In ITA No.1180/Bang/2022-ITAT- Applicability of proviso to sec.2(15) of Income Tax Act cannot be on basis of default of parties but should be on basis of facts and circumstances of each case: ITAT
Vice President-N. V. Vasudevan [30-01-2023]

Read Order: M/s. Ride A Cycle Foundation v. The ITO 

LE Correspondent

New Delhi, March 6, 2023: The Bangalore Bench of the Income Tax Appellate Tribunal has set aside the order of the CIT(A) and remanded the issue of applicability of proviso to section 2(15) of the Income Tax Act to the CIT(A) for fresh consideration, after affording the assessee opportunity of being heard.

Keeping in mind the principle that substantive justice should prevail over technicalities, the Vice President-N. V. Vasudevan condoned the delay of 20 days in filing the appeal by the assessee.

The Assessee, a registered trust enjoying the benefit of registration under section 12A of the Income Tax Act, 1961by the CIT(A), Karnataka II, Bengaluru has been creating awareness for the society about the virtues of using cycle and to make cycle as a popular mode of transportation that would lessen global warming, air pollution. The assessee had the object of making people understand the need for an uncontaminated environment which in turn will lead to good quality of health. 

The assessee filed a return of income declaring Nil income after claiming exemption under section 11 of the Act. The AO noticed that the assessee organizes trips and camps by way of “Cycle Rally” to tourist places such as Kalapetta, Ooty, Palakkad,, Valparai, Mysore, etc., and the participants pay for the cycle rides and for food and lodgings at designated places. 

According to the AO, the assessee was doing an activity which was akin to trade or business and the receipts from the participants were taken as donation but in reality, they were fees for participation in rallies disguised as donations. 

The AO therefore concluded that the assessee was hit by the proviso to section 2(15) and therefore the excess of receipts over expenditure was liable to be taxed and the assessee was not entitled to the benefit of exemption under section 11 of the Act.

Aggrieved by the order of the AO, assessee filed appeal before CIT(A). Assessee contended before CIT(A) that its receipts were in the nature of donation and voluntary and there was nothing brought on record by the AO to show that the donations were not in fact voluntary.

 The CIT(A) decided to proceed the appeal ex-parte observing that the assessee failed to explain as to how the activity undertaken by the assessee was not commercial or charitable. Accordingly, the appeal of the assessee was dismissed by the CIT(A).

Aggrieved by the order of the CIT(A), the assessee preferred the present appeal before the Tribunal.

The Bench opined that the notices were issued to the assessee on several occasions. The assessee had requested for adjournment and when the case was adjourned, on that date also, the assessee did not appear before CIT(A) and the case was adjourned to a later date on which also neither the assessee nor his Authorized Representative appeared before CIT(A). 

The Bench was of the view that the order of the CIT(A) had to be set aside and the issue remanded to CIT(A) for a decision on merits. 

“The applicability of the proviso to 2(15) of the Act cannot be on the basis of the default of the parties but should be on the basis of facts and circumstances of each case”, the Bench held.

As per the High Court, the donations received by the assessee which was taken as receipts were prima facie donations and there was no material to show that the donations were not voluntary. Both the AO and the CIT(A) had called upon the assessee to demonstrate as to how the donations were voluntary and thereby the assessee was called upon to prove a negative fact. 

In such circumstances, the bench was of the view that the assessee should have an opportunity of hearing before the CIT(A) who can appreciate as to how the proviso to section 2(15) of the Act will operate on the facts and circumstances of the given case.