2020 (10) TMI 555 - AT - Income Tax

Tribunal affirms exemption claim under Income Tax Act for charitable activities

The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, allowing the assessee's claim for exemption under section 11 of the Income Tax ... Exemption u/s 11 - mutual trade association having the main object to safeguard the interest of the industry and trade - Assessee says it is a company registered under section 25 of the Companies Act, 1956. Additionally, the assessee has also been granted registration under section 12A - As per AO assessee is a mutual trade association receiving membership contribution and, in turn, members are provided a common platform to avail the facilities provided to the rubber trade - HELD THAT:- As decided in own case [2018 (10) TMI 1172 - ITAT MUMBAI] examining all aspects of the issue and taking note of the submissions made by the parties ultimately concluded that the assessee is eligible to avail exemption under section 11 - no justification for the Assessing Officer to hold that since the objects of the assessee seek to promote and protect the interests of a particular trade, industry, the same loses the character of being charitable. Assessing Officer erred in invoking proviso to Sec. 2(15) to treat the activities of the assessee as being non-charitable specifically considering the fact that no material or evidence has been led to show that there was any profit motive in carrying out such activities. Pertinently, there is no rebuttal at any stage to the assertions of the assessee that its activities in the instant years are similar to the activities in the past years. We set-aside the order of CIT(A) and direct the Assessing Officer to allow the exemption Decided in favour of assessee. Issues Involved:1. Eligibility of the assessee's claim for exemption under section 11 of the Income Tax Act, 1961.2. Application of the proviso to section 2(15) of the Income Tax Act, 1961.3. Interpretation of the principle of mutuality concerning the assessee's activities and income.Issue-wise Detailed Analysis:1. Eligibility of the Assessee's Claim for Exemption under Section 11:The assessee, a company registered under section 25 of the Companies Act, 1956, and granted registration under section 12A of the Income Tax Act, 1961, claimed exemption under section 11 for the assessment year 2015-16. The Assessing Officer denied this claim, stating that the assessee, being a mutual trade association, received fees for services from both members and non-members, which was considered a business activity. The Assessing Officer relied on previous assessment years where similar claims were rejected. However, the Commissioner of Income Tax (Appeals) allowed the exemption, referencing the Tribunal's decisions in the assessee's favor for assessment years 2011-12, 2012-13, and 2013-14. The Tribunal upheld the Commissioner’s decision, confirming that the assessee's activities were charitable and eligible for exemption under section 11.2. Application of the Proviso to Section 2(15):The Assessing Officer invoked the proviso to section 2(15) of the Act, which excludes entities from being considered charitable if they engage in trade, commerce, or business activities for a fee. The Tribunal examined whether the assessee’s activities, such as arranging exhibitions and seminars, were conducted with a profit motive. Citing previous judgments, including those of the Hon'ble Delhi High Court and the Hon'ble Bombay High Court, the Tribunal concluded that the assessee’s activities did not have a profit motive and were incidental to its primary objective of promoting the rubber industry. Therefore, the proviso to section 2(15) did not apply, and the assessee's activities remained charitable.3. Interpretation of the Principle of Mutuality:The Assessing Officer argued that the assessee, being a mutual association, could not claim benefits under sections 11/12 of the Act. The Tribunal disagreed, referencing the Hon'ble Delhi High Court's judgment in the case of PHD Chamber of Commerce & Industry, which established that trade and professional associations could claim exemption under section 11 if they did not operate with a profit motive. The Tribunal noted that the assessee’s activities were for the benefit of the rubber industry and not for profit, thus qualifying as charitable. Furthermore, the Tribunal emphasized that an entity's charitable status is not negated merely because it benefits from the principle of mutuality concerning its members.Conclusion:The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, allowing the assessee's claim for exemption under section 11 of the Income Tax Act, 1961. The Tribunal found no material difference in the facts for the impugned assessment year compared to previous years where the assessee's claims were upheld. Consequently, the appeal by the Revenue was dismissed, reaffirming the assessee's eligibility for the claimed exemption.