2020 (3) TMI 943 - AT - Income Tax

Exemption u/s 11 - proof of charitable activities u/s 2(15) - HELD THAT - Objects of the assessee was found to be charitable in nature, for which it was granted registration u/s.12A and also recognized u/s. 10(23C)(vi) vide notification no. 1348 dated 31.10.2007 Assessing Officer without even pin pointing as to which of the activities and the receipt are in the nature of trade and commerce has blindly invoked the amended proviso to Section 2(15) to deny the benefit of Section 11. Nowhere he has pointed out that the motive of the assessee-society was to earn profit and even ignored the fact that assessee society was undertaking of Government of India and all the Trustees are Government Officials and it was constituted to discharge legal obligation set forth for the purpose set out in the memorandum. In the present case, the activities of the assessee's association cannot be termed either trade , commerce or business simply because the assessee association is receiving some charges or fees for rendering services on noncommercial principles to State Road Transport Undertakings and other concern members for a fee or charges. first proviso to section 2(15) of the Act would have been to be read down and interpreted in the context of section 10 (23C) (iv) of the Act as the context requires such interpretation where assessee is not driving primarily by desired or motive to earn profit but to pursue activities in furtherance of its objects of general public utility then it must be recognized as an institution established for charitable purposes. The Hon'ble Delhi High Court in the case of Institute of Chartered Accountant of India vs. DGI 2011 (9) TMI 77 - DELHI HIGH COURT held that the object of the first proviso to section 2(15) of the Act is to include any transaction for a fee or money and the activity would be business if it is undertaken with the profit motive but in some cases this fact must be determinative and the profit motive test should be specified and viewed in the context of section 10 (23C) (iv) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of the amended proviso to Section 2(15) of the Income Tax Act, 1961.
2. Determination of whether the activities of the assessee fall under "trade, commerce or business".
3. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of the Amended Proviso to Section 2(15) of the Income Tax Act, 1961:
The primary issue pertains to whether the activities of the assessee, which include revenue from a test laboratory and consultancy receipts, fall under the amended proviso to Section 2(15) of the Income Tax Act, 1961. The Assessing Officer held that these activities are commercial in nature and thus do not qualify for the benefits under Section 11. However, the Tribunal referred to its earlier decision for the Assessment Year 2009-10, where it was established that the activities of the assessee are charitable and do not fall under "trade, commerce or business". The Tribunal cited the Hon’ble Delhi High Court's decisions in Indian Trade Promotion Organization vs. DIT (E) and Institute of Chartered Accountants of India vs. DGIT, which clarified that the first proviso to Section 2(15) should be interpreted to exclude entities genuinely involved in charitable activities, even if they charge fees for certain services.

2. Determination of Whether the Activities of the Assessee Fall Under "Trade, Commerce or Business":
The Tribunal examined whether the assessee's activities, such as providing laboratory testing and consultancy services, are in the nature of "trade, commerce or business". It was noted that the assessee is an apex coordinating body of Nationalized State Road Transport Corporations, established to improve the public transport system and assist its members by providing automobile parts at economical rates. The Tribunal found that the activities are carried out in furtherance of its charitable objectives and not with the primary motive of earning profit. The assessee's activities were recognized under the scheme of Recognitions of Scientific and Industrial Research Organization (SIROs) and were granted registration under Section 12A and notification under Section 10(23C)(vi). The Tribunal emphasized that the dominant object of the assessee is charitable, and the incidental activities of charging fees for services do not convert it into a commercial entity.

3. Eligibility for Exemption Under Section 11 of the Income Tax Act, 1961:
The Tribunal upheld the CIT(A)'s decision, which allowed the assessee's appeal by following the precedent set in the earlier assessment year. It was noted that the Assessing Officer failed to pinpoint specific activities that could be categorized as trade or commerce. The Tribunal reiterated that the assessee's activities are aligned with its charitable purpose and are not aimed at profit-making. The Tribunal concluded that the assessee is eligible for exemption under Section 11, as its activities do not fall under the amended proviso to Section 2(15).

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming that the assessee's activities are charitable and not in the nature of "trade, commerce or business". The assessee is entitled to the benefits under Section 11 of the Income Tax Act, 1961. The decision was pronounced in the open Court on 25th February, 2020.