2017 (1) TMI 887 - AT - Income Tax

Exemption U/s 11 and 12 - non charitable activities - receipt of rent as hit by the amended provisions of Section 13(8) r.w. 1st and 2nd proviso of Section 2(15) - Held that - As decided in assessee s own case for the A.Y. 2010-11 as held by the Apex Court in the case of Surat Arts Silk (1979 (11) TMI 1 - SUPREME Court) what is important in the case of trust or institution is the primary or dominant purpose. If the dominant purpose is charitable, another object which by itself may not be charitable, would not prevent the trust or institution from being a valid charity. It is noted in this case that the charges for the room are very nominal. This also indicates that there is no profit motive involved in this case. Thus it is apparent that the dominant motive in this case is not earning profit but to do charity in the form of public service by providing accommodation to the common man at affordable rates. The activities of the assessee, therefore, cannot be characterized as business activities. Hence, proviso to section 2(15) is not attracted in this case and, therefore, the disallowance of exemption u/s 11 & 12 is unjustified. The AO is, accordingly, directed to assess the society as per the provisions of section 11 & 12, and grant the requisite exemption. - Decided in favour of assessee.

Summary

Issues:
- Appeal filed by revenue against orders allowing exemption U/s 11 and 12 of the Income Tax Act.
- Interpretation of amended provisions of Section 13(8) r.w. 1st and 2nd proviso of Section 2(15) of the Act.
- Consistency in decision-making based on previous judgments.

Analysis:

Issue 1: Appeal against orders allowing exemption U/s 11 and 12
- The appeals by the revenue challenged orders allowing exemption U/s 11 and 12 for assessment years 2012-13 and 2013-14.
- The Assessing Officer initially rejected the exemption claim, adding the surplus generated back to the income of the assessee.
- The ld. CIT(A) partly allowed the appeal, directing the Assessing Officer to assess the society in accordance with Sections 11 and 12 of the Act.
- The revenue contended that the ld. CIT(A) erred in allowing the exemption, supporting the Assessing Officer's decision.
- The assessee argued that the issue was favorably decided in a previous ITAT Jaipur Bench judgment.
- The ld. CIT(A) justified the exemption based on the previous judgment and directed the Assessing Officer to grant the requisite exemption.

Issue 2: Interpretation of amended provisions of Section 13(8) r.w. 1st and 2nd proviso of Section 2(15)
- The ld. CIT(A) based the decision on the activities of the assessee, following the judgment of the Coordinate Bench.
- The ld. CIT(A) emphasized the absence of profit motive in the society's activities, crucial for defining an activity as business.
- Referring to CBDT Circular No. 11 of 2008, the ld. CIT(A) clarified that entities engaged in commercial activities disguised as charity are not eligible for exemption.
- The ld. CIT(A) highlighted that the primary or dominant purpose of the society was charitable, not profit-driven, as evidenced by nominal charges for services.
- Citing legal precedents, the ld. CIT(A) concluded that the society's activities did not qualify as business activities, warranting exemption under Sections 11 and 12.

Issue 3: Consistency in decision-making based on previous judgments
- The ld. CIT(A) consistently applied the decision of the Coordinate Bench in the assessee's previous case to grant exemption.
- By upholding the previous judgment, the ld. CIT(A) ensured a uniform approach in interpreting the provisions and granting exemptions.
- The Tribunal dismissed the revenue's appeals for both assessment years, maintaining the ld. CIT(A)'s orders based on the consistent application of legal principles and precedents.

This detailed analysis showcases the application of legal provisions, precedents, and factual considerations in the judgment, ensuring a comprehensive understanding of the issues involved and the reasoning behind the decision.