ITA No. 3124/Del/2014, (Assessment Year: 2009-2010). Case: India International Centre Vs Asstt. Director of Income Tax. Delhi DRAT ITAT Cases
| Case Number | ITA No. 3124/Del/2014, (Assessment Year: 2009-2010) |
| Counsel | For Appellant: Pradeep Dinodia and For Respondentst: R.K. Kapoor, C.A. and R.I.S. Gill, CIT (DR) |
| Judges | S.V. Mehrotra, Member (A) and C.M. Garg, Member (J) |
| Issue | Constitution of India - Article 14; Income Tax Act, 1961 - Sections 10, 10 (23 C)(iv), 10 (23C)(iv), 10(23C), 10(23C)(iv), 11, 12, 12A, 13, 13(8), 142(1), 143(3), 2, 2(15), 263, 80G, 80G(5), 80HHC |
| Judgement Date | May 11, 2015 |
| Court | Delhi DRAT ITAT Cases |
Order:
S.V. Mehrotra, Member (A), (ITAT Delhi 'C' Bench)
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This appeal, by the assessee, is directed against the order dated 31-03-2014 u/s. 263 of the Income-tax Act, 1961, passed by the Director of Income-tax (Exemptions), New Delhi, relating to A.Y. 2009-10.
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Brief facts of the case are that the assessee had filed its return of income on 29-9-2009 declaring Nil income for AY 2009-10. The AO completed the assessment u/s. 143(3) after examining the details and explanations and the books of accounts at Nil income. Subsequently, ld. Director of Income-tax (Exemptions) ("DIT(E)" in short), examined the records and noticed that as per income and expenditure account, total income of the assessee had been shown at Rs. 2640.96 lakhs. Out of this, Rs. 783.18 lakh had been considered for computation of income for charitable activity u/s. 10(23C)(iv) and remaining amount had been claimed exempt on the principle of mutuality. Ld. DIT(E) examined the accumulation chart and income and expenditure account and concluded that major activities of the assessee revolved around accommodation and catering facilities and these activities were not on no-profit/loss basis, since there was continuous surplus being reflected in the account for many previous years. He further observed that the second objective, as per memorandum of association viz. "to undertake, organize and facilitate study courses, conferences, seminars, lectures and research in matters relating to different cultural patterns of the world", was not charitable in itself but becomes charitable only when it is read with first objective viz. "to promote understanding and amity between the different communities of the world by undertaking or promoting the study of their past and present cultures, by disseminating or exchanging knowledge thereof, and by providing such other facilities as would lead to their universal appreciation". He pointed out that in the first category there were general citizen of the world whereas beneficiaries in the second category were exclusive selected members of the society and their few invited guests. She, therefore, concluded that the trust could not be called as serving the general public. She further observed that since the trust itself was applying the principle of mutuality in respect of admission fee, subscription, income from hostel rooms, food and beverage, sale and expenses thereof, it could be concluded that nature of the trust was to serve its members to their benefits.
2.1. Ld. DIT(E) further examined the bye laws of the society and concluded that they did not fulfill the criteria to come under the principle of mutuality. She, accordingly, issued a notice u/s. 263 on 11-3-2014, which was further amended by notice dated 28-3-2014, requiring the assessee to show cause as to why the order passed by the AO may not be treated as erroneous and prejudicial to the interests of revenue and accordingly be set aside.
2.2. The assessee filed detailed replies vide its letter dated 24-3-2014, 29-3-2014 and 31-3-2014, which have been reproduced extensively in para 2 of ld. DIT(E)'s order. After considering the assessee's reply, the ld. DIT(E), after detailed discussion, held that AO failed to examine the application of section 2(15) read with third proviso to section 143(3) and also read with section 13(8) of the Income-tax Act, 1961. She further observed as under:
This is a clear case of non application of mind and non application of law. The asstt. order by mere reading of it is erroneous as it has treated the whole of income of the assessee as exempt with reference to section 11,12 and 13 though the assessee had submitted report in form No. 10BB only with respect of part income of Rs. 7,90,08,192/- The assessee's claim of exemption with respect to balance income has thus not been examined at all. Further, in view of the discussion as above, assessee's claim of exemption either u/s. 10(23C)(iv), u/s. 11 or under the principle of mutuality do not appear to be tenable. Therefore, entire surplus of Rs. 290.70 lacs to be exempt was to be brought to tax, which the AO has failed to do. Thus, the order is both erroneous and prejudicial to the interest of revenue.
2.3. The main reasons for arriving at the aforementioned conclusion were as under:
"(a) The assessee society in its audit report in form No. 10BB had shown only part of its income and expenditure attributable to activities in terms of section 10(23C)(iv), whereas the total income/expenditure/surplus etc. as per the Income & Expenditure a/c of the assessee for the current assessment year were Rs. 2640.96 lacs/2348.19 lacs/Rs. 292.17 lacs respectively. In its return filed in ITR 7, the assessee had shown only income of Rs. 7,90,08,192/- from other sources and claimed the same to be exempt u/s. 10(23C)(iv). Both the return of income as well as the form No. 10BB were silent on balance income.
(b) The exemption u/s. 10(23C)(iv) was subject to fulfillment of conditions laid down in the order notifying the assessee u/s. 10(23C)(iv). The assessee's activities included providing of services i.e. accommodation, food & beverages etc., for payment of charges, which comes within the mischief of proviso 1 & 2 to section 2(15) read with third proviso to section 143(3).
(c) She also pointed out that as per Income & Expenditure A/c of the assessee, the surplus generated in assessee's case was Rs. 292.17 lacs as against Rs. 230.08 lacs in the preceding year. Therefore, the assessee's claim that the activities were not on commercial line, was not tenable.
(d) As regards the assessee's claim that income was not taxable income, being derived from mutual concern, she observed that assessee had claimed that partly income was covered by the provisions of section 10(23C)(iv) read with sec. 2(15) and partly by principle of mutuality. She observed that an assessee could have income from different heads or income from different sources, but it could not have its income and expenditure for the same sources apportioned on the basis of different principles, as claimed by the assessee. She, accordingly, held that the assessee could not be allowed to compartmentalize its activities and income arising therefrom under charitable activities and mutual activities. All the activities had to be seen in its totality.
(e) While cultural and intellectual activities of the assessee were open to general public, the accommodation and related activities were restricted only to its members as well non members specially invited to participate in the activities of the society. Thus, there was no complete identity between the contributors and participators and, therefore, the assessee could not be considered to be covered by principle of mutuality.
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Ld. counsel for the assessee referred to the condensed grounds of appeal and submitted that the assessee has assailed the order of ld. DIT(E) on following grounds:
"1. That the Ld. DIT (Exemption) has grossly erred in law and on the facts of the appellant's case in holding that the order passed by the AO u/s. 143(3) is erroneous and prejudicial to the interests of revenue..
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That the order passed u/s. 263 dated 31.03.2014 is bad in law and the revision order u/s. 263 deserves to be cancelled.
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That the Ld. DIT (Exemption) has erred in law in holding that the AO failed to examine the applicability of 1st and 2nd proviso of Section 2(15) of the Income Tax Act read with 3rd proviso to Section 143(3) and provisions of Section 13(8) although neither 3rd proviso to Section 143(3) nor Section 13(8) were on statute book when AO. passed the assessment order.
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That the Ld. DIT (Exemption) has grossly erred in holding that provisions of Sections 11, 12, 13 and Section 10(23C)(iv) of the Income Tax Act are not applicable to the facts of the appellant in spite of the fact that registration u/s. 12A, 80G and 10(23C)(iv) remain intact.
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That the Ld. DIT (Exemption) grossly erred in law in holding that the activities such as accommodation, food and beverages to the members of the appellant represent trade and business irrespective of the fact that "dominant object" of the appellant remains charitable not driven by "profit motive".
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That the Ld. DIT (Exemption) grossly erred in law in invoking provisions of Section 263 although it was not a case of "no enquiry" by the AO on the applicability of provisions of Section 2(15) with its latest amendment.
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That the Director of Income-tax (Exemptions) has erred in holding that all the activities of the assessee had to be seen in totality and the assessee cannot be allowed to compartmentalize its activities and income arising there from under charitable activities and mutual activities.
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That the learned Director of Income-tax (Exemptions) has erred in holding that the AO has failed to bring to tax the entire surplus of Rs. 292.70 lakhs.
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That each ground is independent of and without prejudice to the other grounds raised herein".
3.1. Ld. counsel submitted that the assessee is registered u/s. 12A since 18-6-1973 and also approved u/s. 80G(5) and further notified u/s. 10(23C)(iv) for the AY 2006-07 onwards vide notification No. 13/2007 dated 19-1-2007. He submitted that all these registrations are still subsisting. Ld. counsel submitted that since the inception till date, the assessment has been completed u/s. 143(3). He pointed out that the main allegation and the findings given in the order u/s. 263 by the DIT(Exemption) are that activities undertaken by the assessee included providing of services such as accommodation, food and beverages on chargeable basis and, therefore, such activities were caught within the mischief of proviso 1 & 2 to section 2(15) read with third proviso to section 143(3) and section 13(8) of the I.T. Act.
3.2. Ld. counsel submitted that assessment was completed u/s. 143(3) of the Act on 26-12-2011, whereas third proviso to section 143(3) as well as section 13(8) of the I.T. Act were introduced by the Finance...
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