ITAT grants relief to builders association, says activities undertaken ain't commercial

ITAT grants relief to builders association, says activities undertaken ain't commercial

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, on 8 March 2021 in the case titled Builders Association of India (Assessee) v. Income Tax Officer (Revenue) allowed the exemption under Section 11(1)(a) of the Income Tax Act, 1961 (IT Act) as activities that are undertaken by Builders Association cannot be considered as trade, commerce, or business.

The ITAT Coram comprising of Judicial Member Ravish Sood and Accountant Member M. Balaganesh allowed the appeal of the assessee. It noted that the assessee's explanation before the Director of Income Tax (DIT) regarding the nature of receipts clearly shows that they have been received from the members while pursuing objects of the society, specifically mentioned in the "objects" for which it was granted registration under Section 12A.

The factual background of the case was that the assessee is a trust and it had filed its return of income for Assessment Year 2013-14 declaring a net deficit. As was discernible from the records, the DIT (Exemption), had canceled the registration of the assessee trust under Section 12A, which, however, was restored by the Tribunal vide its order.

The department had challenged the order of the Tribunal and filed an appeal under Section 260A before the High Court of Bombay (HC).

The Assessing Officer (AO) noted that the assessee had claimed exemption under Section 11 of the Act. After deliberating on the objects of the assessee trust, the AO held a conviction that it existed for the development of contractors and services to construction industries in India.

The AO opined that the primary objects of the assessee trust were to promote and foster feelings of unity, cooperation, and mutual help with a purpose to eliminate unhealthy competition and unfair trade practices amongst the contractors and the allied operators.

It was further observed by the AO that the assessee had claimed that its activities were charitable in nature on the ground that it was engaged in the advancement of an object of a general public utility.

However, the AO was not convinced with the assessee's claim. It was observed by the AO that as per the post-amended Section 2(15) of the Act, any activity of rendering any services in relation to any trade, commerce, and business for a cess or any other consideration, irrespective of the nature of use or application or retention of the income from such activity would not fall within the purview of charity.

Based on his observations the AO recorded in the assessment order passed under Sec. 143(3) and assessed the income of the assessee trust at ₹64,61,890.

Being aggrieved from the order of the AO, an appeal was filed before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) rejected the claims of the assessee regarding entitlement for exemption under Sec.11 of the Act and it upheld the assessment framed by the A.O and dismissed the appeal.

The assessee filed an appeal before the ITAT against the order of the CIT(A).

Issue before the ITAT

Whether the activities of the assessee trust could be considered as for "charitable purpose" within the meaning of Section 2(15) of the Act and whether activities of the trust would be hit by the 1st and 2nd proviso to Section 2(15) of the Act?

The assessee contended before the Appellate Tribunal that the CIT(A) erred in denying exemption under section 11(1)(a) of the Act by up-holding that the appellant carries-on activities in the nature of trade, commerce or business‟ within the meaning of the proviso to section 2(15) of the Act.

It urged to the ITAT that the order of the CIT(A) was contrary to the facts and circumstances of the case, and in law and hence it shall be set aside and the appellant be allowed exemption as claimed u/s 11(1)(a) of the Act.

The ITAT allowed the appeal and directed the AO to allow the assessee's claim for exemption under Section11 of the Act.