The High court of Hyderabad recently held that providing aid to banks and financial institution for fee can be treated as charitable purpose for which exemption is available under the provisions of the Income Tax Act, 1961.
The bench comprising Justices V. Subramanian and Abhinand Kumar Shavili was hearing an appeal filed by the Revenue against Institute for Development and Research in Banking Technology.
The assessee was an autonomous institution established by the RBI, way back in the year 1996. The assessee was granted registration under Section 12AA of the Income Tax Act But the same was cancelled subsequently by the Director of Income Tax (Exemptions), by an order dated 30.11.2011.
The purpose of the company was a registered society assisting the banks and financial institutions, for the improvement of their performance. The assessee is also offering an M.Tech course and Ph.D. degrees in banking.
On appeal, the assessee contented that the purpose served by the concern would come in the purview of “education”. The Tribunal, being satisfied with the opinion of assessee, held that the assessee would come within the purview of the definition of the expression “charitable purpose”, as an institution established for the advancement of an object of general public utility.
After hearing both sides, the bench upheld the findings of the Tribunal that the assessee is an institution established for the advancement of any other object of general public utility, and it 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 provision to Section 2(15) at all.
The Revenue had relied upon the decision in the case f Andhra Pradesh State Seed Certification Agency v. Chief Commissioner of Income Tax wherein the certification of seeds by the assessee was held to be in the nature of trade, Commerce or business as the assessee facilitated trade, commerce or business in the certified seeds.
The bench refused to follow the above decision and said that “the distinction between the assessee in the said case and the assessee in the present case is that in the former the certification was done for the benefit of the private individuals and the private institutions. But in this case, the assessee was created by the Reserve Bank of India for the improvement of the performance of the banks and financial sector of the country, ultimately to have a bearing upon the economy of the country.”
The Tribunal also pointed out that the charging of a fee by the assessee was not with profit motive and that therefore, merely because the assessee derived income they cannot be held to be carrying on an activity in the nature of trade, commerce or business.
Read the full text of the Judgment below.
