2023 (1) TMI 861 - AT - Income Tax

Denial of exemption u/s.11 - assessee is a Trust claimed to be engaged in highlighting life of Chatrapati Shree Shivaji Maharaj - AO observed that the assessee was mainly engaged in organizing drama Janta Raja on commercial basis under the head Historical Education and received an income on this count - HELD THAT - Assessee performed the drama for various institutes/companies earning revenue of Rs.1.96 crore. The costs incurred for performing such activity are only Rs.1.16 crore. This transpires that the profit element in the performance of the drama is more than 40% of the gross receipts. Such profit rate patently falls in the category of significant mark-up cases and hence business activity. No further break-up of the revenue into cost-to-cost basis or nominal mark-up por una parte and significant mark-up por otra parte , has been brought to our notice. This deciphers that the activity of the drama was done in a uniform way on significant margin of 40%. Considering the fact that the assessee earned huge margin on performance of the activity, which is in the nature of business, it ceases to fall within the domain of charitable purpose , as the business receipts exceed 20% of the total receipts. We thus hold that the assessee does not satisfy the condition of advancement of any other object of general public utility so as to be covered u/s.2(15) and, ex consequenti , becoming eligible for the benefit of exemption u/s.11 of the Act. As a last weapon in arsenal, the ld. AR urged that a review petition has been filed in Ahmedabad Urban Development Authority 2022 (11) TMI 255 - SUPREME COURT which is still pending and hence the Bench should not get influenced with its ratio and decide the matter as per the other existing law de hors the apex judgment. In our opinion, the contention is devoid of merit because pendency of a review petition does not dilute or alter in any manner the binding force of the judgment in terms of Article 141 of the Constitution of India. We, therefore, approve the ultimate conclusion drawn by the authorities in rejecting the claim of the exemption to this extent. Appeal of assessee dismissed.

Summary

Issues:
- Denial of exemption u/s.11 of the Income-tax Act, 1961.

Detailed Analysis:

Issue: Denial of exemption u/s.11 of the Income-tax Act, 1961
The appeal was against the denial of exemption u/s.11 of the Income-tax Act, 1961 by the CIT(A) for the assessment year 2013-14. The assessee, a Trust engaged in organizing the drama 'Janta Raja,' claimed to be imparting education and thus eligible for exemption u/s 11. However, the Assessing Officer (AO) observed that the drama was organized on a commercial basis, leading to the denial of exemption. The AO held that the activity did not fall under the definition of 'education' u/s.2(15) of the Act as per the judgment of the Hon'ble Supreme Court in a previous case. The AO concluded that the activity was for the 'advancement of any other object of general public utility,' and denied exemption for the profit element. The CIT(A) upheld this decision, leading to the appeal before the Tribunal.

The Tribunal analyzed the facts and submissions. It noted that the assessee was organizing the drama for profit, not for educational purposes. The term 'education' as per section 2(15) was interpreted by the Hon'ble Supreme Court to involve the process of training and developing students' knowledge through normal schooling, which the assessee was not doing. The Tribunal agreed that the activity did not qualify as 'education' under the Act.

The assessee argued that its activity fell under the last clause of 'charitable purpose' in section 2(15), i.e., 'the advancement of any other object of general public utility.' However, the Tribunal referred to the proviso attached to this provision, which restricts activities involving trade, commerce, or business from being considered charitable unless certain conditions are met. The Tribunal cited a recent Supreme Court case to emphasize that if the receipts from business activities exceed 20% of total receipts, the activity loses its charitable purpose. In this case, the profit element in the drama performance exceeded 40% of the gross receipts, indicating a significant mark-up and a business activity, leading to the denial of exemption.

The Tribunal rejected the argument that a pending review petition in a related case should influence the decision, stating that the binding force of the judgment remains. Consequently, the Tribunal dismissed the appeal, affirming the authorities' decision to deny exemption under section 11 of the Income-tax Act, 1961.