‘NAC’ Not Eligible for Exemption as it Gave Govt. Allotted Land to Joint Stock Co. For Commercial Use | HC

Case Details: National Academy of Construction v. Assistant Director of Income-tax (Exemptions) - [2023] 156 taxmann.com 532 (TELANGANA)

Judiciary and Counsel Details

• P. Sam Koshy & Laxmi Narayana Alishetty, JJ.
• S. Ravi, Ld. Counsel for the Appellant
• Ms. K. Mamta, Ld. Standing Counsel for the Respondent

Facts of the Case

Assessee-National Academy of Construction (NAC) was a society registered under section 12A, with the principal object to impart training, promotion of education, research, etc., in the field of construction and allied industries.

AO noted that an amount of Rs. 1.5 crore was invested by the assessee in equity of ‘H’ (a joint stock company incorporated by assessee). The objects of such joint stock company were not similar to that of assessee society.

The assessee had also transferred 100 acres of land to ‘H’ on lease allotted to the assessee by the Government. AO held that there was a violation of section 11(5). Thus, he refused to grant an exemption to the assessee under section 11. The matter reached before the High Court.

High Court Held

The High Court held that ‘H’ started utilizing the land to hold exhibitions of all natures and, in that process, was earning huge amounts in form of rental on the same. ‘H’ had also used said land for commercial purposes by allotting land to other commercial establishments.

Thus, the court held that earning profits clearly violated the assessee society’s purpose, mission and object. Thus, an investment of Rs. 1.5 crore and transfer of 100 acres of land by assessee to ‘H’ would be squarely covered under section 13(1)(d). Accordingly, the assessee would not be entitled to the benefit of exemption under section 11 in view of the violation of section 11(5)

List of Cases Reviewed

• • DIT (Exemption) v. Charanjiv Charitable Trust [2014] 43 taxmann.com 300/223 Taxman 71 (Delhi) (para 30) and
  • Agappa Child Centre v. CIT [1997] 92 Taxman 327/226 ITR 211 (Ker.) (para 31) followed.

List of Cases Referred to

• DIT (Exemption) v. Charanjiv Charitable Trust [2014] 43 taxmann.com 300/223 Taxman 71 (Delhi) (para 30) and
• Agappa Child Centre v. CIT [1997] 92 Taxman 327/226 ITR 211 (Ker.) (para 31).