Trust organizing Garba events through ticket sales qualifies as charitable activity under section 2(15)

ITAT Ahmedabad held that income from organizing Garba events through ticket sales and food outlet leasing constitutes charitable activity under section 2(15). The tribunal found that activities involving education, medical relief, and assistance to poor fall within specific provisions of section 2(15) rather than its residuary segment, making the first proviso inapplicable. Previously denied expenses for voluntary agency assistance, training programs, research, and community service were treated as application of income rather than business deductions. The HC upheld the charitable trust status and allowed the assessee's appeal.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the appellant trust qualifies as a charitable trust within the meaning of Section 2(15) of the Income Tax Act, 1961, and is therefore entitled to exemption under Sections 11 and 12 of the Act;
• Whether the activities of the trust, including organizing events such as Garba with sale of tickets and leasing out food and beverage outlets, constitute a "business" or "trade" under the first proviso to Section 2(15) of the Act, thereby disqualifying it from exemption;
• The applicability of Section 13(8) of the Act, which restricts exemption to trusts engaged in charitable activities and excludes those whose income arises from business or activities not incidental to charitable purposes;
• The correctness of the Assessing Officer's (AO) denial of claims related to expenses, corpus fund, accumulation of income, and set apart amounts under Sections 11(1)(a) and 11(2) of the Act;
• The validity of the Commissioner of Income Tax (Appeals) [CIT(A)] order granting relief to the appellant by recognizing it as a charitable trust and deleting additions made by the AO.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the appellant is a charitable trust entitled to exemption under Sections 11 and 12 of the Act

The appellant is a trust registered under Section 12AA of the Act and the Bombay Public Trust Act. It declared a gross total income of Rs. 6,33,13,673/- for the Assessment Year (AY) 2015-16, with an accumulated surplus and claims for application of funds for charitable purposes. The AO disallowed exemption, holding that the trust's activities fell within the ambit of "advancement of any other object of general public utility" under amended Section 2(15) and were therefore excluded from exemption under Section 13(8).

The Tribunal examined prior orders in the appellant's own case for AYs 2011-12 and 2012-13, where it was held that the first proviso to Section 2(15) r.w.s. 13(8) was not applicable, and the appellant was rightly treated as a charitable trust. The CIT(A) also found that the AO erred in double counting the accumulated fund and misapplying the provisions.

The Tribunal further relied on the decision of the Hon'ble Jurisdictional High Court in the appellant's own case for AY 2014-15, which upheld the Tribunal's order. The High Court noted that the dominant object of the trust was charitable, including support to 120 NGOs, health and human services, medical camps, vocational training, women empowerment, and midday meals for poor students. The incidental activities such as organizing Garba events with ticket sales and leasing food outlets were not considered business activities as the profit motive was absent and income was fully applied for charitable purposes.

The Court emphasized that the terms "trade," "commerce," and "business" in the first proviso to Section 2(15) must be interpreted in light of the intent of the provision, which is to exclude organizations carrying on regular business with profit motive from charitable purposes. Mere organized activity or incidental income generation does not convert the trust's activities into business. The dominant object test and profit motive test are critical, and in this case, the evidence showed no profit motive or business continuity.

Issue 2: Applicability of Section 13(8) of the Act and denial of claims by AO

Section 13(8) excludes from exemption trusts whose income arises from activities not incidental to charitable purposes or from business. The AO denied claims for certain expenses, corpus fund, accumulation, and set apart amounts under Sections 11(1)(a) and 11(2), alleging non-incidental nature of activities and business character.

The CIT(A) and the Tribunal found that the AO erred in applying Section 13(8) by treating the trust as an Association of Persons (AOP) and by failing to appreciate the nature of the trust's activities and the application of funds. The Tribunal noted that the accumulated fund was already included in the gross total income and could not be added again. The trust's activities were found to be charitable and incidental income-generating activities did not disqualify exemption claims.

The Tribunal relied on the High Court's affirmation that the trust's income was not for individual benefit but fully utilized for charitable objectives, and thus, the provisions of Section 13(8) were not attracted.

Issue 3: Treatment of incidental income-generating activities such as organizing Garba events

The Tribunal analyzed whether the sale of tickets for Garba events and leasing of food and beverage outlets constituted business activities. The High Court's decision clarified that such activities are incidental and not the dominant object. The profit motive was absent, and the income was applied for charitable purposes.

The Court held: "The activities like organizing the event of Garba including the sale of tickets and issue of passes etc. cannot be termed as business... The profit making is not the driving force or the objective of the assessee."

This interpretation aligns with the principle that incidental commercial activities do not negate the charitable status if the dominant object is charitable and income is applied accordingly.

Issue 4: Reliance on precedents and concurrent findings

The Tribunal gave significant weight to the appellant's own earlier orders and the High Court's judgment, which had concurrently found the trust to be charitable and exempt. The principle of consistency and judicial discipline was invoked to uphold the CIT(A)'s order and dismiss the Revenue's appeal.

The Tribunal observed that no fresh material or changed circumstances justified deviation from the established position.

3. SIGNIFICANT HOLDINGS

"The trust is held to be a charitable trust to which provisions of section 2(15) r.w.s.13(8) would not be applicable."

"The activities like organizing the event of Garba including the sale of tickets and issue of passes etc. cannot be termed as business. The two authorities have taken the view that the profit making is not the driving force or the objective of the assessee."

"The expression 'trade', 'commerce' and 'business' as occurring in the first Proviso to Section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner."

"An activity would be considered business if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case the activity may be regarded as a business even when the profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity."

"The AO has committed a mistake in considering the amount again in making the addition solely for the reason that there was applicability of section 2(15) r. w. s. 13(8) of the Act and treating the assessee as AOP."

Final determinations:

• The appellant trust qualifies as a charitable trust under Section 2(15) and is entitled to exemption under Sections 11 and 12 of the Income Tax Act;
• The incidental activities of organizing events and leasing outlets do not constitute business for the purposes of exemption;
• The provisions of Section 13(8) are not attracted in the facts of this case;
• The AO's disallowance of claims related to expenses, corpus fund, accumulation, and set apart amounts under Sections 11(1)(a) and 11(2) was erroneous;
• The CIT(A)'s order granting relief to the appellant is upheld, and the Revenue's appeal is dismissed as devoid of merit.

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