2021 (9) TMI 1141 - AT - Income Tax

Tribunal affirms assessee's charitable status under Income Tax Act, emphasizing non-profit motive

ACIT (E), Circle 2 (1), New Delhi Versus National Accreditation Board for Testing and Calibration

The Tribunal upheld the assessee's eligibility for exemption under Sections 11 and 12 of the Income Tax Act, finding its activities to be charitable in ... Exemption u/s 11 - Charitable activity u/s 2(15) - rule of consistency - whether assessee is not engaged in trade, commerce and business and its dominant and prime objective is charitable in nature in accordance with section 2(15)? - HELD THAT:- Since assessee society has been held to be a charitable institution by the Hon’ble Delhi High Court in AY 2009-10 and since then there is no change in the aims and objects of the assessee society, finding no illegality or infirmity in the impugned orders, both the aforesaid appeals filed by the Revenue are hereby dismissed. Issues Involved:1. Eligibility for exemption under Section 11 of the Income Tax Act, 1961.2. Nature of activities conducted by the assessee and whether they are charitable or commercial.Issue-wise Detailed Analysis:1. Eligibility for exemption under Section 11 of the Income Tax Act, 1961:The Revenue challenged the eligibility of the assessee, a society registered under the Societies Registration Act and granted registration under Section 12A of the Income-tax Act, 1961, for exemption under Section 11. The Assessing Officer (AO) had denied this exemption based on the amended provisions of Section 2(15) of the Act, contending that the assessee's activities did not fall under the charitable purpose. The Tribunal noted that this issue had already been settled by the Tribunal and subsequently by the Hon’ble Delhi High Court in the assessee's favor for the Assessment Year 2009-10. The Tribunal's previous decision, confirmed by the Delhi High Court, held that the assessee was eligible for exemption under Sections 11 and 12 as it was not engaged in any trade, commerce, or business, and its dominant and prime objective was charitable in nature in accordance with Section 2(15).2. Nature of activities conducted by the assessee and whether they are charitable or commercial:The AO observed that the assessee rendered services to laboratories, monitored such labs, and charged fees, which he considered commercial activities liable to be taxed under 'Profit & Gains of Business and Profession.' However, the Tribunal, referencing its earlier decision and the Delhi High Court's judgment, found that the assessee's activities were not driven by a profit motive but aimed at promoting quality standards in products for the benefit of the general public. The Tribunal emphasized that the dominant and prime objective of the assessee was charitable, as it aimed to advance an object of general public utility without a profit motive. The Tribunal cited the Delhi High Court's interpretation that the proviso to Section 2(15) was intended to prevent entities engaged in pure trade, commerce, or business from masking their activities as charitable but was not aimed at genuine charitable organizations.The Tribunal also referred to the amendment in Section 2(15) effective from 1.4.2016, which exempted business income if the activity was undertaken in the course of carrying out an object of general public utility, provided the activity was not prompted by profit motive. This amendment aligned with the constitutional principles and supported the assessee's case.Conclusion:The Tribunal concluded that the assessee remained a charitable institution as per the Hon’ble Delhi High Court's ruling for AY 2009-10, with no change in its aims and objects. The Revenue failed to present any distinguishing facts or divergent case law. Therefore, the Tribunal found no illegality or infirmity in the impugned orders and dismissed both appeals filed by the Revenue, affirming the assessee's eligibility for exemption under Section 11.Order Pronouncement:The order was pronounced in open court on the 24th day of September, 2021.