ITAT Delhi explains the scope of proviso to section 2(15) relating to deduction for charitable institutions
The ITAT Delhi in the case of Association of State Road Transport vs. CIT – V, Astru Bhawan, Plot No. 4A, PSP Block, Pocket-14, Sector-8, Dwarka,New Delhi, having PAN : AAAAA0233A, being ITA NO. 3271/DEL/2014 for the Assessment Year 2009-10 has dealt with the deduction for “charitable purposes”.
Date of hearing:
The hearing was concluded before the bench comprising of Shri N. K. Saini, Accountant Member and C. M. Garg, Judicial Member, on 26.02.2015. The judgment was pronounced on 08 .05.2015.
Advocates engaged in the case:
The Assessee was represented by Shri. Tarundeep Singh, CA and the respondent was represented by Shri. A. Misra, CIT, DR.
Backgrounds of the case:
The appeal was preferred by the Assessee against the Director of Income Tax, New Delhi (Exemptions) dated being ITA NO. 3271/ Del/2014 228/03/2014 in connection with an order passed under the provisions of section 263 of the Income Tax Act, 1961.
The assessee filed its return of income on 30.3.2010 stating its income to be nil. Thereafter the assessment was completed on 28.12.2011 holding an income of Rs. 4, 39, 07,729/- in the financial year 2003-04. The Assessing Officer accepted nil return of income under section 143(3) of the Act but made addition of accumulated amount as per section 10 (23C) (iv) of the Act.
Subsequently it was observed by the DIT (E) that the assessee had received Rs. 7.72 crores under the head of “revenue from tax laboratory” and that of “consultancy receipts” which were commercial in nature.
The DIT (E) issued notice under section 263 of the Act upon observing that as per amended provisions of Section (2) (15) of the Act, the expression “charitable purpose” includes aid to the poor, grant for education, medical aid, preservation of environment and places or articles of historical importance and that of any other object of public utility provided that the advancement was not charitable.
The grounds of appeal:
The main grounds raised by the assessee in the appeal were as follows:
1. The Director of Income Tax, New Delhi erred in assuming jurisdiction under section 263 of the Act as the order passed by the Asst. Director of Income Tax under section 143(3) of the Act was neither wrong in law nor detrimental to the interest of Revenue.
2. That the DIT (E) erred in holding that the receipts of appellant from Test Laboratory Services do not fall within the scope of Section 2(15) of the Act.
3. That the DIT (E) erred in holding that the appellant was not eligible for claiming exemption under section 11 of the Act on income derived from the said receipts.
4. That the DIT (E) erred in holding that in proceedings under section 143(3), the Assessing Officer had not checked the issue of taxability of the receipts in view of the provisions of section 2(15) of the Act.
5. That the order of DIT (E) suffers from a contradiction that it has decided the issue on merits as well as it has also directed the Assessing Officer to make an examination.
6. That the DIT (E) erred in setting aside the order of assessment passed by the Assessing Officer under section 143(3) of the Act.
7. That the order passed by DIT (E) under section 263 of the Act was bad in law and void.
Arguments of both the sides:
The Ld. Representative of the Revenue submitted that the assessment order passed under section 143(3) of the Act was neither wrong nor prejudicial to the interest of Revenue and the DIT (E) erred in holding that the receipts of the assessee from test laboratory services and consultancy services do not come within scope of Section 2(15) of the Act as such, the Assessee is not eligible for claiming exemption under section 11 of the Act in connection the amount from the above receipts.
The Ld. Representative of the assessee contended that during the assessment proceedings, the Assessing Officer examined the issue of taxability of the receipts in view of the provisions of Section 2(15) of the Act and the DIT (E) was wrong in holding that the receipts were not examined.
The Ld. AR also stated that the impugned order was contradictory as it decided the issue on merits and also directed the Assessing Officer to make an examination by setting aside the assessment order passed under the Act.
The Ld. AR referred an order of Hon’ble High Court at Delhi in India Trade Promotion Organization vs. DGIT (E) 2015 and submitted that the first proviso to Section 2(15) of the Act should be interpreted in the context of Section 10(23C) (iv) of the Act as if an institution is not running to earn profit but to do charity having an object of general public utility, then it should be treated as an institution formed for charitable purposes.
The Ld. AR also placed various decisions including that of Hon’ble Delhi High Court in Institute of Chartered Accountant of India vs. DGI , 2012 347 ITR 86 (Delhi). It was also pointed out that the assessee is an association registered as a Society under the Societies Registration Act and is guided by the Central Government for working under Ministry of Road Transport and Highways. The Ld. AR also pointed out the Secretary to the Ministry of Road Transport and Highways is ex-officio president of the assessee association and that the association was established with the object of improving transport system in India.
The Ld AR also pointed out that the assessee was registered under Section12A of the act and has also been notified as a charitable organization as per 10(23C) (iv) of the Act vide notification no. 1348 dated 31.10.2007 and the notification was still subsisting.
The Ld. AR pointed out that the impugned test charges have not been changed since 2001 which proves that the assessee was not running for commercial gain having profit as a motive.
Under the said facts and circumstances, it was concluded that the CIT was not justified in holding that the view of the Assessing Officer in granting exemption as per 11 of the Act was not in accordance with law. From mere reading of the assessment order, it was clear that the Assessing Officer made inquiry on the issue of test laboratory charges and consultancy charges and took a view that the earn from the activities cannot be considered as income with the main object to make profit.
Thus, the notice under section 263 of the Act and impugned order was not sustainable and was also held as void ab initio. Therefore, the same were set aside. Accordingly, the appeal of the assessee was allowed. The order was pronounced in open court on 8.5.2015.