2024 (9) TMI 515 - AT - Income Tax

Denial of exemption u/s 11 - Charitable activity or not? - assessee is a facilitator and arranges the exhibition for its members for development of the business and trade in India and outside India - HELD THAT - There is no deviation of assessee s main object which is covered by section 2(15) - AO in assessment order has not pointed out any of the deviations of the main object of the assessee. AO observed receipts from membership, subscription fees, grants from Government of India, income from publication, exhibitions, award functions etc. Regarding the activity of conducting exhibitions, the ld. AO was of the view that was a commercial activity trade or business, in view of expression meaning of Business is wide in fiscal statues. He also inferred profit motive to assessee. Whether ld. AO erred in upholding the denial of carry forward of deficit relating to the earlier years contrary to the binding judgment of the jurisdictional High Court in the assessee s own case for assessment year 2004-05. The assessee is a started on 27/04/1966 U/s 25 of the Companies Act, 1956 with the main object to support, protect, maintain, increase and promote the export of gems and etc. For the assessment year under consideration, the assessee filed return of income along with income and expenditure account, balance sheet and audit report in prescribed of Income-tax Rules, 1962. Considering the assessee s transaction in impugned assessment year exhibition in India and outside after deleting the membership fees and the interest from investment, the assessee had incurred loss in exhibitions for promotion of trade and business of the members as well as the benefit should be carried over to other business entities who run as the members of the assessee s organization. In larger aspect, the assessee s GPU is duly covered U/s 2(15) of the Act. The business of trading, sale and purchase are duly restricted during the time of exhibition. The revenue was unable to establish that the assessee is doing any business transactions during its activities. We rely on the orders of our co- ordinate bench of ITAT, Mumbai in assessee s own case. Accordingly, we restrict the revenue for rejecting the exemption which the assessee is entitled to get as per the registration u/s 12A of the Act. We are not intervening in the impugned appeal order. The assessee is eligible for the benefit of exemption u/s 11 of the Act in impugned assessment year. DR respectfully relied on case of DIT (Exemption) vs Trustees of Singhania Charitable Trust 1991 (7) TMI 16 - CALCUTTA HIGH COURT In our respectful observation, that is distinguished from our case. In our considered view, we are not intervening the impugned appeal order of the assessee.

Summary

Issues Involved:
1. Exemption under Section 11 & 12 of the Income-tax Act, 1961.
2. Applicability of Proviso to Section 2(15) of the Act.
3. Nature of activities (trade, business, or commerce) and their impact on exemption.
4. Accumulation of income under Section 11(2) of the Act.
5. Allowability of prior period expenses.
6. Addition under Section 56(2)(vii)(b) read with Section 50C of the Act.

Detailed Analysis:

1. Exemption under Section 11 & 12 of the Income-tax Act, 1961:
The Revenue contested the exemption under Section 11 & 12 granted by the Ld. CIT(A), arguing that the assessee's activities fall under "advancement of any other object of general public utility" and involve trade, business, and commerce, making them ineligible for exemption under Section 11. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the Supreme Court's ruling in the Ahmedabad Urban Development Authority case, which clarified that activities with a nominal markup or cost recoupment do not qualify as trade, commerce, or business.

2. Applicability of Proviso to Section 2(15) of the Act:
The Tribunal examined whether the assessee's activities, particularly conducting exhibitions, fall under the proviso to Section 2(15). The Revenue argued that these activities are commercial, exceeding the 20% threshold of total receipts. The Tribunal, however, concluded that the assessee's activities are promotional and not commercial, as there is no markup on fees charged, aligning with the Supreme Court's interpretation in similar cases.

3. Nature of Activities (Trade, Business, or Commerce) and Their Impact on Exemption:
The Tribunal analyzed the nature of the assessee's activities, noting that the exhibitions conducted were for promotional purposes without any business transactions. The Tribunal referenced past ITAT decisions and financial statements showing that the exhibitions resulted in a net loss, reinforcing that the activities were not commercial. The Tribunal emphasized that the assessee's activities align with its charitable objectives under Section 2(15).

4. Accumulation of Income under Section 11(2) of the Act:
The Revenue challenged the accumulation of income under Section 11(2), arguing that the purposes specified were vague. The Tribunal upheld the Ld. CIT(A)'s decision, citing the Gujarat High Court's ruling in the Bochasanwasi Shri Akshar Purshottam Public Charitable Trust case, which held that general purposes specified in Form 10 are sufficient if they align with the trust's objectives. The Tribunal found that the assessee's accumulation was for specific purposes within its trust deed.

5. Allowability of Prior Period Expenses:
The Revenue disputed the allowance of prior period expenses by the Ld. CIT(A). The Tribunal upheld the Ld. CIT(A)'s decision, referencing past ITAT decisions in the assessee's favor, which allowed such expenses as they were incurred towards the trust's objectives. The Tribunal found no contrary evidence from the Revenue to disallow these expenses.

6. Addition under Section 56(2)(vii)(b) read with Section 50C of the Act:
The Revenue argued for an addition based on the difference between the stamp duty value and the purchase consideration of a property. The Tribunal found that Section 56(2)(vii)(b) applies only to individuals and HUFs, not to trusts. The Tribunal deleted the addition, noting that the property was a distress sale and the valuation report supported the purchase price.

Conclusion:
The Tribunal dismissed the Revenue's appeals, upholding the Ld. CIT(A)'s decisions to grant exemption under Section 11 & 12, allow accumulation of income under Section 11(2), permit prior period expenses, and reject the addition under Section 56(2)(vii)(b). The Tribunal's decisions were consistent with past ITAT rulings and Supreme Court interpretations, affirming the assessee's activities as charitable and within the provisions of the Income-tax Act.