The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) held that the exemption claimed under Section 10(23C)(iv) of Income Tax Act, 1961, cannot be rejected if the net surplus is less than 20% of total receipts of the institution.
In this case, the assessee is M/s. Council for Leather Exports, based in Chennai, is a non-profit organization ( NPO ) that is sponsored by the Ministry of Commerce. The council aims to improve and promote the leather industry’s exports.
The assessee filed its Income Tax Return ( ITR ) on A.Y. 2016-17 on 26/09/2016 with a gross receipt of Rs. 19,18,93,575/- after claiming an exemption under Section 10(23C)(iv) of the Income Tax Act, 1961.
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The assessee’s case was selected for scrutiny. The assessment order rejected the exemption claimed by the assessee under Section 10(23C)(iv)of Income Tax Act, 1961, as the computed net surplus as per the income and expenditure was Rs. 7,62,60,796 and total taxable income was computed at Rs. 7,62,60,800 which was more than 20% of the total receipts.
Aggrieved by the order of AO, the assessee approached the Commissioner of Income Tax (Appeal) [CIT(A)]. But the CIT(A) upheld the order passed by AO. Thus the assessee approached ITAT.
The counsel for the aseeseee contended before the ITAT that the CITA has made an error by upholding the order of AO as the assessee’s activities do not involve trade, business, or commerce, and they do not provide any related services, and thus the assessee is qualified for exemption under Section 10(23C)(iv) of the ITA.
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The ITAT bench observed that even though activities carried out by the assessee may generate profit, it can be granted exemption provided the quantitative limit of not exceeding 20% under the second proviso to Section 2(15) of the ITA for receipts from such profits.
The bench, consisting of Aby T. Varkey (Judicial Member) and S. R. Raghunatha (Accountant Member), held that the lower authorities were erraneos in denying the exemption claimed by the assessee and observed that the net surplus of Rs. 7.62 crores is less than 20% of the total receipts of the institution, which is Rs. 42.82 crores, and the exemption u/s. 10(23C)(iv) cannot be rejected under Section 2(15) of ITA.
Thus, the bench allowed the appeal in favor of the assessee.
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