RIDE A CYCLE FOUNDATION ,BENGALURU vs. INCOME TAX OFFICER(EXEMPTIONS) WARD-2 , BENGALURU

The assessee is a registered trust and enjoys the benefit of registration under section 12A of the Income Tax Act, 1961 (hereinafter called ‘the Act’), by the CIT(A), Karnataka II, Bengaluru. The main objects of the trust are creating awareness for the society about the virtues of using cycle and to make cycle as a popular mode of transportation that would lessen global warming, air pollution. The assessee has also object of making people understand the need for uncontaminated environment which in turn will lead to good quality of health. The assessee filed return of income declaring Nil income after claiming exemption under section 11 of the Act. The AO noticed that the assessee organizes trips and camps by way of “Cycle Rally” to tourist places such as Kalapetta, Ooty, Palakkad,, Valparai, Mysore, etc., and the participants pay for the cycle rides and for food and lodgings at designated places. According to the AO, the assessee was doing an activity which was akin to trade or business. According to the AO, the receipts from the participants are taken as donation but in reality, they were fees for participation in rallies disguised as donations. The AO therefore concluded that the assessee was hit by the proviso to section 2(15) of the Act and therefore the excess of receipts over expenditure was liable to be taxed and the assessee was not entitled to the benefit of exemption under section 11 of the Act. Accordingly, the AO brought to tax the excess of receipts over expenditure as income of the assessee as follows:

Amount (in Rs.) Particulars As per modification 56,10,373 Gross Receipts [A] 49,28,645 Expenditure to earn income [C]

Aggrieved by the order of the AO, assessee filed appeal before CIT(A). Assessee contended before CIT(A) that its receipts were in the nature of donation and voluntary and there is nothing brought on record by the AO to show that the donations were not in fact voluntary. The assessee contended as follows: “[viii] Without prejudice accepting for argument sake but not conceding, even where the donation are considered as participating fee, the same are collected and spent in the course of carrying on charitable activity and not any commercial activity. The learned assessing officer failed to give any finding or corroborative evidence that the application and receipt of participation fee is not towards any charitable activity. Wherefore, where the receipt and application are in line with the definition of Section 2(15) of the Act, provisions of Section 11 & 12 of the Act have to be considered and applied to the facts on hand. [ix] Hence, it is prayed that the provisions of Section 11 & 12 be applied and the income be computed accordingly.”

The CIT(A) noticed that the case was fixed for hearing on 8 occasions and the assessee did not respond or participate in the proceedings before CIT(A). The CIT(A) has set out various dates in para 5.1 of the impugned order. The CIT(A) decided to proceed the appeal ex-parte observing that the assessee failed to explain as to how the activity undertaken by the assessee is not commercial or charitable. Accordingly, the appeal of the assessee was dismissed by the CIT(A).

Aggrieved by the order of the CIT(A), the assessee preferred the present appeal before the Tribunal. There is a delay of 20 days in filing the appeal by the assessee which has been explained by the assessee in an affidavit filed by the trustee of the assessee as follows:

I have considered the submissions made by the assessee for condoning the delay in filing the appeal and I am satisfied that there is no willful delay on the part of the assessee. Keeping in mind the principle that substantive justice should prevail over technicalities, I condone the delay of 20 days in filing the appeal by the assessee.

In so far as the merits of the appeal is concerned, it is no doubt true that notices were issued to the assessee on several occasions. The assessee had requested for adjournment in the hearing fixed on 25.05.2022 and the case was adjourned to 10.08.2022. On that date also, the assessee did not appear before CIT(A) and the case was adjourned to 16.10.2022 on which date also neither the assessee nor his Authorized Representative appeared before CIT(A). I am of the view that the order of the CIT(A) has to be set aside and the issue remanded to CIT(A) for a decision on merits. The applicability of the proviso to 2(15) of the Act cannot be on the basis of the default of the parties but should be on the basis of facts and circumstances of each case. In the present case, the donations received by the assessee which was taken as receipts were prima facie donations and there is no material to show that the donations were not voluntary. Both the AO and the CIT(A) have called upon the assessee to demonstrate as to how the donations were voluntary and thereby the assessee was called upon to prove a negative fact. In the circumstances, I am of the view that the assessee should have an opportunity of hearing before the CIT(A) who can appreciate as to how the proviso to section 2(15) of the Act will operate on the facts and circumstances of the given case. In this regard, the contentions that the assessee may put forth should also be considered by the CIT(A) rather than deciding the appeal on the basis of default of parties. For the above reasons, I set aside the order of the CIT(A) and remand the issue of applicability of proviso to section 2(15) of the Act to the CIT(A) for fresh consideration, after affording the assessee opportunity of being heard.

In the result, appeal of the assessee is treated as allowed for statistical purposes.