The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) held that collecting fee for rendering services by Charitable Society cannot be considered as ‘commercial activity’ and hence is liable for exemption under Section 11 of the Income Tax Act. The Assessee, Institute of Health Systems, is a society formed and registered under Section 12A of the of the Income Tax Act. The Assessing Officer (AO) observed that during the assessing year 2014-2015, assessee provided services to Hyderabad Metro Water Supply and Sewerage Board (HMWSSB) towards water quality testing and incurred expenditure with reference to the services provided by it.
According to AO, assessee has not incurred any expenditure relating to charitable activity for the cause of education, medical aid or relief to poor and even not incurred any expenditure for the general public utility. He further observed that the activity of the assessee is professional/technical services not in accordance with the aim and object of the society and the activity carried out by the assessee is not for charitable purposes. As the assessee received the revenue receipts from services rendered to HMWSSB, the AO was of the opinion that the activity of the assessee, principally, commercial in nature, hence, assessee is not eligible for exemption u/s 11 of the Act.
The above observations were also upheld by the Commissioner of income tax (Appeals). The Tribunal bench comprising of Judicial Member V. Durga Rao and Accountant Member B. Ramakotaiah allowed the appeal of the assessee and were of the opinion that, “Testing of water and thereby supplying good quality of water contribute to the health of the people.
Therefore, the activity carried out by the assessee as per its object to take care of the health of the people and the activity of the assessee has to be considered as advancing of general public utility. Therefore, the assessee is eligible for exemption u/s 11 of the Act.”