2017 (9) TMI 1458 - AT - Income Tax

Eligibility for exemption u/s. 11 - proof of charitable activities - assessee is rendering specific services to its members as well as non-members and charging fees - Held that - CIT(A) has observed that the assessee is an association of professional and businessman to protect and promote the interest of its members. The income of the assessee is from membership fees from its members, specialized services, services and facilities, meetings, seminars and training programmes, sale of publication etc. It is also noted that the income of the assessee from other non-members of the institution are more and as such the principle of mutuality is apparently not applicable in the case of the assessee. We further note that the case of the assessee is covered in its favour by the orders of the Ld. CIT(A) s predecessors for the Assessment years 2006-07 to 2011-12 and also by the order of the Hon ble Delhi High Court in assessee s own case for the AY 2006-07 & 2007-08. The Departmental Appeal for the AY 2008-09 & 2009-10 has also been dismissed by the Tribunal. Therefore, the Ld. CIT(A) has rightly observed that there is no sufficient reason to deviate from the appellate orders of the Ld. CIT(A) of the earlier years allowing the exemption u/s. 11(1) and accordingly, the AO was directed to allow the exemption u/s. 11(1) with all consequential benefits - Decided against revenue

Summary

Issues involved:
- Eligibility for exemption under section 11 of the Income Tax Act, 1961
- Taxability of fees charged from members and non-members
- Applicability of principle of mutuality
- Denial of exemption under section 11(1) for the assessment year 2012-13

Eligibility for exemption under section 11:
The case involved an appeal by the Revenue against the Order of the Ld. CIT(A) regarding the eligibility of the assessee for exemption under section 11 of the Income Tax Act, 1961. The Revenue contended that the assessee was not eligible for exemption as it was involved in trade, commerce, or business and received fees from both members and non-members. However, the Ld. CIT(A) observed that the assessee, being an association of professionals and businessmen, aimed to promote the interests of its members. The Ld. CIT(A) referred to past appellate orders and the decision of the Hon'ble Delhi High Court to support the granting of exemption under section 11(1) to the assessee. The Tribunal upheld the Ld. CIT(A)'s decision, stating that there was no reason to deviate from previous orders allowing the exemption.

Taxability of fees charged from members and non-members:
The Revenue argued that the fees charged by the assessee from both members and non-members should be taxed under the head 'Profits & Gains of Business and Profession' as the activities were not charitable in nature. However, the Ld. CIT(A) noted that the income of the assessee primarily came from membership fees, specialized services, meetings, seminars, and other activities aimed at promoting the interests of its members. The Tribunal agreed with the Ld. CIT(A) that the principle of mutuality was not applicable in this case, but the activities of the assessee were charitable in nature, leading to the decision to allow exemption under section 11(1).

Applicability of principle of mutuality:
The principle of mutuality was raised as an issue, with the Revenue contending that it was not applicable due to the income received from non-members. However, the Ld. CIT(A) and the Tribunal found that the principle of mutuality did not apply, given the nature of the activities and the primary source of income being from members for services rendered to benefit them.

Denial of exemption under section 11(1) for the assessment year 2012-13:
The AO had denied the exemption under section 11(1) for the assessment year 2012-13, citing the involvement of the assessee in trade, commerce, or business. The Ld. CIT(A) disagreed with this assessment, relying on past orders and the decision of the Hon'ble Delhi High Court. The Tribunal upheld the Ld. CIT(A)'s decision, directing the AO to allow the exemption under section 11(1) with all consequential benefits. The appeal filed by the Revenue was dismissed by the Tribunal based on these findings.