2015 (12) TMI 196 - AT - Income Tax

Tribunal grants tax exemptions to charitable organization, citing Income Tax Act provisions.

The Tribunal reversed the CIT(A)'s decision, ruling that the assessee qualifies for exemptions under Sections 11 and 12 of the Income Tax Act. It held ... Eligibility for exemption u/s 11 & 12 - Held that:- Amendment made in section 2 (15) of the act with effect from 1.4.2016 by substituting the first proviso and second proviso by a single proviso, which would now exempt the business income, where the activity “is undertaken in the course of actual carrying out of such advancement of any other object of general public utility”, so that it recognizes all the activities consistent with the objects, where the objects are not prompted by profit motive, from the purview of liability bringing the law to conform The Constitution which was challenged before Honourabel Delhi High court in Indian Trade promotion Organization V DGIT ( Exemption) (2015 (1) TMI 928 - DELHI HIGH COURT) . The effect of this provision would bring those trusts and institutions, like assessee, with the object of general public utility on par with those with the other three objects in respect of the treatment for income from business, if it is incidental to the objects as provided under section 11(4A) of the Act, subject to certain limitation. In view of above we reverse the order of CIT (A) and hold that assessee is eligible for exemption u/s 11 & 12 of the Income Tax Act as assessee is not engaged in any trade, commerce or business and its dominant and prime objective is charitable in nature in accordance with section 2 (15 ) of The Income Tax Act. - Decided in favour of assessee. Issues Involved:1. Interpretation of Section 2(15) of the Income Tax Act.2. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act.3. Determination of whether the assessee's activities constitute trade, commerce, or business.Issue-wise Detailed Analysis:1. Interpretation of Section 2(15) of the Income Tax Act:The primary issue revolves around the interpretation of Section 2(15) and its proviso. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee's activities fall under the category of trade, commerce, or business due to the fees charged for services, thereby disqualifying it from being considered a charitable organization. The Tribunal referenced the decision in *Indian Trade Promotion Organization v. DGIT (Exemption) 371 ITR 333 (Delhi)*, which clarified that the proviso to Section 2(15) targets entities primarily engaged in profit-making activities under the guise of public utility. The Tribunal emphasized that the dominant objective of the institution should be considered, and if it is not profit-making, it should be regarded as charitable.2. Eligibility for Exemption under Sections 11 and 12 of the Income Tax Act:The assessee argued that it is a society established by the Quality Council of India and operates under the direct control of the central government, with its income and property applied towards its charitable objectives. The Tribunal noted that the AO and CIT(A) did not allege that the fees charged were exorbitant or excessive. The Tribunal concluded that the assessee's activities align with the charitable purpose of advancing general public utility, and therefore, it is eligible for exemptions under Sections 11 and 12. The Tribunal also noted the amendment to Section 2(15) effective from 1.4.2016, which exempts business income if it is incidental to the charitable objectives, reinforcing the assessee's eligibility for exemption.3. Determination of Whether the Assessee's Activities Constitute Trade, Commerce, or Business:The AO and CIT(A) determined that the assessee's activities constituted business due to the fees charged for accreditation services. However, the Tribunal, referencing judicial precedents, concluded that the primary intent behind the assessee's activities was not profit-making but charitable. The Tribunal cited the *GS1 India* case, which held that charging a nominal fee does not necessarily indicate a business activity if the primary intent is charitable. The Tribunal found that the assessee's activities were driven by public benefit rather than self-interest or profit, thus qualifying as charitable.Conclusion:The Tribunal reversed the CIT(A)'s order, holding that the assessee is eligible for exemptions under Sections 11 and 12 of the Income Tax Act. The Tribunal concluded that the assessee's activities do not constitute trade, commerce, or business, and its dominant objective is charitable in nature, in accordance with Section 2(15) of the Income Tax Act. The order was pronounced in the open court on 26.11.2015.Order Pronounced:The order was pronounced in the open court on 26.11.2015.