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2024 (2) TMI 328 - AT - Income TaxExemption u/s 11 - denial of exemption despite assessee being registered u/s. 12A - AO by invoking proviso to Section 2(15) and denying the exemption - reciepts exceeded the threshold of Rs. 10 lakhs and Rs. 20 lakhs - HELD THAT - Assessee is a company registered u/s. 25 of the Companies Act and is primarily engaged in to conduct surveys / research into readership, viewership and listenership of various media and dissemination of research to various members and non-members who are basically industrial business entities. There are more than 165 members to whom assessee has sold subscription for IRS reports. These IRS reports are prepared from outside agencies which are research agencies to whom research are outsourced and then sold to members and in some cases to non-members at slightly higher prices. Case of the Revenue is that since assessee s receipts from its activity even though it is for general public utility has exceeded the threshold of Rs. 10 lakhs and Rs. 20 lakhs, therefore, it is not entitled for exemption u/s. 11 for these years - The activity of the trust for publishing advertising in the newspaper is intrinsically linked for newspaper activity falls within the ambit of sub-clause (i) of Subsection 2(15) and conditions imposed in sub-clause (ii) of the proviso has to be fulfilled. The moot question is, whether the receipts from such activity itself is in the nature of trade, commerce or business or any activity of ranging in services in relation to any trade, commerce or business has to be examined. If the assessee is generating revenue from the activities for which it has been granted status of charitable nature, then whether it falls within the main section 2(15) itself or its activities are hit by proviso has not been discussed by the authorities below, both by the AO and ld. CIT(A) who have simply stated that since receipts of the assessee had crossed the limit of Rs. 10 lakhs, therefore, benefit of Section 11 cannot be granted. Before deciding this issue, it is incumbent whether its activity for which it has been granted registration u/s. 12A itself per se falls in the category of carrying of any activity in the nature of trade, commerce or business. Only if it carries any other activity which falls in such nature, then only proviso to Section 2(15) would be applicable. Accordingly, we remit this issue to the file of the AO to decide this issue in line with judgment of Hon ble Supreme Court in the case of Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT and the principles laid down therein, whether any activity carried out by the assessee falls in the nature of trade, commerce or business or service for which any fees or cess or consideration has been received. Activities from members alone should be treated as general public utility and only nominal revenue from non-members should be treated as activity in the nature of trade, commerce or business cannot be accepted. Because, even if it is with the members, what is to be seen is whether the activity per se is in the nature of trade, commerce or business or not. How a distinction can be made only for non-members and the subscription revenue from them alone has to be treated as in the nature of trade, commerce or business and for some activity and charging fees from the members, it is not. We are unable to appreciate such plea and is rejected. Principle of mutuality also prima facie, once the revenues are from the non-members, even if they are marginal, that does not mean the entire activities of the assessee falls within the ambit of principle of mutuality. However, since in the earlier years this issue has been remanded back to the AO by the Tribunal with specific direction therefore, we are not deciding or adjudicating this issue and matter is remanded back to deal and decide the issue in line with the order of the Tribunal in the earlier years. One of the contention raised that assessee is having a very nominal profit of margin for which chart has been submitted. However, the chart which has been submitted, the true picture of margin from main receipts from IRS subscription is not coming out. For example out of the gross receipts of Rs. 7,81,94,084/- in A.Y.2009-10, the income from subscription IRS itself approximately 1.77 Crores; In A.Y.2010-11, the gross receipts is Rs. 9,59,57,820/- and income is Rs. 1,40,05,627; in A.Y. 2011-12 gross is Rs. 11,07,27,673 and income is Rs. 1,79,31,763/-,. Similarly, in A.Y.2012-13 out of the gross receipts of Rs. 19.39 Crores, the income from subscription for IRS report is 10.30 Crores. In A.Y.2013-14 again it is Rs. 20,88,44,490/- and income is Rs. 11,28,60,307. Thus, it cannot be said that there is a nominal income from the main activity of the assessee. Hence, the calculation given before us at the threshold does not appear to be correct which needs to be verified by the AO. Thus, the working which has been given, we find that it does not give the correct picture of margins from the sale of reports and therefore, this plea also needs to be examined by the AO in line with the judgment of the Supreme Court. Accordingly, the entire issue is remanded back to the AO to examine, 1.Firstly, to be decided in accordance with the judgment of the Hon ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra); and application of criteria of the threshold and the issue discussed in paras 23 to 27 of this order. 2.Whether its main activities for which it has been granted the status of charitable entity u/s. 12A who is carrying out one activity which is the object of general public utility then on what basis it has been held that it is in the nature of trade, commerce or business; or whether any activity is being carried out by the assessee other than the main activity which falls in the nature of trade, commerce or business or any activity of rendering any services in relation to trade, commerce or business; or which threshold is to be examined. 3.To examine the plea of assessee that it has a very nominal profit or margin from the main activity of selling of IRS report to members and non-members. 4. And to decide the issue on principle of mutuality in light of the decision earlier year orders of the Tribunal. Appeals of assessee are allowed for statistical purposes.
Issues Involved:
1. Denial of exemption under Section 11 by invoking proviso to Section 2(15). 2. Applicability of the principle of mutuality. 3. Disallowance of provisions for gratuity and leave encashment. Summary: Denial of Exemption under Section 11: The assessee, a company registered under Section 25 of the Companies Act, 1956, and enjoying registration under Section 12A of the Income Tax Act, 1961, was denied exemption under Section 11 by the AO. The AO invoked the proviso to Section 2(15), which states that "advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business" and the aggregate value of receipts from such activities exceeds Rs. 10 lakhs. The assessee's gross receipts exceeded this threshold, leading to the denial of the exemption. The Tribunal referred to the Supreme Court's judgment in Ahmedabad Urban Development Authority, which clarified that if an institution recognized for carrying out charitable purposes for general public utility engages in activities in the nature of trade, commerce, or business, the receipts from such activities should not exceed the quantitative limit. The Tribunal remanded the issue back to the AO to determine whether the activities carried out by the assessee fall within the nature of trade, commerce, or business and whether the receipts exceed the prescribed threshold. Applicability of the Principle of Mutuality: The assessee argued that the principle of mutuality should apply since most of the receipts were from its members. The CIT(A) rejected this plea, citing the Supreme Court's decision in Bangalore Club vs. CIT. The Tribunal noted that revenues from non-members, even if marginal, negate the principle of mutuality. However, since the issue was remanded back to the AO in earlier years, the Tribunal directed the AO to re-examine this issue in line with the earlier Tribunal orders. Disallowance of Provisions for Gratuity and Leave Encashment: The assessee contended that the disallowance of provisions for gratuity and leave encashment should be deleted if the benefit of exemption under Section 11 is granted. The Tribunal remanded this issue back to the AO for re-examination, contingent upon the decision regarding the exemption under Section 11. Conclusion: The Tribunal remanded the entire issue back to the AO to: 1. Decide in accordance with the Supreme Court's judgment in Ahmedabad Urban Development Authority. 2. Determine whether the assessee's main activities fall within the nature of trade, commerce, or business. 3. Examine the plea of nominal profit or margin from the main activity of selling IRS reports. 4. Re-examine the principle of mutuality in light of earlier Tribunal orders. The appeals for all the assessment years were allowed for statistical purposes.
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