Kanthikiranam Mahilamandali, , Vijayarai V. The Income Tax Officer(Exemption), , Rajahmundry

ITA 305/VIZ/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4045 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 16-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: E S RANGANATH
• Keywords: Charitable institution
• Section: 10; 11; 143(3); 142(1); 12A; 12AA; 143(1)

Judgement Text

आयकर अपीऱीयअधिकरण, विशाखापटणम पीठ, विशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्ि ू रु आर एऱ रेड्डी, न्याययक सदस्य एिं श्री एस बाऱाक ृ ष्णन, ऱेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON‟BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON‟BLE ACCOUNTANT MEMBER आयकर अऩीऱ सं./ I.T.A. No.305/Viz/2019 (ननधधारण वषा / Assessment Year :2013-14) Kanthikiranam Mahilamandali, Pedavegi Mandal, West Godavari District, Andhra Pradesh. PAN: AAAAK 0714 E Vs. Income Tax Officer (Exemptions), Rajahmundry, East Godavari District, Andhra Pradesh. (अऩीऱधथी/ Appellant) (प्रत्यथी/ Respondent) अऩीऱधथी की ओर से/ Appellant by : Sri ES Ranganath, CA प्रत्यधथी की ओर से / Respondent by : Sri ON Hari Prasadarao, Sr. AR स ु नवधई की तधरीख / Date of Hearing : 20/07/2022 घोषणध की तधरीख/Date of Pronouncement : 23/08/2022 O R D E R PER S. BALAKRISHNAN, Accountant Member : This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals)-11, Hyderabad [the Ld. CIT (A)] arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [“the Act”] for the AY 2013-14. 2 2. Brief facts of the case are that the assessee society is a charitable institution having registration U/s. 12A of the Act filed its return of income for the AY 2013-14 on 19/09/2013 declaring total income at Rs. NIL. For the AY 2013-14, the assessee claimed exemption U/s. 11 of the Act. The return was processed U/s. 143(1) of the Act and subsequently the case was selected for scrutiny under CASS and accordingly statutory notices U/s. 143(2) and 142(1) of the Act were served on the assessee. In response, the assessee‟s representative made submissions as called for. In response to the notice U/s. 142(1) dated 2/12/2014, the assessee furnished a letter dated 23/1/2013 wherein it was stated that “the assessee is engaged in providing vocational training to the villagers especially to girls and women through its electric stabilizers assembly unit which is envisaged by clause 3(4) of the MoA”. It is was further submitted that such assessee‟s activities are part of its objected listed under clause 3(1)(2) and (5) of the MoA and such income is eligible for exemption U/s. 11 of the IT Act. The assessee also claimed that the expenditure was incurred towards “help to the poor” in accordance with clause 3(7) of the MoA. In response to the AO‟s query to explain whether the assessee‟s operations are fit into the 3 definition of charity when it is a business run on profit, the assessee reiterated the submissions made earlier. During the assessment proceedings and on perusal of the assessee‟s submissions, objections of the assessee-society as well the final accounts / income and expenditure statements furnished by the assessee, the AO observed that the assessee-society at the most is catering to part of clause-3(4) of its MoA to establish small scale industries and none of the other objectsk appear to have been addressed. The Ld. AO further observed that the assessee- society is constantly reflecting substantial profits from such activities during the AYs 2010-11 to 2013-14 which are tabulated at para 6 of the Assessment Order. At para 9.3 of the AO‟s order, the Ld. AO noted that the assessee claimed during the course of the assessment proceedings that the assessee is running a small scale industry as per such clause and is operating well within the registration granted U/s. 12AA by the CIT. The AR claimed that its operation are „relief to the poor‟ and not “General Public Utility‟. The Ld. AO also observed that there exists no charity and the assessee has not given any details of actual training imparted by the assessee-society along with supported documentary evidence. The Ld. AO also noted that merely providing employment in a business runn on profit in a back ward area cannot be taken as 4 „relief to the poor‟ and „no substantiation was provided that the women employees and other employees who are employed on wages/salaries to fit within the spirit and meaning of relief to the poor. In view of the above observations the Ld. AO concluded that considering the business nature of the assessee‟s operation on commercial principles and hallow claims of „help to the poor‟ by the assessee, the activities and submissions of the assessee as well as the case laws relied on by the assessee, it is seen that the assessee is not engaged in any charitable activity at all. If the assessee‟s act of provisions of employment to women, even if it is taken as „General Public Utility‟ the assessee is squarely covered by the proviso to section 2(15) of the Act and moreover since the assessee is not operating as per its objects, the assessee is not entitled to claim any exemption u/s. 11 of the Act. Accordingly, the Ld. AO denied the exemption U/s. 11 of the Act and determined the income of Rs. 25,22,950/- and raised demand of Rs. 8,33,450/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). On appeal, the Ld. CIT(A) upheld the decision of the Ld. AO and dismissed the appeal. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 3. The assessee has raised the following grounds of appeal: 5 “1. The orders of the Ld. CIT(A) and AO to the extent against the assessee are contrary to the f acts and provisions of law. 2. The Ld. CIT(A) f ailed to provide opportunity of being heard bef ore passing the appeal order though the appellant through AR requested f or adjournment and post the hearing at Hyderabad. 3. The Ld. CIT(A) ought to have considered the Circular No.11 of 2008 dated 19/12/2008 wherein departmental view of charitable purpose has been stated in the light of amendment to section 2(15) vide Finance Act, 2008. 4. The Ld. CIT(A) erred in concluding that the appellant f ailed to show the activities of the society promotes the objects. 5. The AO is not consistent in his conclusions or contentions to hold that the activities of the assessee society is charitable or non-charitable, if charitable nature ie relief to the poor or object of general public utility. 6. The AO erred in his observation that the assessee is not engaged in any charitable activity ignoring the f act that the activity of establishing a small scale unit f or training and providing self-suff iciency to rural poor women which has been accepted as charitable purpose f or granting registration u/s. 12A of the Act. 7. The Assessing Off icer ought to have considered that the activity of the assessee society relating to establishing a small scale unity f or training and providing self-suff iciency to rural poor women as charitable purpose of the nature of relief to the poor which is legal obligation envisaged in its objects listed in the Memorandum of Association and considered as charitable activity f or grant of registration U/s. 12A of the Income Tax Act. 8. The AO erred in contending that the assessee is engaged in the exclusively running a business enterprise whereas the assessee established a small scale unit to train and provide self-suff iciency to rural poor women as a legal obligation envisaged by its Memorandum of Association. 9. Without prejudice to the above grounds the Ld. CIT(A) erred in not considering the ground no.10 of the appeal. 10. Any other ground that may be permitted to be urged at the time of hearing of the appeal.” 6 4. Before us the Ld. Authorized Representative [Ld. AR] submitted that the assessee is a registered society and it main aim is fulfilling the objects of the society ie., supporting the marginalized category of people especially the women, youth and children of the poor irrespective of their caste and religion. Ld. AR also submitted that the activity of establishing and operating an electronic stabilizer assembly unit is part of carrying out its objects listed under clause 3(1)(2) and (5) of the Memorandum of Association. Therefore, this activity of the assessee cannot be looked as a mere activity of manufacture and sale of stabilizers but the ultimate effect of this activity is providing economic support to illiterate, poor rural women which is of charitable purpose as stated U/s. 2(15) of the Income Tax Act, 1961. Ld. AR further submitted that the main motto on the assessee society is not a business or profit motive hence the activities of the assessee are not of the nature of business but of charitable and therefore the denial of exemption U/s. 11 of the IT Act, 1961 by the Ld. Revenue Authorities is not in accordance with law. Therefore, the Ld. AR pleaded that the assessee may be granted exemption U/s. 11 of the Act. 7 5. Per contra, the Ld. DR vehemently opposed to the submissions of the Ld. AR and heavily relied on the orders of the Ld. AO and the Ld. CIT (A). 6. We have heard both the parties and perused the material available on record as well as the orders of the Ld. Revenue Authorities. Admitted facts are that the assessee is a society registered U/s. 12A of the Act and filed its return of income within the stipulated time and claimed exemption U/s. 11 of the Act. After considering the submissions of the assessee and discussing the issue at length, the Ld. AO denied the exemption as claimed by the assessee and the Ld. CIT(A) upheld the decision of the Ld. AO. Before us it is the submission of the assessee that the activities of the assessee are not of business nature but of charitable since the core activity of the assessee as per MoA is providing economic support to illiterate, poor rural women which is of charitable purpose as stated U/s. 2(15) of the Income Tax Act, 1961. We noted from the orders of the Ld. Revenue Authorities that the assessee is engaged in electric stabilizers assembly unit through which the assessee is providing economic support to illiterate, poor rural women. Therefore, the assessee claims that expenditure was incurred towards “help to the poor” is eligible for exemption u/s. 11 of the Act. We noted that the 8 objects of the assessee-society ie., establishing and running a small scale unit for training and self sufficiency of rural poor women is of the nature of business activity which is not of charitable nature. The onus is on the assessee to prove with documentary evidence to establish that the assessee‟s activities are not of business nature but of charitable as claimed by the assessee. The Ld. Revenue Authorities have clearly observed that the assessee‟s claim of relief to the poor or help to the poor is not correct since the income and expenditure statements filed by the assessee reflects substantial profits from the activities of the assessee and therefore the profit motto exists very much. It is a fact that granting of registration u/s. 12A does not confer any benefits of exemption of tax u/s. 10 or 11 of the Act which has to be independently decided. Considering all these facts and circumstances of the case, we are of the considered opinion that the decisions of the Ld. Revenue Authorities are fair and reasonable and does not call for any interference since the assessee‟s activities are not charitable in nature and therefore the exemption U/s. 11 of the Act cannot be granted to the assessee. Accordingly, we upheld the decision of the Ld. CIT(A) and dismiss the grounds raised by the assessee. 7. In the result, appeal filed by the assessee is dismissed. 9 Pronounced in the open Court on the 23 rd August, 2022. Sd/- Sd/- (द ु व्ि ू रु आर.एऱ रेड्डी) (एस बाऱाक ृ ष्णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) न्याययकसदस्य/JUDICIAL MEMBER ऱेखा सदस्य/ACCOUNTANT MEMBER Dated : 23.08.2022 OKK - SPS आदेश की प्रतिलिपि अग्रेपिि/Copy of the order forwarded to:- 1. ननधधाररती/ The Assessee – Kanthikiranam Mahilamandali, D.No.8- 215/2, Muthanaveedu, Vijayarai, Pedavegi Mandal, West Godavari District, Andhra Pradesh-534475. 2. रधजस्व/The Revenue – Income Tax Officer (Exemptions), D.No.46-22- 15, Shiva Tower, 4 th Floor, Rajahmundry, Andhra Pradesh-533103. 3. (i) The Principal Commissioner of Income Tax, Rajahmundry. (ii) Commissioner of Income Tax (Exemptions), Hyderabad. 4. आयकर आय ु क्त (अऩीऱ)/ The Commissioner of Income Tax (Appeals)- 11, Hyderabad. 5. ववभधगीय प्रनतननधध, आयकर अऩीऱीय अधधकरण, ववशधखधऩटणम/ DR, ITAT, Visakhapatnam 6. गधर्ा फ़धईऱ / Guard file आदेशधन ु सधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam