2014 (3) TMI 174 - AT - Income Tax

Court affirms charitable nature of activities, grants exemption under IT Act, dismisses Revenue's appeal.

The court upheld the deletion of the addition of Rs.11,47,731 and granted exemption under sections 11 and 12 of the IT Act to the assessee. The activities ... Deletion of addition made on surplus derived - Exemption u/s 11 and 12 of the Act – Held that:- The amendment to section 2(15) of the Act was applicable from AY 2009-10 and not to the year under consideration, therefore the AO was legally and factually incorrect to invoke provisions of section 2(15) of the Act - the appellant was granted registration u/s 12A of the Act by the Hon'ble ITAT for AY 2004-05, therefore, surplus derived was exempt u/s 11/12 of the Act - The nature of activities of the assessee are same as were carried out in earlier assessment years and subsequent year as have been considered by the AO in assessment year. The Revenue accepted the claim of assessee for grant of exemption on surplus u/s 11 of the IT Act - even if principle of res judicata does not apply to the Income-tax proceedings, but the Income-tax Authorities shall have to follow the rule of consistency - Relying upon Radhswami Satsang vs. CIT [1991 (11) TMI 2 - SUPREME Court] and Commissioner Of Income-Tax Versus Godavari Corporation Limited [1983 (12) TMI 4 - MADHYA PRADESH High Court] - there is no justification to interfere with the order of the CIT(A) in deleting the addition – The AO has not brought any evidence on record to suggest that the assessee was conducting its affairs on commercial lines with motive to earn profit - The AO merely considering the activities of construction of flats and selling held the same to be business in nature – thus, the registration u/s. 12AA is effective – Decided against Revenue. Issues:Challenge to deletion of addition of Rs.11,47,731 and eligibility for exemption u/s. 11, 12 of the IT Act.Issue 1: Deletion of addition of Rs.11,47,731The appeal by the Revenue challenged the deletion of the addition of Rs.11,47,731 by the ld. CIT(A) for the assessment year 2008-09. The AO questioned whether the assessee was hit by the provisions of section 2(15) of the Act. The assessee argued that the activities were not commercial but for 'General Public Utility' and hence charitable. The assessee sold flats for the poorest section of society, emphasizing the charitable nature of the activity. The ld. CIT(A) allowed the appeal, stating that the amendment to section 2(15) was not applicable for the year under consideration. The AO's addition was held unjustified, and the surplus was directed to be deleted, citing consistency in previous assessments and registration granted u/s. 12AA.Issue 2: Eligibility for exemption u/s. 11, 12 of the IT ActThe assessee contended that the activities were charitable and not business-related, supported by the nature of the fees charged and the sale of flats for the poor. The ld. CIT(A) found that the activities were not commercial and granted exemption u/s. 11, 12 of the IT Act. The AO's reliance on the proviso to section 2(15) inserted post-amendment was deemed inapplicable for the assessment year under appeal. The principle of consistency in granting exemption on similar activities in previous and subsequent years was upheld. The Revenue's argument that the activities were business-related was refuted based on the charitable nature of the trust's objectives and the absence of evidence to suggest profit motive.Conclusion:The judgment upheld the deletion of the addition and the eligibility for exemption u/s. 11, 12 of the IT Act based on the charitable nature of the activities and the absence of evidence supporting a profit motive. The decision emphasized the importance of consistency in granting exemptions and highlighted that the proviso to section 2(15) was not applicable for the assessment year in question. The appeal by the Revenue was dismissed, affirming the findings of the ld. CIT(A) regarding the charitable status of the assessee's activities.