Case Law Details
Institute of Indian Foundrymen Vs ITO (ITAT Kolkata)
The case of Institute of Indian Foundrymen Vs Income Tax Officer (ITAT Kolkata) revolves around the denial of exemption under Section 11 of the Income Tax Act (ITA) by the Assessing Officer (AO), which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The primary contention of the assessee (Institute of Indian Foundrymen) was that its activities were for the advancement of general public utility and therefore qualified for exemption under Section 11 of the Act.
The Institute of Indian Foundrymen is registered under Section 12A of the Act and derives income from various sources such as membership, advertisements, contractual receipts, publication of journals/directories, etc. The main issue in contention was whether the activities conducted by the Institute could be considered as charitable under Section 2(15) of the Act, which defines charitable purposes but excludes activities in the nature of trade, commerce, or business for a fee or any other consideration.
The AO rejected the assessee’s contention, arguing that the gross receipts from the activities exceeded Rs. 10 lakhs in the previous year, thereby disqualifying them from being considered charitable under Section 2(15). The AO concluded that the activities were not eligible for exemption under Section 11 of the Act.
However, the assessee argued that despite the gross receipts exceeding the specified limit, the profit generated from the activities was meager or even resulted in a deficit. In support of this argument, the assessee cited a Co-ordinate Bench decision in their own case for the assessment year 2014-15. The decision highlighted that even if the gross receipts exceed the limit, if the profit derived from the activities is minimal or there is a deficit, then the activities could still be considered charitable under Section 11 of the Act.
The Income Tax Appellate Tribunal (ITAT) Kolkata, after considering the arguments presented by both sides and the precedent set by the Co-ordinate Bench, ruled in favor of the assessee. The ITAT held that the activities of the Institute of Indian Foundrymen qualified as charitable under Section 11 of the Act because the profit derived from the services rendered as a public utility service was meager or resulted in a deficit.
Therefore, the ITAT set aside the order of the CIT(A) and directed the AO to allow the exemption under Section 11 of the Act for the relevant assessment years. The decision was based on the understanding that despite the gross receipts exceeding the specified limit, the meager profit or deficit from the activities indicated that they were conducted primarily for charitable purposes rather than for commercial gain.
In conclusion, the case of Institute of Indian Foundrymen Vs ITO (ITAT Kolkata) highlights the importance of assessing the nature of activities and their financial outcomes when determining eligibility for exemption under Section 11 of the Income Tax Act. Even if gross receipts surpass the threshold, activities that result in minimal profit or a deficit may still qualify as charitable and warrant exemption under the Act.
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