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2020 (1) TMI 42 - AT - Income TaxExemption u/s 11 - whether objects of the appellant are Charitable Purpose as defined in Section 2(15) keeping in view the definition of Charitable Purpose in said sub-section being Inclusive and accordingly the provisions of Section 11 of the Act, have to be applied in assessment of its income? - HELD THAT - The prime objects of the trust are to implement the NEIA scheme through ECGC for the benefit of medium and long-term exports. The assessee endeavor to promote exports from India and to protect the payment risks for transactions for which ECGC is unable to provide cover owing to lack of capacity or commercial consideration. In other words, the assessee is to provide insurance cover to promote exports from India and to protect payments risks. The assessee also aim at meeting the cost of insurance which ECGC would levy for project exports in certain circumstances. The assessee is required to implement such other schemes and programs as the Government of India may frame in this regard and undertake its activities as per the directions of Government of India. Since the dominant and prime object of the assessee is not to earn the profit in relation to trade, commerce and business, therefore, the exemption u/s.11 12 is not liable to be declined. Accordingly, we set aside the finding of the CIT(A) in this issue and allowed the claim of the assessee. Corpus contribution received by the assessee - HELD THAT - Upon perusal of stated terms conditions, it could not be said that the funds received by the assessee were not in the nature of voluntary contributions rather they were more in the nature of specific grants on certain terms and conditions and liable to be refunded, in case the same were not utilized for specific purposes. It is trite law that entries in the books of accounts would not be determinative of the true nature / character of the transactions and the same could not be held to be conclusive. Therefore, the mere fact that the assessee credited the receipts as corpus contribution, in our considered opinion, would not make much difference and would not alter the true nature of the stated receipts. The said funds / receipts, as stated earlier, were more in the nature of specific grants and represent liability for the assessee and liable to be refunded in case of non-utilization. Therefore, the same being capital in nature, could not be even otherwise brought to tax. For the said proposition, strength could be drawn from the decision in Pr.CIT V/s State Fisheries Development Corporation Ltd. 2019 (1) TMI 482 - SC ORDER wherein similar receipts were held to be capital in nature and could not be brought to tax as income of the assessee - Decided in favour of assessee.
Issues Involved:
1. Applicability of Section 11 of the Income Tax Act, 1961. 2. Treatment of ?150 Crores received from the Central Government as Corpus Contribution. Issue-wise Detailed Analysis: 1. Applicability of Section 11 of the Income Tax Act, 1961: The primary contention revolves around whether the assessee qualifies for exemption under Section 11 of the Income Tax Act, 1961, which pertains to income from property held for charitable or religious purposes. The assessee argued that its objectives fall under "Charitable Purpose" as defined in Section 2(15) of the Act, and thus, it should be eligible for exemption under Section 11. The assessee emphasized that even though its objectives might fall under the last limb of "advancement of any other object of general public utility," the first proviso to Section 2(15) should not apply, as its activities do not involve trade, commerce, or business. The Tribunal noted that the assessee is a Public Trust set up by the Government of India and registered under Section 12AA since 29/10/2007. The trust's primary objective is to implement the National Export Insurance Account (NEIA) Scheme to promote exports and protect payment risks, which are not typically undertaken by commercial enterprises due to the high risk involved. The Tribunal observed that the activities of the trust are directed by the Government of India and are meant to meet national interests, which are not profit-driven. The Assessing Officer (AO) had denied the exemption under Section 11, arguing that the assessee's activities involved trade, commerce, or business, as it received policy premiums and paid claims, thus falling under the first proviso to Section 2(15). However, the Tribunal, referencing its decision in the assessee's own case for AY 2010-11, concluded that the dominant and prime objective of the trust is not profit-making but advancing a general public utility. The Tribunal cited the Delhi High Court's decision in India Trade Promotion Organization vs. DGIT(E), which emphasized that the dominant objective should be considered to determine whether an activity is charitable. Given the identical facts and the precedent set in the earlier year, the Tribunal directed the AO to grant exemption under Section 11 and 12, as claimed by the assessee. 2. Treatment of ?150 Crores received from the Central Government as Corpus Contribution: The second issue pertains to the ?150 Crores received from the Central Government, which the assessee accounted for as Corpus Contribution and claimed as exempt under Section 11(1)(d). The AO had argued that if the assessee is not eligible for exemption under Section 11, the corpus contributions would form part of the total income as per Section 2(24)(iia). The Tribunal noted that the funds were received from the Department of Commerce, Ministry of Commerce & Industry, Government of India, with specific terms and conditions, including that any unspent amount should be surrendered to the government. The Tribunal observed that these funds were more in the nature of specific grants, representing a liability to the assessee, and should be refunded if not utilized for the sanctioned purposes. Therefore, these funds were capital in nature and could not be brought to tax as income. The Tribunal drew support from various judicial pronouncements, including the Gujarat High Court's decision in Pr.CIT vs. State Fisheries Development Corporation Ltd., which held that such grants are capital in nature and not taxable as income. Consequently, the Tribunal held that the ?150 Crores received by the assessee were not taxable. Conclusion: Both appeals were allowed, with the Tribunal directing the AO to grant exemption under Section 11 and 12 for both AY 2011-12 and AY 2012-13 and holding that the ?150 Crores received from the Central Government should not be taxed as income.
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