2021 (12) TMI 602 - HC - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - assessee receives fee by way of commission from the Government for purpose of construction of building for Government - HELD THAT - The assessee must satisfy the conditions stipulated in the definition. The assessee tries to bring its case within the ambit of 4th limb of section 2(15) of the Act and attempts to wriggle out from the effect of proviso which deals with services in relation to trade, commerce or business. The contention, in our considered view, is completely untenable. The assessee receives amount from the Government, executes construction work for the benefit of the Government through contractors. The assessee receives fee by way of commission from the Government. The purpose of construction of building for Government cannot be accepted as an activity coming within the meaning of advancement of any other object of general public utility. In our view the reason being the construction activity by itself does not advance any other object of general public utility. The general public utility from such construction is derived as fact with the facilities constructed by the assessee are put to utility. The activity undertaken by the assessee on one hand and on another hand with the ultimate purpose or user of buildings constructed by the Government shall not be mistaken with one another. The assessee is interpreting proviso by excluding one of the important limbs, viz. involves the carrying on of any activity in the nature of trade, commerce or business. The decision of the authorities are independently considered and by taking note of CBDT Circular and above reasoning, we are of the view that the substantial question raised could be answered in favour of the revenue and against the assessee.

Summary

Issues Involved:
1. Whether the assessee is entitled to exemption under Section 12A read with Section 2(15) of the Income Tax Act.
2. Whether the activities carried on by the assessee fall under the definition of "charitable purpose" as per Section 2(15) of the Income Tax Act.
3. Whether the proviso to Section 2(15) applies to the activities of the assessee.
4. Whether the construction activities carried out by the assessee are incidental to the attainment of the objects of the trust.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption under Section 12A:
The assessee, a registered society under the Travancore Cochin Literary Scientific and Charitable Societies Act, claimed exemption under Section 12A of the Income Tax Act. The Assessing Officer, upon scrutiny, rejected the claim, noting that the activities carried out by the assessee did not qualify as charitable purposes. The Tribunal upheld this decision, stating that the assessee's activities were in the nature of trade, commerce, or business, and thus not eligible for exemption under Section 12A.

2. Definition of "Charitable Purpose":
The primary contention was whether the assessee's activities constituted "advancement of any other object of general public utility" under Section 2(15). The Assessing Officer and Tribunal found that the assessee's activities, which included construction projects and sale of RCC doors and windows, were commercial in nature. The Tribunal emphasized that the assessee's activities did not fall under medical relief, education, or relief to the poor, and thus were not charitable.

3. Application of Proviso to Section 2(15):
The proviso to Section 2(15) states that the advancement of any other object of general public utility shall not be considered charitable if it involves trade, commerce, or business. The Tribunal held that the assessee's activities, which included earning a commission from government projects, fell within this proviso. The Tribunal cited that even if the surplus was ploughed back into the trust, the nature of the activities was commercial, thereby disqualifying the assessee from claiming charitable status.

4. Incidental Nature of Construction Activities:
The Tribunal also considered whether the construction activities were incidental to the trust's objectives. It concluded that the construction activities were the primary activities of the assessee, rather than incidental. The Tribunal stated that incidental activities are those that support the main activities, but in this case, the construction activities were the main activities themselves. Therefore, the assessee could not claim that these activities were incidental to its charitable objectives.

Conclusion:
The High Court dismissed the appeals, agreeing with the Tribunal's findings that the assessee's activities were commercial in nature and did not qualify as charitable purposes under Section 2(15) of the Income Tax Act. The court held that the assessee's activities were hit by the proviso to Section 2(15) and thus not entitled to exemption under Section 12A. The appeals were dismissed with no order as to costs.