2024 (7) TMI 1083 - AT - Income Tax

Benefit of exemption u/s 11 12 - charitable entity u/s 2(15) - denial of exemption on act of conducting exhibitions being in the nature of trade and commerce - as per AO assessee's activities were commercial in nature, thus not eligible for exemption - HELD THAT - As decided in A.Y. 2012-13 to 2014-15 2023 (1) TMI 1346 - ITAT MUMBAI there being no mark up on consideration charged from the exporter, therefore in the broad principles laid down by the Hon'ble Supreme Court, the activity is beyond the purview of either trade, commerce and business or activity of rendering services in relation to trade, commerce or business. Further the ITAT has held that assessee is not hit by the proviso to section 2(15) of the Act as far as activity of conducting or participating in exhibitions within India or overseas. A.O is directed to grant benefit of section 11 and 12 as per provisions of law. Alternative disallowance u/s 11(2) of the Act holding that specific detail of objects for which the surplus was accumulated is not specified in the form no. 10 filed by the assessee - CIT(A) held that assessee trust has accumulated the surplus for the purpose specified in the trust deed. In this regard, CIT(A) has also discussed Bochasanwasi Shri Akshar Purshottam Public Charitable Trust 2018 (10) TMI 995 - GUJARAT HIGH COURT wherein it is held that lack of declaration in the form no. 10 regarding specific purpose for which funds were be accumulated by the assessee trust would not be fatal to the exemption claimed u/s 11(2). Further the Hon ble Supreme Court has dismissed the SLP filed against the aforesaid decision of the Hon ble High Court 2019 (4) TMI 843 - SC ORDER We have also perused the copy of Board Resolution dated 18.08.2015 filed at the appellate proceedings as per which the surplus is accumulated for the specified purposes in accordance with the provision of Sec. 11 sub-section (2) of the Act. Claim of prior period of expenditure - CIT(A) held that assessee is entitled to the benefit of Sec.11 and all the expenditure were incurred by the assessee towards the object of trust. AO has not brought any contrary material to demonstrate that assessee has not incurred the expenditure for the object of the trust, therefore, we don t find any reason to interfere in the decision of CIT(A), accordingly, this ground of appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Exemption under Sections 11 & 12 of the Income Tax Act, 1961.
2. Applicability of proviso to Section 2(15) concerning "advancement of any other object of general public utility."
3. Utilization of funds generated from commercial activities.
4. Tax liability on surplus generated from commercial activities.
5. Interpretation of Supreme Court judgments in similar cases.
6. Accumulation of income under Section 11(2) of the Act.
7. Allowance of prior period expenditure.

Detailed Analysis:

1. Exemption under Sections 11 & 12 of the Income Tax Act, 1961:
The primary issue was whether the assessee was entitled to exemption under Sections 11 and 12 of the Income Tax Act, 1961. The Assessing Officer (AO) denied the exemption, arguing that the assessee's activities fell under "advancement of any other object of general public utility" and involved commercial activities exceeding Rs. 25 lakhs, invoking the proviso to Section 2(15). The AO also contended that the assessee's activities had a profit motive, as evidenced by the surplus invested in term deposits.

2. Applicability of Proviso to Section 2(15):
The AO argued that the assessee's activities of conducting exhibitions were commercial in nature, thus falling under the proviso to Section 2(15). The AO referenced the Supreme Court's judgment in the APEC case, asserting that similar activities had been deemed commercial. The assessee countered that its activities were charitable and conducted in accordance with directives from the Ministry of Commerce, with no profit distribution to members.

3. Utilization of Funds Generated from Commercial Activities:
The AO claimed that the assessee did not apply the surplus earned for charitable purposes as per Section 11. The AO noted that the assessee earned significant interest on deposits, which was seen as a return on surplus from earlier years, indicating a profit motive.

4. Tax Liability on Surplus Generated from Commercial Activities:
The AO treated the entire income of the assessee as taxable, denying any deductions under Section 11. The AO argued that the assessee's activities were commercial, thus not qualifying for tax exemption.

5. Interpretation of Supreme Court Judgments:
The AO cited Supreme Court judgments to support the view that the assessee's activities were commercial. However, the assessee referred to ITAT decisions in its favor for previous assessment years (2012-13 to 2014-15), where similar issues were adjudicated, and the exemption under Sections 11 and 12 was allowed. The ITAT had held that the assessee's activities did not involve a markup on consideration charged from exporters, thus not falling under trade, commerce, or business.

6. Accumulation of Income under Section 11(2):
The AO disallowed the accumulation of income under Section 11(2), arguing that the purposes mentioned in Form No. 10 were vague and not specific. The CIT(A) reversed this, citing the Gujarat High Court's decision in CIT (Exemption) v. Bochasanwasi Shri Akshar Purshottam Public Charitable Trust, which held that a lack of specific purpose in Form No. 10 would not be fatal to the exemption claim.

7. Allowance of Prior Period Expenditure:
The AO disallowed prior period expenses of Rs. 8,40,895/-. The CIT(A) allowed these expenses, stating that the expenditure was incurred towards the objects of the trust, and the AO had not provided contrary evidence.

Conclusion:
The ITAT upheld the CIT(A)'s decision, allowing the exemption under Sections 11 and 12 and dismissing the revenue's appeals. The ITAT found that the assessee's activities did not involve a markup on fees charged and were not commercial in nature. The ITAT also upheld the accumulation of income under Section 11(2) and the allowance of prior period expenditure. The appeals were adjudicated based on the ITAT's previous decisions in favor of the assessee for earlier assessment years.