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2021 (10) TMI 1055 - AT - Income TaxBenefit of exemption u/s. 11 12 - Scope of charitable purpose as defined in Section 2(15) - regular receipt of money from the sale of paintings - AO observed that the assessee is renting out galleries to the artists for displaying their work and has thus concluded that the assessee is engaged in a business activity and held to be in violation of the statutory remit in view of the amendment in section 2(15) of the Act by Finance Act, 2009 - HELD THAT - As relying on India Trade Promotion Organization vs. DIT (Exemption) Others 2015 (1) TMI 928 - DELHI HIGH COURT , India International Centre 2015 (5) TMI 515 - ITAT DELHI AND ALL INDIA FOOTBALL FEDERATION 2015 (10) TMI 2162 - ITAT DELHI if some incidental activities are carried out by a charitable organization whose dominant and prime objective is not a profit motive, the organization cannot be deemed to be pursuing non charitable objects and hence be considered to be existing for non-charitable purposes - the constitutional validity of proviso to Section 2(15) of the Act, had held that mere receipt of fee or charge will not mean that the assessee is involved in any trade, commerce or business. Accordingly considering the legal position as found settled with respect to interpretation of proviso of Section 2(15) of the Act in the case of India Trade Promotion Organisation vs. DGIT (Exemption) (supra) the coordinate bench held that the benefit of exemption u/s. 11 12 of the Act could not be denied. We find that similar view has been followed right from 2009-10 assessment year till date. Thus we hold that the appeals filed by the Revenue have to be dismissed in view of the consistent orders available on record qua the issue ordered accordingly. Lack of opportunity as pleaded by the assessee - Without commenting upon the correctness, of the conclusions drawn addressing the procedural shortcoming only, we deem it to appropriate to set aside the orders of the Ld. First Appellate Authority to this extent and restore the issue back to the file of the CIT(A) with a direction to give a specific opportunity to the assessee to make its submission before the passing of the order. No doubt technically the resultant addition may not be capable of being described as an enhancement, however, the fact remains that when the administrative authorities proceed to pass an order adverse to a party then due notice of this fact necessarily in all fairness needs to be given to the assessee. In the facts of the present case, it is evident that the assessee was not heard. The law is well settled that it cannot be inferred/presumed that the assessee even if given an opportunity would have nothing further to state on facts or law. The principles of natural justice mandate that a reasonable and effective opportunity of being heard needs to be granted specifically where an administrative authority proceeds to take an adverse view. Accordingly, in the interests of justice, it is deemed appropriate to set aside the impugned order back to the file of the Ld. CIT(A) with a direction to pass a speaking order.
Issues Involved:
1. Whether the activities carried out by the assessee fall under the definition of "charitable purpose" as defined under section 2(15) of the Income Tax Act, 1961. 2. Whether the activities carried out by the assessee are in the nature of trade, business, or commerce. 3. Whether the CIT(A) erred in including a sum as income to be taxed under section 11(3) without giving the assessee an opportunity to show cause. 4. Whether the unspent amount considered as deemed income under section 11(3) is subject to any exemption or benefit. 5. Whether the assessee should be allowed to set off the unspent amount deemed as income against the excess of application over income for the assessment year 2013-14. Detailed Analysis: Issue 1: Charitable Purpose under Section 2(15) The Revenue contended that the activities of the assessee did not fall under "charitable purpose" as defined in section 2(15) of the Income Tax Act, 1961. The CIT(A) and ITAT, however, found that the assessee's activities were primarily for the promotion and development of Fine Arts and Crafts in India, which aligns with the definition of charitable purposes. The assessee society, established in 1938, was engaged in activities such as organizing exhibitions, art camps, and providing financial assistance to needy artists. The ITAT upheld the CIT(A)'s finding that these activities were not driven by profit motives and were aimed at fulfilling the society's charitable objectives. Issue 2: Nature of Activities - Trade, Business, or Commerce The Assessing Officer (AO) had concluded that the assessee was engaged in business activities by renting out galleries and selling paintings. However, the CIT(A) and ITAT found that the galleries were rented out at nominal charges to help artists showcase their work, and the society incurred higher costs than the receipts from these activities. The sale of paintings was also not a regular activity but involved paintings left by artists during art camps. The ITAT referenced past decisions and the Delhi High Court's judgment in India Trade Promotion Organization vs. DGIT (E), which held that incidental activities carried out by a charitable organization do not constitute trade, business, or commerce if the primary objective is not profit-making. Issue 3: Inclusion of Income under Section 11(3) without Opportunity to Show Cause The assessee argued that the CIT(A) included a sum as income to be taxed under section 11(3) without giving an opportunity to show cause. The ITAT agreed that the assessee should have been given a specific opportunity to make submissions before the conclusion was drawn. The procedural shortcoming was acknowledged, and the matter was remanded back to the CIT(A) to provide the assessee with a reasonable opportunity of being heard. Issue 4: Exemption or Benefit for Unspent Amount under Section 11(3) The CIT(A) had concluded that the unspent amount considered as deemed income under section 11(3) was to be taxed without any exemption or benefit. The assessee argued that this conclusion was reached without proper hearing. The ITAT did not comment on the correctness of the conclusion but emphasized the need for procedural fairness and remanded the issue back to the CIT(A) for a fresh decision after hearing the assessee. Issue 5: Set Off of Unspent Amount against Excess Application The assessee contended that the unspent amount deemed as income under section 11(3) should be allowed to be set off against the excess of application over income for the assessment year 2013-14. The ITAT found that this issue was also not properly addressed due to the lack of opportunity given to the assessee. The matter was remanded back to the CIT(A) to consider this aspect after hearing the assessee. Conclusion: The ITAT dismissed the Revenue's appeals, finding no merit in their arguments. The assessee's appeals were allowed for statistical purposes, with directions to the CIT(A) to provide a reasonable opportunity for the assessee to be heard and to pass a speaking order in accordance with the law. The ITAT emphasized the importance of procedural fairness and the need to consider the dominant objective of the assessee's activities in determining their charitable nature.
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