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Facts
The assessee, Petroleum Federation of India, filed two appeals: one against the CIT(E)'s order dated 26/25.03.2019 under Section 263 of the Income Tax Act, 1961, and another against the order dated 21.12.2023 of the National Faceless Appeal Centre (NFAC) which dismissed its appeal against the consequential assessment order. The CIT(E) had invoked Section 263, believing the original assessment was erroneous and prejudicial to the revenue, primarily on the grounds that the assessee's activities were commercial rather than charitable, and that membership fees were improperly accounted for as corpus donations without sufficient evidence under Section 13(1)(d).
Held
The tribunal found that the assessee's activities were indeed charitable, citing precedents from the ITAT and Delhi High Court in the case of M/s Petrotech, a merged entity with identical objects and activities, where similar activities were held to be charitable under Section 2(15). The tribunal criticized the CIT(E) for failing to consider these precedents and for making a revisional order based on surmises and conjectures, without proving that the assessee's funds were used for private business interests. Consequently, the tribunal held that the CIT(E)'s order under Section 263 lacked legal basis and could not be sustained.
Key Issues
Whether the CIT(E) validly invoked revisional jurisdiction under Section 263 by concluding that the assessee's activities were commercial and not charitable, and whether the subsequent assessment order passed by the AO under Section 143(3) read with Section 263 was justified.
Sections Cited
Section 263, Section 143(3), Section 2(15), Section 13(1)(d), Section 12, Section 12AA(1)(b), Section 80G(5)(vi), Section 11, Section 12A, Section 250, Section 260A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES : F : NEW DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI ANUBHAV SHARMA
ORDER PER ANUBHAV SHARMA, JM: These appeals are preferred by the assessee against the orders dated 26/25.03.2019 u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) of the Commissioner of Income Tax (Exemptions) [hereinafter referred to as Ld. CIT(E)/Revisionary Authority] and order dated 21.12.2023 of National Faceless Appeal Centre (NFAC) u/s 250 of the Act consequent to the assessment order dated 27.08.2013 and 20.12.2019 passed u/s 143(3) and u/s 143(3) r.w.s. 263 of the Act by the DDIT (E), Inv. Circle-II, New Delhi and ITO, Ward-2(4), Exemption, Delhi (hereinafter referred to as the Ld. AO), respectively.
On hearing both the sides, it comes up that the assessment of the assessee body was completed u/s 143(3) of the Act on 23.06.2016. However, the ld. Revisionary Authority examined the assessment record and was of the belief that the assessment order is erroneous in so far as it is prejudicial to the interests of the Revenue as the ld. Revisionary Authority was of the view that the activities carried on by the assessee society falls in the category of commercial activity and not charitable activity, as such, the same is hit by second proviso to section 2(15) of the Act and the Assessing Officer has failed to examine the same in the assessment proceedings. The ld. Revisionary Authority also was of the view that the membership of Rs.1,58,00,000/- has been received during the year and the same has been capitalized and treated as corpus donation in the books of account. However, there is no evidence on record that membership fee has been taken as per the provisions of section 13(1)(d) of the Act. The ld. Revisionary Authority was of the view that membership contribution is a voluntary contribution within the meaning of section 12 which can be made with contribution to form part of corpus and the membership, however, is in the nature of consideration for getting approvals, rights or benefits of institution. The assessee had given detailed reply, but, the Revisionary Authority was not satisfied and ‘cancelled’ the assessment order dated 29.12.2016 and directed the AO to pass a fresh assessment in the light of the observations.
In furtherance to the order dated 26.03.2019 u/s 263 of the Act, the AO has passed the effect giving order dated 20.12.2019 which was challenged by the assessee by way of appeal u/s 250 of the Act and the appeal of the assessee stands dismissed by order of NFAC dated 21.12.2023.
3.1 Accordingly, the assessee has filed these two appeals wherein vide 263 of the Act has been challenged by raising following grounds:- “
1. That the order passed u/s 263 by the Ld. CIT (Exemption) on 26.03.2019 is perverse to the law and to the facts of the case, on holding that the assessment order passed by the Assessing Officer is erroneous in as much as prejudicial to the interest of revenue and therefore, fit case for revision u/s 263 of the Income Tax Act 1961.
2. That the Ld. CIT (Exemption) failed to appreciate that the assessment order so passed by the Assessing Officer was completed after due process of law and only after taking into consideration, exemption and verification of detailed information provided and all the supporting evidences produced, filed and placed upon records, as desired as called upon from the assessee time to time.
3. That the order passed u/s 263 of the Act for the Assessment Year 2014-15 was farther perverse to the law and to the facts of the case, because of having difference of his opinion by the Ld. CIT (Exemption) about the orders passed by the ITAT and upheld by die Hon’ble Delhi High Court in the case of their other organization M/s Petrotech carrying and 3 conducting the similar aims and objects held to be entitled for deduction or exemption u/s 11 & 12 of the Income Tax Act 1961, as is carrying on the activity of education only and the income generated therefrom is also used for the charitable objects of education only.
4. That the Ld. CIT (Exemption) failed to appreciate while passing order u/s 263 of the Act for the Assessment Year 2014-15 that on the similar / identical facts the deduction / exemption to the society has already been granted / allowed u/s 11 & 12 of the I.T. Act 1961, in all the preceding years while completing the assessments u/s 143(3) of the Income Tax Act 1961.
5. That the order passed u/s 263 of the Act was further wrong on facts and erroneous on the point of law, because the Ld. CIT (Exemption) has either not collected any fresh material or ever placed upon records, on the basis of which he opined / hold that the assessment order passed by the Assessing Officer u/s 143(3) of the Act, was ever erroneous or prejudicial to the interest of revenue.
That the Ld. CIT (Exemption) further failed to consider the information provided, documents produced, filed and placed upon records in support of our contention, which have also been examined and verified by the Assessing Officer, prior to direct the concerned Assessing Officer to pass fresh order in the light of averments made in the said order.
That the Ld. CIT (Exemption) has further failed to consider / appreciate while passing order u/s 263 of the Act thereby giving direction to the concerned Assessing Officer to re-frame assessment of the society that the legitimate and bonafide claim of exemption u/s 11 & 12 of the Act is continuously to be allowed in the preceding Assessment Years and also the society still avail the benefit of Section 12A of the Income Tax Act 1961.
That the Ld. CIT (Exemption) further failed to consider and appreciate that it has never been hold at any stage that the said society is ever engaged to carry on any activity in the nature of trade, commerce or business whatsoever due to which their exemption claimed u/s 11 & 12 could be denied at all.
That the aims, objects and activities of the appellant society for which it was registered were same in this Assessment Year also.
That the order passed by the Ld. CIT (Exemption) was further not correct under the law and to the facts of the case, because on the similar activities as contained from the inception of the society, the basis on which section 12A was granted is still in existence during the Financial Year 2013-14 (A. Y. 2014-15). 4 11 That the assessment order passed by the Assessing Officer clearly mandate after examination and verification of the information given, documents produced, filed and placed upon records that the appellant society is imparting education by organizing seminars, conducting workshop etc., therefore, the Ld. CIT (Exemption)cannot opined and hold that the order passed by the Assessing Officer was erroneous in as much as prejudicial to the interest of revenue.
That the order passed u/s 263 of the Act by the Ld. CIT (Exemption) was further wrong on law and to the facts of the case, as there is no any averment contained in the order that on what ground the order passed by the Assessing Officer is erroneous in so for as it is prejudicial to the interest of revenue.
That the appellant society assails their rights to amend, alter or change any grounds of appeal
at any time even during the course of hearing of this instant appeal. PRAYER: It is therefore, prayed:
1. That the order passed u/s 263 by the Ld. CIT (Exemption) on 26.03.2019 thereby setting-aside the assessment order passed by the Assessing Officer on 23.06.2016, thereby directing him to reframe the same on the direction given in his said order, may please be quashed and the order passed by the Assessing Officer on 23.06.2016 may please be restored back in the interest of equity and justice.
2. Any other relief which this Hon’ble Court may please be deems fit and proper on the facts and in the circumstances of the case. It is prayed accordingly.”
On hearing the ld. AR, it comes up that the claim of the assessee society is that it had come into existence at the instance of erstwhile Oil Coordination Committee, which was nodal agency of the Government of India responsible for subsidy, administration, development, planning, exports, imports, distribution, planning, coordination, data maintenance, etc., and this body chaired by Addl.
Secretary, Ministry of Petroleum and Natural Gas had decided to form assessee body which could represent all the petroleum related organizations in private, public and joint sector.
4.1 Taking the Bench across the objectives of the society, it was submitted that this body acts as an interface for the oil industry with the Government regulatory authorities, public and representative bodies of territories in the market, in order to bring oil majors on one platform to promote research and assist in research, in policy making, in hydrocarbon sector. It was submitted that the registration certificate allowed u/s 12AA(1)(b) of the Act and exemption u/s 80G(5)(vi) of the Act were valid till 5th September 2016 and, thereafter, the society had merged with another society M/s Petrotech, which had identical objectives and was also registered similarly under the Act.
The ld. AR had submitted all the assessments of the society for the last three years i.e., AYs 2011-12 to 2013-14 were completed u/s 143(3) of the Act, after taking into consideration, examination and scrutiny of the information provided, documents produced and placed upon record and after taking into consideration all the registration of the society u/s 12AA(1)(b) of the Act and the exemption u/s 80G holding that the assessee is engaged in charitable activities for the purpose of section 2(15) of the Act.
6. Then, the ld. AR has submitted that the assessee company was merged with M/s Petrotech which had identical objects and in the case of M/s Petrotech this Tribunal and then the Hon’ble Delhi High Court has held that the activities of the M/s Petrotech are apparently charitable in nature and, as such, covered within the meaning of section 2(15) of the Act.
7. On the other hand, the ld. DR has supported the findings of the ld. tax authorities below.
8. We have gone through the order dated 11.04.2017 in for AY 2009-10 in the case of Petrotech and that was an appeal filed by the Revenue against the order of CIT(A)-21, New Delhi by which the activities of the said society were held to be charitable in nature and covered under the scope of ‘education’ and not under advancement of any other object of general public utility. The relevant part of the order dismissing the appeal of Revenue is reproduced below:- “7. We have carefully perused the memorandum of Association and bylaws of the society, which are placed before us and page No. 30 of the paper book. According to that, the assessee is required to provide a forum for national and international experts in oil and gas industry exchange view and share their knowledge expert eyes and experience. Further, it is also formed to identify new areas for cooperation and technology transfer relating to petroleum industry and to find out new ways to assimilate and harness the petroleum resources of the world for the benefit of mankind. Therefore on looking at the clause No.3 of the memorandum of Association of the assessee it is apparent that assessee is formed to carry on the educational activities in the field of oil and gas industry. The annual accounts placed before us at page No.22 of 23 of the paper book shows that the assessee has excess of income of Rs. 8351077 for the year ended on 31st of March 2009 and 5188749/- for March 2008. On a query being raised by the bench that whether the assessee is still enjoying the registration under section 12 A of the income tax act or not, it was replied by both the parties-that still assessee is registered under section 12 A of the income tax act. Merely because the assessee is holding conferences and seminars which are according to us in furtherance of the object of education only against payment of fees will not make the object of the trust falling into the 6th category i.e. ‘ Any other object of general public utility’. Further more it is not the case of the revenue that assessee is not carrying on the objective for which it has been formed and the fees and the income earned* by the assessee is not used for charitable purposes. The Ld. departmental representative could not controvert the decisions relied upon by the Ld. AR. The revenue- also could not place before us any evidence to show that the objects of the assessee are not ‘education’. In view of this we do not find any infirmity in the order of the Ld. CIT (A) in holding that assessee is entitled for deduction or exemption under section 11 and 12 of the income tax act as assessee is carrying on the activity of education only and income generated there from is also used for the charitable objects of education only.
9. As a matter of fact, the Revenue’s appeal before the Hon’ble High Court in ITA 1172/2017 has been dismissed by order dated 20.12.2017 and again, the relevant part of the order of the Hon’ble High Court dated 20.12.2017 made available at pages 158 to 159 of the paper book is reproduced below:- “1. The Appellant/Revenue’s grievance in this appeal under Section 260A of the Income Tax Act, 1961 (hereafter referred to as ‘the Act’) is that the Income Tax Appellate Tribunal (ITAT) fell into error in upholding the assessee’s plea with respect to the charitable nature of its activities. 2. The assessee is a registered under Section 12A of the Act by an order dated 02.08.2000. It also secured registration under Section 80G of the Act for AY 2009-10. The Assessing Officer (AO) after noticing its objects felt that whilst the principal activity was imparting education, nevertheless, the nature of the receipts received by it was of commercial consideration. He, therefore, brought to tax the amount received. The assessee appealed to the Appellate Commissioner to accept its plea after noticing several decisions including that of this Court in DIT vs. India Habitat Centre: (2011) 203 Taxman 510. The ITAT’s decision has relied on several judgments of this Court including India Trade Promotion Organisation vs. Director General of Income Tax: 371 ITR 333; PHD Chambers of Commerce & Industry vs. DIT: 357 ITR 296, etc. 3. Having regard to the concurrent findings of fact and ruling in Indian Trade Promotion Organisation vs. Director General of Income Tax: 371 ITR 333, this Court is of the opinion that there is no infirmity or error of law in the impugned order calling for interference. No substantial question of law arises. 4. The appeal is, therefore, dismissed.”
10. We have examined the bylaws of the society and the Memorandum of Association of the Petrotech available at pages 160 to 184 of the paper book and also of the present appellant society available at pages 122 to 137 of the paper book and without doubt, the scope of activities of the two societies is identical. We also find that the Hon’ble Delhi High Court order in favour of Petrotech for AY 2009-10 has been relied further in case of Petrotech for AY 2013-14 and 2014-15 vide order dated 05.10.2020. It comes up that while making submissions to the notice u/s 263 of the Act, the present assessee had brought to the knowledge of the ld. Revisional Authority of the fact that in the case of M/s Petrotech, the Tribunal has found the identical activities to be covered under the first limb of section 2(15) of the Act. However, the same has not at all been considered by the Ld. Revisional Authority while passing the impugned order u/s 263 of the Act.
It appears that the ld. Revisional Authority was carried by the conclusion that the primary objective of the assessee is to secure and promote the business interest of its members and, therefore, it cannot be said to be a public charitable 9 organization. We are of the considered view that any organization primarily formed to secure or promote the interest of its members who were themselves engaged in business activity does not lead to an inference that the objective of the society is also commercial in nature. It is unfair to label the assessee as ‘lobbying agency.’ The fact that it came into existence as an initiative of the Government of India shows that the purpose was to bring all the stakeholders on one platform and ultimate beneficiary was to be the consumers only. Merely because the participants includes private sector members also, that will not make the nature of activities, as a facilitator, to the hydrocarbon industry, to be that of a commercial nature. The impugned order does not show if from the expenditure of the assessee company anything could be culled out to show that the funds were utilized for promoting the business or financial interest of any individual member or members collectively. As we go through the expenditure statement of the assessee available at page 12 of the paper book, we find that there is no head of expenditure which would show that any part of the fund was used for procurement of any business for the members. We further find that the incidental fee and annual subscriptions of the members is on the basis of their turnover, etc., for which no opinion can be formed that it was for the benefit of any specific member. Therefore, the order of the ld. Revisionary Authority, has no legal basis and seems to be on surmises and conjectures, which is beyond the scope of section 263 of the Act, and thus cannot be sustained. The grounds raised
by the assessee in to be sustained and the 10. ITA No.645/Del/2024 appeal is allowed. As a consequence of above the order u/s 143(3) read with section 263 of the Act becomes non-est, and accordingly allowing the appeal the impugned assessment order is quashed.