2009 (10) TMI 562 - HC - Income Tax

TDS Certificate for non-deduction - assessee claiming eligibility for exemption under section 11 - amendment of section 2(15) with effect from April 1, 2009, matter decided by the Departmental authorities in the course of adjudication, at the time of assessment effect of amendment not considered refusal to issue certificate for non-deduction of TDS - petitions dismissed

Issues Involved:
- Refusal to issue exemption certificate under section 197 of the Income-tax Act, 1961.
- Amendment to section 2(15) of the Income-tax Act, 1961.
- Definition and scope of "charitable purpose" under section 2(15).
- Applicability of exemption under section 11 of the Income-tax Act.
- Interpretation of the proviso added to section 2(15) by the Finance Act, 2008.

Detailed Analysis:

1. Refusal to Issue Exemption Certificate under Section 197:
The primary issue is whether the refusal by the Departmental authorities to issue an exemption certificate under section 197 of the Income-tax Act, 1961, to the petitioners is justified. The petitioners, state government-owned societies, sought exemption certificates for non-deduction of tax at source, claiming their income from letting out premises was for charitable purposes. The Department rejected these applications, citing the amendment to section 2(15) of the Act.

2. Amendment to Section 2(15) of the Income-tax Act, 1961:
The amendment to section 2(15) effective from April 1, 2009, introduced a proviso stipulating that the advancement of "any other object of general public utility" would not be considered a charitable purpose if it involved any trade, commerce, or business activities, or any service related to such activities for a fee or other consideration. The Department argued that this amendment rendered the petitioners ineligible for the exemption certificate under section 197(1).

3. Definition and Scope of "Charitable Purpose" under Section 2(15):
The term "charitable purpose" includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The amendment added a proviso excluding activities involving trade, commerce, or business from being considered charitable purposes. The petitioners contended that their activities did not constitute trade or business and should still be considered charitable.

4. Applicability of Exemption under Section 11:
Section 11 of the Act exempts income from property held for charitable or religious purposes from being included in the total income. The petitioners argued that their income from letting out premises should be exempt under section 11, as it was for charitable purposes. The Department maintained that the eligibility for exemption under section 11 should be evaluated during assessment and not through a writ petition.

5. Interpretation of the Proviso Added to Section 2(15):
The petitioners argued that the amendment was intended to streamline the definition of charitable purposes and not to impose taxation. They cited various judicial precedents to support their claim that letting out buildings for IT development did not constitute trade or business. The Department countered that the petitioners' activities were business-oriented and fell within the amended section 2(15), thus disqualifying them from exemption.

Conclusion:
The court held that the petitioners' activities could not be considered merely income from property, as they involved trade, commerce, or business. The amendment to section 2(15) required a detailed examination by the Departmental authorities during assessment. The court found that the refusal to issue the exemption certificate under section 197(1) was justified and dismissed the writ petitions. The court also noted that the petitioners had not challenged the amendment to section 2(15) nor included the Union Government as a party, limiting the court's ability to adjudicate on the amendment's scope and extent.

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