2023 (12) TMI 1183 - AT - Income Tax

Exemption u/s 11 and 12 - exemption denied as assessee is not engaged in charitable activities - CIT(A) held that the Assessee is a facilitator for arranging funds for charitable organisations, and that the assessee receives fees from the donors as well as the donees - assessee submitted that the activity of the assessee is that it acts as a bridge between the donor and the donee i.e. the activity of the assessee is that on receipt of donation, the assessee identifies suitable recipients, who are not the direct beneficiaries of such donation but are usually other trusts who are engaged in conducting charitable activities. The role of the assessee is to identify such genuine organizations / trusts which are engaged in carrying out charitable activities in the form of giving relief to the poor etc. HELD THAT - The assessee had further given the donation to other trusts for the purpose of carrying out charitable work itself would not disentitle the assessee from denial of exemption. Before us, we observe that it is not the case of the Department that the trusts / organisations to whom the assessee had given the donations for carrying out charitable activities had not in fact carried out any charitable activities in the first instance. Secondly, it would be useful to reproduce the relevant extracts of the decision rendered by Hon ble Supreme Court in the case of the Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT as held that while carrying out charitable activities, the assessee trust may also collect nominal cost / consideration with the objective to effectuate the carrying out of the charitable activities. However, this is subject to the condition that such charge is only confined to the extent the same is required for the purpose of carrying out charitable activities and should not take the colour of professional fees / business income. Thus in interest of justice, the matter is being restored to the file of the AO to analyse the impact of the observations made by the Hon ble Supreme Court in the decision of AUDA supra more specifically on the observations made by the Hon ble Supreme Court with regards to incidental earning of income, in the light of the assessee s set of facts. AO after considering of the facts of the assessee s case may then decide whether, looking into the assessee s facts, the assessee is engaged primarily in rendering of services for consideration (retained earnings) or whether looking into the totality of facts of the assessee s case, it could be inferred that such retained earnings are only kept by the assessee to the extent of facilitating the above activities. Assessing Officer may also analyse the impact of decisions which have held that the assessee acts as a bridge between the donor and the recipient, even then, looking into the particular facts of assessee s case, it may be inferred that the assessee is carrying out charitable activities within the meaning of Section 2(15) - Accordingly, looking into the totality of facts of the assessee s case, the Assessing Officer may also analyse whether the aforesaid decisions have a bearing on the assessee s set of facts. In the result, the primary matter involved in all the Assessment Years under consideration before us is restored to the file of the Assessing Officer for carrying out the analysis as directed above. Issue raised by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Denying exemption to the assessee under Sections 11 and 12 by invoking Section 13(8) read with the Proviso to Section 2(15) of the Act.
2. Allowing depreciation to the Assessee and the relevant provision for the same.
3. Bringing the corpus donation to tax.

Summary:

Issue 1: Denying exemption under Sections 11 and 12 by invoking Section 13(8) read with Proviso to Section 2(15)
The Assessee, a company licensed under Section 8 of the Companies Act, 2013, and registered under Section 12AA of the Income-tax Act, 1961, received donations and passed them to charitable organizations. The Assessing Officer denied the exemption under Sections 11 and 12, arguing that the Assessee's activities were not charitable but rather facilitative, falling under the residuary category and thus hit by Section 13(8). The CIT(A) upheld this view, stating that the Assessee rendered professional services for a fee. The Tribunal, however, noted judicial precedents indicating that facilitating donations could be considered a charitable activity. The Tribunal restored the matter to the Assessing Officer to reconsider in light of the Supreme Court's decision in Ahmedabad Urban Development Authority, which allows incidental income while carrying out charitable activities.

Issue 2: Allowing depreciation to the Assessee
The Tribunal did not provide a detailed discussion on this issue but indicated that it would be reconsidered by the Assessing Officer along with the primary issue.

Issue 3: Bringing the corpus donation to tax
The Assessee argued that corpus donations should be exempt under Section 11(1)(d). Since the primary issue was remanded for reconsideration, the Tribunal also restored this issue to the Assessing Officer for de novo consideration.

Conclusion
The Tribunal allowed the appeals of both the Assessee and the Department for statistical purposes, remanding the primary and related issues to the Assessing Officer for fresh consideration in light of the judicial precedents and the Supreme Court's decision in Ahmedabad Urban Development Authority.

Order Pronounced in Open Court on 06/10/2023