2019 (6) TMI 348 - AT - Income Tax

Exemption u/s 11 - Charitable activity or not? - income arising in the form of sponsorship out of the activity of holding Fairs, Meetings, Conferences and Seminars - appellant has been granted registration u/s 12AA since 1995 and onwards - HELD THAT - Since the factual matrix of the appellant s case for the AY 2012-13 is identical with that involved in AY 2011-12 2016 (11) TMI 600 - ITAT KOLKATA , we have no hesitation in holding that the ratio laid down in the decision of the coordinate Bench of this Tribunal holds good and applies to the year under consideration as well. Applying the said decision we hold that the appellant s activity of holding trade fairs, exhibitions and conferences was not in the nature of trade, commerce or business and therefore there was no violation of Section 2(15) of the Act. Accordingly we hold that the lower authorities were legally unjustified in not granting the appellant the benefit of Section 11. We note that even though the appellant realized surplus from organizing fairs exhibitions yet there was express understanding between the appellant and the participants that the surplus, if any, remaining after meeting the cost and expenses for holding the events would be transferred to infrastructure fund of the appellant. We therefore find that the surplus generated from holding the events was an unintended surplus which the contributor at the outset had agreed to appropriate as their contribution to Own Infrastructure Fund of the appellant and therefore it was corpus in nature. Viewed from any angle therefore the surplus was not bearing income character in the hands of the appellant and therefore the lower authorities were unjustified in assessing the same as business income of the appellant. - Decided in favour of assessee Treating the corpus donation - admission fees from its members is exempt u/s 11(1)(d) or not? - HELD THAT - As relying on DIVINE LIGHT MISSION. 2004 (4) TMI 25 - DELHI HIGH COURT we hold that the membership fees received from members were towards the corpus and therefore rightly claimed exempt u/s 11(1)(d). The AO is therefore directed to delete the addition - Decided in favour of assessee

Summary

Issues Involved:
1. Denial of exemption under Section 11 read with Section 13(8) of the Income Tax Act, 1961.
2. Characterization of activities as trade, commerce, or business under Section 2(15) of the Act.
3. Treatment of corpus donation as not exempt under Section 11(1)(d) of the Act.

Detailed Analysis:

Issue 1: Denial of Exemption under Section 11 read with Section 13(8) of the Income Tax Act, 1961
The appellant contested the denial of exemption under Section 11 read with Section 13(8) on the income of ?91,10,026/- derived from sponsorships for fairs, meetings, conferences, and seminars. The Assessing Officer (AO) argued that these activities were in the nature of "rendering service in relation to any trade, commerce, or business" and exceeded the prescribed limit of ?25,00,000/-. The AO concluded that the activities were not charitable as defined under Section 2(15) of the Act, thereby making the appellant ineligible for the benefits of Section 11. The Tribunal, however, noted that the appellant had been granted registration under Section 12AA since 1995 and had consistently conducted such activities, which were previously deemed charitable. The Tribunal held that the activities were incidental to the main charitable objectives and not carried out with a profit motive. Therefore, the benefit of Section 11 could not be denied.

Issue 2: Characterization of Activities as Trade, Commerce, or Business under Section 2(15) of the Act
The AO and the CIT(A) characterized the appellant’s activities as trade, commerce, or business under the proviso to Section 2(15), which led to the denial of exemption. The Tribunal reviewed the appellant's Memorandum of Association, which indicated that the main objective was to promote the construction industry, and the incidental activities like organizing fairs and exhibitions were aimed at achieving this objective. The Tribunal emphasized that these activities were not independently profit-driven but were ancillary to the charitable purpose. The Tribunal referenced the Supreme Court’s decision in Addl. CIT vs. Surat Art Silk Cloth Manufacturers Association and other judicial precedents, concluding that the activities did not constitute trade, commerce, or business under Section 2(15). Thus, the appellant's activities remained charitable, and the benefit of Section 11 was applicable.

Issue 3: Treatment of Corpus Donation as Not Exempt under Section 11(1)(d) of the Act
The appellant claimed exemption for corpus donations amounting to ?17,50,000/- received as admission fees from members under Section 11(1)(d). The AO treated these donations as revenue receipts and denied the exemption. The Tribunal examined the nature of these donations and noted that they were intended as corpus contributions, supported by the appellant’s documentation. The Tribunal referred to the Delhi High Court’s decision in CIT vs. Divine Light Mission, which distinguished between voluntary contributions and subscriptions, concluding that the membership fees were indeed corpus donations. Consequently, the Tribunal directed the AO to delete the addition and allowed the exemption under Section 11(1)(d).

Conclusion:
The Tribunal allowed the appeal, granting the appellant the benefits of Section 11 for the sponsorship income and corpus donations, and held that the activities were not in the nature of trade, commerce, or business. The order emphasized the consistency of the appellant's charitable purpose and the incidental nature of the activities in question.