2016 (4) TMI 651 - AT - Income Tax

Exemption u/s. 11 denied - Activity carried on by assesse charitable or not u/s 2(15) - Held that - As find that the assessee trust is registered with the DIT(E), Mumbai u/s. 12A of the Act as charitable institution. The assessee falls under the definition of charitable purposes under the last limb of definition to charitable purposes u/s. 2(15) of the act i.e. the advancement of any other object of general public utility . We find that the case of assessee is covered by the orders of coordinate benches of the ITAT in the case of Japanese Chamber of Commerce & Industry 2013 (10) TMI 1126 - ITAT CHENNAI and Indian Chamber of Commerce 2014 (12) TMI 256 - ITAT KOLKATA , wherein held that the assessee is not charging any fee for the services rendered by it. The fees charged by way of admission fee, monthly subscription, admission and registration fee etc., are utilized only for the promotion of the aims and objects of the Society. Clause-1 of the aims and objects put complete embargo on earning profit from any of the activities of the Society. Profit is the essence of trade, commerce or business. When services are rendered without profit motive, the element of trade, commerce or business disappears from such activities. Therefore, it can be safely construed that the activities of the assessee are not hit by the newly added proviso to Section 2(15) of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of the claim of exemption under Section 11 of the Income Tax Act, 1961.
2. Applicability of the amended Section 2(15) of the Income Tax Act, 1961.
3. Principle of mutuality and its relevance to the assessee’s activities.
4. Allowance of carried forward and set-off of income of the current year.

Detailed Analysis:

1. Rejection of the Claim of Exemption under Section 11 of the Income Tax Act, 1961:
The first issue in the assessee's appeal is against the CIT(A)'s order confirming the AO's action in rejecting the assessee's claim under Section 11 of the Act. The AO held that the assessee institution is predominantly a mutual association with non-charitable objects, and the object of mutual benefits contradicts charitable purposes. The AO denied the exemption under Section 11, citing that the assessee's activities are systematic and organized, yielding substantial profit, thus lacking the element of charity. The CIT(A) confirmed the AO's findings, stating that the activities of the appellant trust are in the nature of trade, commerce, or business for a fee or other consideration, thereby falling under the proviso to Section 2(15) of the Act, which excludes such activities from being considered charitable.

2. Applicability of the Amended Section 2(15) of the Income Tax Act, 1961:
The CIT(A) applied the amended Section 2(15), which states that "charitable purpose" includes relief of the poor, education, medical relief, preservation of the environment, and advancement of any other object of general public utility. However, the proviso added by the Finance Act, 2008, effective from April 1, 2009, excludes activities in the nature of trade, commerce, or business from being considered charitable if they involve any fee or consideration. The CIT(A) held that the appellant's activities are systematic and organized, bearing the nature of trade and business activity, thus falling under the amended Section 2(15) and Section 13(8), which denies the benefits of Sections 11 and 12.

3. Principle of Mutuality and Its Relevance to the Assessee’s Activities:
The assessee argued that it is a Chamber of Commerce registered under Section 12A of the Act, formed for the development of trade, industry, and commerce, and its activities fall under "the advancement of any other object of general public utility" as defined under Section 2(15). The assessee relied on various judicial decisions, including the ITAT Chennai decision in the case of Japanese Chamber of Commerce & Industry, which held that activities conducted without profit motive do not amount to business. The Tribunal noted that the assessee's activities, such as organizing seminars and conferences, are ancillary to its main charitable object and not independent profit-making activities. The Tribunal concluded that the assessee's activities are not hit by the newly added proviso to Section 2(15) and thus remain charitable.

4. Allowance of Carried Forward and Set-off of Income of the Current Year:
The revenue's appeal raised the issue against the CIT(A)'s order allowing the carried forward and set-off of income of the current year. However, since the main issue in the assessee’s appeal was allowed, this issue became academic in nature and was dismissed.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the assessee's primary purpose is the advancement of objects of general public utility, which remains charitable even if incidental activities yield profit. The revenue's appeal was dismissed as academic. The order was pronounced in the open court on April 15, 2016.