Ride A Cycle Foundation Vs ITO (ITAT Bangalore)
ITAT Bangalore held that applicability of the proviso to 2(15) of the Act cannot be on the basis of the default of the parties in not participating in the proceedings but should be on the basis of facts and circumstances of each case. Accordingly, matter remanded for fresh consideration.
Facts- The main objects of the assessee-trust are creating awareness for the society about the virtues of using cycle and to make cycle as a popular mode of transportation that would lessen global warming, air pollution. The assessee has also object of making people understand the need for uncontaminated environment which in turn will lead to good quality of health. The assessee filed return of income declaring Nil income after claiming exemption u/s. 11 of the Act.
AO noticed that the assessee organizes trips and camps by way of “Cycle Rally” to tourist places such as Kalapetta, Ooty, Palakkad,, Valparai, Mysore, etc., and the participants pay for the cycle rides and for food and lodgings at designated places. According to the AO, the assessee was doing an activity which was akin to trade or business. According to the AO, the receipts from the participants are taken as donation but in reality, they were fees for participation in rallies disguised as donations. The AO therefore concluded that the assessee was hit by the proviso to section 2(15) of the Act and therefore the excess of receipts over expenditure was liable to be taxed and the assessee was not entitled to the benefit of exemption under section 11 of the Act.
The CIT(A) noticed that the case was fixed for hearing on 8 occasions and the assessee did not respond or participate in the proceedings before CIT(A). The CIT(A) has set out various dates in para 5.1 of the impugned order. The CIT(A) decided to proceed the appeal ex-parte observing that the assessee failed to explain as to how the activity undertaken by the assessee is not commercial or charitable. Accordingly, the appeal of the assessee was dismissed by the CIT(A).
Conclusion- I am of the view that the order of the CIT(A) has to be set aside and the issue remanded to CIT(A) for a decision on merits. The applicability of the proviso to 2(15) of the Act cannot be on the basis of the default of the parties but should be on the basis of facts and circumstances of each case. In the present case, the donations received by the assessee which was taken as receipts were prima facie donations and there is no material to show that the donations were not voluntary. Both the AO and the CIT(A) have called upon the assessee to demonstrate as to how the donations were voluntary and thereby the assessee was called upon to prove a negative fact. In the circumstances, I am of the view that the assessee should have an opportunity of hearing before the CIT(A) who can appreciate as to how the proviso to section 2(15) of the Act will operate on the facts and circumstances of the given case. In this regard, the contentions that the assessee may put forth should also be considered by the CIT(A) rather than deciding the appeal on the basis of default of parties. For the above reasons, I set aside the order of the CIT(A) and remand the issue of applicability of proviso to section 2(15) of the Act to the CIT(A) for fresh consideration, after affording the assessee opportunity of being heard.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal by the assessee against the order dated 10.10.2022 of NFAC, Delhi, relating to Assessment Year 2017-18.
2. The assessee is a registered trust and enjoys the benefit of registration under section 12A of the Income Tax Act, 1961 (hereinafter called ‘the Act’), by the CIT(A), Karnataka II, Bengaluru. The main objects of the trust are creating awareness for the society about the virtues of using cycle and to make cycle as a popular mode of transportation that would lessen global warming, air pollution. The assessee has also object of making people understand the need for uncontaminated environment which in turn will lead to good quality of health. The assessee filed return of income declaring Nil income after claiming exemption under section 11 of the Act. The AO noticed that the assessee organizes trips and camps by way of “Cycle Rally” to tourist places such as Kalapetta, Ooty, Palakkad,, Valparai, Mysore, etc., and the participants pay for the cycle rides and for food and lodgings at designated places. According to the AO, the assessee was doing an activity which was akin to trade or business. According to the AO, the receipts from the participants are taken as donation but in reality, they were fees for participation in rallies disguised as donations. The AO therefore concluded that the assessee was hit by the proviso to section 2(15) of the Act and therefore the excess of receipts over expenditure was liable to be taxed and the assessee was not entitled to the benefit of exemption under section 11 of the Act. Accordingly, the AO brought to tax the excess of receipts over expenditure as income of the assessee as follows:
