DCIT (Exemption) vs Government Industrial And Agricultural Exhibition, Aligarh

“1.

That the Ld. CIT(A), NFAC erred in law and on facts in deleting the addition of Rs.3,78,80,683 and granting exemption under section 11 without appreciating that the activities of the assessee fall under the proviso to Section 2(15), as they are commercial in nature and involve the receipt of substantial trade business income (shop rents, circus fees, and parking fees).

2.

That the Ld. CIT(A) failed to consider that the assessee is providing platforms for commercial entities for a fee, which constitutes a business activity, and the assessee failed to maintain separate books of accounts for such business as mandated under section 11(4A).

3.

That the Ld. CIT(A) erred in not upholding the AO finding that the objects of the society are vague and primarily focused on entertainment rather than charitable purpose as defined under the Act.

4.

That the Ld. CIT(A) erred in following the decisions of previous years without considering the specific factual findings of the AO in the current year regarding the scale of commercial receipts which hit the threshold prescribed under the proviso to Section 2(15).”

“I have duly examined and considered the facts of the case, Grounds of appeal, findings of the A.O contained in the Assessment order u/s 143(3) and submissions/reply of the appellant furnished during the appellate proceedings along with supporting case laws and judicial pronouncements and documentary evidences in support of his/her contention. Accordingly appeal is being adjudicated ground wise.

5.1

Ground no. 1, 2 and 3: Since the grounds are interlinked and arise from a common set of facts, they are adjudicated altogether. Vide these grounds of appeal, the appellant has challenged the Denial of Exemption under Section 11 and Treatment of Surplus as Taxable Income.

5.2

I have duly considered the facts of the case Assessment order passed u/s 143(3) and reply of the appellant filed during the appellate proceedings. From the perusal of records, it is seen that the appellant is a society registered under the Societies Registration Act, 1860 and is also registered under section 12A of the Income-tax Act, 1961, such registration having been granted by the Commissioner of Income Tax with effect from 01.04.1999. The appellant is engaged in organising and conducting an Industrial and Agricultural Exhibition at Aligarh, an activity stated to have been carried on since the year 1886, under the supervision and control of the District Authorities. The appellant has consistently claimed exemption under sections 11 and 12 of the Act and has been assessed accordingly in earlier years. For the assessment year under consideration, the appellant filed its return of income declaring NIL income after claiming exemption under section 11 of the Act. The case was selected for scrutiny and the assessment was completed under section 143(3), wherein the Assessing Officer denied exemption under section 11, treated the surplus as taxable income, made disallowances of various expenditures, and assessed the total income at Rs.3,78,80,683/-. Aggrieved by the said assessment order, the appellant has preferred the present appeal.

5.3

The appellant has strongly contested the findings of AO regarding the addition made by him in the assessment order. The appellant filed its return declaring NIL income, claiming exemption under section 11 on the ground that it is a charitable institution engaged in advancement of objects of general public utility within the meaning of section 2(15) of the Act. The income disclosed comprised receipts from exhibition-related activities, and the appellant claimed that the surplus, if any, was applied towards its charitable objects. The Assessing Officer denied exemption under section 11, primarily relying upon assessments made in earlier years, wherein similar issues had been examined. The Assessing Officer was of the view that the activities of the appellant were in the nature of business or commercial activities and that the surplus generated could not be regarded as exempt income. On this basis, the entire surplus was brought to tax, and certain expenditures were also disallowed on an estimated basis. Before me, the appellant submitted that it continues to hold valid registration under section 12A, which has not been withdrawn or cancelled. It was contended that identical issues had arisen in the appellant's own case for several earlier assessment years, starting from AY 2005-06 onwards, and that the same had been consistently decided in favour of the appellant by the Commissioner (Appeals) as well as by the Hon'ble ITAT. It was further submitted that there has been no change in the objects, nature of activities, or factual matrix during the year under consideration. The appellant emphasised that the dominant purpose of organising the exhibition is advancement of general public utility and that incidental surplus does not alter the charitable character of the institution. It was also submitted that the Assessing Officer has not brought on record any new material or change in circumstances to justify a departure from the settled position.

5.4

From the proper appreciation and evaluation of the findings of AO in his assessment order, reply/submission of the appellant furnished during the appellate proceedings and data available on record, It is an undisputed position that the appellant is registered under section 12A of the Act and that such registration continues to remain in force for the assessment year under consideration. The objects of the appellant, as borne out from the records, are directed towards organising an industrial and agricultural exhibition for dissemination of knowledge, promotion of agriculture and industry, and advancement of public utility, and these objects have been examined in detail in the appellant's own case in earlier years by the appellate authorities. It is also evident from the record that for a series of assessment years commencing from AY 2005-06, the Commissioner (Appeals) and the Hon'ble ITAT have consistently held that the activities of the appellant fall within the ambit of "advancement of any other object of general public utility" as envisaged under section 2(15) of the Act and that the appellant is entitled to exemption under section 11. The assessments for the year under consideration do not reveal any material change either in the objects of the appellant or in the manner of carrying on its activities. The Assessing Officer has primarily relied upon the reasoning adopted in earlier assessments, which reasoning itself has been examined and reversed by the higher appellate authorities. In the absence of any fresh facts or distinguishing features, the principle of consistency assumes relevance, particularly when the fundamental facts remain identical. The Hon'ble Supreme Court in Radhasoami Satsang v. CIT (193 ITR 321) has emphasised that, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other, and parties have allowed that position to be sustained, it would not be appropriate to allow that position to be changed in a subsequent year without any change in circumstances. Further, it is well settled by judicial precedents, including CIT v. Surat Art Silk Cloth Manufacturers Association (121 ITR 1) and CIT v. Andhra Chamber of Commerce (55 ITR 722), that the existence of surplus does not ipso facto lead to the conclusion that the activity is non-charitable, so long as the dominant purpose remains charitable and the surplus is applied towards such objects. In the present case, there is no finding that the surplus has been diverted for any non-charitable or personal purposes. The denial of exemption under section 11, therefore, is not supported by the factual or legal position emerging from the record. Consequently, the surplus assessed by the Assessing Officer as taxable income cannot be sustained. Therefore, the addition made by the assessing officer is hereby deleted. Therefore, these grounds of appeal are hereby allowed.

Since the denial of exemption under section 11 itself is found to be unsustainable, the disallowances of expenditure made by the Assessing Officer, which are intrinsically linked to the computation of surplus, do not survive independently. The expenditures in question pertain to the conduct and organisation of the exhibition and have been examined in earlier years as being incidental and integral to the charitable activities of the appellant. In the absence of any specific finding that such expenditures are not genuine or are incurred for non-charitable purposes, and considering the settled appellate position in the appellant's own case, the disallowances made on an estimated basis cannot be upheld.

5.5

Ground no. 4: Vide this ground of appeal, the appellant has the Assessing Officer erred in levying interest under section 234B amounting to Rs.42,48,902/-, which is wrong, illegal, and in any case highly excessive.

5.6

The levy of interest being consequential in nature does not call for separate adjudication and shall be recomputed in accordance with the relief granted herein.

In view of the foregoing discussion and respectfully following the binding judicial precedents and the consistent appellate view in the appellant's own case on identical facts, the appellant is held to be entitled to exemption under section 11 of the Income-tax Act for the assessment year under consideration. The additions and disallowances made by the Assessing Officer are accordingly deleted.

6.

As a result, the appeal is allowed.”