Income Tax Exemption Eligible On Activities Undertaken For Advancement Of General Public Utility: ITAT
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the income tax exemption under Section 11 of the Income Tax Act is eligible for activities undertaken for the advancement of general public utility.The two-member bench headed by Pramod Kumar (Vice President) and Rahul Chaudhary (Judicial Member) has observed that the activities of the appellant were directed toward...
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the income tax exemption under Section 11 of the Income Tax Act is eligible for activities undertaken for the advancement of general public utility.
The two-member bench headed by Pramod Kumar (Vice President) and Rahul Chaudhary (Judicial Member) has observed that the activities of the appellant were directed toward the benefit of investors and potential investors, forming part of the general public and not limited to the benefit of its members. The appellant has also maintained separate accounts in respect of the activities.
The Appellant is a company incorporated under the provisions of the Companies Act, 1956, and holding valid registration under Section 12A, filed its return of income on 30.09.2011, declaring "Nil" income after claiming exemption under Sections 11 and 12. The case of the appellant was selected for scrutiny. The Appellant was asked to explain why the income from registration fees, certification test fees, receipts from sales of publications, and other income as reflected in the Income and Expenditure Account should not be taxed.
The appellant submitted that the appellant is engaged in charitable activities and the provisions of the First Proviso to Section 2(15) of the Act are not attracted. The registration fee, certification fee, receipts from the sale of publication, etc. were eligible for exemption under Section 11 read with Section 2(15). However, the Assessing Officer passed under Section 143(3) of the Act rejected the submission/explanation of the Appellant and denied exemption under Section 11 in respect of receipts from non-members amounting to INR 4,78,98,410.
The Assessing Officer pointed out that if an industry or trade association claims to be both charitable institutions and mutual organizations, their claim to be charitable organizations will be governed by the provisions in the First Proviso to Section 2 (15) regarding their dealings with non-members. The appellate is predominantly a mutual association where members contribute only for the purpose of their own benefit. Therefore, the appellant is not a charitable institution since a charitable institution is for the benefit of the public and not for the mutual benefit of the contributors to the common funds.
The Assessing Officer treated the Appellant as a mutual association and did not tax the receipts from its members. However, the Assessing Officer denied exemption under Section 11 read with Section 2(15), and brought to tax gross receipts from non-members without allowing any deduction for expenditure incurred.
The appellant appealed against the Assessment Order before CIT(A). The appellant argued that the critical role played by the Appellant in the mutual fund ecosystem by carrying out investor education programs, publishing investor education materials, disseminating critical data and information relevant to investment decisions, resolving investor grievances, and undertaking the work undertaken by the Appellant in accordance with the mandate received from the Securities and Exchange Board of India (SEBI), including certification and registration. The operations and activities of the appellant and the claim of exemption under Section 11 were to be examined and tested on a year-to-year basis.
The appellant contended that the work undertaken by the appellant must be seen as public service and cannot be equated with private initiatives carried on with commercial motives. The objects of the appellant would not be converted from charitable to non-charitable merely because the receipts exceed the specified limit. The insertion of the proviso to section 2(15) impacts only those entities which are carrying on commercial activities and claim exemption on the ground that the activities are for the advancement of objects of public utility.
The ITAT held that the appellant was engaged in charitable activity. The appellant has not been established for the purpose of earning profits. The Appellant was registered under Section 25 of the Companies Act of 1956, which applies specifically to entities that intend to use their profits if any, and other income to further their objectives and prohibits the payment of any dividend to their members. There is no dispute regarding the nature of the activities undertaken by the appellant. The genuineness of the activities undertaken by the appellant was not doubted by the department.
The tribunal directed the Assessing Officer to allow an exemption under Section 11 to the Appellant.
Case Title: M/s Association of Mutual Funds in India Versus Deputy Commissioner of Income Tax
Citation: ITA No. 6888/MUM/2016
Date: 06.09.2022
Counsel For Appellant: Samir Kapadia, Nitesh Joshi
Counsel For Respondent: Milind Chavan/ Mehul Jain