2023 (7) TMI 404 - AT - Income Tax

Exemption u/s 11 / 12 - claim denied as activities were fees based and the activities were not charitable in nature - assessee is registered u/s 12AA of the Income Tax Act. Its main activity was to render services to the members in relation to the trade, commerce or business for fees / subscription from members - AO held that the activities of the assessee would fall under last limb of Sec. 2(15) i.e., advancement of object of general public utility and therefore, the proviso therein would apply to the case of the assessee - HELD THAT - We find that the activities of the assessee are fees based activities. The objects of the assessee would fall under last limb i.e., advancement of objects of any other general public utility. We concur with the rival submissions that the cited case of Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT as held noted that the conclusions arrived at by way of this judgment, neither precludes any of the assessees (whether statutory, or non-statutory) advancing objects of general public utility, from claiming exemption, nor the taxing authorities from denying exemption, in the future, if the receipts of the relevant year exceed the quantitative limit. The assessing authorities must on a yearly basis, scrutinize the record to discern whether the nature of the assessee's activities amount to trade, commerce or business based on its receipts and income (i.e., whether the amounts charged are on cost basis, or significantly higher). If it is found that they are in the nature of trade, commerce or business , then it must be examined whether the quantified limit (as amended from time to time) in proviso to section 2(15), has been breached, thus disentitling them to exemption. Therefore, the case of the assessee has to be analyzed at the threshold of above adjudication of Hon ble Supreme Court. For the said purpose, we set aside the impugned order and restore the assessment back to the file of Ld. AO for adjudication de novo in the light of above judgment. The assessee is directed to substantiate its stand. The appeal stand allowed for statistical purposes.

Summary

Issues Involved:
The denial of deduction u/s 11 / 12 to a registered trust for Assessment Years 2016-17 & 2018-19 due to activities being considered fees based and not charitable in nature.

Issue 1: Denial of Deduction u/s 11 / 12

The assessee, a registered trust under section 12AA of the Income Tax Act, engaged in rendering fee-based services to its members, faced denial of deduction u/s 11 / 12 as the activities were deemed to fall under the last limb of Sec. 2(15) - advancement of object of general public utility. The assessing officer held that the activities were not incidental to the trust's objects, solely providing fee-based services, thus invoking the first and second provisos to Sec. 2(15) to deny the deduction claimed. The Commissioner of Income Tax (Appeals) upheld this decision, emphasizing the non-charitable nature of the activities. The tribunal, after considering the Supreme Court's subsequent decision, set aside the impugned order and directed a fresh assessment to be conducted by the assessing officer in light of the judgment.

Issue 2: Interpretation of Changed Definition of "Charitable Purpose"

The tribunal analyzed the Supreme Court's conclusions regarding the changed definition of "charitable purpose" and related provisions of the Income Tax Act. It clarified that an entity advancing general public utility cannot engage in trade, commerce, or business for consideration, unless such activities are connected to achieving the object of general public utility and do not exceed specified limits. The tribunal highlighted the necessity of maintaining separate accounts to demonstrate compliance with the quantitative limits. The judgment also addressed the treatment of statutory bodies, regulators, trade promotion bodies, and non-statutory organizations in relation to the charitable purpose exemption criteria.

Separate Judgment Delivered:
The tribunal allowed both appeals for statistical purposes, setting aside the earlier decisions and directing fresh assessments in line with the interpretations provided by the Supreme Court's judgment on the changed definition of "charitable purpose."