By TIOL News Service

NEW DELHI, SEPT 12, 2018: THE ISSUE IS - Whether a charitable society with its registration u/s 12AA already in force, should not be denied exemption benefit u/s 11. YES IS THE ANSWER.

Facts of the case:

The assessee society was registered under the Societies Registration Act, and was also registered u/s 12AA(1) of Income tax Act. It was also promoted by HUDCO under the Ministry of Urban Development for the purpose of protection of natural habitat & environment. During the year under consideration, the AO noted that some of the activities carried out by assessee could not be held for general public utility in view of the newly inserted proviso to Section 2(15). Accordingly, after detailed discussion, he held that assessee was not engaged in charitable activities and accordingly, denied the exemption of Section 11 to the assessee. However, he held that assessee's income would be exempted in view of 'principle of mutuality'. Since assessee had bank interest amounting to Rs.72,76,725/-, the same had been added by him on the ground that it was not covered under the 'principle of mutuality'. On appeal, the FAA held that assessee's activities did not involve trade & commerce and therefore, it was outside the mischief of proviso to Section 2(15). Hence, he directed the AO to allow exemption u/s 11(1).

Tribunal held that,

++ so far as the status of registration u/s.12AA is concerned, the same still stands as on date, because registration cancelled by the CIT(E) has been set aside and reversed by the Tribunal. Once, the assessee is registered u/s.12AA, then it is sine-qua-non that benefit of Section 11 has to be given. The AO has granted exemption to the assessee on its entire income following the 'principle of mutuality'. However, has only taxed the interest income of Rs.72,78,575/-. If income is to be computed u/s 11, then ostensibly interest income would also form part of the income and expenditure account. Accordingly, the same has to be computed in the same manner and the benefit of Section 11 has to be given. Once in the earlier assessment years the assessee has been granted exemption u/s 11 and registration u/s 12AA is still continuing, then there is no reason as to why benefit of section 11 should be denied.

(See 2018-TIOL-1510-ITAT-DEL)