Case Law Details
Brief Facts of the Case and Question
Brief Facts: 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)”, 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.
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.
Question Raised:
1. 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.
2. 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.
3. 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”.
4. 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 Assessing officer.
Contention of the Assessee:
The assessee was not satisfied with the act of assessing officer, The Assessee contended 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).
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/s12A, 80G and 10(23C)(iv) remain intact and the activities such as accommodation, food and beverages to the members of the appellant represent trade andbusiness irrespective of the fact that “dominant object” of the Appellant remains charitable not driven by “profit motive.
The Assessee also contended 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”.and 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 Assessing officer.
Contention of Revenue:
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). 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.
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 Act, 2012 with retrospective effect from 1-4-2009. Therefore, when the assessment was framed by the AO, third proviso to section 143(3) as well as section 13(8) were not on the statute book and it was impossible for any assessing authority to envisage as to what provisions of law were going to be incorporated or changed in future.
Ld. counsel further referred to the annual accounts and pointed out that the gross receipts of the Society for the year ended 31st March 2009 was Rs.26.40 crores, which included interest income of Rs.6.17 crores. As against this, the total expenditure was Rs.23.48 crores. The overall surplus, as also stated by the DIT(E), was Rs.2.92 crores. Therefore, no activity, whatsoever, of the Society could be said or alleged to be generating any surplus. The surplus, if any, had resulted only because of interest income being earned by the Society on the accumulated funds of earlier years
So accordingly the department invoked the provisions of section 263 and the assessee contention is not correct in law.
Held by ITAT
ITAT have considered the rival submissions and have perused the recordof the case. At the outset we may point out that as far as the objection of ld.DIT(E) as regards the income not being returned by assessee in its income tax Return or in form 10BB is concerned, the same was claimed as exempt on account of concept of mutuality, as in earlier years and, therefore, there was no basis for the AO to take any contrary view on the same. Accordingly, the Proceedings u/s 263 initiated by ld. DIT(E) on this count is not at all tenable in law, particularly when this view has been taken by the department since inception.
Admittedly, the third proviso to section 143(3), requiring the AO to examine the applicability of proviso to section 2(15) in case of institutions notified u/s 10(23C)(iv) in view of insertion of 17th proviso to section 10(23C), was not on statute book at the time when assessment order was passed and since the notification remained in force, in any view of the matter, the invocation of section 263 by ld. DIT(E) was not justified in view of the decision of Hon’ble Supreme Court in the case of Max India Ltd.(supra), Further we find that 263 proceedings initiated by ld. DIT(E) on the ground that there was no application of mind by AO cannot be sustained.
We may observe that unless there is profit motive in carrying out an activity, it cannot take colour of trade or Commerce. The predominant activities of the centre was not to earn income but to provide facilities for disseminating or exchanging knowledge as per the object of the society The dominant object of the assessee is definitely for the well being of public at large by organizing various seminars for the welfare of people by Disseminating knowledge in various fields in order to uplift the social consciousness of the society at large.
We hold that, in the facts and circumstances of the present case, the ld. DIT(E) was not justified in initiating revisionary proceedings u/s 263 of the Act. According order passed by the DIT(E) u/s 263 of the Act is quashed and the assessment order passed by the AO is restored.
In the result, assessee’s appeal is allowed.
