. Benefit of exemption under Section 11 of the Income Tax Act, 1961.
2. Classification of the assessee as a charitable institution under Section 2(15) of the Act.
3. Nature of activities carried out by the assessee and their commercial aspect.
4. Treatment of income earned through commercial activities for charitable purposes.
5. Compliance with the judgment of the Constitutional Bench of the Supreme Court in a specific case.

Issue 1: Benefit of exemption under Section 11:
The appeal challenged the order dismissing the appellant's appeal against the Income Tax Appellate Tribunal's decision. The Tribunal upheld the exemption under Section 11, considering the appellant as a charitable institution not involved in trade, commerce, or business activities. The Tribunal relied on the principle of consistency and past exemptions granted to the appellant under Sections 11(1) and 10(23C)(iv). The High Court concurred with the Tribunal's findings, emphasizing the absence of profit motive in the appellant's activities, leading to the dismissal of the appeal.

Issue 2: Classification of the assessee as a charitable institution:
The appellant contested being classified as a charitable institution under Section 2(15) of the Act, arguing that its activities generated income for charitable purposes without a profit motive. The High Court noted that the first proviso to Section 2(15) does not exclude entities primarily for charitable purposes but conducting activities for consideration. It held that the appellant, running a printing press and newspaper for charitable causes, did not engage in trade, commerce, or business, thus not attracting the proviso's mischief.

Issue 3: Nature of activities and commercial aspect:
The appellant claimed that its activities, yielding income for society, were commercial in nature, challenging the Tribunal's characterization of the appellant as charitable. However, the High Court found that the appellant reinvested profits for charitable activities, holding that the appellant did not operate for profit distribution, thus maintaining its charitable nature.

Issue 4: Treatment of income earned through commercial activities:
The High Court upheld the Tribunal's decision that income earned through commercial activities was considered charitable due to its application for the society's charitable objectives. The Court emphasized that the appellant's profit, if any, was utilized for charitable purposes, aligning with its charitable nature and exempt status under various sections of the Act.

Issue 5: Compliance with the Supreme Court's judgment:
The appellant raised questions regarding the Tribunal's adherence to a specific Supreme Court judgment. However, the High Court cited precedents emphasizing limitations on interfering with factual findings and the distinction between questions of law and substantial questions of law. It found no perversity in the CIT(A) and ITAT's conclusions, leading to the dismissal of the appeal.

In conclusion, the High Court upheld the Tribunal's decision, affirming the appellant's charitable nature and eligibility for exemptions under the Income Tax Act, 1961. The judgment emphasized the absence of profit motive in the appellant's activities, the reinvestment of income for charitable purposes, and compliance with legal precedents governing the interpretation of tax laws and charitable institutions.

← Previous Next →