2024 (4) TMI 545 - AT - Income Tax

Exemption u/s 11 - assessee is a Charitable Trust registered u/s. 12A - disallowed assessee s claim of exemption on the pretext that the activities of the assessee are restricted to its members - assessee is predominantly a mutual association - HELD THAT - Co-ordinate Bench in Assessment Year 2011-12 2018 (4) TMI 1293 - ITAT MUMBAI holding of the seminar at Bangalore by the assessee was in furtherance of the dominant object of the assessee, viz. empowerment, betterment and creating awareness amongst the industrialists of the Fragrance and Flavours industry, and display of the products of the sponsors can safely be concluded to be for furtherance of and in the interest of the members of the trade. We are unable to persuade ourselves to be in agreement with the view of the A.O that as the products of the sponsors were displayed at the seminar held at Bangalore, therefore, on the said stand alone basis the assessee was to be held to have carried on commercial activities. We are of the considered view that on a close analysis of the aforesaid activities of the assessee trust ,which if viewed in a broader perspective and pitted against the dominant object of the assessee to hold a seminar for furtherance of and in the interest of the members of the industry, cannot be characterised as a commercial activity. We are unable to persuade ourselves to be in agreement with the view of the lower authorities that the assessee was involved in carrying of commercial activities. We thus being of the view that as the assessee is carrying on its charitable activities, which are in the nature of advancement of the object of general public utility and is not carrying on any commercial activity, therefore, uphold the entitlement of the assessee towards claim of exemption under Sec. 11 The Co-ordinate Bench threadbare examined activities of the assessee from all facets including the issue of rendering services to members. In light of aforesaid decisions by Co-ordinate Bench we find no infirmity in the impugned order. Thus, the order of CIT(A) is upheld and appeal of Revenue is dismissed.

Issues Involved:

1. Justification of exemption u/s 11 for activities related to trade, commerce, or business.
2. Impact of proviso to section 2(15) on the charitable status of the trust.
3. Applicability of the Supreme Court ruling in ACIT (Exemption) Vs. Ahmedabad Urban Development Authority.
4. Nature of income from membership fees, advertisements, and other sources.

Summary:

1. Justification of exemption u/s 11 for activities related to trade, commerce, or business:

The Revenue contended that the CIT(A) erred in allowing the exemption u/s 11 of the I.T. Act, asserting that the assessee trust's activities are commercial in nature, serving its members rather than the public at large. The Department argued that these activities do not fall within the ambit of "charitable purpose" as defined in section 2(15) of the Act.

2. Impact of proviso to section 2(15) on the charitable status of the trust:

The Revenue argued that once the assessee is affected by the proviso to section 2(15), its objects are no longer charitable, and thus, its income cannot be treated as derived from property held for charitable purposes, making it ineligible for exemption u/s 11. The CIT(A) had previously reversed the Assessing Officer's decision, which was based on the premise that the assessee's activities were restricted to its members and thus commercial.

3. Applicability of the Supreme Court ruling in ACIT (Exemption) Vs. Ahmedabad Urban Development Authority:

The Revenue cited the Supreme Court's decision, arguing that even if the assessee's activities fall under the residuary part of section 2(15) as advancement of any other object of general public utility, it is still not entitled to exemption u/s 11 due to its income being derived from trade, commerce, or business activities such as membership fees and sponsorship fees.

4. Nature of income from membership fees, advertisements, and other sources:

The Revenue claimed that the assessee's income from membership fees, advertisements, sale of publications, and sponsorship fees are from regular and systematic activities in the nature of trade, commerce, or business. However, the Tribunal found that these activities were incidental to and in furtherance of the dominant object of the assessee trust, which is the advancement and development of the Fragrance and Flavours industry in India.

The Tribunal upheld the CIT(A)'s order, noting that similar issues in previous assessment years were decided in favor of the assessee, establishing that the trust's activities were not commercial but aimed at furthering its charitable objectives. The Tribunal emphasized that the dominant object of the trust was to provide knowledge, information, and awareness to the members of the Fragrance and Flavours industry, and any surplus generated was incidental and used for the trust's main objectives.

The Tribunal concluded that the activities of the assessee trust do not fall within the realm of commercial activities and thus upheld the entitlement of the assessee to claim exemption u/s 11 of the Act. The appeal by the Revenue was dismissed.

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