2017 (5) TMI 405 - AT - Income Tax

Trust denied tax exemption for commercial activities; mutuality principle inapplicable. Appeal dismissed, income taxable.

Employers’ Federation of Southern India Versus Assistant Director of Income-Tax (Exemption) -III

The Tribunal held that the trust's activities were predominantly commercial, denying exemption under section 11 of the Income-tax Act. The principle of ... Denial of exemption claimed u/s 11 - rejection of claim for exemption from tax on subscription and delegates fees collected from members, based on the principle of mutuality - interpretation to section 2(15) - Held that:- Admittedly receipt of the assessee classified by it as 'other income', comprised in it seminars/delegates fees, advertisement and miscellaneous income which far exceeded limits laid down in the second proviso. Thus, in our opinion the assessee could neither be considered performing charitable activities within the meaning of section 2(15) of the Act during the relevant previous year nor it could be considered as exempt on the principle of mutuality. We therefore, find no reason to interfere with the orders of the lower authorities. - Decided in favour of revenue Issues Involved:1. Denial of exemption under section 11 of the Income-tax Act, 1961.2. Rejection of exemption claim based on the principle of mutuality.Detailed Analysis:1. Denial of Exemption under Section 11 of the Income-tax Act, 1961:The assessee, a trust registered under section 12A(a) of the Act, claimed exemption under section 11A. The Assessing Officer noted that the trust's main object was to protect the interests of employers in Southern India. The trust collected annual subscriptions, delegate fees for seminars, advertisement income, and other miscellaneous income. The Assessing Officer opined that the trust was carrying on an activity of general public utility but had receipts exceeding Rs. 10,00,000, thus falling under the second proviso of section 2(15) of the Act. Consequently, the exemption under section 11 was denied, and the income was treated as taxable after allowing depreciation.2. Rejection of Exemption Claim Based on the Principle of Mutuality:The assessee argued before the Commissioner of Income-tax (Appeals) that the receipts from subscriptions and delegate fees did not constitute trade or commerce. They cited Circular No. 11 of 2008 and judgments from the apex court and the Allahabad High Court to support their claim. The Commissioner of Income-tax (Appeals) rejected these arguments, stating that the trust's object was the advancement of general utility, not relief of the poor, education, or medical relief. Since receipts exceeded Rs. 10,00,000, the proviso to section 2(15) was applicable. Additionally, the principle of mutuality was not applicable as the trust had receipts from non-members as well.Tribunal's Observations and Decision:The Tribunal reviewed the income and expenditure details for the relevant years. The trust's primary objects included promoting employer-employee relations and protecting employers' interests. However, the Tribunal noted that the trust's major activities involved conducting seminars and earning income from non-members, which were not incidental to its main object. The Tribunal found that the trust's activities were predominantly commercial, thus falling under the second proviso of section 2(15).The Tribunal also examined the principle of mutuality. It concluded that the trust could not claim mutuality as its income included receipts from non-members. The Tribunal distinguished the case from other judgments cited by the assessee, noting that the trust's activities were more commercial in nature.The Tribunal upheld the lower authorities' decisions, affirming that the trust was not performing charitable activities as defined under section 2(15) and was not exempt based on mutuality. The appeal was dismissed.Conclusion:The Tribunal concluded that the trust's activities were predominantly commercial, and it could not claim exemption under section 11 of the Income-tax Act. Additionally, the principle of mutuality was not applicable as the trust had income from non-members. The appeal was dismissed, and the trust's income was deemed taxable.