2016 (12) TMI 683 - HC - Income Tax

Non charitable activities - whether ITAT fell into error in overlooking the proviso to Section 2(15) added by Finance Act, 2008? - Held that - This Court notices that the issue at hand has been decided in the judgment reported as India Trade Promotion Organisation vs Director General of Income Tax (2015 (1) TMI 928 - DELHI HIGH COURT ) whether curt had clearly ruled that the proviso was not designed to hit at those institutions which had advancement of objects of general utility at heart and were charity institutions but to remove masks from entities which were purely trade, commerce or business enterprises and to expose their true identity. Therefore, the Court deduced that the correct interpretation would be that the activity should be an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce and business. Therefore, if the dominant and prime objective of the institution established for charitable purpose is profit making whether its activities relate directly in the nature of trade, commerce or business or indirectly in rendering of any service in relation to any trade, commerce or business, then it would not be entitled to claim that its object is charitable purpose. No substantial question of law arises

Summary

Issues:
1. Interpretation of proviso to Section 2(15) of the Income Tax Act, 1961 in the context of charitable organizations engaging in commercial activities.

Analysis:

The main issue in this case revolved around the interpretation of the proviso to Section 2(15) of the Income Tax Act, 1961 concerning whether the Income Tax Appellate Tribunal (ITAT) erred in overlooking the proviso added by the Finance Act, 2008. The appellant, a charitable organization promoting rifle shooting, faced tax implications on amounts received as sponsorship fees and handling charges. While the Assessing Officer agreed with the Revenue's stance that these activities constituted commercial activities falling within the proviso, the ITAT disagreed, citing precedents such as Addl. Commissioner of Income Tax, Gujarat vs Surat Art Silk Cloth Manufacturers Association 121 ITR 1.

The Revenue contended that the ITAT's decision was untenable in light of the plain text of the proviso to Section 2(15. It argued that the nature of the amounts received by the charitable association should not be considered charitable due to the commercial nature of the services provided. The Court referred to the case of India Trade Promotion Organisation vs Director General of Income Tax (2015) 371 ITR 333, where it was clarified that the proviso aimed to unmask entities engaged in trade, commerce, or business rather than charitable activities. The Court emphasized that if an institution's primary objective is profit-making, even indirectly related to trade, commerce, or business, it cannot claim charitable status.

Additionally, the Court cited a previous judgment in WP(C) 3147/2012, where it discussed the definition of business in the context of charitable activities. It concluded that activities incidentally promoting the main charitable purpose but not constituting commerce or trade themselves would not fall under the proviso's scope. Based on these precedents, the Court found no substantial question of law and upheld the ITAT's decision, dismissing the appeal.