2022 (1) TMI 410 - AT - Income Tax

Exemption u/s 11 12 - charitable activity u/s 2(15) - AO disallowed the claim as capital expenditure and accumulation by taking view that the main objective of the assessee was the development of Gem and Jewellery Parks, which has not been completed in a decade s time - AO invoked the provision of section 13(a) r.w.s.2 (15) and denied exemption under section 11 and 12 - HELD THAT - As decided in owncase 2021 (7) TMI 555 - ITAT SURAT the object of the assessee is of general public utility and does not hit by first proviso to section 2(15) of the Act. That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. The bye laws of assessee s organization restrict the allotment of plots and receiving contributions from anyone other than members. It is also established that all the contributors as well as beneficiaries of the assessee are its members only and there is complete identity between the contributors and participants. It is further shown from the records that the assessee trust is not providing any services to the persons other than its registered members. The assessee trust does not distribute its profits among members and it does not pay higher remuneration to its employees. It is abundantly clear that the income of the mutual concern falls outside the ambit of charging section 4 of the Income Tax Act and, therefore, outside the tax net. The net effect of applicability of exemption provision in section 11 is also just the same - order on these addition are, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Summary

Issues Involved:
1. Justification of exemption under sections 11 and 12 of the Income Tax Act.
2. Allowance of capital expenditure claim.
3. Allowance of accumulation claim under section 11(1)(a).

Issue-wise Detailed Analysis:

1. Justification of exemption under sections 11 and 12 of the Income Tax Act:
The Revenue contended that the activities of the assessee are covered by the proviso to section 2(15) of the Income-tax Act, 1961, and thus, the assessee is not entitled to exemption under sections 11 and 12 in view of the provisions of section 13(8). The Tribunal noted that the Assessing Officer had disallowed the exemption by considering the main objective of the assessee as the development of Gem and Jewellery Parks, which had not been completed in a decade. The Assessing Officer also argued that the assessee failed to focus on the advancement, protection, and development of trade and commerce. However, the CIT(A) allowed the relief by following the decisions of the Tribunal in the assessee’s own cases for earlier years (AYs 2010-11, 2012-13, and 2013-14), where it was held that the assessee trust, incorporated under section 25 of the Companies Act, 1956, as a non-profit organization, is a charitable institution. The Tribunal upheld the CIT(A)’s decision, emphasizing that the activities of the assessee are based on the principle of mutuality and are not in the nature of trade, commerce, or business, thus not covered by the proviso to section 2(15).

2. Allowance of capital expenditure claim:
The Revenue argued that the CIT(A) erred in allowing the claim of capital expenditure of ?1,93,18,564/-, asserting that the assessee is covered under the proviso to section 2(15) read with section 13(8) and thus not eligible for exemptions. The Tribunal, however, found that the CIT(A) allowed the claim by following the decisions in the assessee’s previous years' cases, where it was established that the assessee’s activities were charitable and not in the nature of trade, commerce, or business. The Tribunal upheld the CIT(A)’s decision, noting that the assessee’s activities are for the advancement of general public utility and are conducted on a mutual basis without a profit motive.

3. Allowance of accumulation claim under section 11(1)(a):
The Revenue contended that the CIT(A) erred in allowing the claim of accumulation of ?41,74,368/- under section 11(1)(a), arguing that the assessee is covered under the proviso to section 2(15) read with section 13(8) and thus not eligible for exemptions. The Tribunal found that the CIT(A) allowed the claim by following the decisions in the assessee’s earlier years' cases, where it was established that the assessee’s activities were charitable and not in the nature of trade, commerce, or business. The Tribunal upheld the CIT(A)’s decision, emphasizing that the assessee’s activities are based on the principle of mutuality and are for the advancement of general public utility.

Conclusion:
The Tribunal dismissed the Revenue’s appeals for both AY 2014-15 and AY 2017-18, affirming the CIT(A)’s orders. The Tribunal emphasized the consistency in its view on similar facts and upheld the principle of mutuality in the assessee’s activities, thus allowing the exemptions under sections 11 and 12, the capital expenditure claim, and the accumulation claim under section 11(1)(a).