2023 (4) TMI 627 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - assessee Society was pursuing charitable activities by running Suvidha Centre for general public by organizing and participating in awareness campaigns against drug abuse and addiction, spreading traffic awareness in general public, rendering service related to passport and visa related services, police clearance certificate, issuance of copy of NOC, issuance of documents and arms license verification etc. - AO considering the activities of assessee first determined the violation of section 2(15)and had rejected the claim of deduction U/s 11 r.w.s. 13(8) - HELD THAT - Revenue authorities first pointed out that from the financial statement of the assessee it is not clear that the assessee is doing any charitable work. The eligibility for deduction u/s 11 for community work for collection of facilitation charges is not under the purview of the Act. In appeal order, the appellate authority reproduced the income and expenditure account of the assessee. Whereas, no such charitable work is reflected in collection of facilitation charges. We respectfully considered the order in the matter of DCIT, Exemption Vs. Sabarmati Ashram Gaushala Trust 2014 (1) TMI 1539 - GUJARAT HIGH COURT . The same factual aspect is duly settled in the case of Ahmedabad Urban Development Authority, 2022 (10) TMI 948 - SUPREME COURT as held essee's activities amount to trade, commerce or business based on its receipts and income (i.e., whether the amounts charged are on cost-basis, or significantly higher). If it is found that they are in the nature of trade, commerce or business , then it must be examined whether the quantified limit (as amended from time to time) in proviso to section2(15), has been breached, thus disentitling them to exemption. Accordingly, we remit back the ground of the assessee to ld. AO for adjudication, de novo in the light of the order above. Appeals of the assessee allowed for statistical purpose.

Summary

Issues Involved:
The judgment involves the interpretation of the proviso to section 2(15) of the Income Tax Act, 1961, regarding the eligibility of the assessee for exemption under section 11 of the Act based on the nature of its activities, specifically related to community policing services and collection of minimal charges.

Issue 1 - Interpretation of Proviso to Section 2(15):
The main issue in the case was whether the assessee, a registered Society engaged in community policing services, was eligible for exemption under section 11 of the Income Tax Act. The Assessing Officer (AO) had rejected the claim of deduction under section 11, citing a violation of section 2(15) and adding the entire surplus amount to the total income. The Commissioner of Income Tax (Appeals) upheld the AO's decision, leading to the appeal before the tribunal.

Issue 2 - Charitable Nature of Activities:
The assessee contended that its activities were charitable in nature, emphasizing that it provided community policing services as a form of public welfare delegated by the State Government. The society incurred expenses in line with its objectives of providing services to the general public, such as running a Suvidha Centre, organizing awareness campaigns, and offering various services like passport assistance and traffic awareness.

Issue 3 - Collection of Charges and Commercial Purpose:
Another point of contention was the collection of minimal charges by the society for providing services. The AO considered this as indicative of commercial activity, leading to the denial of exemption under section 11. The assessee argued that the charges were minimal and approved by the Punjab Government solely to cover expenses, not for profit-making purposes.

Judgment Summary:
The tribunal, after considering the arguments and relevant case law, remitted the matter back to the AO for fresh adjudication in light of the principles laid down by the Hon'ble Apex Court. The tribunal emphasized the need for a yearly assessment to determine if the activities of the assessee amounted to "trade, commerce, or business" based on receipts and income, and whether the quantitative limit specified in the proviso to section 2(15) had been breached. Both appeals of the assessee were allowed for statistical purposes.

Separate Judgment by Judges:
No separate judgment was delivered by the judges in this case.