2021 (5) TMI 745 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - HELD THAT - Assessee is not carrying out of any activity which is related to advancement of any other object of general public utility. Source of the income of the assessee is from the member s fee and from the organization of exhibitions etc which is done only to promote the interest of the members. The assessee filed the memorandum of association and also referred to various objects of the assessee which has been reproduced above and we find that none of the objects of the assessee can be construed as advancement of any other object of public utility. The case of the assessee finds from the decision of Society of Indian Automobile Manufacturers 2016 (6) TMI 802 - ITAT DELHI wherein it is held that if the purpose of all the activities is to promote objects for which it was set up, then it will not be caught within sweep of proviso notwithstanding fact that they result in some income from carrying out such activity. We direct the AO to allow the exemption under section 11 of the Income Tax Act of the assessee and further hold that the case of the assessee does not fall within ambit of the proviso to section 2(15) of the Act. The appeal of the assessee is allowed.

Issues Involved:
1. Inappropriate Application of Proviso to Section 2(15) of the Income Tax Act.
2. Denial of Exemption under Sections 11, 12, 12A, and 13 of the Income Tax Act.
3. Alternative Claim for Deduction/Exemption under Section 44A of the Income Tax Act.
4. Misappreciation of Facts regarding Deduction of Expenses.

Issue-wise Detailed Analysis:

1. Inappropriate Application of Proviso to Section 2(15) of the Income Tax Act:
The primary issue was whether the assessee's activities were hit by the proviso to Section 2(15) of the Income Tax Act, which excludes entities from being considered charitable if they engage in trade, commerce, or business activities. The AO and CIT(A) concluded that the assessee's activities, such as organizing seminars and exhibitions, were in the nature of business, thus falling under the proviso to Section 2(15). They relied on previous assessments and judicial interpretations, including cases like Loka Shikshana Trust and Bihar Institute of Mining and Mine Surveying.

However, the Tribunal found that the assessee's activities were not in the nature of trade, commerce, or business but were aimed at promoting the interests of its members. The Tribunal referred to the objects of the assessee, which included promoting science, literature, and technical knowledge in photography and fine arts, and concluded that these activities did not constitute business activities. The Tribunal also cited the case of Society of Indian Automobile Manufacturers, where similar activities were not considered business under the proviso to Section 2(15).

2. Denial of Exemption under Sections 11, 12, 12A, and 13 of the Income Tax Act:
The AO denied the exemption under Sections 11, 12, 12A, and 13, asserting that the assessee's income from interest and other activities was not for charitable purposes. The CIT(A) upheld this decision, stating that the assessee's activities involved trade and commerce, thus failing the charitable purpose test under Section 2(15).

The Tribunal, however, disagreed, stating that the assessee's activities were carried out for the benefit of its members and not for profit. It emphasized that the income generated was incidental and used for the assessee's charitable objects. The Tribunal highlighted that similar cases, such as Confederation of Real Estate Developers Association of India, had ruled that activities carried out for member benefits do not constitute business activities.

3. Alternative Claim for Deduction/Exemption under Section 44A of the Income Tax Act:
The assessee's alternative claim for deduction/exemption under Section 44A was not considered by the CIT(A). The Tribunal did not specifically address this issue, as it concluded that the assessee was entitled to exemption under Sections 11, 12, 12A, and 13.

4. Misappreciation of Facts regarding Deduction of Expenses:
The AO and CIT(A) concluded that the assessee's expenses against interest income were not deductible as they were not for charitable purposes. They treated the interest income as income from other sources and disallowed the related expenses.

The Tribunal found that the assessee's expenses were indeed for charitable purposes, aimed at promoting the objects of the association. It stated that the income from interest and other activities was used to further the assessee's charitable objectives, thus qualifying for exemption under Section 11.

Conclusion:
The Tribunal allowed the appeals for both assessment years, directing the AO to grant the exemption under Section 11 and holding that the assessee's activities did not fall within the ambit of the proviso to Section 2(15). The Tribunal emphasized that the assessee's activities were charitable and not in the nature of trade, commerce, or business. Consequently, the assessee was entitled to the exemptions claimed, and the disallowance of expenses was reversed.

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