2020 (8) TMI 362 - AT - Income Tax

Claim of exemption u/s 11 - whether the activities of the assessee in the year under consideration is coming under the purview of its claim u/s 11 or it is within the periphery of the last limb of the First proviso of Section 2(15) of the Act under the definition of charitable purpose i.e. Advancement of any other object of general public utility? - HELD THAT - No manner of application to the instant case before us when we find that the activities of the assessee before us is indicative enough of profit oriented intent moreso when the activities /project by the assessee is done at the behest of the RBI for general public utility. The clauses of the memorandum of Association clearly clarify the actual status of the appellant read with the letter dated 08.06.2012 issued by RBI - It is the settled principle of law that the claim under Section 11 is to be extended to a registered organization u/s 12A provided the activities of such organization should be in consonance with the objects of the section. In the case in hand though the assessee is a registered concern u/s 12A as a charitable institution, the actual work done by the assessee in the year under consideration is not charitable in nature particularly when no formal and systematic educational function is discharges by it rather commercial in view of the receipt on turnkey project basis, from RBI in lieu of the service rendered by the assessee which involves the activities carrying on in the nature of trade, commerce or business for consideration coming under the periphery of First Proviso to Section 2(15) of the Act which has already been clarified by the First Appellate Authority. No infirmity in the order impugned passed by the First Appellate Authority observing the project under contract with RBI for setting up of the financial museum by the assessee does not reflect discharging of any formal and systematic education rather the same is enough indicative for the commercial purposes, rejection thereon, in our considered opinion, is just and proper so as to warrant any interference. The assessee has no legs to stand upon in order to claim the relief u/s 11 of the Act and hence in the absence of any merit we dismiss the appeal preferred by the assessee. Appeals of the assessee are dismissed.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act, 1961.
2. Application of the proviso to Section 2(15) read with Section 13(8) of the Act.
3. Determination of whether the assessee's activities qualify as "charitable purpose."

Issue-wise Detailed Analysis:

1. Denial of exemption under Section 11 of the Income Tax Act, 1961:
The assessee, a non-profit entity registered under Section 12(A) of the Act, claimed exemption under Section 11. The Assessing Officer denied this exemption, concluding that the assessee's activities were commercial in nature. The First Appellate Authority upheld this decision, leading to the present appeal. The assessee argued that its activities, which included setting up a museum for the Reserve Bank of India (RBI), were charitable as they promoted education and knowledge.

2. Application of the proviso to Section 2(15) read with Section 13(8) of the Act:
The Assessing Officer applied the 6th limb of the definition of "charitable purpose" under the first proviso of Section 2(15) read with Section 13(8) of the Act. The Officer found that the assessee was engaged in commercial activities, specifically setting up a museum for RBI under a contract, and thus denied the exemption under Section 11. The assessee contended that its activities were in line with its objectives and should not attract the proviso to Section 2(15).

3. Determination of whether the assessee's activities qualify as "charitable purpose":
The Tribunal examined whether the assessee's activities fell under the definition of "charitable purpose" as per the Act. The assessee argued that its activities were educational and aimed at increasing financial literacy. However, the Tribunal noted that the assessee was acting as a contractor for RBI, executing a commercial project in exchange for payment. The Tribunal emphasized that the assessee's Memorandum of Association included clauses indicative of profit-oriented intent, such as applying for tenders and entering into contracts for profit.

The Tribunal referred to previous judgments but found them distinguishable. In those cases, the primary purpose of the institutions was charitable, and any incidental profit-making activities were ancillary to the main objective. In contrast, the assessee's activities in the present case were primarily commercial, as evidenced by the turnkey project with RBI.

The Tribunal concluded that the assessee's activities were not charitable in nature. Despite being registered under Section 12AA, the assessee's work for RBI constituted a commercial activity, disqualifying it from exemption under Section 11. The Tribunal upheld the denial of exemption, affirming the decisions of the lower authorities.

Conclusion:
The Tribunal dismissed the appeals, confirming that the assessee's activities did not qualify as charitable and thus were not entitled to exemption under Section 11 of the Act. The decision was based on the commercial nature of the assessee's work for RBI, which fell within the proviso to Section 2(15) and Section 13(8) of the Act. The Tribunal found no merit in the assessee's arguments and upheld the orders of the lower authorities.