2024 (2) TMI 990 - HC - Income Tax

Rejection of application for Revision u/s 264 - Exemption u/s 11 denied to assessee - benefits denied merely on the ground that the donor has deducted TDS u/s 194C and 194J while allocating requisite grants to the assessee - scope of principle of consistency in taxation matters - revisional authority dismissed the revision petition of the assessee while reiterating the conclusion arrived at by the AO inter alia holding that the assessee s foundation falls under the sixth limb of Section 2(15) of the Act i.e. Advancement of any other object of general public utility HELD THAT - Sole reason to construe the receipt Received by donors under the tax regime is founded on the assumption that the same is towards professional/technical services or contractual income as TDS was deducted under the Sections 194C and 194J is not acceptable sole reason firstly, that alone cannot be the basis to conclude the aforesaid receipt to be considered under the category of consultancy fees and contractual income. Secondly, there is no element of activity in the nature of trade, commerce or business, or any activity or rendering any service in relation to any trade, commerce or business. Thirdly, in absense of any cogent reason, receipts in question cannot be 'advancement of any other object of general public utility'. If the deductor in its Income Tax Return, under misconception, deducts TDS under Sections 194C and 194J of the Act, the same would not disentitle the assessee to claim benefit under Sections 11 and 12 of the Act unless the case of assessee is specifically hit by the Proviso of Section 2(15) of the Act, which is not the case here. Proviso to Section 2(15) of the Act would not get attracted merely on the basis of deduction of TDS by the donor under a particular head. Deduction of TDS by donor would not be the determinative factor for denial of benefits under Sections 11 and 12 of the Act. The respondent-Revenue, in the instant case, in the preceding years as well as in the succeeding years, under almost similar circumstances, has accepted the exemption claimed by the assessee under Sections 11 and 12 of the Act and, therefore, should not have deviated from its consistent approach in denying benefits to the assessee. Principle of consistency - The elementary need of following a consistent approach for subsequent AYs, when there is no material change in the facts, is also stressed upon by this Court in the case of CIT v. Neo Poly Pack (P) Ltd. 2000 (4) TMI 26 - DELHI HIGH COURT which clearly demonstrates the requirement to follow the principle of consistency in taxation matters. Also in case of Radhasoami Satsang v. CIT 1991 (11) TMI 2 - SUPREME COURT stressed on consistent approach by the respondent-Revenue in taxation matters held that as in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened. Thus writ petition is accordingly allowed and the impugned orders are hereby, set aside. The receipt of shall not be treated as income and the assessee is entitled for exemptions enshrined under Sections 11 and 12 - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under Sections 11 and 12 of the Income Tax Act, 1961.
2. Classification of receipts as consultancy fees and contractual income.
3. Consistency in tax treatment for different Assessment Years.

Summary:

Issue 1: Denial of exemption under Sections 11 and 12 of the Income Tax Act, 1961
The petitioner, a charitable organization, challenged the denial of tax exemptions under Sections 11 and 12 for AY 2017-18. The Revenue had rejected the exemption on the basis that the petitioner had earned consultancy fees and contractual receipts, which were subject to TDS under Sections 194C and 194J of the Act. The Court found that the deduction of TDS by donors alone cannot justify the denial of exemptions unless the activities are explicitly hit by the Proviso to Section 2(15) of the Act, which was not the case here.

Issue 2: Classification of receipts as consultancy fees and contractual income
The Revenue argued that the receipts were consultancy fees and contractual income because TDS was deducted under Sections 194C and 194J. The Court disagreed, noting that the nature of the receipts should be determined by the actual activities and not merely by the TDS deduction. The Court emphasized that there was no element of trade, commerce, or business in the activities of the petitioner, and the receipts were for charitable purposes.

Issue 3: Consistency in tax treatment for different Assessment Years
The petitioner highlighted that in previous and subsequent years, under similar circumstances, the exemptions were granted. The Court stressed the importance of consistency in tax matters, citing precedents such as CIT v. Neo Poly Pack (P) Ltd. and Radhasoami Satsang v. CIT, which advocate for a consistent approach unless there is a material change in facts. The Court found no such change in the instant case and criticized the Revenue for deviating from its consistent approach.

Conclusion:
The Court set aside the assessment order dated 22.12.2019 and the revisional order dated 27.03.2021, allowing the petition and confirming that the petitioner is entitled to exemptions under Sections 11 and 12 of the Act. The receipts in question were not to be treated as income.