National Solar Energy Federation Of India (NSEFI) vs Income Tax Officer, Ward Exempt. 2(4), Delhi

The assessee, as per the Revenue, during F.Y. 2015-16 had filed income and expenditure account, showing income from Events and Advertisement and paid taxes on resultant surplus conceding it to be commercial activities. However, in the year under consideration the assessee has not shown such income separately and receipt of annual contribution from members amounting to Rs.78,63,150/- has been claimed as donation under Section 80G of the Act which has duly been allowed. According to the Revenue, the Annual membership fee is not a voluntary donation but is charged in lieu of services received/receivable from the organization upon entering into the membership by consenting to the terms and conditions of the organization. Further, according to the Revenue activities of the registered public charitable trust can be characterized as ‘advancement of object of General Public Utility’ as defined in section 2(15) of the Act. According to Revenue assessee is activity which can be characterized as activity in the nature of trade, commerce or business or any rendering of service in relation to any trade commerce of business for a cess or fee or other consideration.

Show cause notice was issued on 12.11.2019 wherein the assessee replied as follows:

The Learned Assessing Officer was of the view that Form 10 filed by the assessee on 30.10.2017 showing accumulation an amount of Rs.33,11,589/- under Section 11(2) of the Act is not eligible for exemption. Further that no specific purpose has been mentioned in Form 10 and it merely states ‘Awareness in Solar Power and Events’. The same cannot be said to be the fulfillment of conditions for allowing the accumulation of income. The purpose mentioned is vague and therefore, held that the assessee is a not a mutual organization and is hit by proviso to Section 2(15) of the Act. The entire voluntary contribution received by the assessee amounting to Rs. 78,61,580/- was found to be actual annual membership fees and therefore, the Assessing Officer computed the taxable income at Rs. 48,67,980/-. The AO finalized the assessment denying the exemption under Section 11 & 12 of the Act.

In appeal, the assessee filed relevant documents in support of the claim along with the donation and ledger. The Learned CIT(A) affirmed the action of the Assessing Officer on the pretext that receipts are commercial in nature and the assessee is hit by proviso to Section 2(15) and 13(8) which disentitle the assessee for exemption. Hence this appeal before us.

The case of the assessee is as follows:

For the Assessment Year 2017-18, the appellant filed its return of income declaring Nil income. During the relevant year, the trust received 78,63,150 as voluntary contributions, which were incorrectly classified by the Assessing Officer (AO) as "annual membership fees" without proper factual analysis.

It is submitted that the amount of 78,63,150 consists of donations from multiple entities, as shown in the ledger. These contributions vary widely in quantum and timing. If these had been uniform membership fees, as alleged by the AO, the amount received from each contributor would have been identical or fixed by policy. However, the ledger clearly reveals that different donors contributed unequal and unstandardized amounts, which is inconsistent with the nature of a fee and confirms the voluntary and donation-based character of the receipts.

Furthermore, no specific service or benefit was extended to any contributor in exchange for the donation. The funds were collectively utilized for charitable activities such as seminars, capacity-building, and solar energy awareness. Hence, there was no element of quid pro quo or commercial transaction.

The AO has, without basis, presumed these receipts to be commercial in nature based solely on a few companies having mistakenly deducted TDS under section 194C. However, this deduction was done unilaterally by the payers, and it cannot alter the true nature of receipts in the hands of the appellant.

Accordingly, the classification of donations as "membership fees" is factually incorrect and legally untenable. The denial of exemption under sections 11 and 12 and the application of the proviso to section 2(15) are therefore unjustified:

The assessee further submits as follows:

The donation ledger clearly shows varied amounts received from different entities, disproving the AO's assumption of uniform membership fees. If these were fixed membership dues, all members would have paid the same amount. No contractual obligation, service agreement, or quid pro quo existed between the trust and the contributors. The contributions were voluntary in nature, with no service rendered in return. The funds were applied towards organizing awareness seminars, policy outreach, and renewable energy promotion, which fall squarely within the trust's charitable objectives. The AO's reliance on labels or mistaken TDS deductions by donors is misplaced; the substance and intent of the transaction matter, not the terminology or form used.

The assessee relied upon the following case laws:

In the case of Commissioner of Income-tax-II, Thane v. Mumbai Metropolitan Regional Iron & Steel Market Committee ((1991) 192 ITR 290 (Bom.)], the High Court of Bombay held that Even if receipts resemble commercial form, the dominant intention and use of funds determine their nature. Voluntary contributions toward a charitable cause cannot be taxed as business income without proof of service rendered.

In the case of Director of Income-tax v. Garden City Educational Trust [(2013) 353 ITR 12 (Kar)], the High Court of Karnataka held that When receipts are voluntary and not against any specific service, they cannot be taxed as commercial income. Label of "fee" alone is not sufficient.

In the case of Commissioner of Income-tax (Exemptions) v. Ahmedabad Urban Development Authority [(2022) 448 ITR 304 (SC)], the Hon'ble Supreme Court of India held that Even if revenue is generated, the dominant purpose being charitable ensures exemption under section 11.

The assessee before us submitted all the details of the donations received. The details of donation for F.Y. 2016-17, which is on record, are as under:

It appears that the amounts donated by the donors are not of specific amount rather different amounts of donations have been made by the donors which cannot be termed as membership fees. The details of specified purposes for donations are also part of the Paper Book which has been duly perused.

Apart from that the details of assessment orders for A.Y. 2018-19, A.Y. 2019-20, A.Y. 2020-21, A.Y. 2021-22, A.Y. 2023-24 and A.Y. 2024-25 wherein the objects of General Public utility as per Section 2(15) has been shown at 0% ; no such dispute on the identical donations received by the assessee to run the objects of the Society has been raised by the Revenue and in all the years the exemption under Sections 11, 12 and 80G was granted. Thus, having regard to the entire aspect of the matter and the details of donations furnished by the assessee, the view taken by the Revenue that the activity of the assessee is hit by proviso to Section 2(15) of the Act is not found to be sustainable. The addition made by the Assessing Officer is, therefore, deleted. The Ld. AO is directed to grant relief to the assessee in terms of the order passed by the Bench under Sections 11 & 12 of the Act and other relief accordingly,