Tax Deducted on Grants u/s 194C/194J Wouldn’t Disentitle Assessee to Claim Sec. 11 Exemption | HC

Case Details: Aroh Foundation vs. Commissioner of Income Tax (Exemption) - [2024] 159 taxmann.com 608 (Delhi)

Judiciary and Counsel Details

• • Yashwant Varma & Purushaindra Kumar, JJ.
  • Kamal Sawhney, Arun Bhadauria & Puru Medhira for the Petitioner.
  • Abhishek Mahta, Parth Semwal & Ms Nupur Sharma, JSCs. for the Respondent.

Facts of the Case

The assessee was a non-governmental organisation registered as a charitable institution under Sections 12A read with 12AA and 80G. The assessee was working to uplift the poor and underprivileged children and women, improve their health, preserve the environment, and address other social causes. The assessee receives various grants from the government and the private sector to fulfil its charitable objectives.

During the assessment proceedings, the Assessing Officer (AO) observed that the donor deducted tax under sections 194C and 194J while allocating requisite grants to the assessee. Contending that receipts were towards professional or technical services or contractual income and the assessee was hit by the proviso to section 2(15) of the Act, AO denied the exemption under section 11.

Aggrieved by the order, the assessee filed a revision petition under section 264, but all in vain. Subsequently, the assessee filed a writ petition to the Delhi High Court.

High Court Held

The High Court held that the Proviso to Section 2(15) states that the advancement of any other object of general public utility involving trade, commerce, or service related to business for a fee is not considered charitable unless it’s directly linked to advancing public utility, and the revenue from such activities doesn’t surpass 20% of the trust’s total receipts in the previous year.

In the instant case, the sole reason to construe the receipt by donors under the tax regime was on the assumption it was received towards professional/technical services or contractual income as tax was deducted under Sections 194C and 194J. Further, there was no element of activity in the nature of trade, commerce or business, or any activity or rendering any service in relation to any trade, commerce or business.

If the deductor, under misconception, deducted tax under Sections 194C and 194J, it would not disentitle the assessee to claim benefit under Sections 11 and 12 unless the case of the assessee was specifically hit by the Proviso of Section 2(15).

Therefore, the proviso to Section 2(15) would not be attracted merely based on the tax deduction by the donor under a particular head, and accordingly, the writ petition was allowed.