1.   India Trade Promotion Organization Vs. DGIT (Exemptions), W.P. (C) 1872/2013, Date of Decision: 22.01.2015, High Court of Delhi

Whether an institution primarily driven by a desire or motive to not to earn profit, but to do charity through advancement of an object of general public utility, can be regarded as an institution established for charitable purposes?

Held_No

The above stated WRIT petition is filed by the assessee seeks quashing of first proviso to section 2(15) contending that it is arbitrary and unreasonable and has no rational nexus with the object sought to be achieved and is thus violate Article 14 of the Constitution of India.

Hon’ble high court held that definition of expression “charitable purpose” shall not be construed literally and in absolute terms. It has to be considered in the context of Section 10(23C)(iv) of the act. It is evident that if the literal interpretation is given to the proviso to Section 2(15) of the said Act, then the proviso would be at risk of running fowl of the principle of equality enshrined in Article 14 of the Constitution India. In order to save the Constitutional validity of the proviso, the proviso should have to be read down and interpreted in the context of Section 10(23C)(iv) because, the context requires such an interpretation. The correct interpretation of the proviso to Section 2(15) of the said Act would be that it carve s out an exception from the charitable purpose of advancement of any other object of general public utility and that exception is limited to activities in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a fee or any other consideration.

In above mentioned activities, the dominant and the prime objective of the organization must be seen. If the dominant and prime objective of the institution is profit making, then it would not be entitled to claim its object to be a 'charitable purpose'. On the flip side, where an institution is not driven primarily by a desire or motive to earn profits, but to do charity through the advancement of an object of general public utility, it cannot but be regarded as an institution established for charitable purposes.

(Please click here for judgment)

2.  ACIT Vs. M/s. Talbros Engineering Ltd., I.T.A. No. 534/Del/2009, Date of Decision: 19.01.2015, ITAT - New Delhi

Issues:
I.    Whether the rejection of books of account by the Assessing Officer on the ground of decline in the gross profit rate has the sanction of law? Held, No.

II.   Whether the subsidy received as a compensation for setting up its unit in remote rural areas is chargeable to tax?  Held, No.

I. Ground no. 1: The assessee is engaged in a manufacturing activity and has maintained all the stock registers required for the purposes of the payment of excise duty. The Assessing Officer has rejected the books of accounts merely because there is decline in gross profit rate and not controverted the quantity or value of the closing and opening inventory. The ITAT, on appeal before it by the Department, noting, inter alia, that in the AO had assigned no reason for rejecting the books of account other than a decline in the GP rate and that it was well settled that books of account cannot be rejected on the solitary reason of decline in the GP rate, held that the learned CIT(A) “was justified in cancelling the action of the AO in rejecting the books and resultantly deleting the addition of Rs.1.19 crores on this count”. 

II.    Ground no. 3:  Held:
The relevant factor for decision as to whether subsidy is a capital or a revenue receipt, is its nature and object. If some subsidy is given for encouraging the industries for setting up units in the remote or rural areas etc., then such subsidy assumes the character of a capital receipt. On the other hand, if subsidy is given for enabling an assessee to run its business more profitably, then it would amount to an operational subsidy chargeable to tax. It is clear from the assessee’s submissions reproduced in the assessment order that the subsidy was given to the assessee as a compensation for setting up its unit in remote rural areas. The nature of such subsidy has not been disputed by the AO. As the nature of subsidy in the present facts and circumstances is undisputed, being towards the setting up of unit in remote and rural areas, the natural conclusion which therefore follows is that this subsidy is a capital receipt and not chargeable to tax.

(Please click here for judgment)