Mere surplus from exhibition not trade commerce or business activities u/s 2(15) making it non-charitable
ABACUS Case Law Citation
ABCAUS 3386 (2020) (09) ITAT
Important case law relied upon by the parties:
Society of Indian Automobile Manufacturers vs. Income Tax Officer, (2016) 71 taxmann.com 138
Assistant Commissioner of Income Tax vs. Mahratta Chamber of Commerce Industries and Agriculture
In the instant case, questions to be adjudicated were – (1) whether the assessee trust was entitled to get benefit of exemption u/s 11 or 12 of the Income Tax Act, 1961 (the Act) in terms with Section 2(15) of the Act; and (b) whether the assessee was a charitable trust?
The appellant assessee was a public registered trust also registered us 12A of the Act. It was engaged in the activity of promoting and fostering feelings of unity and cooperation and mutual help and to eliminate unhealthy competition and unfair trade practices among the Promoters and Builders Association.
During the year consideration the trust had earned surplus from exhibition activities.
The Assessing Officer (AO) was of the opinion that receipts of the assessee were in the nature of trade, commerce or business etc. mentioned in the first proviso to section 2(15)
The assessee contended that they were engaged in the activity in the nature of object of general public utility and it is non-profit making organization and its objects as mentioned in the constitution were purely of charitable in nature and none of the activities carried on by the assessee was of commercial nature.
It was also submitted before the Assessing Officer that the activities of conducting exhibition were incidental to its objects and the same were not even remotely activities in the nature of trade, commerce or business.
The Assessing Officer, however, held that during the year under consideration there was surplus from activity of conducting exhibition.
The Assessing Officer also concluded that there were subscription charges from participants in the exhibition which were fixed by the assessee and therefore, it could not be said that it was non-profit organization.
According to the AO, the activity of the assessee in conducting exhibition was nothing but the annual feature of one of its activities for earning surplus which could not be said to be a charitable as contemplated in section 2(15) of the Act.
The AO held that the case was clearly hit by the first proviso to section 2(15) of the Act and the assessee was not entitled to exemption claimed u/s 11 or 12 of the act in respect of its surplus income.
Therefore, the Assessing Officer therefore, computed the income under the head “income from business or profession” without exemption u/s 11 or 12 of the Act.
The CIT(A) observed that on perusal of the objects of the assessee trust it was mentioned that the assessee shall create better working condition for labour class people but not a single penny had been incurred towards the welfare of the labour class.
The First Appellate Authority was of the considered opinion that the functioning of the association revolved around the mutual benefit of the members only and no public utility was involved.
Thereafter, CIT(Appeals) upheld the order of the Assessing Officer stating that though the Assessing Officer cannot cancel the registration of the assessee trust, however, he could withdraw the exemption.
Before the Tribunal, the assessee submitted that the trust was not charging any subscription from people attending the exhibitions and conducting exhibition activities was only for furtherance of the object of the trust mentioned in Memorandum of Objects.
The Tribunal opined that it was a case of allegation without any evidence and proof as the Department could not place on record any evidence that the assessee trust was collecting subscriptions, nor the Department had conducted any examination or verification of facts to come to conclusion that the assessee trust was charging subscriptions or that it was working for profit.
Expenses need not be incurred for all charitable objects
Further, the Tribunal stated that the Department could not place on record any evidence or case laws wherein at a given particular year, for all objects of the charitable trust, expenses have to be incurred.
Therefore, in this case, during the year under consideration, if no expenditure had been incurred for the upliftment of labour classes which was one of the objects of the assessee trust, it did not mean that the trust is non charitable in nature.
It was noted that on identical facts, the Coordinate Bench had held that activities of the assessee in organizing seminars, conferences was an object of general public utility and therefore, proviso to section 2(15) would not apply.
The Tribunal opined that holding of exhibition by the assessee trust was only furtherance of the charitable activity of the trust wherein, the healthy environment was provided for businessmen so that all the stake holders i.e. businessmen and customers were benefited and they also make aware of various activities like pollution control, city development, legal assistance etc which were in the nature of charitable activities and these certainly reached out to the greater number of people of the society.
The Tribunal observed that it was not disputed that holding exhibitions was one of the pertinent objects of the assessee trust and fulfillment of such object benefited the public at large by holding the exhibition and therefore, it was a part of charitable activity conducted by the assessee trust.
Merely earning surplus does not make activity non-charitable
The Tribunal stated that merely having surplus in one year did not change the character of the trust to a business or profit making entity which is otherwise a charitable trust advancing work of general public utility and certainly not hit by the first proviso to Section 2(15) of the Act.
Accordingly, the Tribunal set aside the order of the CIT(Appeal) and directed the Assessing Officer to grant benefit of exemption u/s 11 and 12 of the Act to the assessee.
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