Delhi HC upholds ITAT order allowing Exemption Claim made by Charitable Trust u/s 10(23C)(iv) of Income Tax Act, Considering Previous year Position [Read Order]

The Appellant/Commissioner of Income Tax (Exemptions) [Revenue] filed the appeal under Section 260A of the Income Tax Act, 1962 challenging the impugned order passed by the tribunal.

The revenue challenged the order of CIT(A), which had allowed the appeal of the Respondent/Assessee, holding that the Assessee was a charitable institution, eligible for exemption under Sections 11 and 12 of the IT Act, and deleted the addition of total income of Rs.1,93,93,48,991/- made on account of disallowance under Sections 11 and 12 of the IT Act.

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Appeal had been preferred by the Respondent/Assessee, Hamdard Laboratories (India) against an assessment order dated 30th December 2018 passed by the AssessingOfficer (‘AO’), Assistant Commissioner of Income Tax, wherein, the Respondent/Assessee had filed its return of income for AY 2016-17, declaring ‘Nil’ income and had claimed exemption under Section 11 and 12 of the IT Act. Notice was issued under Section 143(2) of the IT Act and the assessment was completed on 30th December 2018 for a total income of Rs.1,93,93,48,991/-.

Respondent/Assessee is a Trust registered under Section 12A of the IT Act. Upon filing its return for AY 2016-17 and disclosing ‘Nil’ income claiming exemption under Section 11 and 12 of the IT Act, the case was selected for scrutiny by the AO and statutory notices were issued. Submissions were made by the Respondent/Assessee before the AO, essentially concerning the residential accommodation made available to its trustees and their family members.

The two properties in question were at 25, Kautilya Marg, New Delhi and 13, Rajdoot Marg, New Delhi, which were provided for use to the trustees and their families at a consolidated lease rent of Rs.90,000/- per month. The AO held that the provisions of Section 13(2)(b) of the IT Act would disentitle the Respondent/Assessee from availing exemption under Section 11 and 12 of the IT Act.

The Respondent/Assessee was therefore taxed and taxable income was computed at Rs.1,93,93,48,991/-, including, addition of Rs.31,20,000/- as income from house property and disallowing claim of Rs.5,23,190/-for depreciation in respect of leased out properties.

The respondent/assessee filed an appeal before the CIT(A) and thereafter, a remand report on each ground of appeal was called. Counter comments were obtained from the respondent/assessee upon receiving the remand report. After introduction of the ‘faceless scheme’ w.e.f. from 25th September 2020, fresh notices were issued under Section 250 of the IT Act and subsequently, written submissions were furnished by the respondent/assessee. The CIT(A) held that respondent/assessee is a charitable institution, eligible for exemption under Section 10(23C)(iv) or under Section 11 and 12 of the IT Act.

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Mr. Abhishek Maratha, counsel appearing for the Appellant/Revenue stated that the Respondent/Assessee claimed exemption under Section 10(23C)(iv) of the IT Act, for the first time before the CIT(A), denoting that the AO did not have an occasion to decide the legitimacy of their claim on this ground. The AO had essentially looked at the issue of violation of provisions of Section 13(2)(b) read with Section 13(3)(b) of the IT Act and thereafter, denied the benefit of exemption under Section 11 and 12 of the IT Act.

The CIT(A) merely called for the remand report, which is a limited fact-finding aid and cannot substitute the statutory duty of the Appellate Authority under Section 254 of the IT Act, to conduct an independent and comprehensive examination of the matter. Therefore, circumstantially, there was no material before the CIT(A) while setting aside the AO’s decision.

Mr. Madhur Aggarwal, Senior Counsel appearing for the Respondent/Assessee stated that the respondent/assessee is a Trust constituted under its own Trust Deed dated 28th August 1948, whereby the partners of a business known as “Hamdard Dawakhana” dedicated the said business to charity. The partnership was engaged in the business of manufacture and sale of indigenous medicines.

To carry out its charitable activities, Hamdard had created a Special Purpose Vehicle (‘SPV’), a registered society for philanthropic purposes, viz. Hamdard National Foundation (‘HNF’) on 12th May 1964, which continued to enjoy exemption under Section 11 of the IT Act, since then.

The Respondent/Assessee had, therefore, derived the benefit of tax exemption consistently for the last few decades, about 70 years, both under the IT Act of 1922 and thereafter, under the IT Act of 1961, initially under Section 11 of the IT Act of 1961 and thereafter under Section 10(23C)(iv) of the IT Act of 1961.

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There is no dispute that the respondent/assessee has been enjoying exemption granted under Section 10(23C)(iv) since AY 2004-2005 and this Court in Hamdard Laboratories (supra) has assessed fully the objects of Hamdard Laboratories and affirmed its claim for exemption under Section 10(23C)(iv) of the IT Act.

The appellant/Revenue argued that since the exemption under Section 10(23C)(iv) of the IT Act was not claimed before the AO, there had been no determination by the AO on that issue and the determination was effectively restricted to Section 13(2) read with Section 13(3) and exemption under Section 11 and 12 of the IT Act.

When the appeal was filed before CIT(A) by the respondent/assessee, issue of exemption under Section 10(23C)(iv) of the IT Act had been taken up and it was expected that CIT(A) would therefore, revert the matter back to the AO for further determination.

A division bench of Justice Nitin Wasudeo Sambre and Justice Anish Dayal noted that the ITAT had observed that the appellant/Revenue had failed to bring on record cogent evidence to show that the rent received was inadequate. The material was effectively collected from internet, as well as, estate agents and cannot be termed as a corroborative piece of evidence.

The Court does not find any reason to allow the appeal and does not find any infirmity in the order passed by the ITAT. In absence of a substantial question of law, the bench dismissed the appeal.

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