2022 (8) TMI 241 - AT - Income Tax

Revision u/s 263 - deduction /exemption u/s 10(24) by accepting the income /receipts of the assessee under the head Income from other sources - HELD THAT - It is an admitted fact that the assessee is a registered Trade Union of Film and Television Writers registered under the Trade Union Act, 1926. The assessee holds certificate of registration of Trade Union since 1960 earlier in the name of Film Writer s Association, Bombay subsequently was re-named as Screen Writer s Association . The terms of constitution of Association contains various clause which on perusal does not appear to us to have any business activity. It is trite to reproduce the aims and objectives of the association for better understanding of the functions of the association. PCIT said that Any receipt which is a direct consequence of its core activities will always form part of income from business and profession, irrespective of whatever name is lent to the receipt does not hold good and is according to our considered opinion a mere conjecture and surmises. The receipts of the assessee under various heads are those collected from its members namely Life Member, Regular Member, Associate Member and fellow Member. As admittedly accepted that such association requires fund for the purpose of carrying out its activities and such funds can be raised by charging its member various fees such as admission fees, admission form fee, confederation fees, constitution book fees, ID card fees, Life membership fee, registration fee, etc. This undoubtedly will not fall under the category of business activity as there are no profit motive in such association. Assessee is not a business entity and does not work for profit. It is an association for the welfare of certain category of persons who writes in the film industry and other audio visual media and its objective is to protect the interest of its members though there is income generated not for profit but for the purpose of the welfare of the association and its members. PCIT has failed to establish that it is a business entity and hence the order of the PCIT is directed to be quashed, thereby allowing the claim of deduction /exemption made by the assessee u/s 10(24) - Decided in favour of assessee.

Summary

Issues:
1. Validity of order passed under section 263 of the Income Tax Act, 1961.
2. Eligibility for exemption under section 10(24) of the Act based on the nature of receipts received by the assessee.

Issue 1: Validity of order under section 263:
The appeal was filed against an order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961. The appellant contested the validity of the order, arguing that it was not justified under the circumstances. The Additional Grounds submitted by the appellant further emphasized the lack of necessity for such directions. The appellant sought to challenge the order on these grounds.

Issue 2: Eligibility for exemption under section 10(24):
The case involved an Association of Persons (AOP) registered under the Trade Union Act, 1926, engaged in regulating relations in the film and television industry. The dispute arose regarding the classification of receipts under various heads as business income, affecting the eligibility for exemption under section 10(24) of the Income Tax Act. The Principal Commissioner of Income Tax (PCIT) contended that most receipts were business income, while the appellant argued for exemption based on the nature of the association's activities and receipts.

Detailed Analysis:
The appellant, being a Trade Union of film and television writers, claimed exemption under section 10(24) of the Act for various receipts. The PCIT, however, held that most receipts were in the nature of business income, except for interest income from savings account and fixed deposit. The PCIT added the entire amount to the total income, excluding the interest received, without allowing the exemption claimed by the appellant.

In response to the show cause notice by the PCIT, the appellant provided details supporting its claim for exemption. The appellant highlighted its role in settling disputes, making representations, and working for the benefit of its members. The PCIT's decision was challenged on the grounds that the nature of the association's activities was not adequately considered, and the PCIT did not provide sufficient justification for classifying the receipts as business income.

The Tribunal analyzed the aims and objectives of the association to determine the nature of its activities. It was observed that the association primarily focused on welfare activities for its members without a profit motive. Referring to a relevant High Court decision, the Tribunal emphasized that profit-making cannot be the objective of a union formed for welfare purposes. The Tribunal concluded that the association was not a business entity but existed for the welfare of its members, thereby allowing the claim of deduction/exemption under section 10(24) of the Act.

In light of the above analysis, the Tribunal allowed the appeal filed by the assessee, quashing the order of the PCIT and upholding the claim of deduction/exemption under section 10(24) of the Income Tax Act, 1961.

This detailed analysis provides a comprehensive overview of the legal judgment, addressing the issues involved and the Tribunal's decision based on the arguments presented by the parties.