2016 (5) TMI 361 - AT - Income Tax

Exemption u/s 11 - whether miscellaneous income earned by the assessee can be considered as receipts from rendering services, in relation to trade, commerce or business, as specified in the proviso to section 2(15)? - Held that - Activity carried on business principles does not mean that the assessee was carrying on business. It is clear from material on record that all activities of the assessee are directed towards achieving its main object of promoting export on ready made garments from India. It did not carry any activity for earning profit and, therefore, it has to be held that the assessee did not carry on business as the term is understood in common parlance. The assessee, therefore, is a public charitable institute. For the purpose of granting exemption, the dominant or min object is to be seen even if it is found that at some point of time the persons at the helm of affairs did not observe rules and acted in a manner not authorized by rules that would not make any difference to the claim of the assessee. A breach of a duty by public or private holder of an office cannot change the character of office or institution. Thus even if it is proved that certain favours were done by the Executive Committee in allotment of quota that would not make the assessee a non-charitable institution. For all the above reasons, we hold that assessee is a charitable institution to which provisions of section11 are applicable. The provisions of section 28(iii) or of s.11(4A) are not applicable to this case as the assessee did not carry on any business. The objects of the assessee are charitable in nature and that the assessee did not carry on any activity with an object to carry profit. As there is no profit motive, the question of attracting the proviso to section 2(15) does not arise - Decided in favour of assessee.

Issues:
1. Exemption under section 11 of the Income Tax Act for a non-profit institution.
2. Treatment of receipts under the principle of mutuality.
3. Allowance of depreciation and miscellaneous income.
4. Benefit under section 11 of the Act for a charitable organization.

Analysis:

Issue 1: Exemption under section 11 of the Income Tax Act
The case involved two appeals by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) for the Assessment Years 2009-10 and 2010-11. The appellant, a non-profit institution registered under section 25 of the Companies Act, claimed exemption under section 11 of the Income Tax Act. The Assessing Officer (A.O.) denied the exemption citing the entity's business activities. However, the First Appellate Authority, considering past judgments and the nature of the entity's activities, allowed the exemption under section 11. The Tribunal upheld this decision based on the dominant charitable nature of the institution's activities, dismissing the Revenue's appeal on this ground.

Issue 2: Treatment of receipts under the principle of mutuality
The appellant received entrance and membership fees and claimed exemption based on the principle of mutuality. Previous judgments favored the appellant on this issue for several assessment years. The First Appellate Authority, following past decisions, granted the exemption under section 11 for these fees. The Tribunal upheld this decision, emphasizing the charitable nature of the institution's activities and dismissing the Revenue's appeal on this ground as well.

Issue 3: Allowance of depreciation and miscellaneous income
The Revenue challenged the allowance of depreciation and miscellaneous income by the First Appellate Authority. The Tribunal found that the miscellaneous income earned by the appellant did not constitute receipts from services related to trade, commerce, or business, as specified in the Act. Citing past judgments and the charitable nature of the institution's activities, the Tribunal upheld the First Appellate Authority's decision on this issue, dismissing the Revenue's appeal.

Issue 4: Benefit under section 11 of the Act for a charitable organization
The Revenue contested the benefit granted to the appellant under section 11 of the Act. However, as this issue had been resolved in favor of the appellant in previous assessment years by the Jurisdictional High Court, the Tribunal dismissed the Revenue's appeal on this ground as well.

In conclusion, the Tribunal dismissed all appeals by the Revenue and upheld the decisions of the First Appellate Authority regarding the exemption under section 11, treatment of receipts under the principle of mutuality, allowance of depreciation and miscellaneous income, and the benefit under section 11 for the charitable organization. The Tribunal pronounced the order on 30th March 2016.

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