Assessee society's trading surplus taxable under Income Tax Act: Tribunal rules for Revenue

The Tribunal ruled in favor of the Revenue, holding that the surplus earned by the assessee society from its trading activities was liable to be taxed under the proviso to section 2(15) of the Income Tax Act. The appeals of the Revenue were allowed, and the order of the Commissioner of Income Tax (Appeals) was overturned.

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Issues Involved:
1. Delay in filing the appeal.
2. Entitlement of the assessee society for exemption under section 11 of the Income Tax Act.
3. Applicability of proviso to section 2(15) of the Income Tax Act to the assessee society's activities.

Detailed Analysis:

1. Delay in Filing the Appeal:
The Revenue's appeal for the assessment year 2009-10 was delayed by 14 days. The delay was attributed to the inadvertent mixing up of records with other files. The Tribunal condoned the delay, considering the explanation provided by the learned DIT (Exemptions), and proceeded with the adjudication.

2. Entitlement for Exemption under Section 11:
The assessee, a trade association registered as a society, filed its returns for the assessment years 2009-10, 2010-11, and 2011-12. The society was granted registration under section 12A(a) of the Act. The activities of the society included representing the trade before government authorities, educating the trade community, and engaging in charitable activities like providing uniforms to students and medical aid to the poor.

During assessment, it was observed that the society purchased wattle from Africa and distributed it to its members and other concerns in the same industry with a margin of profit. The society explained that this activity was carried out without any profit motive and aimed to support small traders. However, the Assessing Officer noted that the society earned a surplus from this activity and withdrew the benefits of sections 11 and 12, bringing the surplus to tax.

On appeal, the Commissioner of Income Tax (Appeals) held that the society's activities were for the fulfillment of charitable objects on non-commercial lines and were not hit by the provisions of section 2(15). The CIT(A) emphasized that the activities were not pervaded by profit motive and were primarily for serving dominant charitable purposes. The surplus earned was incidental and ploughed back into the organization for charitable activities.

3. Applicability of Proviso to Section 2(15):
The CIT(A) observed that the provisos to section 2(15) apply only when the business undertaken is an "unrelated business" of the charitable organization. The income from the society's activities was substantially related to its charitable purpose and contributed importantly to accomplishing that purpose. The CIT(A) cited various judgments, including the case of Sabarmati Ashram Gaushala Trust v. Assistant Director of Income-tax (Exemption), which supported the view that profit earned incidentally from activities carried out on non-commercial lines for charitable purposes is not hit by the proviso to section 2(15).

The Tribunal, however, disagreed with the CIT(A). It noted that the society's trading activity of procuring raw materials from Africa and distributing them to its members and other commercial entities amounted to a pure commercial transaction generating substantial profits. This activity was not mentioned in the society's objects and did not involve any element of charity. The Tribunal concluded that the proviso to section 2(15) was applicable, as the activity was a commercial venture benefiting the members and certain commercial entities, rather than the general public utility.

Conclusion:
The Tribunal ruled in favor of the Revenue, holding that the surplus earned by the assessee society from its trading activities was liable to be taxed under the proviso to section 2(15) of the Act. The appeals of the Revenue were allowed, and the order of the CIT(A) was overturned.

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