2019 (9) TMI 608 - AT - Income Tax

Revision u/s 263 - According to the CIT services rendered by the appellant society did not qualify as charitable purpose within the meaning of Section 2(15) - objective with which such activities is conducted by the assessee/appellant society - activity of the appellant society which involved working as an interface for arranging employment/placement for the ex-service men in the form of security personnel / guards / labour - HELD THAT - The assessee society helps ex-servicemen who are financially educationally weak to obtain fruitful employment. In this case, neither huge capital investment is required nor any profits and gains are expected to be earned. When the assessee society act as an interface and obtains employment/placement for exservice men in form of security guards, house-keepers etc. in an organized manner, the underlying intention is to ensure that ex-servicemen are gainfully employed by reputed organizations and they are not deprived of making a decent living post retirement. As a result of the activities conducted by the assessee society, the ex-servicemen earn a decent livelihood by engaging themselves in such jobs without middlemen and exploitation, through the guidance of the assessee society. Activities in the above nature cannot be treated as activities in the nature of trade, commerce or business as contemplated in proviso to section 2(15). CIT(E) has characterized the activities of the assessee trust as commercial in nature without going into the circumstances in which the activities are carried on by the assessee society. See SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION (AND OTHER REFERENCES) 1979 (11) TMI 1 - SUPREME COURT Factual matrix of the assessee s case in the year under consideration was same as in the past. If the same set of activities were considered by the Revenue to be charitable in nature then there was no reason for the AO to depart from the view regularly followed in the past. At the time when the AO passed the order u/s 143(3) allowing the assessee benefit of exemption u/s 11 of the Act, it cannot be said that the view followed by him was unsustainable in law so as to constitute the order u/s 143(3) to be erroneous and prejudicial to the interests of the Revenue for the purposes of Section 263 Activity of the appellant society which involved working as an interface for arranging employment/placement for the ex-service men in the form of security personnel / guards / labour in different organizations was in consonance with its aims objectives. - Decided in favour of assessee

Summary

Issues Involved:
1. Whether the activities of the appellant society qualify as 'charitable purpose' under Section 2(15) of the Income-tax Act.
2. Whether the benefit of exemption under Section 11 of the Income-tax Act was rightly allowed by the Assessing Officer (AO).
3. Whether the revisionary jurisdiction exercised by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income-tax Act was justified.

Issue-Wise Detailed Analysis:

1. Qualification as 'Charitable Purpose' under Section 2(15):
The appellant society, an association of retired military persons, is registered under Section 12A of the Income-tax Act as a charitable organization. The primary objective is to assist ex-servicemen in resettlement and provide financial assistance and employment opportunities. The Pr. CIT contended that the society's activities, primarily providing manpower services, did not qualify as 'charitable purpose' as per Section 2(15) of the Act, arguing that these activities were commercial in nature. The appellant society countered that their services were provided without profit motive, and the charges received were disbursed among ex-servicemen, retaining only a minimal amount for administrative costs. The Tribunal agreed with the appellant, noting that the activities aimed at economic upliftment of ex-servicemen were charitable and did not constitute trade, commerce, or business.

2. Benefit of Exemption under Section 11:
The appellant society had been granted exemption under Section 11 for several years, including the relevant Assessment Year (AY) 2012-13. The AO had allowed the exemption, but the Pr. CIT challenged it, stating that the society's activities were commercial and thus outside the scope of Section 2(15). The Tribunal emphasized that the society's objective was not to provide manpower services as a business but to assist ex-servicemen in securing employment. The Tribunal highlighted that the society's activities were consistent with its charitable objectives and did not aim to generate profit. The Tribunal concluded that the activities were charitable, and the benefit of Section 11 should not have been denied.

3. Justification of Revisionary Jurisdiction under Section 263:
The Pr. CIT exercised revisionary jurisdiction under Section 263, arguing that the AO's order was erroneous and prejudicial to the interests of the Revenue. The Tribunal disagreed, stating that the AO's view was not 'unsustainable in law' and that the activities of the appellant society had been consistently considered charitable in past assessments. The Tribunal noted that the society's activities were in line with its objectives and that the AO's decision to grant exemption under Section 11 was justified. The Tribunal held that the Pr. CIT's invocation of revisionary jurisdiction was unjustified and quashed the impugned order, restoring the AO's original order.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the activities of the appellant society were charitable in nature, and the benefit of exemption under Section 11 was rightly allowed by the AO. The Tribunal quashed the order of the Pr. CIT, restoring the AO's order and concluding that the revisionary jurisdiction under Section 263 was unjustified. The order was pronounced in the open court on 4th September, 2019.