2018 (6) TMI 218 - AT - Income Tax

Denial of the exemption u/s. 11 - assessee was held to be not an association created/established for charitable purposes within the meaning of provisions of Section 2(15) - taxability of interest income on FD s - Held that - Respectfully following decision of the tribunal in assessee s own case PRABHODHANGOREGAON VERSUS ITO (E) -II (1) 2017 (8) TMI 1381 - ITAT MUMBAI we set aside and restored the matter to the file of the AO determination of the issue - thus appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Treatment of the assessee trust as a mutual association.
2. Denial of exemption under Section 11 of the Income-tax Act, 1961.
3. Applicability of the proviso to Section 2(15) of the Income-tax Act, 1961.
4. Taxability of interest income and income from non-members.
5. Legal grounds raised by the assessee under Rule 11 of the Income-Tax (Appellate Tribunal) Rules, 1963.

Detailed Analysis:

1. Treatment of the Assessee Trust as a Mutual Association:
The primary issue was whether the assessee trust should be treated as a mutual association. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] treated the trust as a mutual association, thereby denying it the benefits of being a charitable organization. The AO noted that the trust provided various facilities to its members and some non-members, and concluded that the trust was not established for charitable purposes within the meaning of Section 2(15) of the Income-tax Act, 1961. The CIT(A) upheld this view, emphasizing that the trust's activities were commercial in nature and not charitable.

2. Denial of Exemption under Section 11:
The AO and CIT(A) denied the exemption under Section 11 on the grounds that the trust's activities were commercial and not charitable. The trust argued that it was registered under Section 12A, which indicates its charitable nature, and that its activities promoted general public welfare. However, the authorities held that registration under Section 12A does not automatically entitle the trust to exemption under Section 11 if its activities are commercial.

3. Applicability of the Proviso to Section 2(15):
The proviso to Section 2(15) states that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves any trade, commerce, or business activities. The AO and CIT(A) applied this proviso, concluding that the trust's activities, such as letting out property and running a cafeteria, were commercial in nature. The tribunal noted that the nature, scope, extent, and frequency of such activities need to be examined to determine their impact on the trust's charitable status.

4. Taxability of Interest Income and Income from Non-members:
The AO taxed the interest income of ?14,84,407/- and income from non-members of ?1,30,625/- on the grounds that these were not covered under the principles of mutuality. The CIT(A) upheld this addition, stating that the trust's income arose from commercial activities. The trust argued that the interest income was from investments made as per Section 11(5) and should not be considered commercial. The tribunal noted that similar issues arose in the previous assessment year (2010-11) and were remanded to the AO for a fresh assessment.

5. Legal Grounds Raised by the Assessee:
The assessee raised additional legal grounds under Rule 11 of the Income-Tax (Appellate Tribunal) Rules, 1963, arguing that its fundamental status as a charitable trust cannot be changed to a mutual association as long as its registration under Section 12A is subsisting. The tribunal admitted these additional grounds, noting that they were purely legal in nature and did not require fresh facts. The tribunal directed the AO to reconsider these grounds in light of the Supreme Court's decision in NTPC v. CIT.

Conclusion:
The tribunal set aside the order of the CIT(A) and restored the matter to the file of the AO for a fresh assessment. The AO was directed to reassess the issues, considering the tribunal's observations and the legal grounds raised by the assessee. The appeal was allowed for statistical purposes, and the tribunal emphasized the need for a detailed examination of the proviso to Section 2(15) and the nature of the trust's activities.

← Previous Next →