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2020 (1) TMI 21 - HC - Income TaxExemption u/s 11 - AO has proceeded to classify assessee’s activities as ‘hybrid’, holding that part of the activities are covered by provisions of Section 11 r/w section 2(15) and partly by principle of mutuality - if the assessee has taken the plea of mutuality, whether it could be deprived of the benefit of Section 2(15)? - HELD THAT:- Merely because the assessee is charging for certain goods and services, it does not render such activities as commercial activities and the fact that the AO has accepted that the assessee is promoting public interest as provided in the proviso to Section 2(15), there cannot be any doubt that the assessee should be regarded as charitable organisation and given the full benefit of exemption provided to such organisations under the Act. Relying on this premise, it has been held that since the assessee has not generated any surpluses from anyone-members or non-members, it was not correct to say that the assessee has claimed relief partly as charitable organisation and partly as mutual association. As rightly held that the principle of mutuality becomes superfluous in view of the fact that the activities were held to be charitable. Applying the principle of consistency, CIT(A) held that there is no fundamental change in the nature of activities of the assessee for the period prior to AY 2008-09 and subsequent years. The ITAT has confirmed the findings of the CIT(A). Though the principles of res judicata are not applicable to the income tax proceedings, however, at the same time, one cannot ignore the fact that there is no dispute with respect to the consistency in the nature of activities of the assessee. All the income tax authorities have held that the assessee is a charitable institution and this consistent finding of fact entitles the assessee to have its income computed under Section 11, 12 and 13 of the Act. It was imperative for the Revenue to establish that there was an element of profit motive in the activities of the assessee, to deny the benefit. If any surpluses have been generated on account of some of the activities of the assessee, it would not ipso facto be determinative of the fact that there was an element of profit motive. The contentions raised by the Revenue, do not impress this Court as no error has been pointed out with respect to the aforesaid finding of fact which would disentitle the assessee the benefit of Section 2(15) of the Act. In the present case, since the assessee is registered as a charitable trust, the application of principle of mutuality for the computation of its income is not required to be gone into as the income is to be computed as per Section 11, 12 and 13 of the Act - no ground to disentitle the assessee to the benefits of Section 2(15) - Decided against revenue
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