2015 (5) TMI 515 - ITAT DELHI - Income Tax

Head Note / Extract:
Revision u/s 263 - AO failed to examine the applicability of 1st and 2nd proviso of Section 2(15) of the Income Tax Act read with 3rd proviso to Section 143(3) and provisions of Section 13(8) although neither 3rd proviso to Section 143(3) nor Section 13(8) were on statute book when AO. passed the assessment order - income not being returned by assessee in its incometax return or in form 10BB - Held that:- Objection of ld. DIT(E) as regards the income not being returned by assessee in its incometax return or in form 10BB is concerned, the same was claimed as exempt on account of concept of mutuality, as in earlier years and, therefore, there was no basis for the AO to take any contrary view on the same. Accordingly, the proceedings u/s 263 initiated by ld. DIT(E) on this count is not at all tenable in law, particularly when this view has been taken by the department since inception. The primary object of insertion of proviso to section 2(15) was to curb the practice of earning income by way of carrying on of trade or commerce and claiming the same as exempt in the garb of pursuing the alleged charitable object of general public utility. This proviso never meant to deny the exemption to those institutions, where the predominant object is undeniably a charitable object and in order to achieve the same incidental activities, essential in the given circumstances, are carried on.In view of the above discussion we hold that the proviso to section 2(15) is not at all applicable in the present case and, therefore, ld. DIT(E) was not at all justified in invoking the proceedings u/s 263. We fail to understand as to how these activities can be said to have an iota of commercial/ trade colour. The dominant object of the assessee is definitely for the well being of public at large by organizing various seminars for the welfare of people by disseminating knowledge in various fields in order to uplift the social consciousness of the society at large. (The composition of membership clearly exemplifies the real intention of assessee. We fail to understand as to how the hostel accommodation provided to various invitees could be considered as a commercial activity. Before any activity can be branded as being in the nature of trade or commerce, the AO has to demonstrate the intention of parties Backed with facts and figures of carrying out activities with profit motive. Mere surplus from any activity, which undisputedly has been undertaken to achieve the dominant object, does not imply that the same is run with profit motive. The intention has to be gathered from circumstances which compelled the carrying on an activity. In the present case, ld. counsel has clearly demonstrated that surplus was generated from interest income and not from catering or hostel activities. Therefore, the objection of ld. DIT(E) does not survive on this count also. Assessee’s case is squarely covered by the decision of India Trade Promotion Organization Vs. Director General of incomew Tax [2015 (1) TMI 928 - DELHI HIGH COURT].Thus in the facts and circumstances of the present case, the ld. DIT(E) was not justified in initiating revisionary proceedings u/s 263 of the Act. - Decided in favour of assessee.