DCIT, CIRCLE 1(1) EXEMPTION, NEW DELHI vs. INDIA HABITATE CENTRE, NEW DELHI

Date of Hearing 26.05.2022 Date of Pronouncement 17.06.2022 ORDER PER SHAMIM YAHYA, AM,

This appeal by the Revenue is directed against the order of the Ld.

CIT(A)-40, New Delhi, dated 16.04.2019 pertaining to Assessment Year 2016-17.

“1. On the basis of facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee society is a charitable organization despite the fact that the assessee society was doing business within the meaning of amended provisions of section 2(15) of the Income Tax Act, 1961. 2. On the basis of facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the assessee society is covered under principle of mutuality in view of the judgement of Hon’ble Supreme Court in the case of Bangalore Club vs CIT 350 ITR 509 (SC).” 3. Brief facts of the case are that return of income was filed on 02.12.2016 disclosing Nil income. In the assessment order, the Assessing Officer noted that the society is registered under section 12A vide order dated 13.01.1989 and is also approved for the purpose of section 80G(5)(vi) vide order dated 19.07.2011. That as per the Memorandum of Association, the primary aims and objects of the assessee, among others, are to broadly promote sustainable habitat, through interlinkages between Institutions having physical space in the complex , work in various ways on environmental issues and spread awareness about the same, develop an integrated physical environment for different professions and Institutions dealing habitat/environmental issues, maintain residential hostels, restaurants and other amenities for its members.

The Assessing Officer noticed that the activities of the assessee were hybrid, i.e., partly covered by provisions of section 11 read with section 2(15) and partly by the principle of mutuality. It was also noted that an assessee can have income from different heads or income from different sources but it cannot have its income and expenditure from the same source apportioned on the basis of different principles as claimed by the assessee. It was held that the assessee cannot be allowed to compartmentalise its activities and income arising there from under charitable activities and mutual activities and that all the activities have to be seen in totality. It was further held that while the cultural and intellectual activities of the assessee are open to general public, the accommodation and related activities are restricted only to its members as well as non-members specially invited to participate in the activities of the society. Hence, it was held that there is no complete identity between contributors and participators and thus the assessee cannot be considered to be covered by the principle of mutuality. Further, on taking into consideration the entire activities of the assessee, it was noted that these also include providing of services such as accommodation, food and beverages etc. for payment of charges, which is caught within the mischief of the first and second provisos to section 2(15) read with the third proviso to section 143(3). The AO also held that the claim of the assessee that its income is partly charitable and partly mutual does not make the assessee entitled to claim exemption till it proves that the activities carried by it are within the scope of the activities enumerated in the said section. It was held that the assessee institution was also hit by section 11 read with section 2(15) as the activities of sale of food and beverages and license fee etc were activity of profit gain of business which were not incidental to the attainment of its objective. It was, therefore, held that the assessee institution was not entitled to exemption under section and also under mutuality and the income was computed under Chapter IV of the Income Tax Act. Assessment was completed at a loss of Rs. 74,03,936/-.

The order of the Ld. CIT(A) in this regard reads as under:-

“4.1.1 I have considered the assessment order and the submissions of the appellant. I have also considered the orders of my Id. predecessors for assessment year 2011-12 (Appeal No. 125/20 14-15), assessment years 2012 -13 (Appeal No. 23/2015 -16), assessment year 2013- 14 (Appeal No. 248/2015-16) and my order for assessment year 2014- 15(Appeal No. 195/2016-17). The facts of the case for assessment years 2012-13, 2013-14 and 2014-15 are same as those for the year under consideration, i.e., 2016 -17. 4.1.2 On the issue of exemption under section 11, my ld. predecessor, in the appeal for assessment year 2012-13 and 2013-14 had held as under: "5.18 The assesse has given extensive documentation of the activities that they have been doing which would qualify as charitable activity in terms of the definition given in the first limb of section 2 (15) of the IT Act. These cover the areas of environment, education, health, preservation of objects of artistic and historic interest and relief to the poor. These I find are well documented in the detailed material filed by the assesse as well as in its Annual Report. On this ground alone there is considerable evidence to show that the assesse is engaged in charitable activities. 5.19 The CIT (A)-40(Exemption) in his order for IHC for the A.Y. 2011-12 has accepted the plea of IHC that they are a charitable organization. This has been done by relying on the order of the Delhi High Court in the case of ITPO referred to in the previous paragraph. Further, the Supreme Court in CIT v. Gujarat Maritime Board, (2007) 295 ITR 561 as well as in its recent decision in Queen's Educational Society has also applied the Surat Art Silk test to determine the dominant object of the respective assesses. Recently the Hon'ble Delhi High

Court in the case of Hamdard Laboratories India vs. Assistant Director of Income tax (Exemption) stated that it is hardly possible for a charitable trust to work with no source of income. So, the makers of the trust in the present case, dedicated a portion of the income of the business for being used for charitable purpose As long as the user of that money is charitable, then the exemption has to be granted. Thus the ultimate test that has to be applied is whether or not the IHC's predominant motive is one of earning profit or is engaged in charitable activities. I find that the AO has not been able to show at all that IHC is performing any commercial activity . As has been held by the Delhi High Court merely charging for goods and services is not the same as commercial activities. Given the judgments of the Delhi High Court in the case of Hamdard Laboratories and ITPO and the fact that the AO has accepted that IHC is promoting public interest as provided in the proviso to section 2(15) there is no doubt that IHC should be regarded as charitable organization and given the full benefit of the exemption provided to such organizations under the IT Act. Moreover it is well recognized that the IHC is a public institution with thousands of members. All the surpluses generated by the IHC are used to maintain and improve the infrastructure or to undertake various charitable activities in accordance with its aims and objectives. There is no case made out that the surpluses are being appropriated by any individual or by a group of individuals. In the light of the above I have no hesitation in accepting these grounds and therefore these are all allowed. IHC should therefore continue to be treated as a charitable organization as has been decided by the CIT Appeals in the past. Moreover keeping in view the decision of the Delhi High Court in the case of IHC itself (judgment dated 12.10.2011) such a conclusion is also supported by the principle of Consistency quoted by the High Court in its aforesaid judgment as there has been no fundamental change in the nature of the activities of the assesse." 4.1.3 For the assessment year 2009-10, the Hon'ble ITAT Delhi Bench "C", in while dismissing the appeal of revenue on the issue of taxing the interest income by holding that it is not covered by the principle of mutuality, observed as under: "8. Further on perusal of the order of the Id CIT (A) it is found that he has allowed all the grounds of the appeal of the assessee wherein Ground No. 1 to 3 were against the order of the Assessing Officer denying the exemption u/s 11, 12 and 13 of the Income Tax Act to the assessee. Vide para no. 3.4 of the order of the CIT(A) he has allowed ground No. 1 to 5 of the appeal, i.e. Id CIT (A) has also allowed the grounds of appeal of the assessee on the issue of eligibility of exemption to the assessee u/s 11, 12 and 13 of the Act as a charitable trust. We do not find any ground in the appeal of the revenue against this. It is also apparent that the assessee is holding registration u/s 12A of the act vide order No. 3095 dated 13.01.1989 of the Act. This registration is in force today. In view of this we are also of the view that as the trust is registered u/s 12A and further Id CIT(A) has allowed the grounds of appeal of the assessee allowing it relief u/s 11, 12 and 13 and consequently it has not been challenged by the revenue in appeal before us, we hold that when the assessee registered charitable trust its income cannot be computed on the principle of mutuality but is required to be computed u/s 11, 12 and 13 of the Act. Therefore, also this appeal cannot survive." 4.1.4 On the issue of mutuality, my Id. predecessor, in the appeal for assessment year 2012 - 13, 2013-14 and 2014-15 has held as under: "6.3 It is quite clear from the facts that the 1HC has not generated any surplus for anyone - members or non members. All its activities are geared towards providing services for its members with the bulk of the expenditure going towards maintaining the complex and thus providing the physical environment that it was expected to do. It is also not correct to state that the assessee has claimed partial relief as a charitable organization and partly as a mutual association. The assesse has claimed both and therefore it is not correct that the assesse should maintain separate accounts to claim these 2 kinds of benefits. Accordingly it is clear that the assessee is fully entitled to claim benefits on the principle of mutuality as well as on the ground that its activities are charitable although the former becomes superfluous in view of the latter. Neverthless on the grounds of completeness it is necessary to give a specific finding on this important point. 6.4 The assesse has pointed out that the Delhi High Court vide its judgment delivered on 12th October 2011 took note of the fact that from Assessment Year 1988-

1989 to Assessment Year 2006-2007, the activities of the Centre stood accepted as being charitable in nature. Even for Assessment Year 2007- 2008, the activities of the Centre were held to be charitable and the benefit of Section 11/12 of the Act was given to the Centre. It is only from Assessment Year 2008-2009 that the AO came to hold that the activities of the Centre are not charitable in nature and applied the Principle of Mutuality. The Commissioner (Appeals) in respect of Assessment Years 2008-2009, 2009-2010 and 2011- 2012 has held that the activities of the Centre are charitable in nature. In respect of AY 2008-09 the Income Tax Department had filed an appeal to the High Court against the order of the IT AT upholding the order of the Commissioner Appeals. In view of this position the assesse has argued that it should be given the benefits of charitable status as well as benefits of the principle of Continuity. 7.2 While dealing with this contention it must be noted that In Income Tax matters the principle of Res Judicata does not apply as noted in the High Court order noted above. However it is seen that there is no fundamental change in the activities of the Centre. The Hon'ble Supreme Court of India in Radha Soami Satsang vs. CIT193 ITR 321 (SC), held as under: "That, in the absence of any material change justifying the Department to take a different view from that taken in earlier proceedings, the question of the exemption of the assesse appellant should not have been reopened. Strictly speaking, res judicata does not apply to income- tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year; where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year." This principle has again been noticed and followed by the Hon'ble Supreme Court in CIT vs. Excel Industries Ltd., 358 ITR 295 (SC). 7.3 In the High Court Judgment delivered on 12/10/2011 also the principle of consistency was applied to IHC. There is no fundamental change in the nature of activities oflHCfor the period prior to AY 2008- 09 and subsequent years. Accordingly based on the aforesaid High Court Judgments and the fact that he assessing officers have consistently from AY 2 008-09 treated IHC as a mutual association IHC has to be given the befit of mutuality." 4.1.5 Since the facts of the case are similar to those for the assessment years 2012-13, 2013- 14 and 2014-2015, respectfully following the decision of my Id. predecessor for the assessment years 2012-13 and 2013-14 and my own for assessment year 2014-15, it is held that the assessee should be regarded as a charitable organisation and allowed benefit of exemption under section 11. As was the case in earlier years also there is no case made out that the surpluses are being appropriated by any individual or group of individuals. This would also be in line with the decision of the Hon'ble Delhi High Court vide order dated 12/10/2011 in appellant's own case where the principle of consistency has been quoted by the Hon'ble Court in the judgment as there has been no fundamental change in the nature of the activities of the assessee and also in line with the observations of the Hon'ble IT AT in appellant's own case for assessment year 2009-10 in ITA No. 4024/Del/2012. On the issue of mutuality also, in the judgment of the Hon'ble Delhi High Court in the appellant's own case in order dated 12.10.2011 the principle of consistency was applied to the assessee. Since there is no fundamental change in the nature of activities of the assessee for periods prior to assessment year 2008 - 09 and subsequent years and the fact that the Assessing Officers have consistently treated the appellant as a mutual association from assessment year 2008 - 09, the appellant has to be given the benefit of mutuality.”

The ld. counsel for the assessee submitted that this issue is squarely covered in favour of the assessee by the earlier decision of ITAT as well as Hon’ble Delhi High Court in assessee’s own case.

Order pronounced in the open court on 17.06.2022.