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III. Direct Taxes Case Laws:
1. Indian Railway Const. Co. Ltd. Vs. IAC (A), I.T.A. No. 2144/Del/1989, Date of Judgment: 01.07.2016, ITAT - Delhi
Issue:
Whether
a construction company also involved in ancillary manufacturing
activity can claim deduction under section 80-HH and 80-I of the Income
Tax Act, 1961?
Held: Yes, but only in respect of the gross profit earned through manufacturing activity.
Brief Facts:
The assessee, an industrial undertaking, was engaged in construction
of railway tracks and in the manufacturing of large number of items
including ballast, concrete sleepers, specialized mechanical track
laying/relaying equipment, railway panels, etc., all of which were used
in the fabrication and installation of railway tracks.
The
assessee had been allowed deductions u/s 80HH and 80-I in the initial
two years. However, for the relevant AY, the revenue authorities
disallowed the assessee's claim for deduction under those sections on
ground that execution of the project of railway track would not amount
to production of goods/articles. On appeal, the Tribunal set aside
impugned orders and restored the matter to the Assessing Officer. On the
revenue's appeal to the High Court, the assessee contended that if a
decision had been taken, either at the assessment stage or at the
appellate stage, in the first relevant AY to grant the benefits u/s 80HH
and 80-I to it, then said benefits could not be withheld in the
subsequent years on the ground that the decision taken in the first year
was erroneous, or that the assessee was, for some reason, not eligible
for the benefits u/s 80HH and 80-I. The revenue, on the other hand,
submitted that the order passed by the AO in the first AY 1982-83 could
not be allowed to be repeated as in the meantime the Supreme Court in
the case of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412 held that
such a benefit/deduction was not allowable.
The
Hon’ble Delhi High Court in assessee’s case [2009] 226 CTR 49 (Delhi)
observed that the issue of allowability of deduction u/s 80HH of the Act
was left open by the Hon’ble Supreme Court in the case of N.C.
Budhiraja (supra) hence the Hon’ble High Court explicitly held that the
case of the assessee was not examined by the Tribunal from this angle at
all and ordered for re-examination.
Held:
Based on the definitions of ‘manufacture’, ‘production’ and ‘articles’
provided by the Hon’ble Supreme Court in N.C. Budhiraja (supra) and
provisions of section 80HH which provides for "deductions to be made in
computing total income", held that the assessee is entitled for
deduction u/s 80HH and 80I of the Act on the part of income earned from
manufacturing activities and the AO was directed for limited purpose to
calculate the quantum of deduction u/s 80HH for all the five AYs under
consideration.
(Please click here for judgment)
2. Green Acres Educational Trust Vs. DCIT, I.T.A. No. 412/Mum/2013, Date of Order: 24.06.2016, ITAT - Mumbai
Issue:
Whether pre-schooling falls within the scope of ‘Education’ as per
section 2(15) of the Income Tax Act,1961 and Whether charging of fees
and retaining surplus amounts to commercial activity disentitling
assessee from the benefit of exemption u/s 11 and 12 of the Act?
Held- No
Brief Facts
The assessee is a trust constituted with the object of imparting high
quality education to students of all castes, creeds and communities by
way of setting-up schools, colleges, and educational and vocational
training institutes in India. The assessee trust filed application u/s
12A of the Act which was rejected by the Ld. DIT contending that the
assessee is running a pre-school which is a stage prior to normal
schooling, and therefore cannot be treated as ‘Education’ u/s 2(15) of
the Act. Also, the assessee is charging fees on account of supply of
School kit, prospectus, admission fees etc. and should be considered as
commercial activity not as charitable one. In this regard, the Ld.
Counsel for assessee contended that the Ld. DIT has ignored the object
mentioned in the trust of imparting high quality education and the
pre-school is just one of the activities. Further, with regard to the
second reason given by Ld. DIT, it was submitted that the assessee is
required to maintain appropriate infrastructure & establishment as
well as arrangement of competent faculties so as to provide good quality
of education for the students and therefore, incurred a deficit during
the period. It was also contented by the Ld. AR the all the facts should
be seen in totality and not in isolation.
Held:
The Hon’ble ITAT held that the contention of the Ld. DIT is not only
contrary to law and facts, but also highly myopic and regressive. It is
not necessary that there should be holding of regular classes or
wholesome educational activities to be called educational activities
eligible for benefits u/s 11 & 12 of the Act. The term “education”
is of wide scope and amplitude. It was further observed that it is not
necessary for the purpose of getting the benefit of exemption u/s 11 and
12, that assessee must carry out all its activities free of cost i.e.
without charging anything from anyone. As per section 2(15), the term
‘charitable purpose’ includes education. The intention of the
legislature is unambiguously clear that carrying out the activity of
education itself is charitable. Thus, the appeal filed by the assessee
is allowed.
(Please click here for judgment)
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