2020 (10) TMI 1013 - AT - Income Tax

Tribunal Upholds Tax Exemption for Assessee's Public Utility Activities; Remands 2014-15 Donation Dispute for Review.

The JCIT (OSD), (Exemptions) Circle-1, Chandigarh Versus M/s Patiala Improvement Trust, The DCIT C-1 (E), Chandigarh Versus M/s Patiala Improvement Trust, The DCIT (E) Chandigarh Versus M/s Patiala Improvement Trust

The ITAT dismissed the Revenue's appeals for AYs 2013-14 and 2015-16, affirming the CIT(A)'s decision to grant exemption under Section 11 of the Income ... Eligibility for exemption u/s 11 - Denial of exemption as assessee was not actual carrying on activities for the advancement of objects of general public utility - intent of amendment in 2(15) by relying on the objects of the assessee - Addition on account of disallowance of donation amounting and disallowance of service Tax paid - HELD THAT:- As decided in assessee's own case Assessing Officer has not indicated any facts which indicate that the assessee deviated from this principle. He has merely referred the extent of profit making activities without correlating the same to the other activities of the trust. In our view, therefore, the order of the Tribunal must be upheld. As decided in JAMMU DEVELOPMENT AUTHORITY [2013 (11) TMI 1578 - JAMMU AND KASHMIR HIGH COURT] Section 2(15) and the corresponding sections including Sections 11, 12, 12A and 12AA are independent of Section 10(20A) of the Act. Upon the omission of Section 10(20A), the provisions of the other sections were not affected. They remained intact. An assessee could have been entitled to the provisions of Section 10(20A) and the other provisions simultaneously. The omission of one, however, does not affect the validity or the existence of the others. The two provisions are distinct and independent of each other. Thus the omission of Section 10(20A) did not affect the rights of the parties claiming the benefit of Sections 2(15), 11, 12, 12A and 12AA of the Act. - Decided in favour of assessee. Issues Involved:1. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.2. Interpretation of Section 2(15) of the Income Tax Act, 1961.3. Disallowance of donation expenditure.4. Applicability of amendments to Section 2(15) and Section 10(20A).Detailed Analysis:1. Eligibility for Exemption under Section 11:The primary issue raised by the Revenue was whether the assessee was eligible for exemption under Section 11 of the Income Tax Act, 1961. The Revenue contended that the assessee was not carrying on activities for the advancement of objects of general public utility as required under Section 2(15) of the Act. The Assessing Officer (AO) had determined that the assessee's activities, which included the sale and purchase of residential plots and commercial properties, were commercial in nature and did not qualify for exemption. The CIT(A) had allowed the assessee's appeal, relying on previous decisions by the ITAT Amritsar Bench and ITAT Chandigarh Bench, which held that such activities were incidental to the assessee's main objective of town improvement.2. Interpretation of Section 2(15) of the Income Tax Act, 1961:The Revenue argued that the CIT(A) erred in law by holding that the assessee was eligible for exemption under Section 11, ignoring the true intent and purpose behind the amendment to Section 2(15) brought in with effect from 01.04.2009. The amendment and CBDT Circular No. 11 dated 19.12.2008 clarified that activities in the nature of trade, commerce, or business would not qualify as charitable purposes. However, the Tribunal found that the issue was already decided in favor of the assessee by the Hon'ble Jurisdictional High Court in the case of Tribune Trust, which held that activities carried out by Improvement Trusts for town improvement fell within the ambit of 'advancement of any other object of general public utility.'3. Disallowance of Donation Expenditure:For the Assessment Year 2014-15, the Revenue challenged the CIT(A)'s action in allowing the disallowance of donation expenditure of Rs. 4 crore towards the Punjab State Cancer and Drug Addiction Treatment Infrastructure Fund. The Tribunal noted that the CIT(A) had not discussed this issue separately in its order. Therefore, the Tribunal set aside this issue to the file of the CIT(A) for proper adjudication after affording a reasonable opportunity of being heard to the assessee.4. Applicability of Amendments to Section 2(15) and Section 10(20A):The Revenue also contended that the CIT(A) ignored the amendments brought to Section 2(15) with effect from 01.04.2016, which expressly barred exemptions to entities carrying on business activities. Additionally, the Revenue argued that the CIT(A) failed to consider the intention behind the omission of Section 10(20A) with effect from 04.04.2003, which previously provided exemptions to statutory authorities for town improvement. The Tribunal, however, followed the jurisdictional High Court's judgment, which held that the predominant purpose of Improvement Trusts was town improvement, and their incidental commercial activities did not disqualify them from exemption under Section 11.Conclusion:The Tribunal dismissed the Revenue's appeals for the Assessment Years 2013-14 and 2015-16, upholding the CIT(A)'s orders that granted exemption under Section 11 to the assessee. For the Assessment Year 2014-15, the Tribunal partly allowed the Revenue's appeal for statistical purposes, remanding the issue of donation expenditure back to the CIT(A) for proper adjudication.(Order pronounced on 07/10/2020 under Rule 34(4) of the Income Tax Rules)