National Horticulture Board, Gurgaon V. DCIT, Gurgaon

ITA 6562/DEL/2014

• Counselvise Citation: 656220114 RSA 2014
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 22-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 04-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: AKHIL B GUPTA
• Keywords: Business income; Charitable institution; Revised return
• Section: 142(1); 234B

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6562/DEL/2014 (ASSESSMENT YEAR: 2011 - 12) NATIONAL HORTICULTURE BOARD, 85, INSTITUTIONAL AREA, SECTOR - 18, GURGAON PAN:AAATN0804F VS. DCIT CIRCLE - 2, GURGAON (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. AKHIL B. GUPTA, CA RESPONDENT BY : SH.P DAM KANUNJNA, SR. DR DATE OF HEARING 27.11.2015 DATE OF PRONOUNCEMENT 04 .12.2015 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) - 2 , FARIDABAD DATED 16.10. 2014 PASSED FOR THE ASSESSMENT YEAR 2010 - 11 . THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE LEARNED CIT(A) - 2 IS AGAINST LAW AND FACTS ON THE RECORD. 2. THAT THE LEARNED CIT(A) - 2 HAS ERRED IN RELYING OF ON THE ORDER OF CCIT PANCHKULA, HARYA REJECTING APPLICATION OF EXEMPTION U/S 10(23)(C) OF THE ACT WITHOUT CONSIDERING THAT THE SAME HAS BEEN QUASHED BY THE HONBLE HIGH COURT PUNJAB AND HARYANA VIDE ITS JUDGMENT DATED 16.07.2012 AND RESTORED TO CCIT, PANCHKULA. 3. THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF DCI T, CIRCLE - 2 ADDING INCOME AMOUNTING TO RS.1,73,40,360/ - RESULTING FROM SALE APPLICATION FORMS AND SCHEME BROCHURES IS NOT EARNED AS INCIDENTAL TO THE OBJECTS OF THE ASSESSEE SOCIETY BUT IS A BUSINESS INCOME WHICH IS AGAINST THE FACTS AND DEFINITION OF BUSI NESS, TRADE AND COMMERCE. NATIONAL HORTICULTURAL BOARD V DCIT ( EX ) ITA 6562 DEL 2014 A Y 2011 - 12 2 | P A G E 2 . THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE SOCIETY IS PROMOTED BY GOVERNMENT OF INDIA THROUGH MINISTRY OF AGRICULTURE AS A REGISTERED SOCIETY TO EXCLUSIVELY PROMOTE, ENCOURAGE AND DEVELOP HORTICULTURE ACTIVITIES ACROSS INDIA. THE ASSESSEE SOCIETY FILED THE RETURN OF INCOME DECLARING AN INCOME OF RS .NIL ON 23.09.2011 AND REVISED RETURN INCOME OF RS. NIL ON 17.01.2012. THE RETURN WAS PROCESSED U/S 143(1). THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS. NOTICES U/S 143(2) AND 142(1) WAS ISSUED. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD RECEIVED RS.1,73,40,356/ - AS RECEIPT ON ACCOUNT OF APPLICATION FORM AND SCHEME BROCHURE. FURTHER, THE ASSESSING OFFICER NOTED THAT THE RECEIPT OF RS.1,73,40,356/ - ON ACCOUNT OF COST OF APPLICATION FORM AND SCHEME BROCHURE WERE IN THE NATURE OF BUSINESS/ COMMERCE/ TRADE AND IS A PROFIT ORIENTED ACTIVITY OF THE SOCIETY. THUS, THE AMOUNT IS TREATED AS TAXABLE INCOME AND ADDED TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER ASSESSED THE INCOME OF THE ASSESSEE AT RS.1,73,40,356 / - AND IMPOSED INTEREST U/S 234B AND 234D. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), WHO UPHELD THE ORDER OF AO AND CONFIRMED THE ADDITION MADE BY HIM. AGGRIEVED WITH THE ORDER OF THE LEARNED COMMISSION ER OF INCOME - TAX (APPEALS), THE ASSESSEE IS BEFORE US. 3 . GROUND NO 1 IS GENERAL IN NATURE AND THEREFORE DISMISSED. 4 . GROUND NO 2 AND 3 OF THE APPEAL IS AGAINST THE DENIAL OF CLAIM OF EXEMPTION OF ASSESSEE U/S 010(23C)(IV) OF THE ACT WHERE BY ASSESSING OF FICER HAS MADE AN ADDITION OF RS 17340360/ - IN THE HANDS OF THE ASSESSEE HOLDING THAT THIS INCOME RESULTING FROM SALE OF APPLICATION FORMS AND SCHEME BROCHURES IS BUSINESS INCOME . 5 . AT THE OUTSET LD AR SUBMITTED THAT ON IDENTICAL FACTS AND CIRCUMSTANCE S OF THE ASSESSEE, IN ASSESEES OWN CASE FOR AY 2009 - 10 AND 2010 - 11 THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THEREFORE HE SUBMITTED THAT THE MATTER MAY BE DECIDED IN FAVOUR OF THE ASSESSEE AND ORDER OF CIT (A) MAY BE REVERSED. NATIONAL HORTICULTURAL BOARD V DCIT ( EX ) ITA 6562 DEL 2014 A Y 2011 - 12 3 | P A G E 6 . LD D R RELIED ON THE ORDER OF AO AND CIT (A) AND VEHEMENTLY SUBMITTED THAT THE ASSESSEE IS CARRYING N THE BUSINESS AND THEREFORE THE ACTIVITIES DOES NOT FALL U/S 2(15) OF THE INCOME TAX ACT. 7 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION AS WELL AS THE ORD ER OF COORDINATE BENCH IN CASE OF THE ASSESSEE FOR A Y 2009 - 10 IN ITA NO 4521/DEL/2012 DATED 16.01.2015 WHICH IS DECIDED ON IDENTICAL GROUNDS IN FAVOUR OF ASSESSEE. FOLLOWING THAT ORDER FOR AY 2009 - 10 COORDINATE BENCHES HAS ALSO DECIDED THE ISSUE IN ITA NO 5576/DEL/2013 FOR A Y 2010 - 11 IN CASE OF THE ASSESSEE IN FAVOUR OF THE ASSESSEE. IN ITA NO 4521/DEL/2012 DATED 16.01.2015 COORDINATE BENCH HAS HELD AS UNDER : - PARA 16 'IN VIEW OF THESE DISCUSSIONS, IN OUR CONSIDERED VIEW, THE AUTHORITIES BELOW WER E CLEARLY IN ERROR IN INVOKING FIRST ITA NO.5576/DEL/2013 PROVISO TO SECTION 2(15) , PARTICULARLY AS IT HAS NOT EVEN BEEN THEIR CASE THAT THE ASSESSEE WAS CARRYING OUT ANY BUSINESS ACTIVITY IN CHARGING THE PROCESSING FEES OR SERVICE FEES, EVEN IF RECEIPTS ON ACCOUNT OF APPLICATION FORMS CAN BE CONSTRUED AS SUCH, FROM THE APPLICANTS FOR THE SUBSIDY. PARA 17 WE HAVE ALSO NOTED THAT THE ASSESSEE HAS RECEIVED GRANT AND SUBSIDIES AGGREGATING TO RS 122,47,00,000 A ND, AS AGAINST THIS AMOUNT, THE RECEIPTS ON ACCOUNT OF WHAT IS SAID TO BE SERVICE CHARGES AND PROCESSING FEES AGGREGATE TO RS. 2,20,57,529. THESE FIGURES DONOT SUGGEST THAT THE SERVICE CHARGES OR PROCESSING FEES CONSTITUTE A SOURCE OF BUSINESS ACTIVITY WHI CH IS, IN THE LIGHT OF LAW LAID DOWN BY HON'BLE DELHI HIGH COURT AS ELABORATED ABOVE, A CONDITION PRECEDENT FOR INVOKING ANY PART OF FIRST PROVISO TO SECTION 2(15) . THE MERE FACT THAT SERVICE CHARGES HAVE B EEN RECEIVED BY THE ASSESSEE DO NOT VITIATE THE CHARITABLE NATURE OF ASSESSEE'S ACTIVITIES AND, AS OBSERVED BY HON'BLE DELHI HIGH COURT IN THE CASE OF GS 1(SUPRA), THAT 'A SMALL CONTRIBUTION BY WAY OF FEE THAT THE BENEFICIARY PAYS WOULD NOT CONVERT CHARITA BLE ACTIVITY INTO BUSINESS, COMMERCE OR TRADE IN THE ABSENCE OF CONTRARY EVIDENCE ' AND THAT 'QUANTUM OF FEE CHARGED, ECONOMIC STATUS OF THE BENEFICIARIES WHO PAY, COMMERCIAL VALUE OF BENEFITS IN COMPARISON TO THE FEE, PURPOSE AND OBJECT BEHIND THE FEE ETC . ARE SEVERAL FACTORS WHICH WILL DECIDE THE SEMINAL QUESTION, IS IT BUSINESS '. THERE IS NOTHING ON THE RECORD TO EVEN SUGGEST THAT THE FEES CHARGED BY THE ASSESSEE IS SUCH THAT IT SUGGESTS THAT IT IS IN NATURE OF A BUSINESS, NOR IS IT EVEN THE CASE OF THE ASSESSING OFFICER. IT WAS, THEREFORE, NOT A FIT CASE FOR HOLDING THAT MERELY BECAUSE THE ASSESSEE HAS CHARGED A FEES, EVEN IF THAT BE SO, FOR PROCESSING THE SUBSIDY APPLICATIONS, THE ASSESSEE'S ACTIVITIES CEASE TO BE CHARITABLE ACTIVITIES UNDER SECTION 2(15) . PARA 18 AS REGARDS THE ASSESSING OFFICER'S FREQUENT REFERENCES TO THE FINDINGS OF THE CHIEF COMMISSIONER IN DENYING APPROVAL UNDER SECTION 10(23C)(IV) TO THE ASSESSEE, WE MAY USEFULLY REFER TO A DECISION OF THE COORDINATE BENCH IN THE CASE OF DCIT VS GENERAL ELECTRIC CO PLC [(2001) 71 TTJ 973]. AS EVIDENT FROM THE OBSERVATIONS TO THE EFFECT THAT ' .......IT IS NOT IN DISPUTE THAT THE NO OBJECTION CERTIF ICATE WAS ISSUED AT THE INSTANCE OF THE CHIEF CIT AND THE AO DID NOT EVEN HAVE THE LIBERTY OF APPLYING HIS INDEPENDENT MIND TO THE TAXABILITY OF ITA NO.5576/DEL/2013 CAPITAL GAINS ARISING FROM THE TRANSFER OF SHARES IN QUESTION', THAT WAS ALSO A CASE IN WH ICH THE IMPACT NATIONAL HORTICULTURAL BOARD V DCIT ( EX ) ITA 6562 DEL 2014 A Y 2011 - 12 4 | P A G E OF STAND TAKEN BY THE CHIEF COMMISSIONER ON THE ASSESSMENT BEING FRAMED BY THE ASSESSING OFFICER CAME UP FOR CONSIDERATION OF THE BENCH. IT WAS IN THIS BACKDROP THAT THE BENCH OBSERVED THAT 'SUCH AN ISSUANCE OF NOC CANNOT FETTER AO'S EXCLUSI VE DOMAIN OF POWERS OF FRAMING THE ASSESSMENT ORDER; THERE IS NO SCOPE FOR ANY ADMINISTRATIVE INTERFERENCE IN AOS QUASI - JUDICIAL POWERS TO ASSESS THE INCOME OF THE ASSESSEE'. THE SAME IS THE POSITION IN THIS CASE. THE OBSERVATIONS OF THE CHIEF COMMISSIONE R OF INCOME TAX, FOR THIS REASON ALONE, CANNOT HAVE A DECISIVE IMPACT ON THE EXERCISE OF QUASI - JUDICIAL POWERS BY THE ASSESSING OFFICER. PARA 19. THE OBSERVATIONS MADE BY THE CHIEF COMMISSIONER HAVE BEEN HELD, BY US EARLIER IN THIS ORDER, TO BE CONTRARY T O THE CORRECT LEGAL POSITION. THE MERE FACT THAT THE CHIEF COMMISSIONER OF INCOME TAX ALSO HELD THIS VIEW SHOULD NOT HAVE INFLUENCED THE DECISION OF THE ASSESSING OFFICER. THERE IS NO SCOPE FOR ANY ADMINISTRATIVE INTERFERENCE IN ASSESSING OFFICER'S EXCLUSI VE DOMAIN OF QUASI - JUDICIAL POWERS TO ASSESSEE INCOME OF THE ASSESSEE. PARA 20. FOR THE REASONS SET OUT ABOVE, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE. THE ASSESSING OFFICER IS, ACCORDINGLY, DIRECTED TO DELETE THE IMPUGNED ADDITION OF RS 2,20,57,530. THE A SSESSEE GETS THE RELIEF ACCORDINGLY .' 8 . FURTHER HONOURABL E DELHI HIGH COURT IN CASE OF [2015] 371 ITR 333 (DEL) INDIA TRADE PROMOTION ORGANIZATION V DIRECTOR GENERAL OF INCOME TAX EXEMPTION AND OTHER HAS HELD AS UNDER : - 58.IN CONCLUSION, WE MAY SAY THAT THE EXPRESSION 'CHARITABLE PURPOSE', AS DEFINED IN SECTION 2(15) CANNOT BE CONSTRUED LITERALLY AND IN ABSOLUTE TERMS. IT HAS TO TAKE COLOR AND BE CONSIDERED IN THE CONTEXT OF SECTION 10(23C)(IV) OF THE SAID ACT. IT IS AL SO CLEAR THAT IF THE LITERAL INTERPRETATION IS GIVEN TO THE PROVISO TO SECTION 2(15) OF THE SAID ACT THEN THE PROVISO WOULD BE AT RISK OF RUNNING FOWL OF THE PRINCIPLE OF EQUALITY ENSHRINED IN ARTICLE 14 OF THE CONSTITUTION OF INDIA. IN ORDER TO SAVE THE C ONSTITUTIONAL VALIDITY OF THE PROVISO, THE SAME WOULD HAVE TO BE READ DOWN AND INTERPRETED IN THE CONTEXT OF SECTION 10(23C)(IV) BECAUSE, IN OUR VIEW, THE CONTEXT REQUIRES SUCH AN INTERPRETATION. THE CORRECT INTERPRETATION OF THE PROVISO TO SECTION 2(15) O F THE SAID ACT WOULD BE THAT IT CARVES OUT AN EXCEPTION FROM THE CHARITABLE PURPOSE OF ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY AND THAT EXCEPTION IS LIMITED TO ACTIVITIES IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR ANY ACTIVITY OF REN DERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS FOR A CESS OR FEE OR ANY OTHER CONSIDERATION. IN BOTH THE ACTIVITIES, IN THE NATURE OF TRADE, COMMERCE OR BUSINESS OR THE ACTIVITY OF RENDERING ANY SERVICE IN RELATION TO ANY TRADE, COMMERCE OR BUSINESS, THE DOMINANT AND THE PRIME OBJECTIVE HAS TO BE SEEN. IF THE DOMINANT AND THE PRIME OBJECTIVE OF THE INSTITUTION, WHICH CLAIMS TO HAVE BEEN ESTABLISHED FOR CHARITABLE PURPOSES, IS PROFIT MAKING, WHETHER ITS ACTIVITIES ARE DIRECTLY IN THE NATUR E OF TRADE, COMMERCE OR BUSINESS OR INDIRECTLY IN THE RENDERING OF ANY SERVICE IN RELATION TO NATIONAL HORTICULTURAL BOARD V DCIT ( EX ) ITA 6562 DEL 2014 A Y 2011 - 12 5 | P A G E ANY TRADE, COMMERCE OR BUSINESS, THEN IT WOULD NOT BE ENTITLED TO CLAIM ITS OBJECT TO BE A 'CHARITABLE PURPOSE'. ON THE FLIP SIDE, WHERE AN INSTITUTION IS NOT DRI VEN PRIMARILY BY A DESIRE OR MOTIVE TO EARN PROFITS BUT TO DO CHARITY THROUGH THE ADVANCEMENT OF AN OBJECT OF GENERAL PUBLIC UTILITY, IT CANNOT BUT BE REGARDED AS AN INSTITUTION ESTABLISHED FOR CHARITABLE PURPOSES. 9 . THEREFORE RESPECTFULLY FOLLOWING THE DECI SIONS OF HONOURABLE DELHI HIGH COURT IN CASE OF [2015] 371 ITR 333 (DEL) INDIA TRADE PROMOTION ORGANIZATION V DIRECTOR GENERAL OF INCOME TAX EXEMPTION AND OF COORDINATE BENCHES IN CASE OF ASSESSEE FOR EARLIER YEARS AS MENTIONED ABOVE WE HOLD THAT ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S 10(23C)(IV) OF THE INCOME TAX ACT. WE REVERSE THE ORDER OF CIT (A) IN CONFIRMING THE ADDITION OF RS 1,73,40,356/ - B Y DENYING CLAIM OF EXEMPTION U/S 10(23C)IV) OF THE INCOME TAX ACT. IN RESULT GROUND NO 2 AND 3 OF THE APPEAL ARE ALLOWED. 10 . IN RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 4 .12.2015. - S D / - - S D / - (H.S.SIDHU) (PRASHANT MA HARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 4 /12/2015 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI