2021 (1) TMI 527 - AT - Income Tax

Denial of exemption u/s 11 - AO concluded that the assessee merely is a mutual concern having no charitable object - assessee is a company with charitable object formed under section 26 of the Companies Act, 1956 and has also been granted registration under section 12A - HELD THAT - If the objects on the basis of which the assessee was granted registration under section 12A of the Act by considering them to be of charitable nature, then, in absence of any change in such objects of the assessee, it is not understood how it can lose its identity of a charitable institution in the impugned assessment year, that too, when the registration granted under section 12A of the Act is still in vogue. Undisputedly, the departmental authorities have disallowed assessee s claim of exemption under section 11 of the Act on the reasoning that it provides services only to its members Before us, referring to the objects learned counsel for the assessee has submitted that services are provided to others as well. This claim has not been factually verified by the departmental authorities - assessee s claim of exemption under section 11 has to be considered properly having due regard to the relevant facts and more particularly after examining whether the objects of the assessee on the basis of which registration was granted under section 12A of the Act remains the same or has undergone any change in the meanwhile. Thus restore the issue to the Assessing Officer for fresh adjudication after providing reasonable opportunity of being heard to the assessee. - Assessee appeal allowed for statistical purposes.

Summary

Issues involved:
Challenge to denial of exemption under section 11 of the Income Tax Act, 1961.

Analysis:
1. The appellant, a company with charitable object formed under section 26 of the Companies Act, 1956, challenged the denial of exemption under section 11 of the Income Tax Act, 1961, for the assessment year 2013-14. The Assessing Officer treated the appellant as a mutual concern without charitable object, bringing interest income from banks and staff loans to tax. The Commissioner (Appeals) upheld this decision, citing the proviso to section 2(15) of the Act, stating that the appellant was involved in commercial activity, hence ineligible for exemption under section 11.

2. The appellant argued that it had maintained the same charitable objects for over 50 years, providing services to both members and the public. The appellant had consistently claimed exemption under section 11, which was never disallowed by the Department before. The appellant cited various legal precedents to support its claim.

3. The Tribunal noted that while the Assessing Officer did not apply the proviso to section 2(15) to deny the exemption, the Commissioner (Appeals) did so, creating a contradiction in their decisions. The Tribunal clarified that if income from commercial activity is incidental to charitable purposes, it should be considered as charitable. The Tribunal also emphasized the importance of consistent charitable objects for maintaining eligibility for exemption.

4. Referring to a previous judgment, the Tribunal held that once registration under section 12A is granted, the Assessing Officer cannot reassess the charitable nature of the objects. As the appellant's objects remained unchanged and it held valid registration, the denial of exemption was unwarranted. The Tribunal directed the Assessing Officer to reevaluate the exemption claim, considering all relevant facts and ensuring a fair hearing for the appellant.

5. Consequently, the Tribunal allowed the appeal for statistical purposes, setting aside the decision of the Commissioner (Appeals) and remanding the issue to the Assessing Officer for fresh adjudication, emphasizing the need to verify the facts and ensure consistency with the appellant's charitable objects.