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2020 (4) TMI 260 - AT - Income TaxExemption u/s 11 - Charitable activity u/s 2(15) - whether by rendering specific services to members and non-members for a fee, a trade, professional or similar association can be said to be carrying on a business activity? - HELD THAT - As relying on PHD CHAMBER OF COMMERCE INDUSTRY VERSUS DIRECTOR OF INCOME TAX-EXEMPTIONS 2012 (11) TMI 429 - DELHI HIGH COURT we find that categorical finding given by the Ld. CIT(A) that the assessee in the instant case is not engaged in any activity of trade, commerce or business so as to fall within the mischief of first proviso of section 2(15) of the Act, is not controverted by the Revenue before us. Hence exemption u/s 11 could not be denied to the assessee. In any case, we find that the assessee had not claimed any expenditure in the sum of ₹ 2,34,58,706/- in its income and expenditure account which factual finding given by the Ld. CIT(A) had also not been controverted by the Revenue before us. Hence, there cannot be any disallowance of the said sum treating the same as surplus in the assessment. - Decided against revenue.
Issues Involved:
- Interpretation of Section 2(15) of the Income Tax Act regarding exemption eligibility. - Application of the principle of mutuality in the context of services provided by an association. - Disallowance of unpaid expenses as surplus income and its tax implications. Analysis: Interpretation of Section 2(15) for Exemption Eligibility: The appeal involved a dispute over the eligibility of the assessee association for exemption under Section 11 of the Income Tax Act. The Revenue contended that the association's commercial receipts made it ineligible for exemption. The Assessing Officer disallowed unpaid expenses amounting to ?2,34,58,706, treating it as surplus income. However, the CIT(A) found that the association's activities fell under the charitable purpose category of "advancement of any other object of general public utility" under Section 2(15). The CIT(A) held that the association was not engaged in trade, commerce, or business, thus exempting it from the first proviso of Section 2(15) and allowing the exemption under Section 11. Application of Principle of Mutuality: The Revenue argued against the application of the principle of mutuality, claiming that the association provided services to non-employees, making the principle inapplicable. The CIT(A) found that the association's services, such as consultancy and management services, were provided to its members on a no-profit/loss basis. The association's plea was that these services did not constitute trade, commerce, or business activities, and the income should be exempted based on the principle of mutuality. The CIT(A) upheld this argument, emphasizing that the association did not engage in profit-making activities. Disallowance of Unpaid Expenses as Surplus Income: The Assessing Officer disallowed unpaid expenses of ?2,34,58,706, treating it as surplus income derived by the association. The CIT(A) noted that these expenses were not claimed in the income and expenditure account, and thus, there was no basis for their disallowance. The Revenue failed to challenge this factual finding. Citing judicial precedents, including decisions from the High Courts of Delhi, Kerala, and Gujarat, the ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal and affirming that the association was eligible for exemption under Section 11. In conclusion, the ITAT ruled in favor of the assessee association, holding that it was entitled to exemption under Section 11 of the Income Tax Act. The judgment emphasized that the association's activities did not amount to trade, commerce, or business, and the principle of mutuality applied to its services provided to members. The disallowance of unpaid expenses as surplus income was deemed unwarranted, leading to the dismissal of the Revenue's appeal.
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