The Chennai Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the Tamil Nadu Advocates Welfare Fund is exempted from Income Tax under section 23 of the AWS Act, against the provisions of section 11 and section 2(15) of the Income Tax Act,1961 which deals with tax exemption of income derived from the property held under trust for charitable or religious purposes and definition of charitable purposes respectively.
Assessee, TN Advocates Welfare Fund ( TNAWF ), a non-profitable organization, that provides welfare relief for advocates in Tamil Nadu. TNAWF filed their income tax returns for the A.Y 2013-14, declaring gross income as Rs.2.79 crores, Revenue expenditure as Rs.3.54 crores, and a total income of Rs. Nil.
The assessing office scrutinized the return filing under section 143(2) of the Act. The AO denied
the exemption under Section 11 of the Act by invoking the proviso to section 2(15) of the Act for the reason that the assessee has been involved in trade or business by selling the welfare funds stamps to the tune of Rs.1,53,85,600 which exceeds Rs.25 lakhs. The AO treated it as taxable income and charged Rs. 2,65,99,814 as Income Tax.
Aggrieved by this decision, the assessee appealed the order before the Commissioner of Tax (Appeals) [CIT(A)]. The CIT(A) allowed the exemption under section 11 of the Act, stating that selling welfare fund stamps was part of the welfare activities and did not consider trade or business.
Aggrieved by the order, the revenue appealed before Chennai ITAT, the counsel D. Hema Bhupal, JCIT argued that the CIT(A) erred by giving an exemption under section 11 to the TN Advocates Welfare Fund ( TNAWF ). The activities of TNAWF, by selling welfare fund stamps to the members and the common public denote profit motive. The CIT(A) failed to recognize that the assessee has received Rs.1.53 crores in the form of trading receipts and the sale of welfare fund stamps without much of an expenditure aligns more with business activities.
The assessee’s counsel, M.K. Rangaswamy, CA argued that the TNAWF’s primary income sources were aligned with welfare activities, not profit-making activities. The assessee’s counsel argued the TNAWF was established under the state legislation of the TANWF Act, 1987 which provides welfare benefits to the advocates and the exemptions were valid under section 23 of the Central Advocates Welfare Fund Act 2001 which deals with the tax exemption to the Advocates Welfare Funds of the State.
The division bench of ITAT panel Manu Kumar Giri (Judicial Member) and S.R.Raghunatha (Accountant Member) observed the arguments of both sides. The Tribunal reasoned that Section 23 of the Central Act provides tax exemption to state advocate welfare funds, which means TNAWF’s activities are not taxable under Section 11 and Section 2(15) of the Income tax law. The tribunal upheld the CIT(A) decision and dismissed the appeal filed by the revenue.
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