Facts of the Case

The present appeals were filed by the Revenue before the Delhi High Court challenging the order dated 24.09.2021 passed by the Income Tax Appellate Tribunal for Assessment Years 2013–14 and 2014–15.

The core issue arose from the claim of exemption by the assessee, National Accreditation Board for Testing and Calibration Laboratories (NABL), under Sections 11 and 12 of the Income Tax Act, 1961.

The Tribunal had earlier ruled in favour of the assessee, holding that its activities were charitable in nature. The Revenue preferred appeals before the High Court contesting this finding.

Additionally, there was a delay of 37 days in filing and 205 days in re-filing the appeals, which was condoned by the Court.

Issues Involved

  1. Whether the assessee was entitled to exemption under Sections 11 and 12 of the Income Tax Act, 1961.
  2. Whether the activities of the assessee fall within the definition of “charitable purpose” under Section 2(15) of the Act.
  3. Whether the proviso to Section 2(15), relating to activities in the nature of trade, commerce, or business, was applicable in the present case.

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that the activities carried out by the assessee involved elements of trade, commerce, or business.
  • It was argued that the assessee charged fees/consideration for its services, thereby attracting the proviso to Section 2(15).
  • Consequently, the assessee should not be treated as engaged in charitable activities and should not be granted exemption under Sections 11 and 12.

Respondent’s (Assessee’s) Arguments

  • The assessee argued that its dominant objective was charitable in nature, aimed at advancement of general public utility.
  • It was submitted that the activities undertaken were not in the nature of trade, commerce, or business.
  • Reliance was placed on earlier decisions in the assessee’s own case, particularly for AY 2009–10, where similar issues had already been decided in its favour.

Court’s Findings / Order

  • The High Court noted that the issue had already been decided in favour of the assessee in earlier years, including AY 2009–10.
  • The Tribunal had recorded a finding of fact that:
    • The assessee was not engaged in trade, commerce, or business, and
    • Its dominant objective was charitable in nature.
  • The Court also observed that the assessee is an important constituent of the Central Government, which supports the charitable character of its functions.
  • Accordingly, the Court held that no substantial question of law arises in the present appeals.

Final Order:

The appeals filed by the Revenue were dismissed/closed.

 Important Clarification

  • The Court reaffirmed that charging fees or consideration does not automatically disentitle an entity from being charitable, provided the dominant purpose remains charitable.
  • The proviso to Section 2(15) will apply only where activities are primarily in the nature of trade, commerce, or business, not where such elements are incidental.

 Sections Involved

  • Section 2(15) – Definition of “Charitable Purpose”
  • Section 11 – Income from Property Held for Charitable or Religious Purposes
  • Section 12 – Income of Trusts or Institutions

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/RAS12042023ITA2112023_223105.pdf

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