Case BriefsTribunals/Commissions/Regulatory Bodies

Income Tax Appellate Tribunal (ITAT): A Division Bench of R.K. Panda (Accountant Member) and Kuldip Singh (Judicial Member), while addressing a matter held,

“Bar Council of Delhi being engaged in safeguarding the rights, privileges and interest of the advocates, its dominating purpose is the advancement of general public utility within the meaning of Section 2(15) of the Act, as such, genuineness of its activities and object of charitable purpose is proved, thus entitled for registration under 12AA and consequent exemption under Section 80G.”

Bar Council of Delhi — Appellant sought to set aside the impugned order passed by the Commissioner of Income tax (Exemption) passed on 27th September, 2019.

Application in Form No. 10A and 10G moved by the appellant seeking registration under Section 12 AA of the Income tax Act, 1961 were rejected by CIT (E) on the grounds inter alia that since the appellant failed to furnish balance sheet and income & expenditure account for the FY 2018-19 despite called for, the conditions laid down under Section 12 AA are not satisfied and that the name of the Bar Council of Delhi does not appear in approved association/institution notified by the Government thus not a charitable institution within meaning of Section 2(15) of the Act.

Appellant approached the tribunal by filing the present appeal.

Tribunal noted that, appellant has been established with object to control, supervise, regulate or encouragement of the profession of law for which there is a separate provision in the Act as contained under Section 10(23A) of the Act for exempting its income which shall not be included in its total income.

CIT (E) proceeded to reject the application under Section 12AA and consequent exemption under Section 80G of the Income Tax Act.

Question for determination in this case is:

Whether activities of the appellant – Bar Council/ professional body which is to control, supervise and regulate profession is not a charitable within the meaning of definition contained under Section 2(15) of the Act as has been held by the CIT(E)?

Supreme Court in case of CIT v. Bar Council of Maharashtra, 130 ITR 28, affirming the judgment of Bombay High Court in case of Bar Council of Maharashtra v. CIT , 126 ITR 27, held that primary and dominant purpose of an institution like the appellant is the advancement of the object of general public utility within the meaning of Section 2(15) of the Act and as such, the income from securities held by the appellant would be exempt from any tax liability under Section 11 of the Act.

Whether the CIT (E) is empowered to reject the registration and consequent exemption under Sections 12AA and 80G of the Act due to non-furnishing of financials of FY 2018-19?

When the object of the institution is proved to be charitable within the meaning of Section 2(15) of the Act, further scrutiny of the financials of the appellant are not required because it is otherwise within the purview of AO to examine at the time of assessment if the appellant is entitled to exemption under Section 11 of the Act.

In the present matter, the tribunal is thus of the opinion that the CIT (E) has erred in declining the registration under Section 12 AA of the Act on the ground that financials of FY 2018-19 have not been furnished by the appellant.

Tribunal further observed that, merely on the basis of the fact that income of the appellant exempted under Section 10(23A) is not a bar to claim deduction in assessment under Section 11 of the Act, as such income is to be excluded under Section 11 of the Act.

Hence, appeal filed by the appellant is allowed directing CIT(E) to provide registration under Section 12 AA and consequent exemption under Section 80 G of the Act. [Bar Council of Delhi v. CIT (Exemption), 2020 SCC OnLine ITAT 340 , decided on 02-07-2020]

Cabinet DecisionsLegislation Updates

The Union Cabinet has approved the proposal for introducing the Taxation Laws (Amendment) Bill, 2019 in order to replace the Ordinance.

Economic developments after the enactment of the Finance (No. 2) Act, 2019 (Finance Act) along with the reduction of the rate of corporate income tax by many countries world over necessitated the provision of additional fiscal stimulus to attract investment, generate employment and boost the economy. As these could have been achieved through an amendment to the Income-tax Act, 1961 (IT Act) or to the Finance Act and the Parliament was not in session, it was done through the promulgation of The Taxation Laws (Amendment) Ordinance 2019 (the Ordinance) in September, 2019. Salient features of the amendments made by the Ordinance are provided in the following paras.

In order to promote growth and investment, a new provision was inserted in the IT Act to provide that with effect from the current financial year 2019-20, an existing domestic company may opt to pay tax at 22% plus surcharge at 10% and cess at 4%, if it does not claim any incentive/deduction. The effective tax rate for these companies comes to 25.17% for these companies. They would also not be subjected to Minimum Alternate Tax (MAT).

In order to attract fresh investment in manufacturing and provide boost to ‘Make in India’ initiative of the Government, another provision was inserted to the IT Act, to provide that a domestic manufacturing company set up on or after 1st October, 2019 and which commences manufacturing by 31st March, 2023, may opt to pay tax at 15% plus surcharge at 10% and cess at 4% if it does not claim any incentive/deduction. The effective rate of tax comes to 17.16% for these companies. They would also not be subjected to MAT.

A company that does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after the expiry of their tax holiday/exemption period. After the exercise of the option, they shall be liable to pay tax at the rate of 22%. Further, in order to provide relief to companies which continue to avail exemptions/incentive, the rate of MAT was reduced from existing 18.5% to 15%.

In order to provide relief to listed companies, the buy-back tax on shares of listed companies introduced through the Finance Act will not apply to buy-backs in respect of which public announcement were made before 5th July, 2019.

In order to stabilise the flow of funds into the capital market, it was provided that the enhanced surcharge introduced through the Finance Act on capital gains arising on account of transfer of listed equity share or certain units that are liable to securities transaction tax will not apply. Further, it was also provided that the enhanced surcharge will not apply to capital gains income of FPIs arising out of the transfer of any security including derivatives, having a concessional tax regime.

Ministry of Finance

[Press Release dt. 20-11-2019]

[Source: PIB]

Legislation UpdatesNotifications

G.S.R (E ).-In exercise of the powers conferred by sub-section (1) of Section 6 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, and on the recommendations of the Council, hereby exempts any supply of goods by a retail outlet established in the departure area of an international airport, beyond the immigration counters, to an outgoing international tourist, from the whole of the integrated tax leviable thereon under Section 5 of the Integrated Goods and Services Tax Act, 2017.

Explanation. – For the purposes of this notification, the expression “outgoing international tourist” shall mean a person not normally resident in India, who enters India for a stay of not more than six months for legitimate non-immigrant purposes.

2. The notification shall come into force with effect from the 1st day of July, 2019.

Ministry of Finance

Case BriefsForeign Courts

Supreme Court of Pakistan: The Three-Judge Bench of Umar Ata Bandial, Munib Akhtar and Yahya Afridi, JJ. set aside the judgment of High Court of Sindh, Karachi holding that the assessee Oxford University Press (OUP) was not entitled to tax exemption.

The present appeal arose under the Income Tax Ordinance, 1979 and related to different assessment years of OUP in relation to income arising out of its Pakistan operations. OUP claimed tax exemption under Clause (86) of Part I of the Second Schedule, which provided exemption to “any income of any university or other educational institution established solely for educational purposes and not for purposes of profit.”

OUP submitted that it had operations in many jurisdictions, and the question at hand had also arisen in South Africa and India. While exemption was granted in South Africa, a contrary conclusion was arrived at in Oxford University Press v. CIT, (2001) 3 SCC 359 [OUP India case].

The Court stated that principles of interpretation of exemption clauses in fiscal legislation were: (i) onus lies on the taxpayer to show that his case falls within the exemption; (ii) if two reasonable interpretations are possible, one against the taxpayer will be adopted; (iii) but if the taxpayer’s case comes fairly within the scope of exemption then he cannot be denied benefit of the same.

It was observed that the High Court was greatly influenced by the majority view in OUP India case as Section 10 (22) of the Income Tax Act, 1961 which provided tax exemption to “any income of a university or other educational institution, existing solely for educational purposes and not for purposes of profit”, was virtually identical to Clause 86.

However, the impugned judgment’s emphasis on Oxford University carrying on educational activities in Pakistan, was wrong as a bare perusal of Clause 86 showed that the words “in Pakistan” were not mentioned therein.

In view of the above, it was held that the impugned judgment (and therefore, by extension, the majority in OUP India case) had taken a wrong approach to the exemption clause and erred materially in introducing an element or requirement that found no mention or expression therein. [Oxford University Press v. CIT, Civil Appeal No. 308 to 326 of 2008, Order dated 17-10-2018]

Case BriefsSupreme Court

Supreme Court: A five-Judge Constitution Bench speaking through N.V. Ramana, J., while invalidating the ratio of Sun Export Corpn. v. Collector of Customs, (1997) 6 SCC 564, laid at rest the controversy regarding the interpretation of an ambiguous provision exempting tax. The Bench comprised of Ranjan Gogoi, N.V. Ramana, R. Banumathi, M.M. Shantanagoudar and S. Abdul Nazeer, JJ.

The present Bench was set up on a reference by a three-Judge Bench to examine the correctness of the ratio in Sun Export case. The question was, “what is the interpretative rule to be applied while interpreting a tax exemption provision when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied?” In the said case, a three-Judge Bench ruled that any such ambiguity must be interpreted so as to favour the assessee claiming the benefit of such exemption. On the other hand, the three-Judge Bench in the present case, while sitting in appeal to interpret Custom Notification No. 20/1999 (provision for concessional rate of duty), noticed the unsatisfactory state of law and opined that the dicta in Sun Export case requires re-consideration by a larger bench. That is how the matter was before the present Bench.

The  Supreme Court, at the outset, noticed that there was distinction between interpreting a charging section and an exempting section. In case of ambiguity in a charging section, the interpretation has to be made in favour of the assessee. For deciding the question as formulated above, the Court referred to a catena of judgments including CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345 as explained in Union of India v. Wood Papers Ltd., (1990) 4 SCC 256, wherein the Court held that whether  a subject falls in the exemption clause or not has to be construed strictly. The present Bench concurred with the said view as was also elaborated in another Constitution Bench decision in CCE v. Hari Chand Shri Gopal, (2011) 1 SCC 236, and held that any ambiguity in an exemption provision in a taxing statute has to be interpreted in favour of the revenue. The decision of the Bench while answering the reference is summed up hereinbelow:

  • Exemption notification should be interpreted strictly; burden of proving the applicability of such provision is on the assessee/claimant.
  • In case of ambiguity in an exemption notification, the benefit thereof cannot be claimed by the assessee, and it must be interpreted in favour of the revenue.
  • The ratio in Sun Export case was not correct and all the decisions which took similar view stood overruled.

While answering the reference in above terms, the Court directed the appeal to be placed before the appropriate bench for consideration of the matter on merits. [Commr. of Customs v. Dilip Kumar and Co.,  2018 SCC OnLine SC 747, dated 30-07-2018]