2017 (11) TMI 1370 - AT - Income Tax

Exemption u/s 11 denied - action of the Assessing Officer in holding that the activities of the assessee are commercial and not charitable - Held that - In AY 1989-90 the Tribunal in the assessee s own case dismissed the departmental ground of appeal where it was alleged that the CIT(A) had erred in holding that the assessee was entitled to benefit u/s 11(1) of the Act read with Section 2(15) of the Act. In the AY 1990-91 the departmental appeal was again dismissed by the Tribunal where the ground raised was that the CIT(A) had erred in allowing the benefit of Section 11 of the Act by holding that the activities of the Society were charitable though the Assessing Officer had rightly applied the provisions of Section 11(4)(A) of the Act by holding the same as business activity. In AY 1993-94 once again the departmental appeal was dismissed by the Tribunal where the point in issue was that the CIT(A) erred in allowing the benefit u/s 11 of the Act by holding that the activities of the Society were chargeable(sic) although the Assessing Officer had rightly applied the provisions of Section 11(4)(A) of the Act by holding the same as business activity. It seems that the CIT(A) s first appeal order in AY 1992-93 became final where it was held by the CIT(A) that the Appellant was entitled to exemption u/s 11 of the Act and the provisions of Section 11(4)(A) of the Act were not applicable to the case. There-after in AY 1997-98 the Assessing Officer himself in the assessment order dated 11.01.2000 conferred charitable status to the assessee by applying Section 11 of the Act. While fees may be charged and there may even to be a surplus out of charitable activities, the principle that so long as the surplus funds are redeployed in charitable activities no objection can be taken as to the charitable pursuits is inexceptionable. Thus, on a careful consideration of the entirety of the facts and the material on record and based on the history of the case and the existing precedents on this point, we have no hesitation in holding that the CIT(A) has rightly decided the issue in favour of the assessee Association by directing relief u/s 11 read with Section 12AA of the Act. Resultantly the appeal filed by the Department is dismissed.

Issues Involved:
1. Whether the activities of the assessee are commercial in nature and fall under the last limb of the proviso to section 2(15) of the Income Tax Act.
2. Whether the assessee is entitled to exemption under section 11 of the Income Tax Act.
3. Whether the Assessing Officer correctly applied the provisions of section 13(1)(b) and 13(1)(d) of the Income Tax Act.
4. Whether the hostel services provided by the assessee are commercial or charitable in nature.
5. Whether the income generated from unrecognized educational courses and other activities is commercial or charitable.

Detailed Analysis:

1. Commercial Nature of Activities:
The Assessing Officer (AO) concluded that the assessee's activities, including providing hostel services, were commercial in nature. The AO noted that the assessee provided A/C rooms and other luxuries, which fell under the last limb of the proviso to section 2(15) of the Income Tax Act. The AO argued that the income generated from these activities was commercial, citing various judicial precedents to support this view.

2. Exemption under Section 11:
The CIT(A) allowed the exemption under section 11, stating that the assessee is a charitable non-profit organization and mere receipt of fees and rents does not imply involvement in trade, commerce, or business. The CIT(A) referred to the Delhi High Court's decision in India Trade Promotion Organization vs. DGIT(E), which held that mere receipt of fees does not constitute a commercial activity.

3. Application of Section 13(1)(b) and 13(1)(d):
The AO found that the assessee was promoting Christianity, which could violate section 13(1)(b) of the Act, as the benefits were not available to all without discrimination. The AO also noted that the properties of the association were indirectly controlled by someone else, violating section 13(1)(d). However, the CIT(A) did not find any specific material to support these violations.

4. Nature of Hostel Services:
The AO argued that the hostel services were run on commercial lines, with facilities comparable to a 3-star hotel. The AO noted that the assessee charged different rates for different types of rooms and provided various facilities to maximize profit. The CIT(A), however, held that the hostel facilities were aligned with the educational activities of the association and did not constitute a commercial activity.

5. Income from Unrecognized Educational Courses:
The AO noted that some educational courses run by the assessee were unrecognized and that TDS was deducted on fees from these courses, indicating a commercial nature. The AO cited judicial precedents to argue that only formal education qualifies as a charitable activity. The CIT(A) disagreed, stating that the Act does not prohibit unrecognized courses as long as they are educational.

Conclusion:
The Tribunal upheld the CIT(A)'s order, stating that the assessee's activities were charitable and not commercial. The Tribunal noted that the assessee had been consistently held as a charitable entity in the past and that there was no change in its objectives. The Tribunal also emphasized that the provision of hostel facilities was aligned with the educational activities and that the income generated was used for charitable purposes. Consequently, the appeal of the Revenue was dismissed, and the cross-objection of the assessee was disposed of accordingly.

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