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OFFICE ORDERS / INSTRUCTION

CBDT INSTRUCTION

Providing information under section 138 of Income-tax Act, 1961- clarification in respect of Notification No. SO 576 dated 23.05.2003 issued by CBDT- regd.

Order No 165

CBDT issues Transfer order of PR CCITs/ CCITs

Order No 164

CBDT grants ad-hoc promotion to 30 PR CITs and issues posting order with four more

CASE LAWS

2016-TIOL-2206-HC-P&H-IT

CIT Vs IILM FOUNDATION ACADEMY: PUNJAB AND HARYANA HIGH COURT (Dated: September 16, 2016)

Income Tax - Sections 11, 12, 12-A(1)(a), 12AA & 80G.

Keywords: charitable trust - educational purpose - pre dominant test - non commercial basis - ancillary objects - investment in funds - enabling objects - exemption u/s 80G.

Whether when CIT declines to register a Company by reading its ancillary objects as its main objects, also on the basis that in future the Company may, under its ancillary or incidental objects indulge in activities, which would be of non-charitable character, the order so passed is valid as per law - NO: HC

Whether if at present, there is nothing on the record that the Company is indulging in any activity which is not in the nature of charity, the order passed by the commissioner to deny registration u/s 12AA can be termed as presumptuous - YES: HC

Whether the status granted by the Government by virtue of licence u/s 25 of the Companies Act, 1956 itself recognises the fact that the assessee company is essentially established for the purpose of education - YES: HC

The assessee, which is a Company incorporated u/s 25 of the Companies Act, 1956, to become eligible for the grant of exemption u/s 11, made an application u/s 12-A(1)(a) for registration, which was rejected by the Commissioner as he was of the view that the ancillary objects of the assessee empowered its members to invest and utilize its funds in the manner they wanted to. He also found ample scope with the members to utilize the funds of the Company in pursuance to its ancillary objects, which, according to him, were alien to its main object of imparting education. The Commissioner was further of the opinion that the ancillary objects permitted the Company to carry on activities in the nature of trade, commerce or business. Such powers with its members through the Company's ancillary objects were found by the Commissioner to be repugnant to the Company's main object of imparting education. The Commissioner was also of the view that the ancillary objects would be pursued by its members independent of its main objects, as also against the provisions of the license granted u/s 25 of the Companies Act. In view of the aforesaid reasons, holding that the Company was not perfectly constituted to advance charitable activities, the Commissioner refused to register the Company u/s 12AA. On further appeal, Tribunal applied the pre-dominant test and by holding that the main objects of the Company were to impart education to be carried on a non-commercial basis and that all its ancillary objects were incidental to the attainment of the main objects, over-ruled the view taken by the Commissioner. The Tribunal further placed reliance upon the license granted by the Government of India to the Company under Section 25 of the Companies Act to hold that the sole object of the Company was to impart education on a non-commercial basis. Drawing a distinction between primary and enabling objects, the Tribunal held the Company eligible for grant of registration u/s 12AA and as a consequence thereof, for exemption u/s 80-G.

Held that,

++ the assessee was incorporated on 18.03.2009 u/s 25 of the Companies Act, 1956. The respondent was granted a licence u/s 25 issued by the Regional Director dated 21.01.2009. The Tribunal rightly held that the registration granted u/s 25 of the Companies Act is a recognition of the fact that the respondent is essentially established for the purpose of education. It was further held that the status granted by the Government by virtue of licence u/s 25 itself recognises the fact that the respondent was essentially established inter-alia for the purpose of education. Even assuming that the licence is not conducive of the matter under the Income Tax Act, it is certainly an important factor in favour of the applicant for registration. There can be no doubt that the main objects read by themselves entitle the respondent to registration u/s 12AA. It was rightly not even contended otherwise. It was, however, contended that in view of the objects incidental or ancillary to the attainment of the main objects, the respondent is not entitled to registration u/s 12AA. There are 28 incidental or ancillary objects. To allay Mr. Goel’s objections and apprehensions, Mr. Rohit Jain, counsel appearing on behalf of the respondent stated that all the ancillary and incidental clauses are those that are merely ancillary and incidental to the main objects and for no other purpose. He further stated that powers conferred by every clause in part-B would be subject to and solely for the purpose of, in connection with and in relation to the main objects of the respondent. We accept the statement and it is so ordered;

++ the clauses also must be read as a part of the entire memorandum of objects and not in isolation. We are satisfied that they confer powers only for the purpose of attaining the main objects and for no other reasons whatsoever. We, however, do not wish to leave anything to chance and provide two safeguards - firstly by accepting the statement made by Mr. Rohit Jain as aforesaid and secondly by permitting the appellant to obtain such clarifications and to impose such conditions as they desire upon the respondent to ensure that there is no misuse of any of the incidental and ancillary objects. A perusal of the order of the Commissioner shows that he declined to register the Company by reading its ancillary objects as its main objects as also on the basis that in the future the Company may, under its ancillary/incidental objects, indulge in activities, which would be of noncharitable character. As of today, there is nothing on the record that the Company is indulging in any activity which is not in the nature of charity. Thus, at this stage, the order of the Commissioner can only be termed as presumptuous. There is also nothing on record to show that the Company does not meet any of the conditions prescribed under the Act for the grant of registration to make it eligible for the grant of exemption u/s 11 and consequently under Section 80-G of the Act. Thus, we find that the order of the Commissioner was rightly set aside by the Tribunal in the order impugned before us. In view of the above, we order dismissal of the appeal. However, while granting registration, it would be open to the Registering Authority to grant the same by imposing any condition, which would bind the Company to indulge in only charitable activities. It will also be subject to an affidavit or undertaking to be filed by the Company that it would not breach any of the imposed conditions and further that surplus funds would be utilized only for educational purposes and would not be diverted to any other non-educational objectives.

Revenue's appeal dismissed

2016-TIOL-2205-HC-P&H-IT

CIT Vs HERO CYCLES LTD: PUNJAB AND HARYANA HIGH COURT (Dated: September 19, 2016)

Income Tax - Sections 32AB, 56 & 80HHC.

Keywords - Interest - Income from other sources - Profit of eligible business.

Whether interest received from investment and loans made by a Company whose principal business is not lending, is to be held as income from other sources and does not constitute profit from the business for the purpose of computing deduction u/s 80HHC of Act - YES: HC

Whether for the purpose of computing deduction u/s 32AB, all the receipts including non-business receipts viz the interest from others, the rent receipt and dividend income form part of the "Profit of eligible business" - NO: HC

The assessee was a Company. It filed return for relevant AY. During assessment process, AO noted that the assessee had received certain amount towards interest but assessee was not involved in the business of money lending and therefore, interest income would fall within section 56, i.e. income from other sources and would not constitute income from business. On appeal CIT (A) upheld the order of the AO. But Tribunal directed the AO to compute the deduction u/s 80HHC after including the income as profits of business. Aggrieved Revenue filed appeal before the HC. Counsel for the assessee claimed that assessee would be entitled to a deduction on the amount of profit computed in accordance with Part-II and Part-III of the VIth Schedule of the Companies Act. He based his contention essentially on sub-section (3)(b) of Section 32AB which admittedly was applicable to the assessee's case.

HC held that,

++ firstly, the assessment order must reflect the correct position. Secondly, it is not always that a computation under the wrong head would have no tax effect. For instance, a loss under one head may not be permitted to be carried forward and adjusted against the loss under another head. Further, an error in including the income under the wrong head would result in multiple errors as the case before us itself demonstrates. On account of the income being computed under the wrong head of income in the computation of income, the error is carried forward while computing the deductions under sections 32AB and 80HHC. Moreover it is possible that the assessment could have an impact in the event of there being any amendment to the law. It is desirable, therefore, that the assessment order should reflect the correct position.This view is not contrary to or in conflict with the judgment of the Division Bench in CIT vs. Avery Cycles Industries Limited (supra). At the cost of repetition, the Department in that case did not make an application similar to the one made by Mr. Klar before us. Nor did the Department in that case agree that a fresh assessment order would be passed in accordance with the correct position in all respects relating to the assessment. There is no warrant for knowingly including amounts under a wrong head. To insist upon an error being continued invites the authorities and the court to endorse the error. There is nothing in law or in principle that requires or even permits this. There is nothing in law or in principle that prohibits the authorities under the Act or the Court from returning a finding regarding the correct head under which the income ought to be assessed and then directing the Assessing Officer to pass a fresh assessment order in accordance with the finding for all purposes. This course commends itself to us.Mr. Mittal submitted that under sub-section (3) of Section 80HHC the profits derived from export of goods or merchandise out of India shall be the amounts which bear to the profit of the business as computed under the head "Profits and gains of business or profession". He submitted that the Assessing Officer has computed the interest under the head "Profits or gains of business". He was bound by the terms of sub-section (3) itself to consider the same as business income.The argument begs the question it must first be determined as to whether the income is business income or not and thereafter consider the same for the purpose of section 80HHC. What sub-section (3) requires is a consideration of the profits of the business as rightly computed under the head "Profits and gains of business". It cannot possibly require a consideration of the amounts wrongly computed under the head "Profits and gains of business". Question No.1 is, therefore, answered in favour of the appellant/Revenue.

++ the assessee's case admittedly falls under clause (b) of sub-section (3) and not clause (a). Clause (b) does not provide for the profits to be computed in accordance with the requirement of Parts-II and III of the Sixth Schedule to the Companies Act. These words are missing in clause (b). We see no reason then to read these words into clause (b). That would amount to re-writing clause (b) which is not permissible. The legislature having, in the same sub-section, provided for a particular manner of computation of profits in one clause but not in the other must be deemed to have intended the profits to be calculated differently in these sub-clauses. Mr. Mittal's submission is, therefore, rejected. It is true, as Mr. Mittal pointed out, that unlike as in Section 80HHC the words in clause (b) are not "profits of the business as computed under the head ‘Profits and gains of business'". That, however, would make no difference. It was not necessary for the legislature to use the entire expression in clause (b) for sub-section (1) itself refers to income as including income chargeable to tax under the head "Profits and gains of business or profession". The second question is, therefore, also answered in favour of the appellant/Revenue.

Revenue's appeal allowed

2016-TIOL-2471-CESTAT-DEL

DEWSOFT OVERSEAS PVT LTD Vs CST: DELHI CESTAT (Dated: August 02, 2016)