2025 (1) TMI 369 - AT - Income Tax

Exemption u/s 11 - Charitable activity - Revenue Authorities held that the assessee has been covered by the first proviso to Section 2(15) of the Act based on the fees collected by the assessee against the services provided to the members as well as non-members - HELD THAT - This matter has been examined by the Tribunal in earlier year and has been referred to the Revenue Authorities to examine the bifurcation of the fees collected from members and non-members. The entire conspectus of Section 2(15) of the Act has been examined in the case of ACIT Vs. Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT wherein a detailed order has been made with regard to computation of amounts which constitute receipts from trade, commerce or business. Hence, the matter is referred to the Jurisdictional Assessing Officer to examine the allowability of the claim u/s 11 of the Act in view of the decision of the Hon ble Apex Court. Disallowance of amount write off of non-recoverable amount from the terminated members - Revenue Authorities disallowed the claim on the ground that the assessee was well within their right to recover the dues from the security deposits which has been collected from the members - HELD THAT - As before us, it was submitted that the security deposit was non-refundable and taken into corpus of the assessee and the dues have already been shown as income in the respective years. Since dues are non-recoverable from the security deposit, we hold that the assessee has a right to write off all the non-recoverable dues. Appeals of the assessee are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily addresses the following core issues:

1. Whether the activities of the appellant qualify as charitable under Section 2(15) of the Income-tax Act, 1961, or if they are in the nature of trade, commerce, or business, thereby affecting the eligibility for tax exemption under Section 11.

2. Whether the invocation of Section 13(8) of the Income-tax Act to deny the appellant's claim for exemption under Sections 11 and 12 is valid.

3. The appropriateness of adding the surplus income to the appellant's taxable income and disallowing the write-off of non-recoverable dues from terminated members.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Nature of Activities and Eligibility for Exemption

- Relevant Legal Framework and Precedents: The legal framework involves Section 2(15) of the Income-tax Act, which defines charitable purposes, and Section 11, which provides tax exemptions for income derived from property held under trust for charitable purposes. The case of ACIT Vs. Ahmedabad Urban Development Authority by the Supreme Court is a significant precedent.

- Court's Interpretation and Reasoning: The Tribunal examined whether the appellant's activities fall within the definition of charitable purposes. The court considered the bifurcation of fees collected from members and non-members to determine if the activities were commercial in nature.

- Key Evidence and Findings: The Tribunal noted that the assessee was registered under Section 12A/AA, indicating a presumption of charitable status. However, the collection of fees from non-members raised questions about the commercial nature of activities.

- Application of Law to Facts: The Tribunal referred the matter back to the Jurisdictional Assessing Officer to reassess the claim for exemption under Section 11, in light of the Supreme Court's decision.

- Treatment of Competing Arguments: The appellant argued that their activities were charitable, while the Revenue Authorities contended they were commercial. The Tribunal deferred a final decision pending further examination by the Assessing Officer.

- Conclusions: The Tribunal did not make a definitive ruling on this issue but directed further examination by the Assessing Officer.

Issue 2: Invocation of Section 13(8) and Denial of Exemption

- Relevant Legal Framework and Precedents: Section 13(8) relates to conditions under which exemptions under Sections 11 and 12 may be denied. The legal question involved whether the appellant's income should be treated as business income.

- Court's Interpretation and Reasoning: The Tribunal considered whether the appellant's activities were in the nature of trade, commerce, or business, which would justify the denial of exemption under Sections 11 and 12.

- Key Evidence and Findings: The Tribunal highlighted the need to examine the nature of the appellant's income and whether it aligns with the statutory definition of charitable purposes.

- Application of Law to Facts: The Tribunal deferred to the Assessing Officer to reassess the applicability of Section 13(8) in denying exemptions.

- Treatment of Competing Arguments: The appellant's claim of charitable activities was weighed against the Revenue's assertion of commercial operations. The Tribunal found that further factual determination was necessary.

- Conclusions: The Tribunal did not resolve this issue conclusively, pending further investigation by the Assessing Officer.

Issue 3: Addition of Surplus Income and Write-off of Non-recoverable Dues

- Relevant Legal Framework and Precedents: The focus was on the treatment of surplus income and the legitimacy of writing off non-recoverable dues.

- Court's Interpretation and Reasoning: The Tribunal found that the write-off of non-recoverable dues was justified as the security deposit was non-refundable and had already been accounted for as income.

- Key Evidence and Findings: The Tribunal accepted the appellant's position that the dues were non-recoverable and that the write-off was appropriate.

- Application of Law to Facts: The Tribunal allowed the write-off of non-recoverable dues, supporting the appellant's claim.

- Treatment of Competing Arguments: The Tribunal sided with the appellant regarding the write-off, rejecting the Revenue's position on the recoverability of dues.

- Conclusions: The Tribunal allowed the appeal concerning the write-off of non-recoverable dues.

3. SIGNIFICANT HOLDINGS

- The Tribunal's decision emphasized the need for a detailed examination of whether the appellant's activities fall within the definition of charitable purposes as per Section 2(15) and the implications for tax exemption under Section 11.

- The Tribunal deferred the final determination on the applicability of Section 13(8) and the denial of exemptions, pending further factual analysis by the Assessing Officer.

- The Tribunal upheld the appellant's right to write off non-recoverable dues, stating: "Since dues are non-recoverable from the security deposit, we hold that the assessee has a right to write off all the non-recoverable dues."

- The appeals were allowed for statistical purposes, indicating that further proceedings are necessary to resolve the issues conclusively.