2021 (3) TMI 405 - AT - Income Tax

Exemption u/s 11 - whether the activities of the assessee trust would fall within the realm of trade, commerce or business etc. and thus would be hit by the proviso to Sec. 2(15)‟? - HELD THAT - As the facts and the issue involved in the case of the assessee for the year in question before us i.e A.Y. 2013-15 remains the same as was there before the Tribunal in its aforesaid case for A.Y. 2009-10 2015 (1) TMI 696 - ITAT MUMBAI we, thus, respectfully follow the same. As held in own case none of its receipts can be said to be arising or accruing from the activities which can be said to be for the purpose of business or in the nature of trade or commerce. Here in this case all the activities are carried out in accordance with the objects and none of its activities have been found to be non genuine. The assessee's explanation before the DIT regarding nature of receipts clearly shows that they have been received from the members while pursuing objects of the society, specifically mentioned in the objects for which it was granted registration u/s 12A. Otherwise also, if any transaction of the trust which are incidental or ancillary towards fulfillment of the objects of other general public utility, will not normally amount to business trade or commerce, unless there is some intention to carry out business, trade or commerce on a permanent basis or for a reasonable continuity. The LD. DIT has not brought any evidence or material on record to show that the assessee was carrying out the activities on business or commercial principle or outside its objects. Thus on the facts of the present case it cannot be held that assessee's case is hit by proviso to section 2(15) or the registration granted earlier can be canceled within the ambit of section 12AA(3). Accordingly, we herein set aside the order of the CIT(A) and direct the A.O to allow the assessee‟s claim for exemption under Sec.11 - Decided in favour of assessee.

Issues Involved:
1. Denial of exemption under Section 11(1)(a) of the Income Tax Act, 1961.
2. Applicability of the proviso to Section 2(15) of the Act.
3. Restriction on the accumulation of income under Section 11(1)(a).
4. Disallowance of expenses under Section 37(1) of the Act.
5. Carry forward of the deficit for adjustment in subsequent years.
6. Verification of the donation to the Chief Minister's relief fund.

Issue-wise Detailed Analysis:

1. Denial of exemption under Section 11(1)(a) of the Income Tax Act, 1961:
The assessee, a trust registered under Section 12A, claimed exemption under Section 11 for the assessment years (A.Y.) 2013-14 and 2014-15. The Assessing Officer (A.O.) denied the exemption, stating that the trust's activities were in the nature of trade, commerce, or business as per the amended Section 2(15) of the Act. The A.O. observed that the trust's activities, such as promoting unity among contractors and providing services to the construction industry, fell within the scope of trade, commerce, or business. The CIT(A) upheld this view, noting that the trust failed to demonstrate its non-commercial nature and profit motive.

2. Applicability of the proviso to Section 2(15) of the Act:
The A.O. and CIT(A) concluded that post-amendment, any activity related to trade, commerce, or business for a fee or consideration could not be considered charitable. The CIT(A) emphasized that the trust's activities, including seminars and publications, were commercial and thus did not qualify as charitable. The Tribunal, however, referred to its earlier decisions in the assessee's case for A.Y. 2009-10, 2010-11, and 2011-12, where it was held that the trust's activities were not hit by the proviso to Section 2(15). The Tribunal reiterated that the trust's activities were in line with its charitable objectives and not conducted with a profit motive.

3. Restriction on the accumulation of income under Section 11(1)(a):
The A.O. restricted the trust's claim of accumulation under Section 11(1)(a) to the surplus available, disallowing the notional accumulation of Rs. 9,65,852/-. The Tribunal did not specifically address this issue in its final order, focusing instead on the broader question of the trust's entitlement to exemption under Section 11.

4. Disallowance of expenses under Section 37(1) of the Act:
The A.O. disallowed expenses of Rs. 5,61,506/- claimed by the trust, stating they were not incurred wholly and exclusively for business purposes as required under Section 37(1). The Tribunal did not specifically address this disallowance in its final order, as the primary focus was on the trust's eligibility for exemption under Section 11.

5. Carry forward of the deficit for adjustment in subsequent years:
The A.O. denied the carry forward of the trust's deficit of Rs. 9,65,852/- for adjustment in subsequent years, arguing it would result in notional application of income. The Tribunal did not specifically address this issue, concentrating on the trust's overall eligibility for exemption under Section 11.

6. Verification of the donation to the Chief Minister's relief fund:
The CIT(A) found merit in the trust's claim that it was not given sufficient opportunity to substantiate its donation of Rs. 5 lakh to the Chief Minister's relief fund. The CIT(A) restored this issue to the A.O. for re-adjudication after necessary verification. The Tribunal did not further address this issue, as it focused on the broader exemption eligibility.

Conclusion:
The Tribunal, following its earlier decisions in the assessee's case, concluded that the trust's activities did not fall within the realm of trade, commerce, or business as per the proviso to Section 2(15). Consequently, the Tribunal set aside the CIT(A)'s order and directed the A.O. to allow the trust's claim for exemption under Section 11 for both A.Y. 2013-14 and A.Y. 2014-15. The appeals were allowed, and the Tribunal's reasoning from previous years was applied mutatis mutandis.

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