2024 (11) TMI 641 - AT - Income Tax

Society's charitable activities wrongly labeled commercial, CIT revision under section 263 quashed by ITAT

Petroleum Federation of India Versus CIT (E), New Delhi.

ITAT Delhi held that CIT's revision u/s 263 was unsustainable where the assessee society's activities were wrongly characterized as commercial rather than ... Revision u/s 263 - as per CIT activities carried on by the assessee society falls in the category of commercial activity and not charitable activity, as such, the same is hit by second proviso to section 2(15) of the Act and the AO has failed to examine the same in the assessment proceedings - Revisionary Authority also was of the view that the membership has been received during the year and the same has been capitalized and treated as corpus donation in the books of account. HELD THAT:- We have gone through the order in the case of Petrotech [2017 (8) TMI 25 - ITAT DELHI] and that was an appeal filed by the Revenue against the order of CIT(A)-21, New Delhi by which the activities of the said society were held to be charitable in nature and covered under the scope of ‘education’ and not under advancement of any other object of general public utility. It appears that the ld. Revisional Authority was carried by the conclusion that the primary objective of the assessee is to secure and promote the business interest of its members and, therefore, it cannot be said to be a public charitable organization. We are of the considered view that any organization primarily formed to secure or promote the interest of its members who were themselves engaged in business activity does not lead to an inference that the objective of the society is also commercial in nature. It is unfair to label the assessee as ‘lobbying agency.’ The fact that it came into existence as an initiative of the Government of India shows that the purpose was to bring all the stakeholders on one platform and ultimate beneficiary was to be the consumers only. Merely because the participants includes private sector members also, that will not make the nature of activities, as a facilitator, to the hydrocarbon industry, to be that of a commercial nature. The impugned order does not show if from the expenditure of the assessee company anything could be culled out to show that the funds were utilized for promoting the business or financial interest of any individual member or members collectively. As we go through the expenditure statement of the assessee available, we find that there is no head of expenditure which would show that any part of the fund was used for procurement of any business for the members. We further find that the incidental fee and annual subscriptions of the members is on the basis of their turnover, etc., for which no opinion can be formed that it was for the benefit of any specific member. Therefore, the order of the ld. Revisionary Authority, has no legal basis and seems to be on surmises and conjectures, which is beyond the scope of section 263 of the Act, and thus cannot be sustained. Decided in favour of assessee. Issues Involved:1. Validity of the order passed under Section 263 of the Income Tax Act, 1961.2. Determination of whether the activities of the assessee society are charitable or commercial in nature.3. Legitimacy of the membership fees being treated as corpus donation.4. Consistency in granting exemptions under Sections 11 and 12 of the Income Tax Act for similar activities in previous assessment years.5. Comparison with a similar case involving M/s Petrotech and its implications on the current case.Issue-wise Detailed Analysis:1. Validity of the Order under Section 263:The primary issue revolves around the order passed by the Commissioner of Income Tax (Exemptions) under Section 263 of the Income Tax Act, 1961. The Revisionary Authority believed that the assessment order was erroneous and prejudicial to the interests of the Revenue. The assessee challenged this order, arguing that the assessment was completed after due process, with all necessary verifications and exemptions considered. The Tribunal found that the order under Section 263 lacked legal basis, as it was based on surmises and conjectures, and thus, could not be sustained.2. Charitable vs. Commercial Nature of Activities:The Revisionary Authority categorized the activities of the assessee society as commercial rather than charitable, impacting the applicability of Section 2(15) of the Act. The assessee argued that its activities were educational and charitable, similar to those of M/s Petrotech, which had been recognized as charitable by the Tribunal and the Delhi High Court. The Tribunal noted that the society's objectives were to promote research and assist in policy-making in the hydrocarbon sector, which are educational activities. The Tribunal concluded that the society's activities were charitable, not commercial, as they were aimed at benefiting the public and the industry collectively, rather than individual members.3. Treatment of Membership Fees:The Revisionary Authority questioned the treatment of membership fees as corpus donations, suggesting they were voluntary contributions. The assessee maintained that the fees were in line with Section 12 of the Act and were used for charitable purposes. The Tribunal found no evidence that the membership fees were used for commercial purposes or for the benefit of specific members, supporting the assessee's treatment of these fees as corpus donations.4. Consistency in Granting Exemptions:The assessee highlighted that similar exemptions under Sections 11 and 12 had been granted in previous years for identical activities. The Tribunal observed that the society had consistently been recognized as engaging in charitable activities, and there was no new material to suggest otherwise. The Tribunal emphasized the need for consistency in tax treatment, especially when the facts and circumstances remain unchanged.5. Comparison with M/s Petrotech:The case of M/s Petrotech, which had similar objectives and activities, was pivotal in the assessee's argument. The Tribunal and the Delhi High Court had previously recognized M/s Petrotech's activities as charitable. The Tribunal noted the identical nature of the activities and objectives of both societies and criticized the Revisionary Authority for not considering this precedent. The Tribunal's decision in favor of the assessee was heavily influenced by this comparison, reinforcing the charitable nature of the activities.In conclusion, the Tribunal allowed the appeals, quashed the order under Section 263, and upheld the charitable status of the assessee society's activities, ensuring consistency with previous rulings and similar cases.