2022 (8) TMI 348 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - Scope of principle of consistency - As per CIT-A assessee is not carrying on activity for charitable purposes instead its purpose involves carrying on activity in the nature of business and is thus covered by proviso to section 2(15) read with section 13(8) - HELD THAT - Where there are no material changes in the facts and circumstances of the case and same nature of activities have been carried on in the past years and in the year under consideration and there is no change in law, a view once taken by the Revenue authorities in the past years should not ordinarily be disturbed or varied in the year under consideration. In other words, the principle of consistency has been well enshrined in tax jurisprudence which should be respected and adhered to by the authorities. Therefore, the contention of the assessee regarding consistency in approach by the Revenue authorities need to be appropriately addressed and for that reasons, we believe that the matter deserve to be said set-aside to the file of the Assessing office for examination a fresh and to record a specific finding in this regard as to why he believes that a position accepted by the Revenue in the earlier years should not be followed and the reasons for arriving at such a finding. Objects fall under the category of medical relief, relief of the poor and yoga and doesn't fall under the category of advancement of any other object of general public utility - If we look at the definition of the charitable purpose as defined in section 2(15) of the Act, it defines charitable purpose to include relief of the poor, education, yoga, medical relief, preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest, and the advancement of any other object of general public utility. In our understanding, prima facie reading of the aforesaid provisions require to identify objects which are falling under individual category of relief to the poor , education , yoga , medical relief , etc and in cases, where it is falling under more than one category, then apply the dominant purpose test to identify a suitable category rather than clubbing all the objects as falling under the category of general public utility as the language used is any other object of general public utility and therefore, the significance and import of any other object need to be appreciated and which means that an object which doesn't fall specifically under any of the earlier categories. In this regard, we find that firstly, the Assessing officer has summarily decided this issue and thereafter, the ld. CIT(A) has merely confirmed the findings of the Assessing officer without addressing the matter and the contentions so raised by the assessee and for this reason as well, the matter deserve to be set-aside. In this regard, it is also noted that a fresh registration has been granted by the ld. PCIT vide order dated 15.10.2021 u/s. 12AA of the Act, for A.Y. 2022-23 to A.Y. 2026-2027 with the objects of relief of the poor, education, medical relief and yoga to the assessee society. The AO is therefore directed to take the same into consideration and decide the matter afresh and record his specific finding and the basis of arriving at such finding. Application of dominant purpose test - Where there are activities which are undertaken by the assessee society free of any charges, one needs to examine what the nature of these activities and how the same have been carried on by the assessee society and what are the cost implications thereof. The reflection of such activities in the income and expenditure will be more on the expense side rather than on the revenue side which apparently has escaped the attention of the Assessing officer. For this reason as well, we believe that it would be in fitment of things that the matter is set-aside to the file of the Assessing officer who shall examine the same afresh as per law taking into consideration aforesaid discussions after providing reasonable opportunity to the assessee. Needless to say, the Assessing officer is free to call for any information/documentation and the assessee is also at liberty to raise its contentions and file any information/documentation before the Assessing officer. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Whether the activities of the assessee qualify as charitable purposes under Section 2(15) of the Income Tax Act.
2. Whether the addition to fixed assets should be considered as application of income for charitable purposes.
3. Whether the deemed application of expenses under Section 11(2) should be allowed despite the late filing of Form 10.
4. Consistency in the assessment of the assessee's activities over the years.

Issue-wise Detailed Analysis:

1. Qualification of Activities as Charitable Purposes:
The primary issue was whether the activities of the assessee's society, which involved letting out rooms and halls for various functions, qualified as charitable purposes under Section 2(15) of the Income Tax Act. The Assessing Officer (AO) held that the society's activities were commercial in nature, driven by profit motives, and thus not charitable. The AO noted that 93% of the society's total receipts came from renting out rooms and halls, generating a significant profit margin of 41.13%. The AO concluded that these activities fell under the proviso to Section 2(15), which excludes activities in the nature of trade, commerce, or business from being considered charitable.

In contrast, the assessee argued that the primary objective was charitable, focusing on medical relief and relief to the poor, and that income from renting out rooms was incidental to these charitable activities. The assessee cited various charitable activities such as free medical camps, yoga sessions, and blood donation camps, asserting that these activities should be considered under the first three limbs of Section 2(15), which include relief of the poor, education, and medical relief.

The Tribunal found that the AO had not adequately addressed the charitable activities listed by the assessee. The Tribunal emphasized the need to apply the "dominant purpose test" to determine whether the primary objective was charitable. The Tribunal directed the AO to re-examine the nature of the activities and the application of funds, considering the fresh registration granted to the assessee under Section 12AA for subsequent years.

2. Addition to Fixed Assets as Application of Income:
The assessee contended that the addition to fixed assets amounting to Rs. 26,58,327/- should be considered as an application of income for charitable purposes. The AO had not accepted this claim, leading to a dispute over whether such additions could be treated as fulfilling the requirement of applying 85% of income for charitable purposes.

The Tribunal did not provide a detailed analysis on this specific issue in the judgment but remanded the matter back to the AO for reconsideration in light of the overall examination of the society's activities and objectives.

3. Deemed Application of Expenses under Section 11(2):
The assessee claimed deemed application of expenses amounting to Rs. 16,34,692/- under Section 11(2), despite filing Form 10 late. The AO had disallowed this claim due to the delay in filing. The assessee argued that the delay was condoned by the Commissioner of Income Tax (Exemptions).

The Tribunal acknowledged the assessee's submission regarding the condonation of delay and directed the AO to re-examine this claim, taking into account the condonation and the overall context of the assessee's charitable activities.

4. Consistency in Assessment:
The assessee argued that its activities had been consistently assessed as charitable in previous years without any adverse inference, and there had been no change in the facts or activities. The Tribunal emphasized the principle of judicial consistency, noting that where there are no material changes in facts or law, a view once taken by the Revenue should not be disturbed.

The Tribunal directed the AO to specifically address why a different stand was taken in the current year compared to previous years and to provide reasons for any deviation from the earlier assessments.

Conclusion:
The Tribunal set aside the AO's order and remanded the matter back for fresh examination. The AO was directed to re-evaluate the nature of the assessee's activities, the application of funds, and the consistency in assessment over the years. The AO was also instructed to consider the fresh registration granted to the assessee under Section 12AA and to provide a detailed and reasoned order after re-examination. The appeal was allowed for statistical purposes, and the matter was to be re-assessed in light of the Tribunal's observations.