ENTREPRENEURSHIP DEVELOPMENT IS ‘GENERAL PUBLIC UTILITY’; EXEMPTION ALLOWED IF TRADE RECEIPTS < 20%

ORDER

1. This appeal by the Assessee is directed against the Order dated 21.01.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC], Delhi, for the assessment year 2018-2019.

2. The assessee has raised the following grounds of appeal :

3. Brief facts of the case are that, the appellant viz., ‘The Indus Entrepreneurs (TIE), Hyderabad Chapter’ is a registered Society under the A.P. Societies Registration Act, 2001 with the main objects of – (1) To encourage, support and nurture entrepreneurship by providing educational, networking and mentoring assistance to existing and potential entrepreneurs and professionals in all areas. (2) To support, promote and assist entrepreneurs for exploring new areas of business, networking bridges between enterprises and individuals, corporate and other entities in India and outside and (3) To plan, organize, manage, promote and schedule events and informal mentoring activities constantly for exploring professional ideas and to achieve higher goals of business etc. The appellant is one of the chapters of TIE Global. TIE is a global non-profit organisation devoted to the entrepreneurs in all industries, at all stages, from incubation, throughout the entrepreneurial life cycle. The appellant society is registered under section 12A of the Income Tax Act, [in short “the Act”] 1961.

3.1. The appellant has filed it’s return of income for the assessment year 2018-2019 on 05.10.2018 admitting total income of Rs.-NIL-, after claiming an exemption under section 11 of the Income Tax Act [in short “the Act”], 1961. The case was selected for scrutiny under CASS and during the course of assessment proceedings, the Assessing Officer upon perusal of the main aims and objects of the appellant society had observed that, the appellant is not a charitable organisation, but, a commercial organisation engaged in the activity of trade, commerce or business which falls under the definition of “General Public Utility” [in short “GPU”] as definition u/sec.2(15) of the Act and, therefore, called-upon the assessee to file it’s objections, if any, for denial of exemption u/sec.11 of the Act and assessing the income under normal provisions of the Act. In response, the assessee has submitted relevant details including bye-laws of the society and claimed that the objects of the society fall under the first limb of the definition charitable purpose i.e., education and the appellant is engaged in the activities of providing education and training to young entrepreneurs in all streams of entrepreneurship The assessee further submitted that the appellant had also satisfied the conditions of proviso to sec.2(15) of the Act and, therefore, the question of denial of exemption claimed u/sec.11 does not arise.

3.2. The Assessing Officer after considering the relevant submissions of the assessee and also taking note of aims and objects of the assessee society observed that, the appellant society is not a charitable organisation going by the aims and objects, but, it is a commercial entity engaged in the business of trade, commerce and business and, therefore, observed that, the appellant society is not entitled for exemption u/sec.11 of the Act. The Assessing Officer had also discussed the issue in light of the income derived by the appellant trust from its activities and held that the appellant receives 48% of it’s total income from the activities of trade, commerce or business and further, it derives around 22% of the profit from its activities and, therefore, it cannot be said that the appellant is a ‘charitable institution’ which is eligible for exemption u/sec.11 of the Act. Therefore, rejected the arguments of the assessee and assessed the excess of income over expenditure of Rs.33,80,537/- as ‘Income from Business and Profession’.

4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee reiterated the arguments taken before the Assessing Officer and submitted that, the appellant is a charitable organisation engaged in imparting education to young entrepreneurs right from incubations to imparting knowledge constantly for exploring professional ideas and to achieve higher goals of business. Further, the appellant is carrying out its activities in accordance with its objects of imparting education and, therefore, the allegation of the Assessing Officer that the appellant is a commercial organisation engaged in the activity of trade, commerce or business is devoid of merit and cannot be accepted. Therefore, submitted that the exemption claimed by the assessee u/sec.11 of the Act should be accepted.

4.1. The learned CIT(A) after considering the relevant submission of the assessee and also taking note of the reasons given by the Assessing Officer for denial of exemption u/sec.11 of the Act observed that, under the existing provisions of Income Tax Act, 1961, two kinds of accumulations are possible i.e., one u/sec.11(1) of the Act @ 15% of the gross income derived from the property held under the Trust and the second one u/sec.11(2) of the Act, accumulation over and above 15%, but, such accumulation should be by filing relevant Form-10 as prescribed under Rule-17 of the I.T. Rules, 1962 either during the assessment proceedings or the appellate proceedings so as to demonstrate whether it is desirous and or eligible to accumulate the income over the next five years, unless the benefit of exemption claimed by the assessee cannot be allowed. Therefore, rejected the arguments of the assessee and sustained the additions made by the Assessing Officer.

5. Aggrieved by the learned CIT(A) order, the assessee is now, in appeal before the Tribunal.

6. Sri M V Swaroop, Advocate-learned Counsel for the Assessee referring to the assessment order passed by the Assessing Officer, assessing the income under the Head “Income from Business or Profession” and the Order passed by the learned CIT(A) upholding the addition made by the Assessing Officer on the ground of non-filing of Form-10 as required under Rule 17 of IT Rules, 1962 submitted that, the Assessing Officer has denied exemption on the ground of the appellant society is a non-charitable organisation, whereas, the learned CIT(A) confirmed the additions on different grounds of not filing Form-10 even though the grounds of appeal before the learned CIT(A) are only on the aspect of whether the appellant society is a charitable institution, eligible for exemption u/sec.11 of the Act. Learned Counsel for the Assessee further referring to the aims and objects of the society submitted that, the appellant objects are falling under the definition of ‘Education’ as defined u/sec.2(15) of the Act. Further, the observation of the Assessing Officer that, the appellant is a commercial organisation engaged in the activity of trade, commerce or business, is devoid of merits going by the aims and objects of the assessee society and the activities carried out during the year under consideration. Therefore, he submitted that, the assessment of income and upheld by the learned CIT(A) on different grounds should be deleted.

6.1. Learned Counsel for the Assessee further referring to the definition of ‘Charitable Purpose’ and also in reply to question from the Bench submitted that the appellant society cannot be considered as a General Public Utility [in short “GPU”] because, carrying out certain activities which are in relation to rendering services to trade, commerce or business per se cannot be as GPU activities. Further, even in the decision of Hon’ble Supreme Court in the case of Asstt. CIT (Exemptions) v. Ahmedabad Urban Development Authority  ITR 389 (SC) while examining the definition of ‘Charitable Purpose’ in light of GPU activities, it was clearly held that, “the predominant purpose of the institution should be considered”. In the present case, the appellant society being engaged in the activities of managing, training and education to entrepreneurs, the same falls under the definition of “Education” and, therefore, the exemption claimed u/sec.11 of the Act should be accepted. Learned Counsel for the Assessee has also submitted that, assuming for a moment, the appellant activities are falls under GPU, but, still the appellant is eligible for claiming the exemption u/sec.11 of the Act because, the receipts from commercial activities for fees or cess does not exceed 20% of gross receipts which is evident from the assessment order passed by the Assessing Officer where the Assessing Officer has examined the details of income earned by the appellant trust and as per which, the gross receipts from conducting events is less than 20% of the total income derived by the appellant society. Therefore, he submitted that, even on this ground also, the appellant is eligible for exemption u/sec.11 of the Act and, therefore, the addition made by the Assessing Officer should be deleted.

7. Sri Mookambikeyan S. learned Sr. AR for the Revenue, on the other hand, supporting the Order of the learned CIT(A) submitted that, the learned CIT(A) rejected the arguments of the assessee on the ground of not filing the relevant Form-10 on or before the due date provided under the Act. Further, the Assessing Officer has given clear findings in respect of activities of the assessee and concluded that, the appellant society is not a charitable institution for claiming exemption u/sec.11 of the Act. Further, going by the aims and objects of the appellant society, they are clearly in the nature of trade, commerce and business and further, the appellant rendering the services by charging fees or cess and thus, the appellant cannot claim the benefit of exemption u/sec.11 of the Act. The Assessing Officer after considering all the relevant facts, has rightly denied the benefit of exemption u/sec.11 of the Act and thus, the Order of the Assessing Officer should be upheld.

8. We have considered the rival submissions of both the parties, perused the relevant material on record and gone through the Orders of the authorities below. We have also carefully considered the relevant bye-laws of the appellant society which are available in the paper book filed by the assessee and upon careful consideration of the relevant main aims and objects of the appellant society, we are of the considered opinion that the appellant objects does not fall under the definition of “Education” as claimed by the learned Counsel for the Assessee. Further, going by the aims and objects, the appellant’s objects clearly falls under the last limb of “Charitable Purpose” i.e., “Advancement of any other Objects of GPU” and, therefore, in our considered view, the claim of exemption u/sec.11 of the Act should be examined in light of definition of “Charitable Purpose” as defined u/sec.2(15) of the Act and proviso provided therein.

8.1. The provisions of sec.2(15) of the Act define “Charitable Purpose” which includes, relief of the poor, education, yoga, medical relief, preservation of environment including water sheds, forests and wild life and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of General Public Utility. Further, proviso provided to Sec.2(15) of the Act defines, advancement of any other object of general public utility shall not be considered as charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, unless such activity is undertaken in the course of actual carrying-out of such advancement of any other object of general public utility and the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent of the total receipts, of the trust or institution. In the present case, going by the aims and objects of the appellant society, it is engaged in the activities of to encourage, support and nurture entrepreneurship by providing educational, networking and mentoring assistance to existing and potential entrepreneurs and professionals in all areas. Further, to plan, organize, manage, promote and schedule events and informal mentoring activities constantly for exploring professional ideas and to achieve higher goals of business. Going by the aims and objects of the appellant society and activities carried out for the year under consideration, there is no doubt whatsoever regarding the objects and activities of the appellant society that it falls under the definition of “Advancement of any other object of General Public Utility”. The arguments of the Counsel for the Assessee that, its objects and activities are falls under the definition of “Education” is devoid of merit going by the aims and objects and the decision rendered by the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra), where the Hon’ble Supreme Court had examined the definition of “Charitable Purpose” as amended by the Finance Act, 2009 with effect from the assessment year 2009-2010 held that, “bodies involved in trade, promotion or set-up with the objects of purely advocating for, coordinating and assisting trading organizations, can be said to be involved in advancement of GPU. However, if such organizations provide additional services such as courses meant to skill personnel, providing private rental spaces in fairs or trade shows, consulting services etc., then, income or receipts from such activities, would be business or commercial in nature. In that event, the claim for tax exemption would have to be again subjected to rigors of the proviso to sec.2(15) of the Act”. The Hon’ble Supreme Court further held that, “the assessee advancing GPU cannot engage itself in any trade, commerce or business, or providing service in relation thereto for any consideration. However, in the course of achieving the object of GPU, the concerned Trust, Society or other such Organization, can carry on trade, commerce or business or provide services in relation thereto for consideration, provided that, (i) the activities of trade, commerce or business are connected to the achieving of its objects of GPU and (ii) the receipt from such business or commercial activity or service in relation thereto, does not exceed the quantified limit of 20% of total receipts of the previous year.”

8.2. In the present case, going by the aims and objects of the appellant-society, the appellant-society in the course of achieving of it’s objects of GPU had carried-on the activity of nature of trade, commerce or business and, therefore, in our considered view, the appellant-society can be considered as GPU institution and the exemption claimed u/sec.11 of the Act needs to be examined in light of proviso to sec.2(15) of the Act.

8.3. Having said so, let us come back to the income derived from the appellant society from its activities. The appellant has reported gross income of Rs.1,53,69,214/- for the year under consideration which includes fees from associated members, student members, short term members and event fees. The income derived from membership fees forms part of advancement of GPU; Income derived from conducting events is in the nature of rendering services to trade, commerce or business and if such receipts are within the prescribed limit of 20% as provided under proviso to sec.2(15) of the Act, then, the appellant society is entitled for exemption u/sec.11 of the Act. In the present case, the appellant has received income from events of Rs.20,60,655/-which is less than 20% of gross receipts of the appellant society for the year under consideration. Since the income derived by the appellant society for carrying out trade, commerce or business or rendering services in relation to trade, commerce or business is within the specified limit of 20% as per the proviso to sec.2(15) of the Act, in our considered view, the appellant is entitled for exemption u/sec.11 of the Act. Although, the Assessing Officer has considered the said income at 48% of the total income admitted by the assessee, but, in our considered view, the Assessing Officer has wrongly considered the membership fees received from associated members, student members and Charter members because, the membership fees received from the members is not in relation to carrying out trade, commerce or business. Further, the Assessing Officer had also taken a view that the appellant has earned 22% profit from it’s gross receipts, but, in our considered view, if any institution or trust earned profit in the course of carrying-out GPU, then, the same cannot be a ground for rejecting exemption u/sec.11 of the Act as held by the Hon’ble Supreme Court in the case of New Noble Educational Society v. Chief CIT ITR 594 (SC) Therefore, in our considered view, the Assessing Officer is erred in denying exemption u/sec.11 of the Act for the year under consideration. Further, although, the Assessing Officer has rejected the exemption u/sec.11 of the Act on the grounds of commercial activities, but, the learned CIT(A) had concurred with the Assessing Officer on different grounds by not filing Form-10 as required under Rule 17 of I.T. Rules, 1962. However, the fact remains that the appellant society had filed relevant Form-10 along with the return of income on 05.10.2018 on or before the due date provided u/sec.139 of the Act. Therefore, on this ground also, denying the exemption by the learned CIT(A) cannot be upheld.

8.4. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the appellant is entitled for exemption u/sec.11 of the Income Tax Act, 1961. The Assessing Officer without appreciating the relevant facts, has simply made an addition towards excess of income over expenditure under normal provisions of the Act by denying exemption u/sec.11 of the Income Tax Act, 1961. Thus, we set-aside the Order of the learned CIT(A) and direct the Assessing Officer to allow exemption claimed by the assessee u/sec.11 of the Income Tax Act, 1961.

9. In the result, appeal of the Assessee is allowed.