Revenue's appeal allowed for statistical purposes on section 11 exemption remanded to AO for fresh assessment under amended provisions

ITAT Mumbai-AT allowed revenue's appeal for statistical purposes regarding exemption under section 11 for AY 2018-19. The tribunal found that CIT(A) erred by not considering the amended proviso to section 2(15) effective from 01.04.2016 and failed to apply recent SC decisions in Ahmedabad Urban Development Authority and Servants of People Society cases. The AO had only discussed mutuality principles without considering the statutory proviso. The tribunal set aside the order and remanded the matter to AO for fresh assessment, directing proper consideration of exemption claims under amended provisions with adequate opportunity to the assessee.

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Issues Involved:

1. Justification of exemption under section 11 of the Income Tax Act.
2. Application of proviso to section 2(15) of the Income Tax Act.
3. Consideration of recent Supreme Court decisions.

Summary:

Issue 1: Justification of exemption under section 11 of the Income Tax Act:

The main grievance of the revenue is against the action of the Ld. CIT(A) allowing the appeal of the assessee by following the Tribunal order in assessee's own case for AY. 2012-13 & AY. 2013-14 wherein exemption u/s 11 of the Income Tax Act, 1961 was allowed to the assessee. The revenue contends that the Tribunal did not consider the proviso to section 2(15) of the Act and recent Supreme Court decisions, specifically ACIT(Exemptions) Vs. Ahmedabad Urban Development Authority (2022) 143 taxmann.com 278 (SC).

Issue 2: Application of proviso to section 2(15) of the Income Tax Act:

The revenue argues that the objects of the assessee fall under "advancement of any other object of general public utility" and that the benefit is limited to members of the assessee company only, thus invoking the proviso to section 2(15) of the Act. The AO held that the income from non-members is hit by the proviso to section 2(15) and computed it as "Business Income," rejecting the exemption u/s 11 of the Act.

Issue 3: Consideration of recent Supreme Court decisions:

The Ld. DR emphasized that the Ld. CIT(A) did not consider the recent Supreme Court decision in Ahmedabad Urban Development Authority (2022) while allowing the exemption. The revenue asserts that the fees charged by the assessee are significantly higher than the cost incurred, constituting commercial or business receipts, and thus attracting the proviso to section 2(15) of the Act.

Judgment:

The Tribunal noted the revenue's contention that the relevant year is AY 2018-19, and the proviso to section 2(15) of the Act was amended by the Finance Act, 2015, applicable from 01.04.2016. The Tribunal found merit in the revenue's argument that the Ld. CIT(A) erred in following the Tribunal's earlier order without considering the Supreme Court's recent decisions. The Tribunal set aside the impugned order and restored the assessment to the AO for a de novo assessment in light of the Supreme Court's rulings in Ahmedabad Urban Development Authority (2022) and Servants of People Society (2023). The AO is directed to provide proper opportunity to the assessee and consider the Supreme Court decisions before passing a fresh assessment.

Conclusion:

The appeal of the revenue is allowed for statistical purposes, and the case is remanded to the AO for a fresh assessment considering the recent Supreme Court decisions.

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