2019 (6) TMI 991 - AT - Income Tax

Exemption u/s 11 12 - charitable activity u/s 2(15) or not? - as per AO activities of renting out the property has no nexus with the promotion of Fine Arts Crafts objective - the rent being received by the society is subject to TDS is a pure rent - HELD THAT - As decided in assessee's own case 2019 (2) TMI 905 - ITAT DELHI Assessee society has carried out activities in the form of annual art exhibitions, camps for senior and junior artists, providing maintenance to aged artists etc. It is also not the department s case that any part of surplus was diverted from the society and applied for any personal benefit of any member or office bearer of the society. Therefore, it can be safely concluded that the dominant activity of the assessee society is not business, trade or commerce and, accordingly, any incidental or ancillary activity like hiring out of art gallery or selling paintings would not also fall within the categories of trade, commerce or business. Proviso to Section 2(15) of the Act, which was inserted by Finance Act, 2008, was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity in the object of a general public utility but was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions.- Decided in favour of assessee.

Issues Involved:
1. Whether the activities of the assessee fall under the definition of "charitable purpose" as defined in Section 2(15) of the Income Tax Act, 1961.
2. Entitlement to benefits under Sections 11 & 12 of the Income Tax Act.
3. Treatment of rental income and other incomes as business income or charitable income.
4. Allowability of depreciation on assets for which cost has already been treated as application of income.

Issue-wise Detailed Analysis:

1. Definition of Charitable Purpose under Section 2(15):
The primary issue was whether the activities of the assessee, a society registered under the Societies Registration Act, 1860, fell under the definition of "charitable purpose" as per Section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) argued that the activities, including rental income, were in the nature of business, trade, or commerce, and thus did not qualify as charitable. The AO relied on the amended Section 2(15) and CBDT Circular No. 11/2008, which states that activities in the nature of trade, commerce, or business exceeding ?10,00,000 would not be considered charitable.

2. Entitlement to Benefits under Sections 11 & 12:
The AO denied the benefit of exemption under Sections 11 & 12, determining the total income of the assessee at ?4,73,15,960. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the claim of benefit under Sections 11 & 12, stating that the overall objective of the society was not to earn income or do business. The CIT(A) held that the assessee's activities, including income from galleries and miscellaneous income, did not involve trade, commerce, or business.

3. Treatment of Rental Income and Other Incomes:
The AO categorized the rental income of ?4,80,00,000 and interest income of ?2,10,45,261 as business income. The CIT(A) directed the AO to allow the benefit of Sections 11 & 12 for the rental income, stating that the assessee's activities were not in the nature of trade, commerce, or business. The CIT(A) also noted that the total receipts were less than ?10,00,000, thus qualifying for benefits under the second proviso to Section 2(15).

4. Allowability of Depreciation:
The AO disallowed the depreciation claimed by the assessee, arguing that the cost of assets had already been treated as application of income, and allowing depreciation would amount to double deduction. This issue was not specifically addressed in the CIT(A)'s order but was implicitly resolved in favor of the assessee by allowing the benefits under Sections 11 & 12.

Tribunal's Findings:
The Tribunal upheld the CIT(A)'s order, referencing past assessment years where rental income was treated as income from property held under the society and not as business income. The Tribunal cited the case of India Trade Promotion Organisation vs. DGIT (E), where the Delhi High Court held that mere receipt of fee or charge does not mean the institution is involved in trade, commerce, or business. The Tribunal concluded that the dominant activity of the assessee was not business but the promotion of art, craft, and culture, and thus qualified as charitable.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the assessee's activities were charitable and entitled to benefits under Sections 11 & 12 of the Income Tax Act. The Tribunal found no infirmity in the CIT(A)'s order and upheld the claim of exemption for the assessee. The appeal of the Revenue was dismissed.

Order Pronounced in the Open Court on 19/06/2019.

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