2023 (7) TMI 77 - AT - Income Tax

Benefit of exemption u/s 11 - Whether activities of the assessee to be falling under the limb of Advancement of any other object of general public utility of Section 2(15) ? - HED THAT - Hon ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT has clearly held that Parliament has proscribed involvement or engagement of GPU in any activities in the nature of trade, commerce or business or involve in providing services in relation to trade, business or commerce for fee, cess or other consideration. The limited relief granted by Parliament is that if such activities are carried out in the course of actual carrying on objects of GPU (general Public Utilities) then the quantum of receipts shall not exceed 20% of the total receipt. In the present case as observed that activities of Renting Hall, Leasing Property, Charging Fees for Certifications, Charging fees for Programs etc. is nothing but activity in the nature of Trade, Commerce, Business or providing services in relation to Trade, Commerce, Business by charging fee, cess. Basic fact in this case is that the quantum of receipt from such activities is more than 20% of the total receipt. For Example, the Leasing Income is Rs.2,23,17,651/- out of total income of Rs.10,60,58,855/- which is 21% of the total receipts. In addition to the leasing income there are other receipts like hall charges, programme fees etc. These receipts are in the nature of trade, business or commerce or providing services in relation to Trade, Commerce, Business for fee. Thus, the receipts from these activities which is in the nature of trade business, or commerce is definitely more than 20% of the total receipts, hence, as per proviso to section 2(15) of the Act, the activities are not for charitable purpose. Assessee is not eligible for exemption u/s 11 - Also observed that the net profit is 28%. The Reserve Surplus is Rs.37,13,44,294/-. This also explains that the assessee s main aim is to earn profit - Appeal of the Revenue is allowed.

Issues Involved:

1. Whether the activities of the assessee trust are intended for the purpose of earning profit, thus disqualifying it from exemption under Section 11 of the Income Tax Act, 1961.
2. Whether the activities of the assessee fall under the limb of 'Advancement of any other object of general public utility' as per Section 2(15) of the Income Tax Act, and whether the proviso to Section 2(15) disqualifies the assessee from exemption when receipts exceed Rs. 25 lakhs.
3. Whether the assessee's transactions with non-members affect its claim to be a charitable organization as per CBDT Circular No. 11 of 2008.

Detailed Analysis:

1. Profit Motive and Charitable Purpose:

The Revenue argued that the activities of the assessee trust, such as renting out halls, leasing premises, and conducting seminars, are intended for earning profits. The Assessing Officer (AO) noted that a significant portion of the assessee's income came from these activities, which constituted almost 49.18% of the gross total income. The AO concluded that these activities are in the nature of business and commerce, and thus, the trust operates with a profit motive rather than for charitable purposes as required under Section 2(15) of the Income Tax Act. Consequently, the AO denied the exemption claim under Section 11.

2. Advancement of General Public Utility and Proviso to Section 2(15):

The Revenue contended that the activities of the assessee fall under the 'Advancement of any other object of general public utility' but are disqualified from being considered charitable due to the proviso to Section 2(15). This proviso states that if the receipts from such activities exceed Rs. 25 lakhs, the benefit of exemption under Section 11 is not available. The AO pointed out that the assessee's income from leasing and hall charges alone exceeded this threshold, thereby contravening the provisions of Section 2(15). The Hon'ble Supreme Court in the case of ACIT Vs. Ahmedabad Urban Development Authority clarified that any activity in the nature of trade, commerce, or business, or services related to such activities, disqualifies the entity from being considered a charitable organization if the receipts exceed the specified limit.

3. Transactions with Non-Members and CBDT Circular No. 11 of 2008:

The Revenue highlighted that the assessee had transactions with non-members and failed to provide a bifurcation of receipts from members and non-members. As per CBDT Circular No. 11 of 2008, if a charitable organization has dealings with non-members, its claim to be a charitable organization is governed by the provisions of Section 2(15). The AO emphasized that the assessee's activities of renting out halls and leasing premises to non-members for substantial fees further indicate a profit motive, disqualifying it from claiming exemption under Section 11.

Findings and Conclusion:

The Tribunal observed that the assessee's receipts from activities like leasing premises and renting halls constituted a significant portion of its total income, exceeding the 20% threshold specified in the proviso to Section 2(15). The Hon'ble Supreme Court's decision in ACIT Vs. Ahmedabad Urban Development Authority was cited, which emphasized that any activity in the nature of trade, commerce, or business, or services related thereto, disqualifies the entity from being considered a charitable organization if the receipts from such activities exceed the specified limit. The Tribunal concluded that the assessee's activities are not for charitable purposes and denied the exemption under Section 11.

The Tribunal also noted that the net profit of the assessee was 28%, and the reserves and surplus amounted to Rs. 37,13,44,294/-, indicating a profit motive. Additionally, the income from leasing out immovable property was not intrinsically linked to the objects of the trust, further disqualifying it from being considered a charitable activity under Section 2(15).

Order:

The Tribunal allowed the appeal of the Revenue, holding that the assessee is not eligible for exemption under Section 11 of the Income Tax Act. The order of the Commissioner of Income Tax (Appeal) was set aside, and the AO's decision to deny the exemption was upheld. The appeal of the Revenue was allowed, and the order was pronounced in open court on 3rd March 2023.

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