2018 (9) TMI 1694 - AT - Income Tax

Tribunal orders reassessment of exemption denial under Section 11

The Advertising Club Bombay Versus Assistant Director of Income tax (Exemption) -II (2), Mumbai

The Tribunal restored the case to the Assessing Officer (AO) for re-adjudication regarding denial of exemption under Section 11 of the Income Tax Act. The ... Denying the exemption u/s 11 - charitable activity - business activity - generation of surplus - Held that:- The assessee’s major activities during the impugned AY were confined to conducting Award Functions / programs only. The only plea in support of the same as raised by Ld. AR is the assertion that the said activities were incidental to carrying out the main objectives of the assessee Trust and secondly, there was no profit motive in carrying out the same. In support, certain judicial pronouncements have been cited before us. TAR has also raised an alternative plea that the amount of ₹ 78.85 Lacs as written-off by way of credit to Profit & Loss Account had already been offered to tax in earlier years and therefore, the same is exclude while computing the surplus for impugned AY. In our opinion, these submissions require proper appreciation of factual matrix which has not been done by Ld. AO particularly the submissions that the activities being carried out by the assessee were incidental to carrying out the objectives on the basis of which registration was granted to the assessee. Keeping in view the aforesaid facts and circumstances, keeping all issues open, we deem it fit to restore the matter back to the file of Ld. AO for re-adjudication of the same with a direction to the assessee to substantiate its claim as argued before us Issues Involved:1. Denial of exemption under Section 11 of the Income Tax Act.2. Applicability of proviso to Section 2(15) of the Income Tax Act.3. Treatment of income already taxed in the previous assessment year (AY 2009-10).Issue-Wise Detailed Analysis:1. Denial of exemption under Section 11 of the Income Tax Act:The assessee contested the order of the Ld. Commissioner of Income-Tax (Appeals) [CIT(A)] which confirmed the denial of exemption under Section 11 by the Assessing Officer (AO). The AO had assessed the income of the assessee at Rs. 82.34 Lakhs, denying the exemption under Section 11, which led to a dispute. The assessee argued that its activities were incidental to achieving its main objectives and that there was no profit motive since the surplus was reinvested to further the Trust's objectives. The Tribunal noted that the assessee had obtained registration under Section 12A, and hence, the claim for the impugned AY should be examined under the statutory provisions of Sections 11 and 12.2. Applicability of proviso to Section 2(15) of the Income Tax Act:The denial of exemption was rooted in the AO's opinion that the assessee's activities constituted business activities under the proviso to Section 2(15) and Section 11(4) of the Income Tax Act. The CIT(A) upheld this view, stating that the assessee's activities, such as organizing award functions and receiving sponsorship income, were in the nature of event management and not charitable activities. The CIT(A) emphasized that the proviso to Section 2(15) applies even if the assessee is not directly engaged in business, trade, or commerce but charges fees for services related to such activities. The Tribunal concurred with the CIT(A) that the assessee's major activities were conducting award functions and programs, which were more in line with event management rather than charitable activities.3. Treatment of income already taxed in the previous assessment year (AY 2009-10):The assessee raised an alternative plea that an amount of Rs. 78.85 Lakhs, which was credited in the Profit & Loss Account during the impugned AY, had already been offered to tax in earlier years and should be excluded while computing the surplus for the impugned AY. The Tribunal noted that this submission required a proper appreciation of the factual matrix, which had not been done by the AO.Tribunal's Decision:The Tribunal decided to restore the matter back to the file of the AO for re-adjudication. The AO was directed to re-examine the assessee's claim, particularly the submissions that the activities were incidental to the main objectives of the Trust and that the surplus was ploughed back into furthering these objectives. The Tribunal allowed the appeal for statistical purposes, keeping all issues open for re-evaluation by the AO.Conclusion:The Tribunal concluded that the AO's approach was erroneous to some extent, and the matter required a thorough re-examination of the factual matrix. The appeal was allowed for statistical purposes, and the AO was directed to re-adjudicate the matter in light of the Tribunal's observations. The order was pronounced in the open court on 26th September 2018.