Supreme Court’s Landmark Judgement on Income Tax Exemption for Profit Oriented Educational Institutions (trust or societies etc.)
Supreme Court overruled two previous judgements – Profit Oriented Educational Institutions (trust or societies etc.) can not Claim Income Tax Exemption u/s 10(23C)
New Noble Educational Society vs Chief Commissioner of Income Tax. (Hon. CJI Uday Umesh Lalit, Hon. Justices S. Ravindra Bhat and Hon.Justice P S Narasimha)
SC held that educational trust or societies etc., which seek exemption under Section 10 (23C) of Income Tax Act, should solely be concerned with education, or education related activities.
Where the objective of the institution appears to be profit-oriented such institutions would not be entitled to approval.
Section 10(23c)(iiiab) provides that the Income received by any university or educational institution existing solely for educational purposes and not for purposes of profit, and which is wholly or substantially financed by the Government is fully exempt.
Section 10(23C)(iiiad) provides that the income earned by any university or educational institution existing solely for educational purposes and not for the purposes of profit shall be exempt from tax, if the aggregate annual receipts of such university or educational institution.
Andhra Pradesh High Court which held that Trusts which claimed benefit of exemption under Section 10 (23C) of the Income Tax Act were not created ‘solely’ for the purpose of education and therefore rejected their claim for registration as a fund or trust or institution or any university or other educational institution set up for the charitable purpose of education.
Several Educational Trusts had approached the SC against the judgment of the Andhra Pradesh High Court which held that these trusts which claimed benefit of exemption under Section 10 (23C) of the Income Tax Act were not created ‘solely’ for the purpose of education and therefore rejected their claim for registration.
Summarised Conclusions of the Supreme Court:-
It is held that the requirement of the charitable institution, society or trust etc., to ‘solely’ engage itself in education or educational activities, and not engage in any activity of profit, means that such institutions cannot have objects which are unrelated to education.
Where the objective of the institution appears to be profit-oriented, such institutions would not be entitled to approval under Section 10(23C) of the Income Tax Act.
At the same time, where surplus accrues in a given year or set of years per se, it is not a bar, provided such surplus is generated in the course of providing education or educational activities.
The reference to ‘business’ and ‘profits’ in the seventh proviso to Section 10(23C) and Section 11(4A) merely means that the profits of business which is ‘incidental’ to educational activity – as explained in the earlier part of the judgment i.e., relating to education such as sale of text books, providing school bus facilities, hostel facilities, etc.
While considering applications for approval under Section 10(23C), the Commissioner or the concerned authority as the case may be under the second proviso is not bound to examine only the objects of the institution.
To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes.
It is however clarified that their claim for approval or registration would have to be considered in the light of subsequent events, if any, disclosed in fresh applications made in that regard.
As a result, it is hereby directed that the law declared in the present judgment shall operate prospectively.
Case Name : Checkmate Services P. Ltd Vs CIT (Supreme Court of India) Appeal Number : Civil Appeal No. 2833 of 2016 Date of Judgement/Order : 12/10/2022 Related Assessment Year : Courts : Supreme Court of India
Checkmate Services Pvt ltd Vs CIT- I (Supreme Court)
Date -12th October 2022
Sub- Deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees’ contribution to PF can not be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act,1961.
This important decision was decided in favour of the department on 12th October, 2022 when the Supreme Court was seized of a situation where Kerala and Gujarat high court were in favour of the department whereas other high court including calcutta high court decided in favour of the assessee. The court noted that is apparent is that the scheme of the Act is such that Sections 28 to 38 deal with different kinds of deductions, whereas Sections 40 to 43B spell out special provisions, laying out the mechanism for assessments and expressly prescribing conditions for disallowances. The scheme of the provisions relating to deductions, such as Sections 32- 37, on the other hand, deal primarily with business, commercial or professional expenditure, under various heads (including depreciation). Each of these deductions, has its contours, depending upon the expressions used, and the conditions that are to be met. It is therefore necessary to bear in mind that specific enumeration of deductions, dependent upon fulfilment of particular conditions, would qualify as allowable deductions: failure by the assessee to comply with those conditions, would render the claim vulnerable to rejection.
Finally it was noted that the essential character of an employees’ contribution, i.e., that it is part of the employees’ income, held in trust by the employer is underlined by the condition that it has to be deposited on or before the due date. The court pointed out to the finer distinction between Section 43B and the non-obstante clause in that section by observing that the said clause could not be applied to the deemed income u/s 36(1)(va) which was basically a money held in trust.
Adjudicating authority can pass an order for removal of Resolution Professional.
Case Name : Srigopal Choudary Resolution Professional of Shree Ram Urban Infrastructure Ltd Vs SREI Equipment Finance Ltd (NCLAT Delhi) Appeal Number : Company Appeal (AT) (Ins) No. 1443 of 2022 Date of Judgement/Order : 10/01/2023 Related Assessment Year : Courts : NCLAT
Srigopal Choudary Resolution Professional Of Shree Ram Urban Infrastructure Ltd Vs SREI Equipment Finance Ltd (NCLAT Delhi) NCLAT, Delhi held that adjudicating authority being the appointing authority of IRP/RP has due jurisdiction to pass an order for removal of the Resolution Professional.
Facts- On 6.11.2019 an application filed under section 7 of the IBC against the Corporate Debtor namely Shree Ram Urban Infrastructure Ltd. was admitted and appellant namely Shri Gopal Choudury was appointed as IRP by the Adjudicating Authority and CIRP was initiated. NCLT passed an order directing replacement of resolution professional (appellant) and directed for his replacement with one Mr. Sapan Mohan Garg. The said order of NCLT is being challenged by the appellant.
Conclusion- We are of the opinion that the Adjudicating Authority being the appointing authority of IRP/RP was well within its jurisdiction to pass an order for removal of the RP particularly in a situation where the RP had not taken any steps to convene a meeting of the CoC for the purpose of removal of RP. We are conscious of the fact that the provision of Section 27 of the Code contemplates that the replacement of the Resolution Professional can be done by the CoC alone. But if the ingredients of Section 27 of the Code cannot be met i.e. in the event, the RP is not convening the meeting of CoC, which in turn has to decide the replacement of the RP himself. We are of the considered opinion that there is no defect in the impugned order warranting interference by this Tribunal. On the contrary, the conduct of the appellant/RP which was observed by the Adjudicating Authority and reflected so in the impugned order is sufficient enough to direct IBBI to conduct an inquiry regarding the role played by the RP in this matter.
TDS u/s 194C is applicable in case of Common Area Maintenance charges
Case Law Details Case Name : BIBA Apparels Private Ltd. Vs ACIT (TDS) (ITAT Delhi) Appeal Number : ITA Nos. 1996 & Date of Judgement/Order : 1997/Del/2020 Related Assessment Year : 13/12/2022 Courts : All ITAT ITAT Delhi
BIBA Apparels Private Ltd. Vs ACIT (TDS) (ITAT Delhi) ITAT Delhi held that as payment of rent and common area maintenance charges is made to distinct entities/ companies, TDS @10% u/s 194-I is deductible in case of payment of rent and TDS @2% u/s 194C is deductible in case of payment of Common Area Maintenance charges.
Facts- The main issue involved in the present case is that CIT(A) has uphold the action of TDS officer directing to withhold TDS at the rate of 10% under section 194-I in relation to Common Area Maintenance (CAM) charges instead of 2% as deducted by the assessee under section 194C of the Income Tax Act.
Conclusion- From the material available on record, it is clearly discernible that the assessee company has paid rent to the owner after deduction u/s 194-I of the Act @ 10% and the payment for operation/maintenance was made directly to the service provider company after deduction of tax u/s 194C of the Act. Therefore, we are inclined to hold that in the present case the common area maintenance charges was not forming part of the actual rent paid to the owner by the assessee company. Payments of rent and common area maintenance charges have been made to distinct entities/companies, therefore, the authorities below were not right in creating the impugned liability payable by the assessee firm under the provisions of sub-sections (1) and (1A) of section 201 of the Act.
Capital loss on sale of STT paid shares/mutual fund cannot be set off against LTCG on sale of land
Case Name : JCIT (OSD) Vs Shri Sujan Azad Parikh (ITAT Mumbai) Appeal Number : ITA No. 775/Mum./2019 Date of Judgement/Order : 02/12/2022 Related Assessment Year : 2015-16 Courts : All ITAT ITAT Mumbai
JCIT (OSD) Vs Shri Sujan Azad Parikh (ITAT Mumbai) ITAT Mumbai held that long term capital loss arising out of the sale of shares and units of mutual funds on which STT was paid and covered under section 10(38) could not be set off against long-term capital gain arising out of the sale of land as per section 70(3) of the Act.
Facts- During the assessment proceedings, it was observed that the assessee has claimed to have sold a flat at Skylark Co-operative Housing Society Ltd (‘Skylark flat’) declaring a LTCG of Rs. 7,25,08,820, against consideration of Rs. 7,62,50,000, (being 50% sale consideration of the flat). It was further observed that the ownership of Skylark flat was bestowed pursuant to decree order of the Hon’ble Court on Small Causes at Bombay in favour of the mother of the assessee, inter-alia, on condition of payment of Rs. 8.5 lakh to the Plaintiff. It was also noticed that pursuant to the aforementioned decree, the assessee along with his mother made joint representation to the Skylark Co-operative Housing Society Ltd to transfer the shares in their joint names. Pursuant thereto share certificates were transferred to the joint names of the assessee and his mother. Subsequently, in July 2007, the mother of the assessee transferred half share of the Skylark flat to the wife of the assessee. Finally, in July 2014, the Skylark flat was sold to a third-party for a total consideration of Rs. 15,25,00,050, and the assessee and his wife declared 50% of the consideration from the sale of the Skylark flat in their respective income tax returns for the assessment year 2015–16. AO vide order dated 30/12/2017, passed under section 143(3) of the Act held that the said flat was decreed in favour of the mother of the assessee, however, without any sanction of law and based on flimsy grounds, the half share of the flat was transferred in the name of the assessee. Accordingly, the AO held that the half consideration received by the assessee amounting to Rs. 7,62,50,000, is taxable in the hands of the actual owner of the half share of the Skylark flat i.e. mother of the assessee. Further, consideration received on the sale of Skylark flat and consequent set off against such considerations/gain cannot be considered in the hands of the assessee. AO also proceeded to add the aforesaid amount of Rs. 7,62,50,000, as unexplained credit in the hands of the assessee on the basis that the aforesaid amount was received by the assessee without any ownership of any asset. CIT(A) vide impugned order allowed the appeal filed by the assessee on this issue. Being aggrieved, the present appeal is filed. Further, LTCG earned from the sale of Skylark flat was set off by the assessee against current year losses of Rs. 53,97,182, on account of long-term capital loss on the sale of mutual funds and carried forward long term capital loss of Rs. 1,59,75,965, on account of sale of mutual funds during the previous years. The AO vide assessment order denied the claim.
Conclusion- Held that nothing has been brought on record that due to the alleged lack of ownership of the assessee, the title in the property has not been legally transferred to the purchaser. Therefore, in view of the above, we are of the considered opinion that the learned CIT(A) has rightly accepted the long-term capital gain in the hands of the assessee. Held that Long-term capital loss arising out of the sale of shares and units of mutual funds on which STT was paid and covered under section 10(38) could not be set off against long-term capital gain arising out of the sale of land as per section 70(3) of the Act.
Case Name : HV Global Pvt. Ltd Vs ITO (ITAT Delhi) Appeal Number : ITA No.1676/Del/2020 Date of Judgement/Order : 06/12/2022 Related Assessment Year : 2012-13 Courts : All ITAT ITAT Delhi
ITAT Delhi held that as common area maintenance charges are not forming part of the actual rent paid to the owner by the assessee, TDS on the same is deductible under section 194C @2% and not under section 194I.
Facts- The present appeal is filed by the assessee alleging that CIT(A) has erred in law and on facts in sustaining addition of TDS liability and interest on assessed TDS liability on illegal and untenable ground. Further, assessee also alleges the addition as the SCN was issued u/s. 201(1)/201(1A) of the Income Tax Act 1961 treating the assessee in default. The issue is the assessee has made payment towards rent after deducting TDS u/s. 194I @10% and payment towards maintenance charges after deducting TDS u/s. 194C @2%. AO argues that such arrangement is made to avoid higher deduction of TDS.
Conclusion- We do not agree as when the receiver of rent and receiver of maintenance charges are different and distinct and the character of the payment is also different and distinct, then, the payments towards maintenance charges has to be made after TDS @ 2% u/s 194C of the Act and not @ 10% u/s 194I of the Act. From the material available on record, it is clearly discernible that the assessee company has paid rent to the owner after deduction u/s 194 of the Act @ 10% and the payment for operation/maintenance was made directly to the service provider company after deduction of tax u/s 194C of the Act. Therefore, we are inclined to hold that in the present case the common area maintenance charges was not forming part of the actual rent paid to the owner by the assessee company. Payments of rent and common area maintenance charges have been made to distinct entities/companies, therefore, the authorities below were not right in creating the impugned liability payable by the assessee firm under the provisions of sub-sections (1) and (1A) of section 201 of the Act.
