2016 (3) TMI 45 - AT - Income Tax

Revision order u/s.263 - Exemption under 12A denied - Held that - Definition of Sec.2(15) of the Charitable purpose Act and also submitted that surplus is incidental to the main object. We observed that there is no dispute about the genuineness of the trust and activities and compliance of legal provisions of the various laws and the activities are not against any public objective but in favour of the society. The trust being registered under the state laws and the Director of Income Tax (Exemption) granted Registration exemption under 12A and 80G and the accounts are Audited and accepted by the Income Tax Department for earlier years. The surplus generated is only incidental. It is apparent from the facts and evidence produced the assessee s main object is only waste solid management and other objects are incorporated for future prospects. Therefore, the contention of the CIT(E) on the ground of non-charitable purpose cannot be accepted. Further, procedure for applying tender is based on the contributor terms and such activities if considered a commercial activity there will not be any trust working in commercial atmosphere. Since the Assessing Officer has not verified on the grounds of commercial expediency, we are of the opinion that the matter has to be examined. So considering the facts and circumstances we set aside the Revision order u/s.263 of CIT(E) for limited purpose to the file of the Assessing Officer to verify the process of tender and applications and whether actions of the trust are in the nature of profit motive and the assessee should be provided adequate opportunity of being heard and file documents to support their contentions and the Assessing Officer shall pass the order on merits. - Decided partly in favour of assessee for statistical purpose

Issues Involved:
1. Validity of the CIT(E)'s order under section 263 of the Income Tax Act.
2. Determination of whether the activities of the assessee trust are charitable or commercial in nature.
3. Applicability of the first proviso to section 2(15) of the Income Tax Act to the trust.
4. Examination of the assessment order passed by the Assessing Officer under section 143(3).

Issue-wise Detailed Analysis:

1. Validity of the CIT(E)'s Order under Section 263:
The CIT(E) issued a revision order under section 263 of the Income Tax Act, cancelling the assessment made by the ADIT(E) and directing a re-assessment. The CIT(E) held that the assessment order dated 30th November 2012 was erroneous and prejudicial to the interests of the revenue. The CIT(E) found discrepancies in the trust's income and expenditure accounts, particularly regarding contributions received and expenses claimed for solid waste management.

2. Determination of Whether the Activities of the Assessee Trust are Charitable or Commercial:
The CIT(E) concluded that the trust's activities were commercial in nature, based on the significant contributions received and the nature of the work contracts entered into for solid waste management. The CIT(E) held that the predominant activity of the trust was commercial, not charitable, and thus did not fall under the preservation of the environment as defined under section 2(15) of the Act. The CIT(E) also noted that the trust participated in tenders like any commercial entity, indicating a profit motive.

3. Applicability of the First Proviso to Section 2(15):
The CIT(E) applied the first proviso to section 2(15), which pertains to entities engaged in activities of general public utility but with a profit motive. The CIT(E) held that the trust's activities did not qualify as charitable under this proviso, as the activities were deemed commercial.

4. Examination of the Assessment Order under Section 143(3):
The Tribunal examined the assessment order passed by the ADIT(E) under section 143(3). The assessee argued that the trust's activities were charitable and aligned with its registered objectives, including solid waste management. The assessee provided evidence of compliance with section 12A and 80G, and the trust's financial statements were audited regularly. The Tribunal noted that the trust's activities, including solid waste management, were service-oriented and aimed at public welfare.

Conclusion:
The Tribunal found that the CIT(E)'s conclusion that the trust's activities were commercial was not supported by sufficient evidence. The Tribunal acknowledged the trust's efforts in solid waste management and civic awareness, which aligned with charitable purposes. However, the Tribunal directed the Assessing Officer to re-examine the trust's activities, particularly the tender process and the nature of the contracts, to determine if there was a profit motive. The Tribunal set aside the revision order under section 263 for a limited purpose, allowing the appeal partly for statistical purposes. The Assessing Officer was instructed to provide the assessee with an opportunity to present supporting documents and pass the order on merits.

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