2020 (7) TMI 505 - AT - Income Tax

Non-profit organization qualifies as charitable, exempt under Income Tax Act

M/s. Confederation of Indian Textile Industry Versus ITO (E) (1) (2), Mumbai

The Tribunal concluded that the assessee, a non-profit organization, was a charitable organization and not a mutual association. The income from interest, ... Disallowing the claim of exemption u/s.11 - assessee is registered u/s.12A - CIT- A upheld the action of the ld. AO that assessee trust is only a mutual association and accordingly, any receipt received from non-members would be liable to tax as business income and held that assessee’s case is squarely covered by the proviso to Section 2(15) of the Act and accordingly, upheld action of the ld.AO in rejecting the claim of Section 11 - HELD THAT:- Admittedly, the activities carried on by the assessee were not with a view to make profits. It is not even the case of the revenue that assessee trust is not existing for the purpose of ‘not for profit’ within the meaning of Section 11-13 of the Act. We find that the ld. AO had erroneously treated the assessee as a mutual association instead of charitable organization merely on the ground that services were rendered by the assessee to its members. It is pertinent to note that assessee had not even claimed to be a mutual association and had not claimed any exemption from Income Tax on the basis of principle of mutuality. We find from the perusal of the orders of the lower authorities that nowhere they had pointed out that assessee activities involved in the nature of trade, commerce or business or activity of rendering any service in relation to any trade, commerce or business and in consideration of which a cess or fee has been received by the assessee. Hence, we hold that assessee’s case does not fall within the ambit of proviso to Section 2(15) of the Act. - Decision in the case of ALL INDIA RUBBER INDUSTRIES ASSOCIATION VERSUS ADIT (E) [2018 (10) TMI 1172 - ITAT MUMBAI] followed - Decided in favour of assessee. Issues Involved:1. Whether the CIT(A) was justified in confirming the AO's action of disallowing the claim of exemption u/s.11 of the Act to the assessee.2. Whether the assessee's income from interest, exchange gain, and miscellaneous sources should be treated as business income and taxed accordingly.Issue-Wise Detailed Analysis:1. Justification of CIT(A) in Confirming AO's Action:The primary issue to be decided was whether the CIT(A) was justified in confirming the AO's action of disallowing the claim of exemption u/s.11 of the Act. The assessee, a non-profit organization registered u/s. 25 of the Companies Act, 1956, was claiming exemption u/s.11 of the Income Tax Act, 1961. The AO had previously granted this exemption up to A.Y.2012-13, but for A.Y.2013-14, the AO denied the exemption, treating the assessee as a mutual association rather than a charitable organization. The AO applied the principles of mutuality, observing that the assessee's income from interest, exchange gain, and miscellaneous sources was derived from non-members and should be taxed as business income under the proviso to Section 2(15) of the Act.The assessee argued that its activities were not in the nature of trade, commerce, or business and thus the proviso to Section 2(15) should not apply. The CIT(A) dismissed the assessee's submissions and upheld the AO's decision, treating the assessee as a mutual association and rejecting the claim of exemption u/s.11.2. Treatment of Assessee's Income from Interest, Exchange Gain, and Miscellaneous Sources:The AO observed that the assessee's income from interest on fixed deposits, interest on advances given to employees, interest on income-tax refund, exchange gain, and miscellaneous income was derived from non-members and should be taxed as business income. The assessee contended that these incomes were incidental to its charitable activities and should be exempt u/s.11. The assessee provided detailed explanations for each type of income, emphasizing that the income was used to reduce costs and support its charitable objectives.The Tribunal found that the assessee's activities were not profit-oriented and that the AO had erroneously treated the assessee as a mutual association. The Tribunal noted that the lower authorities did not provide evidence to prove that the assessee's activities were for profit-making purposes. The Tribunal held that the assessee's case did not fall within the ambit of the proviso to Section 2(15) and that the assessee was entitled to exemption u/s.11 for the disputed income.Conclusion:The Tribunal concluded that the assessee was a charitable organization and not a mutual association. The assessee's income from interest, exchange gain, and miscellaneous sources was incidental to its charitable activities and should be exempt u/s.11. The Tribunal allowed the appeal, setting aside the orders of the lower authorities and directing the AO to grant the exemption u/s.11.Order Pronounced:The appeal of the assessee was allowed, and the order was pronounced on 17/07/2020 by way of proper mentioning in the notice board.