2023 (8) TMI 1646 - AT - Income Tax

Exemption u/s 11 - charitable activity u/s 2(15) - Income received by the assessee is from organizing the event of Garba by sale of tickets and also leasing out food and beverages outlets at the venue of the event HELD THAT - The issue is squarely covered by the order passed in assessee s own case for A.Ys. 2009-10 to 2014-15 2019 (6) TMI 1448 - ITAT AHMEDABAD as held activities carried out by the assessee are in the nature of education medical relief and help to poor which are specifically covered by section 2(15) and not by its residuary segment. The proviso to Section 2(15) thus indeed has no application in the matter. As for the denial of deduction in respect of expenses like assistance to voluntary agencies management assistance and training public education programme research and publications and expenses for community service that is only consequential in nature inasmuch as the deductions were declined in computation of business income from garba event but then once the proviso to Section 2(15) is held to be inapplicable on the facts of this case these expenses are to be treated as application of income No reason to deviate from the stand taken by the Ld. CIT(A) in holding it a Charitable Trust in the identical facts and circumstances of the matter and further invocation of provision of 1st Proviso of Section 2(15) of the Act is not sustainable and relief so granted is found to be just and proper so as to warrant interference. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the appellant trust qualifies as a charitable trust within the meaning of Section 2(15) of the Income Tax Act, 1961, and is therefore entitled to exemption under Sections 11 and 12 of the Act;
• Whether the activities of the trust, including organizing events such as Garba with sale of tickets and leasing out food and beverage outlets, constitute a "business" or "trade" under the first proviso to Section 2(15) of the Act, thereby disqualifying it from exemption;
• The applicability of Section 13(8) of the Act, which restricts exemption to trusts engaged in charitable activities and excludes those whose income arises from business or activities not incidental to charitable purposes;
• The correctness of the Assessing Officer's (AO) denial of claims related to expenses, corpus fund, accumulation of income, and set apart amounts under Sections 11(1)(a) and 11(2) of the Act;
• The validity of the Commissioner of Income Tax (Appeals) [CIT(A)] order granting relief to the appellant by recognizing it as a charitable trust and deleting additions made by the AO.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the appellant is a charitable trust entitled to exemption under Sections 11 and 12 of the Act

The appellant is a trust registered under Section 12AA of the Act and the Bombay Public Trust Act. It declared a gross total income of Rs. 6,33,13,673/- for the Assessment Year (AY) 2015-16, with an accumulated surplus and claims for application of funds for charitable purposes. The AO disallowed exemption, holding that the trust's activities fell within the ambit of "advancement of any other object of general public utility" under amended Section 2(15) and were therefore excluded from exemption under Section 13(8).

The Tribunal examined prior orders in the appellant's own case for AYs 2011-12 and 2012-13, where it was held that the first proviso to Section 2(15) r.w.s. 13(8) was not applicable, and the appellant was rightly treated as a charitable trust. The CIT(A) also found that the AO erred in double counting the accumulated fund and misapplying the provisions.

The Tribunal further relied on the decision of the Hon'ble Jurisdictional High Court in the appellant's own case for AY 2014-15, which upheld the Tribunal's order. The High Court noted that the dominant object of the trust was charitable, including support to 120 NGOs, health and human services, medical camps, vocational training, women empowerment, and midday meals for poor students. The incidental activities such as organizing Garba events with ticket sales and leasing food outlets were not considered business activities as the profit motive was absent and income was fully applied for charitable purposes.

The Court emphasized that the terms "trade," "commerce," and "business" in the first proviso to Section 2(15) must be interpreted in light of the intent of the provision, which is to exclude organizations carrying on regular business with profit motive from charitable purposes. Mere organized activity or incidental income generation does not convert the trust's activities into business. The dominant object test and profit motive test are critical, and in this case, the evidence showed no profit motive or business continuity.

Issue 2: Applicability of Section 13(8) of the Act and denial of claims by AO

Section 13(8) excludes from exemption trusts whose income arises from activities not incidental to charitable purposes or from business. The AO denied claims for certain expenses, corpus fund, accumulation, and set apart amounts under Sections 11(1)(a) and 11(2), alleging non-incidental nature of activities and business character.

The CIT(A) and the Tribunal found that the AO erred in applying Section 13(8) by treating the trust as an Association of Persons (AOP) and by failing to appreciate the nature of the trust's activities and the application of funds. The Tribunal noted that the accumulated fund was already included in the gross total income and could not be added again. The trust's activities were found to be charitable and incidental income-generating activities did not disqualify exemption claims.

The Tribunal relied on the High Court's affirmation that the trust's income was not for individual benefit but fully utilized for charitable objectives, and thus, the provisions of Section 13(8) were not attracted.

Issue 3: Treatment of incidental income-generating activities such as organizing Garba events

The Tribunal analyzed whether the sale of tickets for Garba events and leasing of food and beverage outlets constituted business activities. The High Court's decision clarified that such activities are incidental and not the dominant object. The profit motive was absent, and the income was applied for charitable purposes.

The Court held: "The activities like organizing the event of Garba including the sale of tickets and issue of passes etc. cannot be termed as business... The profit making is not the driving force or the objective of the assessee."

This interpretation aligns with the principle that incidental commercial activities do not negate the charitable status if the dominant object is charitable and income is applied accordingly.

Issue 4: Reliance on precedents and concurrent findings

The Tribunal gave significant weight to the appellant's own earlier orders and the High Court's judgment, which had concurrently found the trust to be charitable and exempt. The principle of consistency and judicial discipline was invoked to uphold the CIT(A)'s order and dismiss the Revenue's appeal.

The Tribunal observed that no fresh material or changed circumstances justified deviation from the established position.

3. SIGNIFICANT HOLDINGS

"The trust is held to be a charitable trust to which provisions of section 2(15) r.w.s.13(8) would not be applicable."

"The activities like organizing the event of Garba including the sale of tickets and issue of passes etc. cannot be termed as business. The two authorities have taken the view that the profit making is not the driving force or the objective of the assessee."

"The expression 'trade', 'commerce' and 'business' as occurring in the first Proviso to Section 2(15) of the Act must be read in the context of the intent and purport of section 2(15) of the Act and cannot be interpreted to mean any activity which is carried on in an organized manner."

"An activity would be considered business if it is undertaken with a profit motive, but in some cases, this may not be determinative. Normally, the profit motive test should be satisfied, but in a given case the activity may be regarded as a business even when the profit motive cannot be established/ proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles and pursued with reasonable continuity."

"The AO has committed a mistake in considering the amount again in making the addition solely for the reason that there was applicability of section 2(15) r. w. s. 13(8) of the Act and treating the assessee as AOP."

Final determinations:

• The appellant trust qualifies as a charitable trust under Section 2(15) and is entitled to exemption under Sections 11 and 12 of the Income Tax Act;
• The incidental activities of organizing events and leasing outlets do not constitute business for the purposes of exemption;
• The provisions of Section 13(8) are not attracted in the facts of this case;
• The AO's disallowance of claims related to expenses, corpus fund, accumulation, and set apart amounts under Sections 11(1)(a) and 11(2) was erroneous;
• The CIT(A)'s order granting relief to the appellant is upheld, and the Revenue's appeal is dismissed as devoid of merit.