2019 (9) TMI 761 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - grant received from different organization including foreign grants - scope of proviso to section 2(15) of the Act inserted w.e.f. assessment year 2009-10 - AO noted the objects and activities of the assessee society and observed that the assessee is a research-based organization carrying on research on various issues and providing consultancy on the issues as desired by their clients and held that the assessee was engaged in activities being advancement of any other object of general public utility in the nature of commercial and consultancy - CIT(A) held that the activities of the assessee were falling under advancement of any other object of general public utility but the assessee was not engaged in the activity of trade or commerce or the business thus eligible for exemption u/s 11 - HELD THAT - In the instant case the Assessing Officer has not able to substantiate that activity of the assessee were carried out with any profit motive. The assessee is a social science research institution founded in the year 1963. The institution apart from handling individual and group projects operates programs of research and training namely The Institute of Chinese Studies The Institute for Comparative Democracy Sarai Program on Media and Urbanism Program on Social and Political Theory . The assessee derives its faculties from Indian Council of social science and receives Grant from government organization including Ministry of external affairs. The research data of the assessee are used by the Election Commission of India and media for dissemination on the subjects of politics and democracy and is meant for research purposes and for non-profit and non-commercial use - as submitted that more than 90% of activities are for research purposes and only small amount of activities i.e. less than 10% are for media uses. AO has not demonstrated anywhere that fee received by the assessee are exorbitant and excessive then the cost incurred by the assessee. No error in CIT-A as relying on ICAI Vs. DGIT 2011 (9) TMI 77 - DELHI HIGH COURT case holding the assessee as engaged in the charitable activity. The rule of the consistency also demand that the Revenue should not agitate this appeal if the appeal in subsequent years on the same issue in dispute have not been agitated by the Revenue. Advance or unspent amount received for ongoing research and project work as not chargeable to tax - CIT(A) deleted the addition to income - HELD THAT - The assessee has treated the amount received against the project as and when it has accrued to the assessee according to the project work carried out by the assessee which in our opinion is in accordance with law. We do not find any error in the finding of the CIT(A) on the issue in dispute and accordingly we uphold the same.

Summary

Issues Involved:
1. Whether the activities of the assessee are charitable in nature or in the nature of trade, business, or commerce.
2. Application of the judgment of ICAI Vs. DGIT(E), 347 ITR 99 (Delhi)-2012 by the Ld. CIT(A).
3. Taxability of advanced or unspent amount received for ongoing research and project work.

Detailed Analysis:

Issue 1: Charitable Nature of Activities
The primary issue is whether the activities of the assessee, a research-based organization, are charitable or commercial. The Assessing Officer (AO) argued that the assessee's activities, including research and consultancy, were commercial, thus disqualifying it from tax exemption under Section 11 of the Income Tax Act. The AO cited the proviso to Section 2(15) of the Act, which excludes activities involving trade, commerce, or business from being considered charitable if they charge a fee.

However, the Ld. CIT(A) held that the activities of the assessee were charitable, falling under "advancement of any other object of general public utility." The Ld. CIT(A) noted that the assessee's activities had remained consistent since 1963 and were primarily research-oriented without a profit motive. The Ld. CIT(A) relied on the Delhi High Court's judgment in ICAI Vs. DGIT(E), which held that mere receipt of fees does not convert a charitable activity into a commercial one. The Tribunal upheld this view, emphasizing the absence of a profit motive and the consistent nature of the assessee's activities.

Issue 2: Application of ICAI Vs. DGIT(E) Judgment
The Revenue contended that the Ld. CIT(A) wrongly applied the ICAI Vs. DGIT(E) judgment, arguing that the facts of the case were different. However, the Ld. CIT(A) found the judgment applicable, noting that the assessee's activities were not commercial despite receiving fees. The Tribunal agreed, stating that the AO failed to demonstrate any profit motive in the assessee's activities. The Tribunal also highlighted that the assessee's activities were primarily for research purposes, benefiting the public and supported by government grants.

Issue 3: Taxability of Advanced or Unspent Amounts
The AO treated the entire advance amount received for ongoing research projects as income, while the assessee argued that only the portion of the receipt corresponding to the work completed should be considered income, with the remaining treated as a liability. The Ld. CIT(A) accepted the assessee's argument, noting that the AO had accepted this treatment in subsequent years. The Tribunal upheld this view, stating that the assessee's method of allocating receipts over the project duration was lawful and consistent with accounting principles.

Conclusion
The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross objections, affirming the Ld. CIT(A)'s findings that the assessee's activities were charitable and that the advanced or unspent amounts should not be taxed as income in the year of receipt. The Tribunal emphasized the absence of a profit motive and the consistent, research-oriented nature of the assessee's activities.