2022 (6) TMI 951 - AT - Income Tax

Exemption u/s 11 - Charitable activity u/s 2(15) - whether assessee society is a charitable organization despite the fact that the assessee society was doing business within the meaning of amended provisions of section 2(15)? - HELD THAT - CIT(A) elaborately noted all the submissions of the assessee. Thereafter he referred to the earlier order of the Ld. CIT(A) in assessee s own case and order of the ITAT 2016 (4) TMI 1400 - ITAT DELHI Hon ble Delhi High Court 2011 (10) TMI 173 - DELHI HIGH COURT in assessee s own case. The issue has been decided in assessee s favour.

Summary

Issues Involved:
1. Whether the assessee society qualifies as a charitable organization under section 2(15) of the Income Tax Act, 1961.
2. Whether the assessee society is covered under the principle of mutuality.

Detailed Analysis:

1. Charitable Organization Qualification:
The primary issue revolves around whether the assessee society qualifies as a charitable organization under section 2(15) of the Income Tax Act, 1961. The Assessing Officer (AO) scrutinized the activities of the assessee to determine if they fell within the definition of "charitable purposes" as per the amended provisions. The AO concluded that the society's activities were hybrid, partially charitable and partially mutual, and could not be compartmentalized for tax exemption purposes. The AO further noted that the assessee's activities included providing services like accommodation, food, and beverages for payment, which were considered business activities not incidental to the attainment of its objectives, thus disqualifying it from exemption under section 11 read with section 2(15).

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] referred to previous orders and judicial precedents, including decisions in the assessee's own case by the ITAT and the Hon'ble Delhi High Court, which recognized the assessee as a charitable organization. The CIT(A) noted that the assessee's activities in areas like environment, education, health, preservation of artistic and historic interest, and relief to the poor were well-documented and qualified as charitable activities. The CIT(A) emphasized that the assessee's predominant motive was not profit-making but engaging in charitable activities, and all surpluses were used to maintain and improve infrastructure or undertake charitable activities, with no appropriation by individuals.

2. Principle of Mutuality:
The second issue pertains to whether the assessee society is covered under the principle of mutuality. The AO argued that there was no complete identity between contributors and participators, particularly as some activities were restricted to members and specially invited non-members. This, according to the AO, disqualified the society from being considered under the principle of mutuality.

The CIT(A), however, found that the assessee had consistently been treated as a mutual association in previous years and that there was no fundamental change in its activities. The CIT(A) cited the principle of consistency from the Hon'ble Delhi High Court's judgment in the assessee's own case, which stated that in the absence of material changes, the Department should not deviate from its earlier positions. The CIT(A) concluded that the assessee should be given the benefit of mutuality, as its activities were geared towards providing services for its members without generating surplus for any individual or group.

Tribunal's Decision:
The Income Tax Appellate Tribunal (ITAT) reviewed the submissions and records, noting that the issue had been previously decided in favor of the assessee by both the ITAT and the Hon'ble Delhi High Court. The Tribunal upheld the CIT(A)'s order, affirming that the assessee qualifies as a charitable organization and is entitled to exemption under section 11. Additionally, the Tribunal agreed that the assessee is covered under the principle of mutuality, following the precedent set by earlier judgments.

Conclusion:
The appeal by the Revenue was dismissed, with the Tribunal pronouncing the order in favor of the assessee, confirming its status as a charitable organization and its entitlement to tax exemption under the principle of mutuality.