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Income Tax Appellate Tribunal, DELHI BENCHES “C” : DELHI
Before: SHRI BHAVNESH SAINI & SHRI B.R.R. KUMAR
This appeal by Revenue has been directed against the Order of Ld. CIT(A)-40, Delhi, Dated 05.06.2017 for the A.Y. 2014- 2015 on the following grounds :
2 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 1. “On the facts and in the circumstances of the case and law, Ld. CIT(A) has erred in ignoring the fact that the activities of the assessee involve rendering of services in relation to carrying on of commerce or business and hence, proviso to Section 2(15) is clearly applicable in the case of the assessee.
2. On the facts and in the circumstance of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.1,21,38,992/- made on account of bank interest being not covered under principle of mutuality in view of the judgment of Hon’ble Supreme Court in the case of Bangalore Club Vs CIT 350 ITR 509 (SC).”
2. We have heard the Learned Representative of both the parties through video conferencing and perused the material available on record.
Brief facts of the case are that return of income for the assessment year under appeal was filed on 30.09.2014 disclosing NIL income. The assessee-society is 3 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. registered under Section 12A of the Income Tax Act, 1961 vide Order Dated 13.01.1989 and also granted approval under Section 80G(5)(vi) of the Income-Tax Act, 1961 vide Order Dated 19.07.2011. The A.O. reproduced the primary aims and objects of the assessee-society in the assessment Order and found that after declaring total income and deducting the expenditure, assessee has net balance of Rs.4,61,08,034/-. The assessee submitted before the A.O. that its income is covered by the principle of mutuality as it is a Members Association. Therefore, income from mutual activity is considered exempt by the assessee-society. The A.O, however, noted that the activities of the assessee- society are hybrid, partly covered by provisions of Section 11 read with Section 2(15) and partly by principle of mutuality. It is noted that assessee-society 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-society. Therefore, assessee-society cannot be allowed to compartmentalize its activities and 4 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. income arising therefrom under charitable activities and mutual activities. The A.O, therefore, noted that all the above activities of the assessee-society shall have to be seen. The A.O. issued notice to assessee-society to explain as to how it is not covered by Proviso 1 and 2 of Section 2(15) of the Income Tax Act, 1961. The assessee-society submitted before the A.O. that its activities are not driven by profit making, which is an essential ingredient to hold the activity as being in pursuance of a business or trade with a profit motive. The activities of the assessee-society for the A.Y. 2009-2010 after insertion of proviso to Section 2(15) have not been hit by these provisions. As the activities of the assessee-society are on no-profit no-loss basis, it is not having any commercial activity. Detailed reply of the assessee-society is reproduced in the assessment order explaining the issue with regard to the applicability of proviso to Section 2(15) of the Income Tax Act, 1961. However, the A.O. did not accept the explanation of assessee-society and held that assessee institution is not entitled to exemption of income under section 11 of the 5 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. Income Tax Act, 1961 and under mutuality, therefore, its entire income was taxable and made addition of Rs.4,61,08,034/-. The A.O. also did not allow the claim of assessee-society on account of interest of Rs.1,21,38,992/- under the Head ‘Charity’ by referring to Judgment of the Apex Court in the case of Bangalore Club vs., CIT 350 ITR 509 (SC) and after granting depreciation to assessee-society, computed the net taxable income at Rs.4,61,15,838/-.
The assessee-society challenged the assessment order before the Ld. CIT(A) and explained that activities of the assessee-society can be examined under all the limbs of Section 2(15) of the Income Tax Act, 1961 to show that activities of the assessee-society are charitable as mandated in Section 2(15) of the Income-Tax Act, 1961. It was explained that assessee-society satisfied the requirements of Education, Medical Relief, Environment, Relief of Poor and Claim of General Public Utility. The detailed submissions on these issues are reproduced in the appellate order. It was also explained that the position of the same have been accepted by the Ld. CIT(A)-40 (Exemption) for A.Ys. 2011-
6 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 2012 to 2013-2014. It was also explained that the assessee- society also satisfied the requirement of principal of maturity, therefore, no income is taxable under the Law. It was submitted that assessee-society has conducted all the activities as per the aims and objects of the Centre. The Ld. CIT(A) in earlier assessment years 2008-2009, 2009-2010, 2011-2012, 2012-2013 and 2013-2014 has held that the activities of the assessee-society are charitable in nature. In respect of A.Y. 2008-2009 the Revenue Department filed an appeal before the Hon’ble Delhi High Court against the Order of the ITAT upholding the Order of the Ld. CIT(A), but, the Revenue Department did not succeed.
The Ld. CIT(A) considered the assessment Order and submissions of the assessee-society and found that his predecessor for the A.Ys. 2011-2012, 2012-2013, and 2013- 2014 has allowed the claim of assessee-society on the same grounds as have been under consideration for assessment year under appeal i.e., 2014-2015. The Ld. CIT(A) held that assessee-society is engaged in charitable activities and the 7 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. Hon’ble Delhi High Court has also accepted the claim of assessee-society.
5.1. In A.Y. 2009-2010, the ITAT in ITA.No.4024/Del/ 2012 dismissed the appeal of Revenue on the issue of taxing the interest income by holding that it is not covered by principle of mutuality because the income is to be computed under sections 11, 12 and 13 of the Income Tax Act, 1961. The Ld. CIT(A) also reproduced the Order for A.Ys. 2012- 2013 and 2013-2014 of his predecessor on the issue of principle of mutuality which was decided in favour of the assessee-society. The Ld. CIT(A) ultimately held that in preceding A.Ys. 2012-2013 and 2013-2014 it was held that assessee-society should be regarded as a charitable organization and allowed the benefit of exemption under Section 11 of the Income Tax Act, 1961. Since there is no change in facts and circumstances, therefore, Ld. CIT(A) took the same view in favour of the assessee society holding that assessee-society is a charitable organization and entitled for exemption under Section 11 of the Income Tax Act, 1961. The Ld. CIT(A) also referred to Judgments of 8 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. Hon’ble Delhi High Court Dated 12.10.2011 in the case of the assessee-society where the principle of consistency has been quoted by the Hon’ble Delhi High Court as there have been no change in nature of activities of the assessee- society. Therefore, following the principle of rule of consistency, it was held that since there is no change in the nature of activities of the assessee-society for the periods prior to the A.Y. 2008-2009 and subsequent years and the fact that A.O. have consistently treated the assessee-society as a mutual association, the assessee society shall have to be given benefit of mutuality. The appeal of assessee-society was accordingly allowed.
The Ld. D.R. relied upon the Order of the A.O. and submitted that proviso to Section 2(15) of the Income- Tax Act applies in the case of assessee-society because assessee-society is doing commercial/trading activity, therefore, no charitable activity have been done by the assessee-society. He has submitted that once it is held by the Tribunal that assessee-society is to be granted benefit of exemption under Section 11 of the Income Tax Act, 1961,
9 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. therefore, income cannot be computed on the principle of mutuality, therefore, Ld. CIT(A) should not have granted benefit to assessee-society of mutuality.
On the other hand, Learned Counsel for the Assessee reiterated the submissions made before the authorities below and also filed synopsis of his written submissions which is taken on record. He has submitted that as per the objects of the Memorandum of Association, all the objects of the assessee-society are charitable in nature and all income of the assessee-society has to be applied to the objects of the assessee-society. The assessee- society is registered under Section 12A of Income Tax Act, 1961 as well as under Section 80(G) of the I.T. Act, 1961. The assessee-society was established to promote the habitat concept. Its aims and objects broadly are to promote sustainable habitat through inter-linkages 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 10 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. dealing habitat/environmental issues and maintain residential hostels, restaurants and other amenities for its Members. There were 37 institutions of the Centre which had contributed towards the purchase of land from the Government of India at institutional rates and construction of buildings at the initial stages. In the initial years of assessee-society’s inception, the Revenue was of the view that it is not a charitable organization eligible to claim exemption under Section 11 of the I.T. Act, 1961 and accordingly taxed the receipts. But the Hon’ble Delhi High Court in the case of the assessee-society vide Judgment Dated 12.10.2011 [PB-82] for the A.Y. 1990-1991 etc., noticed that up to the A.Y. 2006-2007 assessee-society is a charitable organization and Section 11 of the I.T. Act, 1961 is applicable. From the A.Y. 2008 2009, the Department started disputing the nature of activities undertaken by the assessee-society and rejected the claim of exemption under Sections 11 and 12 read with Section 2(15) of the I.T. Act, 1961. Then and there the assessee-society is started making an alternative claim of exemption of income on the principle 11 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. of mutuality, but, that was also dismissed by the Department. On further appeal, the Ld. CIT(A) allowed the claim of assessee-society while holding that the principle of mutuality will apply to the interest income earned by the assessee-society. The Order of the Ld. CIT(A) is upheld by the ITAT in the case of assessee-society in ITA.No.4771/Del./2011, for the A.Y. 2008-2009 vide Order Dated 17.02.2012 [PB 44].
7.1. In A.Y. 2009-2010, the A.O. again passed the Order on the line of assessment order passed in A.Y. 2008- 2009 wherein the claim of assessee-society in respect to eligibility of exemption under Section 11 of the I.T. Act, 1961 was rejected and even the principle of mutuality was not accepted and then taxed the entire interest income earned by the assessee-society from the Bank accounts.
7.2. The assessee-society challenged this Order of the A.O. before the Ld. CIT(A), but, after following the Order of ITAT for the A.Y. 2008-2009 allowed the appeal of assessee- society on all the grounds. This Order of the Ld. CIT(A) for 12 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. the A.Y. 2009-2010 was challenged by the Department before ITAT and the Tribunal vide Order Dated 29.04.2016 in ITA.No.4024/Del./2012 [PB-54] dismissed the Departmental appeal after following the Order of the Tribunal for preceding A.Y. 2008 2009. The Tribunal found that once the income is computed under Sections 11, 12 and 13 of the Act as a charitable institution, then, its income cannot be computed on the principle of mutuality. The Order of the Tribunal has been affirmed by the Hon’ble Delhi High Court vide Judgment Dated 11.12.2017 in [PB-111].
7.3. In A.Y. 2010-2011, the A.O. though rejected the assessee’s claim of exemption under Section 11 of the Act, but, had allowed the principle of mutuality and treated the interest income as not taxable. This Order of the A.O. was set aside by the DIT(E) vide Order Dated 27.03.2015 under Section 263 of the Income Tax Act, 1961. However, the ITAT vide Order Dated 18.03.2016 in ITA.No.2390/Del./2015 had cancelled the Order of DIT (Exemption) under Section 13 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 263 of the Income Tax Act, 1961. The Order of the Tribunal has been upheld by the Hon’ble Delhi High Court vide its Order Dated 06.02.2017. Further appeal of the Department before the ITAT in ITA.No.4187/Del./2017 for the same year have been recently heard by the Tribunal.
7.4. In A.Y. 2011-2012, the A.O. passed the Order thereby rejecting the claim of assessee-society under Section 11 of the Income-Tax Act, 1961 on the ground that within the meaning of amended provision of Section 2(15) of the I.T. Act read with its proviso, the assessee-society was doing business and also rejected the claim of mutuality and taxed the Bank interest. The Ld. CIT(A) after following his earlier Order, had allowed the appeal of assessee-society. However, on an appeal filed by the Revenue, the ITAT in ITA.No.4457/Del./ 2015 vide Order Dated 26.06.2018, after analyzing the proviso to Section 2(15) of the Income-Tax Act in the light of Judgment of the Hon’ble Delhi High Court in the case of Indian Trade Promotion Organization vs., DGIT (E) 371 ITR 333 (Del.) has not only allowed the benefit of 14 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. Section 11 of Income Tax Act, 1961 to the assessee-society, but also held that once the benefit of Section 11 has been granted and the registration under Section 12AA of the Act is still continuing, the income computation has to be made in terms of Section 11 of the Income Tax Act, 1961 and the Bank interest is part of that income. The Tribunal relied upon its earlier decision in the case of the assessee-society.
7.5.. Learned Counsel for the Assessee submitted that on account of disputes being charitable or mutuality, not settled till the assessment proceedings, the assessee-society, as an abundant precaution, alternatively started claiming the exemption under Section 11 of the Income Tax Act, 1961 as well as the mutuality also. From A.Y. 2012-2013 onwards, even in the assessment proceedings, the A.O. denied both the claims. On further appeal, the Ld. CIT(A) after examining the proviso to Section 2(15) of the I.T. Act as well as Orders of various High Courts held that merely charging for goods and services is not the same as commercial activities. Once the object of the assessee- 15 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. society is charitable and income earned from the activity has been applied for such charitable activities, then the assessee-society has to be treated as a Charitable Organisation and held that assessee -society is entitled for exemption under Section 11 of the Income Tax Act, 1961, then the principle of mutuality becomes superfluous. This Order of the Ld. CIT(A) was challenged by the Revenue before ITAT in ITA.No.1847/Del./2016 and the ITAT vide Order Dated 28.02.2019 upheld the Order of the Ld. CIT(A), following the Order of the Tribunal in assessee’s own case for preceding A.Ys. 2008-2009 and 2009-2010 and dismissed the appeal of Revenue. The Tribunal held that once the assessee-society is registered as a Charitable- Trust, it’s income cannot be computed on principle of mutuality but requires to be computed under Section 11 of the Income Tax Act, 1961. The Order of the ITAT was challenged by the Revenue before the Hon’ble Delhi High Court which is decided vide Judgment Dated 27.11.2019 in ITA.No.964/2019 and Departmental appeal has been dismissed [PB-98]. The Hon’ble Delhi High Court while 16 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. dismissing the Departmental appeal has considered the proviso to Section 2(15) of the Act which was relied upon by the Revenue Department and held that if any surplus has been generated on account of some of the activities of the assessee, it would not ipso facto be determinative of the fact that there was an element of the profit motive. The Hon’ble Delhi High Court also dismissed the claim of Revenue about taxing the Bank interest on principle of mutuality.
7.6. In Assessment year 2013-2014, on identical grounds, the A.O. passed the Order. The Ld. CIT(A), however, allowed the claim of assessee-society and the Tribunal vide its Order Dated 06.06.2019 in ITA.No.,3911/ Del./ 2016 dismissed the Departmental appeal [PB-77].
7.7. Learned Counsel for the Assessee referring to the above Orders in the case of the assessee-society for the impugned assessment year submitted that as far as the applicability of First proviso to Section 2(15) of Income Tax Act, 1961 brought by the Finance Act 2008 with effect from 01.04.2009, the Hon’ble Delhi High Court in the case of the 17 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. assessee-society as well as other decisions held that proviso to Section 2(15) of the Act must be read in the context and purport of Section 2(15) of the Act and cannot be interpreted in an isolated manner. He has relied upon the Judgments of the Hon’ble Delhi High Court. He has further submitted that absence of profit motive clearly suggests that assessee- society is not carrying on any business and it is a vital factor in determining the charitable nature of an entity. He has submitted that since both the issues have been considered by the ITAT as well as the Hon’ble Delhi High Court in the case of the assessee-society, therefore, rule of consistency do apply to the proceedings in the case of the assessee-society and relied upon the Judgment of the Hon’ble Supreme Court in the case of Radhasoami Satsang vs., CIT 193 ITR 321 (SC). He has, therefore, submitted that no addition could also be made on account of taxability of interest with regard to computation of income under Sections 11, 12 and 13 of the I.T. Act, 1961 as well as on the principle of mutuality. Therefore, there is no wrong in 18 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. the Order of the Ld. CIT(A) in allowing the appeal of assessee-society.
We have considered the rival submissions and do not find any merit in the Departmental appeal. The assessee-society has explained its aims and objects and application of income towards the object. It is not in dispute that assessee-society is a registered society under section 12A of Income Tax Act, 1961 which is applicable to the assessment year under appeal because the registration is still in force in favour of the assessee-society. It is not in dispute that nature of activity and objects of the assessee society are same as have been considered in earlier years. In A.Y. 2012-2013, the ITAT, Delhi G-Bench, Delhi in the case of same assessee-society in Departmental appeal in ITA.No. 1847/Del./2016 vide Order Dated 28.02.2019 held that the income of the assessee-society is to be computed under sections 11, 12 and 13 of the Income-Tax Act, 1961. the findings of the Tribunal are reproduced as under :
19 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi.
The present appeal filed by the revenue is directed against the order dated 28.01.2016 in Appeal No.23/2015-16 passed by the Learned Commissioner of Income Tax (Appeals)-40, New Delhi {“CIT(A)
} in relation to Assessment Year 2012-13.
Brief facts of the case are that the assessee is a Society registered under the Societies Act, 1860. The Society is registered under section 12 of the Income- tax Act, 1961 (“the Act”) vide order dated 13.1.1989. It has also been granted approval under section 80G(5)(vi) of the Act vide approval dated 19.7.2011. The Society was established to promote the Habitat concept.
20 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 21 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 22 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 23 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 24 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 25 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 26 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 27 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi.
In the result, appeal of the Revenue is dismissed.”
8.1. The aforesaid Order of the Tribunal Dated 28.02.2019 was challenged by the Revenue before the Hon’ble Delhi High Court in ITA 964/2019. However, the Departmental appeal have been dismissed by the Hon’ble Delhi High Court vide Judgment Dated 27.11.2019 in which it was held that assessee-society is entitled to claim relief under sections 11, 12 and 13 of the I.T. Act. It was, therefore, held that in view of the above fact that activities of the assessee-society are charitable, therefore, principle of 28 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. mutuality becomes superfluous. The Judgment of the Hon’ble Delhi High Court (supra) is reproduced as under :
“ITA.964/2019 : 5. The present appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) is directed against the order passed by Income Tax Appellate Tribunal (“ITAT”), New Delhi dated 28.02.2019 in for assessment year (AY) 2012-2013, whereby ITAT dismissed the appeal of revenue, upholding the reasoning and findings of CIT (A) that the assessee is a charitable institution and its income has to be computed under sections 11, 12 and 13 of the Act.
29 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 30 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 31 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 32 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 33 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 34 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 35 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 36 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 37 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 38 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 39 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi.
8.2. In A.Y. 2012-2013, the ITAT as well as Hon’ble Delhi High Court has considered both the issues with regard to applicability of proviso to Section 2(15) of the Income Tax Act, 1961 in the case of the assessee-society and exemption claimed under Section 11 of the Income Tax Act, 1961 as well as the issue of principle of mutuality and the Hon’ble Delhi High Court dismissed the Departmental appeal. These issues are covered by the aforesaid decisions of the Tribunal as well as Hon’ble Delhi High Court in the case of the same assessee-society. The Revenue in its grounds of appeal has referred to the decision of Hon’ble Supreme Court in the case of Bangalore Club vs., CIT 350 ITR 509 (SC) which is also considered by the Hon’ble Delhi High Court. Thus, the issue is covered by the Order of the Tribunal as well as Hon’ble Delhi High Court in favour of the assessee-society.
40 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. 8.3. The history of the assessee-society as noted in the submissions of Learned Counsel for the Assessee also clearly show that all the issues raised in the Departmental appeal have been considered and decided in earlier years, therefore, principle of consistency do apply to the same facts. No material is brought on record to distinguish the facts in the case of the assessee-society considered in earlier years as well as in assessment year under appeal. In A.Y. 2010-2011, the Order under section 263 of Income Tax Act, 1961 have been set aside by the Tribunal and Departmental appeal have been dismissed by the Hon’ble Delhi High Court as well. The subsequent Order passed under section 143(3)/ 263 have become infructuous and vide separate Order the Departmental appeal have also been dismissed by the Tribunal in ITA.No.4187/Del./2017. Considering the above background and history of the assessee-society in the light of various Orders referred to by the Learned Counsel for the Assessee during the course of arguments and the recent Order of the ITAT and Hon’ble Delhi High Court in A.Y. 2012-2013 (supra), we do not find 41 ITA.No.5779/Del./2017 India Habitat Centre, New Delhi. any infinity in the Order of the Ld. CIT(A) in allowing the appeal of assessee-society. We, therefore, do not find any merit in the Departmental Appeal and the same is accordingly dismissed.
In the result, appeal of Revenue dismissed.
Order pronounced in the open Court.