Net profit and not gross receipts can be brought to tax if exemption under section 11 is not available: ITAT

Citation- Masonic Fraternity of New Delhi v. Income-tax Officer

ITAT: Delhi

ITA No: 3174 (DELHI) OF 2023

Assessment Year: 2021-22

Date of Order- June 27, 2024

Brief Facts:

• The assessee, a non-profit organization, filed its return of income for assessment year 2021-22 declaring nil income after claiming exemption under section 11

• However, revenue denied the exemption on the grounds that the assessee had not filed its registration certificate. The assessee contended that total receipts could not be taxed since the contributions received by it were exempt on principle of mutuality.

• However, the CIT(A) rejected this contention on the basis that assessee had not provided any cogent material like mandatory form no. 10B/10BB to support its claim.

Observations of the Tribunal :

1. The assessee was a no profit-no loss company registered under the Companies Act. It claimed exemption under section 11 without proper documentation and it is admitted fact that the assessee is not registered under section 12A.

2. As held by the Karnataka HC in Totogars Sale Co-operative Society v. ITO, ITA no. 1568/2005 it is a fundamental principle under income tax that it requires only net income to be taxed

Accordingly, the Tribunal remitted the matter back to the AO to redo the assessment and bring to tax only the net profit/margin and also consider the concept of mutuality since the assessee was a no profit-no loss entity serving its own members.