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2017 (11) TMI 391 - HC - Income TaxExemption u/s 11 - proof of charitable activities - Held that - Though the assessee has been found by the Tribunal to be an institution established for the advancement of any other object of general public utility, the assessee does not fall under the category of such an institution, which is carrying on an activity in the nature of trade, commerce or business so as to attract the proviso to Section 2 (15) at all. Hence, the first question of law arising in both cases has to be answered against the appellant/Revenue. Once the first question of law is answered against the appellant/Revenue, the second question of law revolving around Section 13(8) may not arise at all. Section 13(8) revolves around the quantum as stipulated in clause (i) and (ii) of the Proviso to Section 2(15). If the proviso has no application, the invocation of those two clauses would not apply. Hence, the second question of law does not arise for consideration in the light of our answer to the first question of law. After taking note of the amendment to Section 11(6) in paragraph 33, the Madras High Court also took note of the Circular bearing No.1 of 2015, dated 21.01.2015 and came to the conclusion that the provisions of Section 11 (6) inserted w.e.f., 01.04.2015 would operate only prospectively w.e.f., the assessment year 2015-16. Insofar as the cases that arose prior to the amendment are concerned, almost all High Courts have taken the same view. The position may be different after the amendment. But in the case on hand, the same relates to a period prior to amendment. Therefore, we do not wish to admit the appeals on the third substantial question of law, merely for waiting for the outcome of the decision of the Supreme Court. We respectfully agree with the views expressed by the other High Courts and answer the third question of law in favour of the assessee.
Issues Involved:
1. Eligibility for exemption under Section 11 of the Income Tax Act, 1961, in light of the amendment to Section 2(15) of the Income Tax Act. 2. Applicability of Section 13(8) of the Income Tax Act, 1961. 3. Double deduction of income and its impermissibility in law. Detailed Analysis: Issue 1: Eligibility for Exemption under Section 11 The primary issue was whether the assessee, an autonomous institution established by the Reserve Bank of India, was eligible for exemption under Section 11 of the Income Tax Act, 1961. The Revenue contended that the amendment to Section 2(15) of the Income Tax Act, effective from 01.04.2009, which included a proviso specifying that activities involving trade, commerce, or business would not be considered charitable, should apply to the assessee for the assessment year 2011-12. The Tribunal held that the assessee was not engaged in any activity in the nature of trade, commerce, or business. It emphasized that the assessee's activities, including offering M.Tech and Ph.D. degrees in banking, were aimed at the public utility and did not have a profit motive. The Tribunal referred to the CBDT Circular No.11/2008 and the Finance Minister's speech to support its conclusion that genuine charitable organizations were not intended to be affected by the proviso to Section 2(15). The High Court upheld the Tribunal's findings, stating that the assessee did not fall under the category of institutions carrying on trade, commerce, or business. Hence, the first question of law was answered against the Revenue. Issue 2: Applicability of Section 13(8) Section 13(8) of the Income Tax Act, 1961, inserted by the Finance Act, 2012, with retrospective effect from 01.04.2009, was discussed. The Tribunal's finding that the assessee was not engaged in trade, commerce, or business rendered the applicability of Section 13(8) moot. Since the proviso to Section 2(15) did not apply, the conditions stipulated in Section 13(8) were irrelevant. Consequently, the second question of law did not arise for consideration. Issue 3: Double Deduction of Income The third issue concerned whether the income generating such assets, already treated as an application of income and given exemption, led to impermissible double deduction. The Revenue acknowledged that several High Courts had ruled in favor of the assessee on this matter and that the Supreme Court was yet to decide on the Special Leave Petitions arising from those judgments. The High Court referred to the Madras High Court's decision in Director of Income Tax (Exemption) v. Medical Trust of the Seventh Day Adventists, which held that the amendment to Section 11(6) effective from 01.04.2015 would operate prospectively. The High Court agreed with the prevailing judicial view that prior to this amendment, the deduction was permissible. Therefore, the third question of law was answered in favor of the assessee. Conclusion: The High Court dismissed the appeals, affirming the Tribunal's decision that the assessee was eligible for exemption under Section 11 of the Income Tax Act, 1961, and did not fall under the proviso to Section 2(15). The second question of law was deemed irrelevant, and the third question was resolved in favor of the assessee, consistent with the prevailing judicial interpretation. The appeals were dismissed with no order as to costs.
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