2026 (2) TMI 354 - AT - Income Tax

Denial of charitable exemption under section 11 reversed where contract receipts retained charitable character; exemption allowed, department appeal dismissed

Denial of charitable exemption under section 11 was contested where receipts were treated as contractual and taxed as income from other sources. The ... Denial of exemption u/s 11 - addition as income under the head ‘other Sources’ - receipts earned by the assessee were contractual in nature and not income derived from property held under trust and accordingly treated the surplus as taxable income under the head “Income from Other Sources” - HELD THAT:- Coordinate Bench of the Ahmedabad ITAT in the assessee’s own case [2019 (1) TMI 2085 - ITAT AHMEDABAD] held that the objects and activities of the assessee are charitable in nature, that they fall specifically within the ambit of preservation of environment, that the proviso to section 2(15) of the Act is not applicable and that exemption u/s 11 of the Act is allowable. Tribunal in the said decision has also taken note of the fact that exemption u/s 11 had been granted to the assessee in the past, that there was no change in the facts and circumstances and that the registration u/s12A had not been cancelled. It was further held that income earned from such activities, when wholly applied for charitable purposes, does not lose its charitable character merely because it arises from agreements or arrangements entered into for carrying out the objects of the trust. In the year under consideration also, the facts remain identical and no distinguishing feature has been brought on record by the Revenue to take a different view. No infirmity in the order passed by the Ld. CIT(A) allowing exemption under section 11 of the Act. Appeal of the Department is dismissed. Issues: Whether the deletion of the addition of Rs. 20,82,39,122/- by the Commissioner of Income Tax (Appeals) -- i.e., allowing exemption under section 11 of the Income-tax Act, 1961 -- was justified where the receipts were contractual in nature.Analysis: The appeal turns on whether the assessee's objects and activities amount to charitable purpose within section 2(15) and whether contractual receipts are incidental to and in furtherance of those charitable objects so as to qualify for exemption under section 11. The administrative findings show identical facts to earlier decisions in the assessee's own case by a Coordinate Bench of the Tribunal, which held that environmental preservation activities are charitable, that the proviso to section 2(15) did not apply, and that contractual receipts did not convert the activities into business. The appellate authority recorded that there was no profit motive, the income was applied for charitable purposes, registration under section 12A had not been cancelled, and there was no contravention of section 13. On these bases and following the binding coordinate-bench precedent on identical facts, the appellate authority concluded that the receipts were incidental to charitable objects and eligible for section 11 exemption.Conclusion: In favour of Assessee -- the deletion of the addition is justified and exemption under section 11 is upheld by the Tribunal.