2025 (1) TMI 560 - AT - Income Tax

Exemption u/s 11 - Denial of exemption as assessee falls under the category of advancement of any other object of general public utility , the activities of assessee are in the nature of trade, business and commerce and total receipts of the assessee from such activities are more than 20% of the total receipts - HELD THAT - We find that assessee trust was created as per the mandatory requirement of FMC/SEBI for the benefit of investor which include public at large. The contributions are received from MCX based on FMC/SEBI guidelines which form part of corpus of assessee as specifically directed in such contribution. The assessee trust does not collect any fees, charge or cess directly or indirectly from anyone, neither does it render any services for any fees there was no element of any commercial / business angles in its activities. The assessee has applied registration u/s 12A of the Act which has been granted by the ITAT, Mumbai as per the decision referred above holding that assessee is a charitable trust set up in advance an object of general public utility The assessing officer has nowhere demonstrated how the activities of the assessee trusts were for the benefit of persons covered u/s 13(3) r.w.s. 13(1)(c) of the Act. As decided in the case of NCDEX 2023 (10) TMI 24 - ITAT MUMBAI that the income of the assessee with respect to contribution received from recognized stock exchange and the members thereof is eligible for exemption under section 10 (23EC) of the act. Central government for this exemption also notifies the assessee. Therefore, as far as the income of contribution is concerned, the learned CIT A has correctly granted the assessee under that section. Appeal of the Revenue is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment presented involves several core issues related to the applicability of tax exemptions for a trust under the Income Tax Act, 1961. The issues considered are:

Whether the CIT(A) was justified in allowing exemption under Section 11 of the Income Tax Act, considering the activities of the assessee fall under "advancement of any other object of general public utility" and are in the nature of trade, business, and commerce, with receipts exceeding 20% of total receipts.
Whether the CIT(A) was justified in allowing exemption based on previous ITAT decisions, despite the department's pending appeals against those decisions in higher courts.
Whether the CIT(A) erred by not considering the Supreme Court's interpretation that activities covered under the residuary part of Section 2(15) are not entitled to exemption if they involve trade, commerce, or business.
Whether the CIT(A) was correct in allowing exemption without considering that the fund benefits related parties under Section 13(3) and is not for the public at large.
Whether the CIT(A) was right in upholding that interest income and contributions are not business income, thus not triggering the proviso to Section 2(15).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exemption under Section 11

Legal Framework: Section 11 provides tax exemption for income from property held for charitable or religious purposes. The proviso to Section 2(15) restricts this if activities are in the nature of trade, commerce, or business.
Court's Interpretation: The court found that the trust's activities were not commercial as it did not charge fees or render services for profit.
Key Evidence: The trust was registered under Section 12A and did not collect fees, indicating non-commercial intent.
Application of Law: The court applied the exemption under Section 11 as the activities were charitable, aligning with previous ITAT decisions.
Competing Arguments: The Revenue argued the activities were commercial; however, the court emphasized the absence of profit motive.
Conclusions: The exemption under Section 11 was justified as the activities were not in the nature of trade, commerce, or business.

Issue 2: Reliance on Previous ITAT Decisions

Legal Framework: Judicial consistency and reliance on precedents are fundamental in legal adjudication.
Court's Interpretation: The court upheld the CIT(A)'s reliance on previous ITAT decisions, emphasizing consistency.
Key Evidence: Previous ITAT rulings in similar cases were cited, supporting the exemption.
Application of Law: The court applied the principle of consistency, aligning with past rulings.
Competing Arguments: The Revenue's pending appeals were noted, but the court prioritized existing ITAT decisions.
Conclusions: The CIT(A) was justified in relying on ITAT precedents, pending higher court decisions notwithstanding.

Issue 3: Supreme Court Interpretation

Legal Framework: The Supreme Court's interpretation in similar cases influences lower courts' decisions.
Court's Interpretation: The CIT(A) did not err as the activities were not deemed commercial under the Supreme Court's framework.
Key Evidence: The trust's non-commercial activities and lack of profit motive were highlighted.
Application of Law: The court aligned the trust's activities with charitable purposes, not commercial ones.
Competing Arguments: The Revenue cited Supreme Court cases, but the court found no commercial intent in the trust's activities.
Conclusions: The activities were not commercial, and the exemption was upheld under the Supreme Court's interpretation.

Issue 4: Benefit to Related Parties

Legal Framework: Section 13(3) restricts benefits to related parties, impacting exemption eligibility.
Court's Interpretation: The court found no evidence of benefit to related parties, supporting the exemption.
Key Evidence: The trust's activities were for the public benefit, not related parties.
Application of Law: The court applied the exemption, finding no violation of Section 13(3).
Competing Arguments: The Revenue argued related party benefit; the court found no supporting evidence.
Conclusions: The trust's activities benefited the public, not related parties, justifying the exemption.

Issue 5: Nature of Income

Legal Framework: Income from interest and contributions needs characterization to determine tax treatment.
Court's Interpretation: The court found the income was not business income, supporting exemption.
Key Evidence: The income was from interest and corpus contributions, not business activities.
Application of Law: The court applied the exemption, as the income was not commercial.
Competing Arguments: The Revenue considered it business income; the court disagreed based on evidence.
Conclusions: The income was not business-related, supporting the exemption under Section 11.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes: "The assessee trust does not collect any fees, charge or cess directly or indirectly from anyone, neither does it render any services for any fees there was no element of any commercial / business angles in its activities."
Core Principles Established: The principle of non-commercial intent and public benefit in charitable activities was reinforced, supporting tax exemptions.
Final Determinations: The court upheld the CIT(A)'s decision to grant exemptions under Section 11, dismissing the Revenue's appeals.

The judgment emphasizes the importance of the nature and intent of activities in determining tax exemptions for charitable trusts, reinforcing the principle of consistency with previous judicial decisions.

← Previous Next →