Pure Charity Performance of Activity without Consideration is not Envisioned u/s 2(15) of Income Tax Act as GPU object: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that Pure Charity Performance of Activity without Consideration is not envisioned under Section 2(15) of the Income Tax Act, 1961, as General Public Utility ( GPU ) object

The Assessing Officer ( AO ) interpreted the second provision to Section 2(15) of the Income Tax Act. The AO asserted that if the total receipts from activities surpass Rs. 10 lakhs and the object of the organization was deemed as one of general public utility, it would not qualify as a charitable purpose. In the case at hand, the gross receipts of the assessee exceeded Rs. 10 lakhs, leading the AO to classify the organization as non-charitable. Consequently, the AO denied the organization the benefit of exemption under Section 11 of the Income Tax Act, 1961.

The Senior Counsels for the assesse Pardiwala, Niraj argued that the activities undertaken by the organization predominantly involve its members, who constitute a substantial portion of the advertising and media industry. Hence, it should be recognized both as a charitable and mutual organization. Additionally, there have been no allegations questioning the genuineness or compliance of its activities with the primary objectives.

The Senior Counsel for the assessee contended that since the organization operates without a profit motive, its activities cannot be categorized as trade, commerce, or business. It was emphasized that the intention to earn profit is essential for an activity to be considered as business. Reference was made to the judgment of the Supreme Court in the case of ACIT ( Exemptions ) vs. Ahmedabad Urban Development Authority which emphasized the necessity of profit motive for the provision to Section 2(15) of the Income Tax Act, 1961 to apply.

The counsel for the revenue Mahita Nair argued that this case necessitates scrutiny in light of a pivotal judgment from the Supreme Court. The focus lies on determining whether the activities undertaken by the assessee can be categorized as falling within the ambit of trade, commerce, or business. Should these activities indeed fall under such classifications, the triggering of the threshold stipulated in the second proviso ensues. This threshold, if surpassed, results in the denial of exemption under Section 11 for the respective fiscal year.

The counsel for the revenue emphasized that the very essence of the assessee’s activities inherently aligns with the realms of trade, commerce, and business. Consequently, it is unmistakably affected by the proviso outlined in Section 2(15) of the Income Tax Act, 1961.

The two member bench of the tribunal comprising Gangan Goyal ( Accountant member ) and Amit Shukla ( Judicial member ) observed that the concept of pure charity, the performance of an activity without consideration was not envisioned under the Act, however, as long as GPUs object involves activities which also generates profits, it can be granted exemption provided the quantitative limit under second proviso to Section 2(15) of the  Income Tax Act, 1961, for receipts from such profits, was  adhered to.

 In the result, all the appeals of assessee are allowed for statistical purposes.

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