2024 (1) TMI 149 - AT - Income Tax

Trust's Section 11 exemption questioned as conference receipts exceed 20% threshold under amended Section 2(15)

M/s. SAE India Versus The Income Tax Officer- (Exemptions), Ward-4, Chennai

ITAT Chennai ruled that a Trust's exemption under Section 11 must be re-examined following amended provisions of Section 2(15) defining charitable ... Exemption u/s 11 - taxed ‘corpus donations’ as income of assessee’s Trust - scope of amended definition of ‘charitable purpose’ and proviso provided therein - 'charitable purpose’ as defined u/s. 2(15) of the Act, i.e. any other objects of General Public Utility (“GPU') - application of ‘principles of mutuality’ for total tax exemption to receipts of assessee’s Trust on the ground that the society is exclusively working for the benefit of members and out of contribution received from the members - HELD THAT:- As per proviso to Sec. 2(15) of the Act, the advancement of any other object of GPU shall not be a ‘charitable purpose’, if it involves carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a fees or cess and further, the aggregate receipt from such activity during the previous year, exceeds 20% of the total receipt of the Trust or Institution. In the present case, undoubtedly, the objects and activities of the Trust are in the nature of trade, commerce or business and hit by proviso to Sec. 2(15) of the Act. Therefore, the assessee entitlement for exemption needs to be examined in light of gross-receipts and receipts from the activity of trade, commerce or business. The gross income of the assessee from conducting conference is more than 20% of the gross-receipts of the assessee for the impugned assessment year. We have gone through the computation filed by the assessee’s Society and we find that the Ld.Counsel for the assessee has considered net income after expenses from conducting conference and then, compared with gross- receipts of the assessee to work out the limit prescribed under provisions of Sec. 2(15) - working furnished by the Ld.Counsel for the assessee is not in accordance with law, because, as per provisions of Sec. 2(15) of the Act, if gross receipts from the GPU activity, i.e. from trade, commerce or business exceeds 20% of gross receipts, then, the assessee is not entitled for exemption u/s. 11 of the Act. If you consider the gross-receipts from conducting conference, then undisputedly, said receipts exceeds 20% of the gross receipts of assessee’s Trust for the impugned assessment year. But, fact needs to be verified with reference to financial statement of the assessee for relevant AY. As per objects of the assessee’s Trust/Society and its activities, it is undisputed fact that the assessee falls under the last limb of the definition ‘charitable purpose’ i.e. any other object of GPU. Therefore, the income of the assessee needs to be computed in light of amended provisions of Sec. 2(15) of the Act. and proviso provided therein in light of the latest decision in the case of ACIT v. Ahmedabad Urban Development Authority (2022 (10) TMI 948 - SUPREME COURT). Thus, we set aside the order of the Ld.CIT(A) and restore the issue back to the file of the AO and direct the AO to reconsider the issue de novo in light of our discussion given hereinabove and also by following the decision mentioned supra. AO is also directed to look into the arguments of the assessee for applicability of ‘principles of mutuality’ in light of any evidence that may be filed by the assessee. Further, all other issues including computation of taxable income, if any, and taxability of ‘corpus donations’ receipts towards Magazine Fund and also depreciation issue needs to be reconsidered afresh after considering the assessee’s case in light of amended provisions of Sec. 2(15) of the Act, and also in light of decision of the Hon’ble Supreme Court in the case of ACIT v. Ahmedabad Urban Development Authority (supra). Issues Involved:1. Rejection of exemption under Section 11 of the Income Tax Act.2. Taxation of corpus donations.3. Applicability of principles of mutuality.4. Alleged violation of principles of natural justice.Summary:Rejection of Exemption under Section 11:The primary issue was whether the assessee's Trust qualifies for exemption under Section 11 of the Income Tax Act. The AO denied the exemption, stating that the Trust's activities fall under the 'General Public Utility' (GPU) category, which involves trade, commerce, or business exceeding the prescribed limit under Section 2(15). The CIT(A) initially ruled in favor of the assessee, but the Tribunal found that the Trust's activities indeed fall under GPU and should be scrutinized in light of the amended provisions of Section 2(15) and the Supreme Court decision in ACIT v. Ahmedabad Urban Development Authority.Taxation of Corpus Donations:The AO taxed corpus donations amounting to Rs. 12.55 lakhs, arguing that once the Trust loses exemption under Section 11, all income, including corpus donations, becomes taxable. The CIT(A) upheld this view, stating that the purposes for accumulation were too general and vague. The Tribunal directed the AO to reconsider this issue afresh, taking into account the amended provisions and relevant evidence.Applicability of Principles of Mutuality:The assessee argued for total tax exemption based on the principles of mutuality, claiming that the Trust operates solely for the benefit of its members. The Tribunal noted that there was no clear evidence whether the income was exclusively from members or included non-members. This aspect was remanded back to the AO for further verification and examination in light of any new evidence.Violation of Principles of Natural Justice:The assessee claimed that there was no proper opportunity given before the passing of the impugned order, thus violating the principles of natural justice. The Tribunal did not explicitly address this issue but implicitly acknowledged the need for a thorough re-examination of all facts and evidence.Conclusion:The Tribunal set aside the order of the CIT(A) and remanded the case back to the AO for a de novo examination of all issues, including the applicability of Section 2(15), taxability of corpus donations, and principles of mutuality, in light of the Supreme Court decision and relevant provisions of the Income Tax Act. Appeals filed by both the assessee and the Revenue were allowed for statistical purposes.Order Pronounced:The order was pronounced on the 20th day of October, 2023, in Chennai.