The status of an entity's activities as 'charitable' under Section 2(15) of the Income Tax Act is a question of fact that must be decided afresh in light of current legislative amendments and binding Supreme Court precedents, especially when activities involve significant fee-based services.

O R D E R

Per Justice (Retd.) C V Bhadang, President:

By this appeal, Revenue is challenging the order dated 01.07.2025 passed by National Faceless Appeal Centre, Delhi (NFAC) (‘CIT(A)’ for short) which in turn arose out of the order dated 26.03.2024 passed by the Assessing Officer (‘AO’ for short) u/s. 143 r.w.s. 144B of the Income Tax Act, 1961 (‘Act’ for short). The AO had refused to grant exemption to the respondent assessee u/s.11 of the Act and consequently, made the impugned addition of Rs.8,32,57,440/-. The appeal relates to A.Y.2022-23.

The brief facts are that the respondent assessee is a company formed in the year 1924 for purposes of promoting and protecting trade, commerce and manufacturers of India and particularly in the then Bombay Presidency region. The respondent is registered as a charitable Trust u/s.12A of the Act. The respondent has also been granted exemption u/s.11 of the Act which has been retained even after the introduction of the proviso to Section 2(15) of the Act from A.Y. 2009-10. The respondent also holds valid registration certificate u/s.12AB of the Act w.e.f. 31.03.2022 (applicable from A.Y.2022-23 to 2026-27).

For the assessment year in question, the respondent filed its Return of Income (RoI) declaring total income as ‘Nil’ and claiming a refund of Rs.27,40,341/- after claiming exemption u/s.11 of the Act. The case of the respondent was selected for scrutiny on account of large receipts from incidental objects. Statutory notices were issued including a show-cause notice to which the respondent filed its response. It was contended that the respondent continues to have the registration u/s.12AB of the Act and enjoys exemption u/s.11 of the said Act and therefore, was entitled to exemption as the income was out of the object involving advancement of General Public Utility (GPU).

The respondent for this purpose placed reliance on the orders passed by this Tribunal for A.Y.2009-10 to A.Y.2014-15 in assessee’s own case granting such exemption. It was pointed out that in the absence of any change as to the activities, the exemption deserves to be granted. The AO found that the activities of the respondent were not in accordance with its main objects and the provisions of Section 2(15) of the Act were not fully complied with.

The relevant reasons articulated by the AO can be found in para 4.4 of the assessment order as under :-

"I have gone through the submission of the assessee and perused all materials as available with records therein happened to find that the activities of the assessee trust were not in accordance with its main objects wherein the provision of section 2(15) of the Act was not fully complied with. So registration was cancelled vide order dated 16.12.2011 by the DIT(E). Although considering the assessee’s appeal, the Tribunal authority restored registration in his decision for the AY 2009-10 wherein the Tribunal authority set aside the case to the AO for justifying the claim of the assessee under section 11 of the Act.

I have considered the submission of the assessee, however, on perusal of the details and submissions. It is seen that the nature of activities of the assessee company remains the same. Although the assessee’s registration u/s 12A has been restored, the full benefit of exemptions u/s 11 of the Act has not been allowed to the assessee company as the assessee has been offering to be assessed as mutuality.

The assessee had appeared during Video Conference on the scheduled date & time of hearing and reiterated the same facts and no new documentary evidence in support of their claim of allowability were brought forth in support of its claim, and the VC was concluded.

The principal of mutuality has been held by my predecessors in earlier assessment orders even though the registration was cancelled and exemption u/s 11 of the Act was not allowed. The assessee company was assessed on mutuality principle. Since this year also, though the assessee has claimed full exemption u