Delhi HC maintains status quo on exemption u/s 10(23C)(iv) of Income Tax Act granted to India Trade Promotion Organisation

Read Judgment: Commissioner Of Income Tax (exemptions) Delhi V. India Trade Promotion Organisation 

Pankaj Bajpai

New Delhi, January 18, 2022: While reiterating the decision of the Division Bench in India Trade Promotion Organization vs. Director General of Income Tax (Exemptions) & Others [WP(C) 1872/2013], which had upheld the Constitutional validity of the proviso to Section 2(15) of Income tax Act, 1961, the Delhi High Court has maintained status quo and allowed exemption u/s 10(23C)(iv)/11/12 of the said Act to India Trade Promotion Organisation (Respondent – Assessee). 

A Division Bench of Justice Manmohan and Justice Navin Chawla observed that when a Special Leave Petition being SLP(C) No.14674/2016 against the judgment passed in WP(C) 1872/2013 is pending consideration in the Supreme Court and there is no stay of the same, then the same will act as precedent for the present case. 

The observation came pursuant to an appeal challenging an order, whereby the Tribunal had ignored the fact that the activities of the Respondent do not qualify for charitable purpose in view of the Proviso to Section 2(15) of Income Tax Act, and hence does not qualify for the exemption u/s 10(23C)(iv)/11/12 of the Act. 

Speaking for the Bench, Justice Manmohan quoted the decision of India Trade Promotion Organization vs. Director General of Income Tax (Exemptions) & Others, wherein it was concluded that: “the expression “charitable purpose”, as defined in Section 2(15) cannot be construed literally and in absolute terms. It has to take colour and be considered in the context of Section 10(23C)(iv) of the said Act. It is also clear 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 same would have to be read down and interpreted in the context of Section 10(23C)(iv) because, in our view, the context requires such an interpretation.”

It was also observed therein that the correct interpretation of the proviso to Section 2(15) of the said Act would be that it carves 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 cess or fee or any other consideration. In both the activities, in the nature of trade, commerce or business or the activity of rendering any service in relation to any trade, commerce or business, the dominant and the prime objective has to be seen.

Accordingly, relying on the decision of the predecessor Bench, the High Court dismissed the appeal.