TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1739
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....laimed as deduction. 2. The assessee is a company registered under section 25 of the Companies Act, 1956 and is registered as a charitable organization under 12A of the Act with DIT(Exemption). For AY 2016-17 the assessee filed a return of income on 14.10.2016 and the return for AY 2018-19 was filed on 29.10.2018. In both the AYs the assessee declared Nil income after claiming exemption under section 11 of the Act. The case of the assessee for both AY 2016-17 & 2018-19 were selected for scrutiny and the statutory notices were duly served on the assessee. The AO for AY 2016-17 issued notice under section 142(1) by placing reliance on the CBDT circular No.11/2008 dated 19.12.2008, asking the assessee to explain why not 1st proviso to section 2(15) of the Act should not be applied as the assessee is engaged in the activity of providing / rendering services to Members / Non-members in relation to trade, commerce or business for a fee. The Assessing Officer (AO) further stated in the notice that the activity of the assessee is to be considered on principle of mutuality and therefore interest income, sponsorship, receipt and other income cannot be allowed as exempt. The assessee in resp....
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....e assessee is exempt under section 11 of the Act and made no addition (page 78 to 80 of the PB). The ld. AR therefore, argued that the Revenue suddenly cannot claim that the principle of mutuality is applicable in assessee's case and accordingly tax the interest income and other income. The ld. AR further argued that Circular No. 11/2008 cannot be applied in assessee's case since as per the Circular the principle of mutuality should be applied only for those Trust who are carrying on activity in the nature of trade, commerce or business and are claiming exemption under section 11 on the ground that their objects are for chartable purposes as these are covered under any other object of general public utility. The ld. AR also argued that in assessee's case the assessee is not involved in any activity in the nature of trade, commerce or business and that the assessee's activity are not only beneficial to members but to public also which is substantiated by the fact that the assessee conducts annual meet for the benefit of general public without collecting any fee. In this regard the ld. AR drew our attention to the brochure for the annual meet of 2025 to submit that th....
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....deline changes by IRDAI representing policy holders point of view to committee formed, etc. Accordingly it is contented that the assessee represents public at large in insurance matters and not only for the benefits of the members. The AO held that the assessee cannot claim exemption under section 11 of the Act since the 1st proviso to section 2(15) of the Act is applicable. The AO further held that the principle of mutuality is applicable in assessee's case and brought to tax the interest and other income earned by the assessee. The AO / CIT(A) placed reliance on Circular No. 11/2008 dated 19.12.2008 in this regard and therefore proceeding it is relevant to look at the relevant part of the Circular which reads as under - "3. The newly inserted proviso to section 2(15) will apply only to entities whose purpose is 'advancement of any other object of general public utility' Le., the fourth limb of the definition of 'charitable purpose contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section. 10(230) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the ....
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.... those institutions which are charitable institutions as well as mutual organizations where their activities are restricted to contributions from and participation of only their members the proviso to section 2(15) would not applicable owing to the principle of mutuality. The circular also provides that if such organizations have dealings with non-members, their claim to be charitable organizations have to be evaluated in the light of the conditions stipulated in the proviso to section 2(15) of the Act. In assessee's case it is not in dispute that it is a charitable organization since the assessee is registered under section 12A of the Act and that the revenue till now has not held the assessee to be otherwise. Now coming to the question of whether the assessee is a mutual organization, from the perusal of the financial statements of the assessee, we notice that the income of the assessee consist of subscription fee from members, sponsorship fees for annual event and bank interest (page 19 and 14 of PB). Further from the perusal of the brochure of the annual event, we notice that the event is held for the benefit of insurance consumers and brokers and that the events conducted ....
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.... cess or fee or any other consideration. We also notice that the income of the assessee does not contain any revenue from any activity in the nature of trade, commerce or business. Further the participation in the annual meet for which the sponsorship fees is received is free of cost and therefore cannot be held to be a service for a fee for rendering service. Considering these facts we are of the view that the AO is not correct in stating that the 1st proviso to section 2(15) is applicable in assessee's case without bringing anything on record to substantiate the claim. It is relevant here to consider the observations of the Hon'ble Supreme Court in the case of ACIT (E) Vs. Ahmadabad Urban Development Authority (2022) 143 taxmann.com 278 (SC) where it has been held that "200. Surat Art Silk (supra) and other decisions, had ruled that as long as the objects of trade promotion bodies were for general public utility wherein 'trade promotion' in itself, was held to be a GPU the fact that incidentally these bodies carried on some commercial activity, leading to profit, did not preclude them from claiming to be driven by charitable purpose. As observed earlier, t....