Karnataka State Seed and Organic Certification Agency V. The Chief Commissioner of Income Tax Karnataka and Goa and The Commissioner of Income Tax (Exemption) Bengaluru

ITA/394/2022

AI Insights

The case involves the Karnataka State Seed and Organic Certification Agency, which appealed against the decision of the Income Tax Appellate Tribunal that denied them exemption under Section 11 of the Income Tax Act for the assessment years 2016-2017 and 2017-2018. The Tribunal's decision was based on the classification of the agency's activities as 'Trade, Commerce or Business' rather than charitable activities. The appellant argued that this classification was incorrect, especially after the Supreme Court's decision in a similar case, which reversed the precedent followed by the Tribunal. The Department of Income Tax defended the Tribunal's decision, suggesting that the matter should be remanded for fresh consideration in light of the Supreme Court's observations.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 797299 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 10-06-2024
• Assessment Year: misc
• Other Referred Cases: ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS) vs. AHMEDABAD URBAN DEVELOPMENT AUTHORITY, ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY vs. THE CHIEF COMMISSIONER OF INCOME TAX
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: THIRUMALESH
• Assessee Lawyers: K SHETTY
• Keywords: Charitable Activities; Exemption denial; Income tax appeal; Seed Certification; Trade, Business or Commerce
• Section: 143(3); 142(1); 143(2); 263; 11; 12A; 2(15); 260-A; 10(23-C)(iv)

Judgement Text

" - 1 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10TH DAY OF JUNE, 2024 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR INCOME TAX APPEAL NO. 394 OF 2022 BETWEEN: M/S KARNATAKA STATE SEED AND ORGANIC CERTIFICATION AGENCY BENGALURU-560 002. …APPELLANT (BY SRI. K SHASHIKIRAN SHETTY., ADVOCATE GENERAL FOR SRI. MALLAHAR RAO.,ADVOCATE) AND: 1. THE CHIEF COMMISSIONER OF INCOME TAX KARNATAKA AND GOA, QUEENS ROAD, BENGALURU-560 095. 2. THE COMMISSIONER OF INCOME TAX (EXEMPTION) BENGALURU -560 095. …RESPONDENTS (BY SRI. THIRUMALESH M.,ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND II) ALLOW THE APPEAL AND SET ASIDE THE COMMON ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 20/07/2022 PASSED IN ITA NO. 517/BANG/2021 FOR THE ASSESSMENT YEAR 2016-2017 AND ITA NO. 518/BANG/2021 FOR THE ASSESSMENT YEAR 2017-2018 AND ETC., Digitally signed by SHARADA VANI B Location: HIGH COURT OF KARNATAKA - 2 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 THIS INCOME TAX APPEAL COMING ON FOR FINAL HEARING, THIS DAY, KRISHNA S DIXIT.J., DELIVERED THE FOLLOWING: JUDGMENT This appeal by the Assessee seeks to call in question the order dated 20.07.2022 by the Income Tax Appellate Tribunal, Bengaluru Benches “C” at Bengaluru whereby his two appeals viz., ITA No.517/Bang/2021 in re Asst. Year 2016-2017 & ITA No.518/Bang/2021 in re Asst. Year 2017-2018 have been negatived. In the said appeals, the subject matter was as to denial of exemption to it u/s.11 of Income Tax Act, 1961 as amended from time to time and that such denial was on the ground that the Assessee was carrying on the activities which predominantly had the elements of Trade, Business or Commerce as contra distinguished from charitable activities. This view of the revenue was founded on the Andhra Pradesh High Court decision rendered in W.P.No.31640/2011 between ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY - 3 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 vs. THE CHIEF COMMISSIONER OF INCOME TAX disposed off on 17.12.2012. 2. A Co-ordinate Bench of this court vide order dated 06.09.2022 had admitted the appeal on the following two substantial questions of law: (i) Whether on the facts and circumstances of the case, the common order dated 20.07.2022, passed by the Hon’ble Tribunal in dismissing the appeals in the appellant case, is maintainable in law? (ii) Whether on the facts and circumstances of the case, the provisions of Section 263 of the Income Tax Act, 1961, attracts in the appellant case, or not? 3. Learned Sr. Advocate Mr.Shashi Kiran Shetty appearing for the Appellant-Assessee crisply submits that the impugned common order denying exemption to his client has to go inasmuch as the subject Andhra Pradesh High Court decision along with other having been reversed by the Apex Court in ASSISTANT COMMISSIONER OF INCOME TAX (EXEMPTIONS) vs. AHMEDABAD URBAN - 4 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 DEVELOPMENT AUTHORITY, (2023) 4 SCC 561, exemption to entities of the kind has been accorded, and therefore his client too is entitled to the same. 4. After service of notice, the Department having entered appearance through its learned Panel Counsel resists the appeal making submission in justification of the impugned order and the reasons on which it has been structured. He points out that although decision of the Apex Court is reversed as submitted from the side of Assessee, clauses (i) & (ii) of the proviso to sub-sec.15 of Sec.2 makes an exception to the rule of exemption and therefore impugned order is unassailable. He hastens to add that in any event matter needs to be remanded for consideration afresh in the light of observations made by the Apex Court. 5. Having heard the learned counsel for the parties and having perused the appeal papers, we are inclined to grant indulgence in the matter as under by answering the - 5 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 aforesaid substantial questions of law in the affirmative and for the following reasons: (a) There is no dispute that the Appellant-Assessee is a registered Society and it holds a Certificate issued u/s.12A of the Act. It has also obtained an order u/s.10(23)(C)(iv) on 29.10.2009 from the office of Commissioner of Income Tax. It had declared the total income at Rs.7,61,42,114/- for the Assessment Year 2016-17 and Rs.7,58,72,631/- for the Assessment Year 2017-18, claiming exemption in terms of Sec.11(1) of 1961 Act on the ground that it is only a ‘Scientific & Charitable Society’ and that its activities of examining the seeds and issuing Seed Certification documents do not have any elements of Trade, Commerce or Business. The case of Appellant was taken up under CASS by issuing notice u/s.143(2) and subsequent notice u/s.142(1) of the Act. The assessment u/s.143(3) having been accomplished, the Assessment Orders dated 28.12.2008 for the Assessment Year 2016-17 and the Assessment Order dated 25.11.2019 for the Assessment Year 2017- - 6 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 18 came to be passed according the benefit of exemption u/s.11(1) of the Act. (b) The Commissioner of Income Tax (Exemption) vide order dated 3.3.2021 passed u/s.263 inter alia held that the activities of the Assessee of rendering certification of seeds falls within the meaning of ‘Trade, Commerce or Business’ as defined under the proviso to Sec.2(15) of the Act and therefore it is not entitled to any exemption. This view was structured in terms of the decision of Andhra Pradesh High Court. Learned Sr. Advocate Mr. Shashi Kiran Shetty is right in submitting that after the reversal of this decision by the Apex Court, the substratum on which the orders of the Commissioner of Income Tax as affirmed by the Tribunal in the impugned order having withered away, the benefit of exemption needs to be restored to the Assessee. The Apex Court in the case supra at paragraphs 274 & 275 has observed as under: “B. Authorities, corporations, or bodies established by statute 274. The amounts or any money whatsoever charged by a statutory corporation, board or any other body - 7 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 set up by the State Governments or Central Government, for achieving what are essentially “public functions/services” (such as housing, industrial development, supply of water, sewage management, supply of foodgrain, development and town planning, etc.) may resemble trade, commercial, or business activities. However, since their objects are essential for advancement of public purposes/functions (and are accordingly restrained by way of statutory provisions), such receipts are prima facie to be excluded from the mischief of business or commercial receipts. This is in line with the larger Bench judgments of this Court in Shri Ramtanu Coop. Housing Society [Shri Ramtanu Coop. Housing Society Ltd. v. State of Maharashtra, (1970) 3 SCC 323] and NDMC [NDMC v. State of Punjab, (1997) 7 SCC 339] . 275. However, at the same time, in every case, the assessing authorities would have to apply their minds and scrutinise the records, to determine if, and to what extent, the consideration or amounts charged are significantly higher than the cost and a nominal markup. If such is the case, then the receipts would indicate that the activities are in fact in the nature of “trade, commerce or business” and as a result, would have to comply with the quantified limit (as amended from time to time) in the proviso to Section 2(15) of the IT Act”. Mr.Shashi Kiran Shetty is justified in drawing our attention to the observations at paragraph 284 which extends the benefit of exemption to the non-statutory entities like the Appellant-Society as well provided that foundational facts therefor are established by record. - 8 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 (c) The above being said, learned Panel Counsel appearing for the Revenue is also justified in seeking remand of the matter for ascertaining the factuals as to whether an exception to the rule of exemption as enacted under clauses (i) & (ii) of the Proviso to Sec.2(15) of the 1961 Act is invokable. Obviously such an exercise cannot be undertaken by this Court nor by the Tribunal, the appropriate authority being the Commissioner of Income Tax (Exemption) who has either custody of records or power to call for the same from the concerned quarters. In the above circumstances, this appeal succeeds and the impugned order of the Tribunal is set aside. Matter is remitted to the portals of Respondent- Commissioner of Income Tax (Exemptions) for consideration afresh in accordance with law keeping in view the decision of the Apex Court supra after notice to the Assessee. It is open to the Assessee & the Revenue to lead legal evidence in support of their respective claim - 9 - NC: 2024:KHC:20048-DB ITA No. 394 of 2022 for exemption or for denial of exemption, as the case may be. All contentions of the parties are kept open. Costs made easy. Sd/- JUDGE Sd/- JUDGE Bsv List No.: 1 Sl No.: 29 "