2022 (8) TMI 1035 - AT - Income Tax

Exemption u/s 11 - expenditure incurred towards help to the poor - case was selected for scrutiny under CASS - AO concluded that considering the business nature of the assessee s operation on commercial principles and hallow claims of help to the poor by the assessee , it is seen that the assessee is not engaged in any charitable activity at all - since the assessee is not operating as per its objects, the assessee is not entitled to claim any exemption u/s. 11 - HELD THAT - We noted that the objects of the assessee-society ie., establishing and running a small scale unit for training and self sufficiency of rural poor women is of the nature of business activity which is not of charitable nature. The onus is on the assessee to prove with documentary evidence to establish that the assessee s activities are not of business nature but of charitable as claimed by the assessee. Revenue Authorities have clearly observed that the assessee s claim of relief to the poor or help to the poor is not correct since the income and expenditure statements filed by the assessee reflects substantial profits from the activities of the assessee and therefore the profit motto exists very much. It is a fact that granting of registration u/s. 12A does not confer any benefits of exemption of tax u/s. 10 or 11 of the Act which has to be independently decided. Decisions of the Ld. Revenue Authorities are fair and reasonable and does not call for any interference since the assessee s activities are not charitable in nature and therefore the exemption U/s. 11 of the Act cannot be granted to the assessee. Accordingly, we upheld the decision of the Ld. CIT(A) and dismiss the grounds raised by the assessee.

Summary

Issues:
1. Denial of exemption under Section 11 of the Income Tax Act, 1961 to a charitable institution.
2. Interpretation of the nature of activities carried out by the assessee society.
3. Assessment of whether the activities qualify as charitable in nature for tax exemption.

Analysis:

Issue 1: Denial of exemption under Section 11
The appeal was filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals) arising from the assessment under Section 143(3) of the Income Tax Act, 1961 for the AY 2013-14. The assessee, a charitable institution, claimed exemption under Section 11 of the Act. However, the Assessing Officer (AO) denied the exemption, determining the income and raising a demand. The Ld. CIT(A) upheld this decision, leading to the appeal before the Appellate Tribunal.

Issue 2: Nature of Activities
The primary contention was whether the activities of the assessee society, specifically operating an electronic stabilizer assembly unit, were of a charitable nature as per the Memorandum of Association (MoA). The assessee argued that its core activity was providing economic support to poor rural women, aligning with charitable purposes under Section 2(15) of the Act. However, the Revenue Authorities observed that the activities, including establishing a small scale unit, were more business-oriented than charitable.

Issue 3: Qualification for Tax Exemption
The Appellate Tribunal considered the submissions from both parties and reviewed the orders of the Revenue Authorities. It noted that the burden of proof was on the assessee to demonstrate the charitable nature of its activities. Despite the registration under Section 12A, the Tribunal found that the activities did not meet the criteria for charitable purposes, as substantial profits were evident. Consequently, the Tribunal upheld the decisions of the Revenue Authorities, denying the exemption under Section 11 of the Act and dismissing the grounds raised by the assessee.

In conclusion, the Appellate Tribunal dismissed the appeal, emphasizing that the activities of the assessee society were not charitable in nature, leading to the denial of tax exemption under Section 11 of the Income Tax Act, 1961. The decision was based on the assessment that the core activities, despite being part of the MoA, were profit-oriented rather than solely charitable, as required by the law.