Kerala HC Denies Tax exemption to Norka Roots since It is functioning out of Government Funding only [Read Judgment]

A two Judge Bench of Kerala High Court in Norka Roots vs. The Commissioner of Income Tax upheld the decision of the Income Tax Appellate Tribunal to deny tax exemptions to Noorka Roots.

NORKA ROOTS is a public sector undertaking. NORKA coordinates efforts for remedial action on threats to the lives and property of those who are left at home, for tracing missing persons abroad, for obtaining compensation from sponsors for taking action on cheating by recruiting agents and other such grievances of Non-Resident Keralites (NRKs). It provides assistance to evacuate NRKs from strife torn areas and to transport them to their home towns.

The main issue before the Court was that whether NORKA ROOTS was indeed a charitable institution under Section 12A of the Income Tax Act, 1961 in order to avail tax exemptions.

Learned Counsel for the appellant submitted that the appellant had been constituted specifically for the purpose of aiding Non-Resident Keralites and had been intervening in their issues, to redress their grievances and provide succor, within the country and even abroad. The appellant has also been carrying on schemes sponsored by the State Government to aid and help those Non-Resident Keralites who have lost their jobs abroad and come back to the State.

The learned Standing Counsel for the Department contended that whatever schemes that have been implemented as a measure of charity, have been done with the funds provided by the State. The appellant is engaged in certification processes and the like, for which huge amounts were charged from the Non-Residents; a pie of which is not spent for any charity. It is also contended that the objects of the appellant do not disclose that it is an agency constituted to channel the funds of the Government.

The statistics, as revealed from the order of the Tribunal, showed that in the year 2006-07, 100% of the amounts funded by the Government was spent. There was considerable reduction in percentage of expenditure, even out of the Government funds, in the subsequent years. Out of the funds granted by the Government, the expenditure was actually between 28% to 60% in the various subsequent years. In the year 2012-13, the total funds spent for charitable purpose out of the funds granted by the Government came to only 28.07%. The administrative expenses for that year came to 30.5% of the total income generated for that year. The programmes funded by the appellant itself came to a paltry amount of Rs.7.5 lakhs which was only 22% of the generated income, the highest percentage in all the years.

The bench comprising of Justice K.Vinod Chandran & Justice Ashok Menon observed “The charitable activities of the appellant were only in applying the government funds; which too were not sent to the extent made available. As noticed by the Tribunal and the Commissioner, the charitable activities carried out by the appellant, was only in so far as expending the fund provided by the Government, that too, not to its full extent. The appellant was found to have not applied any part of their net income to the objectives stated in the Memorandum of Association. Thus, the appellant was also found to have not carried out any charitable activity in the relevant years, from the income derived from various activities of facilitation of certification and other matters in respect of the Non-Resident Keralites. The Tribunal found that, though technically, the objects of the appellant comes within the ambit of advancement of an object of general public utility, as described in Section 2(15) as it existed prior to the assessment year 2009-2010, it has not carried out any such charitable activity. This Court does not find any reason to interfere with the orders of the Tribunal or of the Commissioner of Income Tax”

Rejecting the appeal, the Court denied tax exemptions to Norka Roots.

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