2025 (1) TMI 1392 - AT - Income Tax

Exemption u/s 11 - applicability of Section 2(15) - charitable purpose - entities engaged in activities of general public utility - HELD THAT - As following Supreme Court Judgment in assessee s own case 2022 (10) TMI 948 - SUPREME COURT dismissing Revenue appeal concerning the eligibility for deduction/exemption of entities engaged in activities of general public utility the present appeal filed by the Revenue is hereby dismissed. Charging of any amount towards consideration for such an activity (advancing general public utility) which is on cost-basis or nominally above cost cannot be considered to be trade commerce or business or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question that they would fall within the mischief of cess or fee or any other consideration towards trade commerce or business . Section 11(4A) must be interpreted harmoniously with Section 2(15) with which there is no conflict. Carrying out activity in the nature of trade commerce or business or service in relation to such activities should be conducted in the course of achieving the GPU object and the income profit or surplus or gains must therefore be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15) has not been breached.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment revolve around the applicability of Sections 11, 12, and 2(15) of the Income Tax Act, 1961, concerning the eligibility for deduction/exemption of entities engaged in activities of general public utility. The specific questions of law addressed include:

1. Whether the High Court was justified in upholding the Appellate Tribunal's decision to remand the matter to the assessing officer to examine the issue of deduction/exemption under Sections 11 and 12 based on existing material and relevant judgments, despite pending considerations of those judgments by the Supreme Court.

2. Whether the High Court correctly upheld the Tribunal's decision regarding the applicability of Section 2(15) of the Act, considering whether sufficient opportunities were provided to the assessee during assessment proceedings and the Tribunal's treatment of the first appellate authority's findings on the application of the proviso to Sections 2(15) and 13(8).

ISSUE-WISE DETAILED ANALYSIS

1. Examination of Deduction/Exemption under Sections 11 and 12

Relevant Legal Framework and Precedents: The legal framework involves Sections 11 and 12 of the Income Tax Act, which provide for tax exemptions for income derived from property held under trust for charitable or religious purposes. The interpretation of "charitable purpose" under Section 2(15) is crucial, particularly concerning entities engaged in activities of general public utility.

Court's Interpretation and Reasoning: The Supreme Court's judgment in the case of ACIT(Exemptions) Vs. Ahmedabad Urban Development Authority provided a comprehensive interpretation of the term "charitable purpose" and the conditions under which entities can claim exemptions while engaging in trade, commerce, or business activities.

Key Evidence and Findings: The Court emphasized that entities advancing general public utility can engage in trade or business activities provided these are connected to their primary objectives and the receipts do not exceed specified limits.

Application of Law to Facts: The Tribunal applied the Supreme Court's interpretation to determine that the activities in question were aligned with the objectives of general public utility and did not breach the quantitative limits, thus qualifying for exemptions.

Treatment of Competing Arguments: The Tribunal considered the Revenue's argument that the High Court's reliance on pending judgments was premature. However, it found that the Supreme Court's subsequent judgment provided clarity and upheld the Tribunal's decision.

Conclusions: The Tribunal concluded that the High Court's decision to remand the matter for further examination was justified, given the Supreme Court's interpretation of the relevant provisions.

2. Applicability of Section 2(15) and Procedural Fairness

Relevant Legal Framework and Precedents: Section 2(15) defines "charitable purpose" and includes the advancement of any other object of general public utility. The proviso restricts exemptions if the entity engages in trade or business activities beyond specified limits.

Court's Interpretation and Reasoning: The Supreme Court clarified that activities carried out on a cost-basis or nominally above cost are not considered trade or business. The Court emphasized the need for assessing authorities to scrutinize records annually to ensure compliance with the quantitative limits.

Key Evidence and Findings: The Tribunal noted that the assessee was given opportunities to present its case during assessment proceedings and that the Tribunal's decision was consistent with the Supreme Court's interpretation.

Application of Law to Facts: The Tribunal determined that the assessee's activities were conducted in line with its charitable objectives and did not constitute trade or business under the proviso to Section 2(15).

Treatment of Competing Arguments: The Tribunal addressed the Revenue's contention that the assessee failed to utilize opportunities during assessments. It found that the procedural fairness was maintained, and the substantive findings were consistent with legal interpretations.

Conclusions: The Tribunal upheld the High Court's decision, affirming that the procedural and substantive aspects of the case were handled appropriately.

SIGNIFICANT HOLDINGS

Core Principles Established: The judgment reinforced the principle that entities engaged in activities of general public utility can claim exemptions under Sections 11 and 12 if their activities align with their objectives and comply with the quantitative limits set forth in the proviso to Section 2(15).

Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeals, affirming that the assessee was entitled to the claimed exemptions based on the Supreme Court's authoritative interpretation. The Tribunal found no merit in the Revenue's arguments and upheld the decisions of the lower authorities.

Verbatim Quotes of Crucial Legal Reasoning: The Supreme Court's judgment emphasized that "charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be 'trade, commerce, or business' or any services in relation thereto."

In conclusion, the Tribunal's judgment reflects a thorough application of the Supreme Court's interpretation of the relevant provisions, ensuring that entities engaged in charitable activities are not unjustly denied tax exemptions. The Tribunal's dismissal of the Revenue's appeals underscores the importance of adhering to established legal principles and interpretations.

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