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Judgment
PER VIMAL KUMAR, JM:
The appeals filed by the assessee are against the order dated 27.03.2026 of the Ld. Commissioner of Income Tax (Exemption), New Delhi rejecting application u/s 12A(1)(ac)(ii) of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’).
Ld. Authorized Representative for appellant/assessee submitted that ITA No. 4462/Del/2026 and ITA No. 4543/Del/2026 are against same order were filed electronically. ITA No. 4462/Del/2026 may be dismissed. Ld. CIT(E) erred in holding that the appellant’s activities are commercial in nature and not charitable in terms of proviso to Section 2(15) of the Act without giving any reasonable findings, without issuing show cause notice and further stating that appellant exists for profit purposes. Ld. CIT(E) erred in alleging that the appellant has committed regular violation as enumerated in Clause e(ii) of Explanation to section 12AB(4) of the Act. Written submissions page No. 1 to 34 of the paper book mentioning facts, and ground wise submissions were submitted in para No. 20.5 and 20.6 it was mentioned as under:
“20.5The Learned CIT(E) referred to the decision of Honorable Supreme Court of India in the case of Assistant Commissioner of Income Tax (Exemption) Vs Ahmedabad Urban Development Authority in arriving at the conclusion that the activities of the appellant company are commercial in nature. High surplus as per Income and Expenditure account also led to the conclusion that activities of the appellant company are commercial in nature.
In arriving at the above conclusion the Learned CIT(E) ignored the provisions of section 11 of the income tax for computation of income. Before going to the legality of the issue, let us first clarify each item of receipt by the assessee.
In order to perform its services to the industry, the assessee received contribution from its members, during the year, in following forms:
a. Yearly subscription, Membership fee and admission fee: This fee has been taken from the members of the association on nominal basis in order to meet the date to day expenses of the association and administrative cost.
b. Sponsorship fee and Meeting and Conference contribution: These are the contribution taken from the member in order to meet the expenses incurred in relation to meetings and conferences organized by the association towards its goal of promotion of the its objects and also meeting administrative cost.
C. CEAMA Ace Dialogue Magazine: A magazine giving information about the electronic industry is published on monthly basis and a nominal fee is collected in lieu of advertisement in the megazine for meeting printing and distribution cost of the same. The magazine is distributed free of cost to the members of the appellant company.
20.5In various cases it has been held that it is not the nature of income but the application of Income is relevant to grant exemption under section 11 of the Income tax Act.
20.6In the Judgment on 20 February, 2015 by Income Tax Appellate Tribunal Delhi in the case of Indian Medical Association, New vs Department of Income Tax it is held that the voluntary contribution, donation or contribution if applied towards charitable purpose cannot be a ground for withholding exemption. It was re-iterated that it is not the nature of the income but it is the application of the income which is the decisive factor for granting exemption under Section 11 (1) (a) of the Act. It was also held that mobilizing of resources by way of sponsorship fee, rental income endorsement etc. has no co-relation with the activities of the trust which has been held to be charitable in nature. Thus to find fault with the source of income cannot be a valid ground for denying necessary relief. The objection to the source cannot be the basis as the object clause clearly states that the society is engaged in the medical relief and advancement of medical science so as to improve all public health.”
Ld. Departmental Representative relied on impugned order.
From examination of record in light of aforesaid rival contention, it is crystal clear that Ld. CIT(E) vide impugned order dated 27.03.2026 rejected the application for seeking registration u/s 12A(1)(ac)(ii) of the Act by observing that the applicant has substantial net surplus in absolute terms and hence its markup for commercial transactions is not nominal and did not qualify as a charitable institution within the meaning of section 2(15) of the Act.
The appellant/assessee claims that impugned order has been passed in violation of principles of natural justice, since the Ld. CIT(A) failed to give reasonable opportunity of hearing to the assessee without issuance of specific show cause notice.
In view of above material facts and judicial precedent, in interest of justice, impugned order dated 27.03.2026 of Ld. CIT(E) is set aside and the matter is restored to the file of Ld. CIT(E) for afresh decision after affording fair opportunity of hearing to the appellant/assessee.
In the result, the appeal filed by the assessee ITA No. 4462/Del/2026 is dismissed as withdrawn and ITA No. 4543/Del/2026 is allowed for statistical purposes.