2023 (1) TMI 423 - HC - Income Tax

Exemption u/s 11 - Disallowance invoking of provision of Section 2(15) read with Section 13 (8) of the Income Tax Act - HELD THAT - As decided in Apex Court 2022 (10) TMI 948 - SUPREME COURT the charging of any amount towards consideration for such an activity (advancing general public utility), which is on cost-basis or nominally above cost, cannot be considered to be trade, commerce, or business or any services in relation thereto. It is only when the charges are markedly or significantly above the cost incurred by the assessee in question, that they would fall within the mischief of cess, or fee, or any other consideration towards trade, commerce or business . In this regard, the Court has clarified through illustrations what kind of services or goods provided on cost or nominal basis would normally be excluded from the mischief of trade, commerce, or business, in the body of the judgment. Section 11(4A) must be interpreted harmoniously with Section 2(15), with which there is no conflict. Carrying out activity in the nature of trade, commerce or business, or service in relation to such activities, should be conducted in the course of achieving the GPU object, and the income, profit or surplus or gains must, therefore, be incidental. The requirement in Section 11(4A) of maintaining separate books of account is also in line with the necessity of demonstrating that the quantitative limit prescribed in the proviso to Section 2(15), has not been breached. Similarly, the insertion of Section 13(8), seventeenth proviso to Section 10(23C) and third proviso to Section 143(3) (all w.r.e.f. 01.04.2009), reaffirm this interpretation and bring uniformity across the statutory provisions. The issue is squarely covered and no question of law, much less substantial question of law has arisen.

Issues:
1. Benefit of Section 11 and 12 denied by Assessing Officer.
2. Applicability of Section 2(15) and Section 13(8) of the Income Tax Act.
3. Addition of premium on land and shades.
4. Depreciation allowance and set-off of brought forward deficit.
5. Disallowance of unpaid leave encashment.
6. Deemed rent amounting to Rs.12,00,667.

Analysis:

Issue 1: The Revenue challenged the ITAT's decision to allow the assessee's appeal regarding the denial of benefits under Section 11 and 12 of the Income Tax Act. The Tribunal based its decision on the nature of the activities carried out by the Assessee-Corporation, which were deemed to be for charitable purposes, thus permitting exemption under Section 11 and 12.

Issue 2: The Tribunal addressed the applicability of Section 2(15) and Section 13(8) of the Act in relation to the benefits denied by the Assessing Officer. The Tribunal found that the Assessee's activities were not in the nature of trade, commerce, or business, and therefore qualified for the exemptions under Section 11 and 12.

Issue 3: The Tribunal set aside the addition of a substantial amount made on account of premium on land and shades back to the Assessing Officer, citing the applicability of Section 2(15) of the Act. This decision was based on the nature of the Assessee's activities, which were considered to be for charitable purposes.

Issue 4: The Tribunal also set aside the issue of depreciation allowance and set-off of brought forward deficit for re-examination by the Assessing Officer, again in view of the applicability of Section 2(15) of the Act. The Tribunal emphasized the need to consider the charitable nature of the Assessee's activities in making these determinations.

Issue 5: The Tribunal addressed the disallowance of unpaid leave encashment and referred the issue back to the Assessing Officer for review, considering the applicability of Section 2(15) of the Act. The Tribunal highlighted the importance of assessing whether the Assessee's activities were conducted for charitable purposes.

Issue 6: The Tribunal also dealt with the issue of deemed rent amounting to Rs.12,00,667, setting it aside based on the applicability of Section 2(15) of the Act. This decision was made to ensure that the Assessing Officer re-evaluates the issue in light of the charitable nature of the Assessee's activities.

The Apex Court's judgment in Civil Appeal No. 21762 of 2017 provided significant guidance on the interpretation of Section 2(15) and the eligibility of statutory bodies for exemptions under the Income Tax Act. The Court clarified the conditions under which statutory bodies could be considered as charities in the GPU category, emphasizing the importance of the nature of their activities and the advancement of public utility objectives. The Court's detailed analysis provided a framework for determining the eligibility of such bodies for tax exemptions, considering factors such as the nature of services provided, the quantum of receipts, and compliance with statutory provisions.

In conclusion, the High Court found that the issues raised by the Revenue were adequately addressed by the Tribunal based on the charitable nature of the Assessee's activities. The judgment highlighted the importance of considering the statutory provisions and the underlying policy objectives when determining the eligibility of entities for tax exemptions under the Income Tax Act. Consequently, the High Court disposed of the appeal accordingly, as no substantial question of law had arisen in the present case.

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