2023 (9) TMI 216 - AT - Income Tax

Exemption u/s 11 - denial of exemption assessing income of the assessee on commercial basis - charitable activity u/s 2(15) - HELD THAT - The activities of some essential services provided by non-statutory bodies are held to be not in the nature of trade, commerce or business, or service, towards trade, commerce or business. In the case where the services rendered by the institutions/organizations to the state or its agencies at the cost or marginal mark up over cost and above cost then such activities may fall within the description of one advancing the general public utility. As decided in Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT has given interpretation of section 2(15) r.w. proviso, section 11(4A) and section 13(8) of the Act and held that there is no conflict between these provisions of the Act so far as carrying out activity in the nature of trade, commerce or business, or service in relation to such activities - the activity in the nature of business, trade, commerce or service in relation to such activities should be conducted actually in the course of achieving the general public utility object, and the income, profit or surplus or gains can then, be logically incidental Hon ble Supreme Court has set out certain parameters for different categories of charities/institutions/trusts and observed that if fee, rent or other charges are mandated under the statute for carrying out some essential public utility activities of development then the fee and charges for providing essential services or amenities for the purpose of public development work will not fall in the nature of business, trade or commerce or services in relation to such business, trade or commerce if the profit or markup is reasonable and not with motive to earn profit. CIT(A) has passed an ex-parte order by observing that in spite of adequate opportunity of proper delivery of notices assessee did not file any documentary evidence/proof in support of the grounds of appeal. Therefore, the appeals of the assessee were dismissed by the Ld. CIT(A) for want of proper representation and supporting evidence. Accordingly in the facts and circumstances of the case and in view of the judgment of Ahmedabad Urban Development Authority (supra) the matter requires a proper verification about the profit margins/markup earned by the assessee for providing these services and activities of publication of newspaper and other contents as well as production of documentary film etc. for the State Government as well as PSUs. Therefore, these matters are set aside to the record of the AO for fresh adjudication after proper verification and examination of the relevant facts and records as well as clarification made by the Hon ble Supreme court reported in 2022 (11) TMI 255 - SUPREME COURT Appeals of assessee allowed for statistical purposes.

Issues Involved:

1. Applicability of section 13(8) and eligibility for exemption under section 11 of the IT Act.
2. Classification of receipts as business income.
3. Deduction of specific amounts as an application of income.
4. Set off of deficit of earlier years against the income of the current year.
5. Levy of interest under section 234D.

Summary:

Issue 1: Applicability of section 13(8) and eligibility for exemption under section 11 of the IT Act

The Tribunal examined whether the provisions of section 13(8) are applicable and if the assessee is eligible for exemption under section 11 of the IT Act. The assessee, a society created by the State Government, was engaged in activities such as publication of Rozgar Nirman Newspaper and production of documentary films. The AO had disallowed the benefit of sections 11 and 12, assessing the income on a commercial basis. The Tribunal referred to its own earlier decisions and the Supreme Court judgment in ACIT(Exemption) vs. Ahmedabad Urban Development Authority, which clarified that activities involving charging amounts at cost or marginal markup over cost do not constitute business if the profits do not exceed 20% of overall receipts. The Tribunal concluded that the assessee's activities did not fall within the ambit of trade, commerce, or business and thus were eligible for exemption under sections 11 and 12.

Issue 2: Classification of receipts as business income

The AO had treated the operating receipts and other receipts aggregating to Rs. 185,207,831 as business receipts and assessed the excess of income over expenditure as business income. The Tribunal, however, noted that the assessee's activities were for the benefit of the general public and not driven by profit-making motives. It held that the receipts should not be classified as business income, as the activities were not in the nature of trade, commerce, or business.

Issue 3: Deduction of specific amounts as an application of income

The AO had disallowed deductions of Rs. 5,220,388 and Rs. 13,008,220 claimed as an application of income. The Tribunal, following its earlier decisions and the Supreme Court's guidelines, directed the AO to allow these deductions, as the assessee's activities were charitable and the income was to be utilized fully for the purposes of the assessee's objectives.

Issue 4: Set off of deficit of earlier years against the income of the current year

The AO had not allowed the set-off of the deficit of earlier years against the income of the current year. The Tribunal directed the AO to allow the set-off, considering the assessee's charitable status and the nature of its activities.

Issue 5: Levy of interest under section 234D

The Tribunal found the levy of interest under section 234D at Rs. 183,416 to be unlawful and directed its deletion.

Conclusion

The Tribunal set aside the assessments for A.Ys. 2011-12, 2013-14, 2016-17, and 2017-18 to the AO for fresh adjudication after proper verification, in light of the Supreme Court judgment in ACIT(Exemption) vs. Ahmedabad Urban Development Authority and earlier Tribunal decisions. The appeals were allowed for statistical purposes.

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