If main object of institution was “charitable” in nature, “Amendment of S. 2(15) of Income Tax Act will not be applicable: ITAT Mumbai [Read Order]

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The Income Tax Appellate Tribunal, Mumbai in a recent ruling, held that the amendment of section 2(15) of the Act w.e.f. 01.04.2009 will not affect a society/ association if primary purpose was advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. As per the said amendment, the “advancement of any other object of general public utility” shall not qualify as a “charitable purpose” if the same involves the carrying on of any activity in the nature of trade, commerce or business, or rendering of any service in relation to any trade, commerce or business, for a consideration.

In the instant case, the assessee is registered as a company u/s.25 of the Companies Act, 1956. The main objects of the assessee trust inter alia are to promote, advance and protect trade, commerce and industry in India. The AO held that the assessee was not imparting education in pursuance of its objects. He held that the activity of organizing seminars, training courses and holding commercial examinations do not fall within the definition of education. The assessee was running certain seminars and training programmes on account of which it collected Rs.31401915/- and conducted examinations for which it collected fees of Rs1224751/-. These two activities were classified as activities to promote education. He held that the assessee’s activities would fall under the sixth category of charitable purpose that is the advancement of any other object ‘of general public utility. He further held that in view of the amendment to s. 2(15) by insertion of proviso w.e.f. 1.4.2009 for AY 2009-10 onwards the assessee would not be entitled to exemption as it is conducting activities in the nature of business earning huge profits in a systematic and organized manner. He also held that earning such huge profit in a systematic and organized manner would not make it an entity existing for charitable purpose.

In view of the above discussion, he declined assessee’s claim of exemption by observing that in view of amendment to Section 2(15) by insertion of proviso w.e.f.1-4-2009, assessee would not be entitled to exemption as it is conducting activities in the nature of business earning huge profits. By the impugned order the CIT(A) confirmed the action of AO, against which assessee is in further appeal before the ITAT.

The Tribunal relied upon the decision of Hon’ble Supreme Court in the case of Andhra Chamber of Commerce (1965) 55 ITR 722 (SC), a case silmilar to the present case, in which the Court observed the following; “Where the main object of the Institution was “charitable” in nature, then the activities carried out towards the achievement of the said, being incidental or ancillary to the main object, even if resulting in profit and even if carried out with non members, were all held to be “charitable” in nature. Hon’ble Apex Court in the earliest case of Andhra Chamber of Commerce (supra) had clearly laid out the principle that if the primary purpose of an Institution was advancement of objects of general public utility, it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose, was profitable in nature. In our view the basic principle underlying the definition of “charitable purpose” remained unaltered even on an amendment in the section 2(15) of the Act w.e.f. 01/04/2009, though the restrictive first proviso was inserted therein. Accordingly, in the given facts of the case as discussed above in detail, the assessee association’s primary purpose was an advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act. This issue of assessee’s appeal is allowed”.

The Tribunal applied the above decision in the instant case, the Tribunal held that that even of amendment of section 2(15) of the Act w.e.f. 01.04.2009, assessee association’s having primary purpose of advancement of objects of general public utility and it would remain charitable even if an incidental or ancillary activity or purpose, for achieving the main purpose was profitable in nature. Hence, assessee is not hit by newly inserted proviso to section 2(15) of the Act.

Read the full text of the order below.

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