Facts of the Case

The present matter pertains to appeals filed by the Revenue challenging the order dated 24.09.2021 passed by the Income Tax Appellate Tribunal concerning Assessment Years 2013–14 and 2014–15.

The central issue revolved around whether the respondent assessee, i.e., National Accreditation Board for Testing and Calibration Laboratories (NABL), was entitled to claim exemption 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, aggrieved by this finding, preferred the present appeals before the Delhi High Court.

Issues Involved

  1. Whether the assessee is eligible for exemption under Sections 11 and 12 of the Income Tax Act, 1961.
  2. Whether the activities of the assessee fall within the scope of “charitable purpose” under Section 2(15).
  3. Whether the proviso to Section 2(15) is attracted on account of alleged involvement in trade, commerce, or business activities.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the assessee’s activities involved rendering services for a fee, which may fall within the ambit of trade, commerce, or business.
  • It was argued that due to the proviso to Section 2(15), such activities would disentitle the assessee from claiming charitable status.
  • The Revenue sought to challenge the Tribunal’s finding by asserting that exemption under Sections 11 and 12 was incorrectly granted.

 Respondent’s Arguments (Assessee)

  • The assessee submitted that its dominant objective is charitable and aimed at advancement of general public utility.
  • It was argued that the activities carried out are not in the nature of trade, commerce, or business.
  • Reliance was placed on earlier decisions, including the assessee’s own case for Assessment Year 2009–10, where similar issues had been decided in its favour.

Court’s Findings / Order

  • The Delhi High Court noted that the issue had already been adjudicated in favour of the assessee in earlier years.
  • The Court observed that the Tribunal had returned a clear finding of fact that the assessee is not engaged in trade, commerce, or business activities.
  • It was further held that the dominant purpose of the assessee is charitable in nature, thereby falling within the ambit of Section 2(15).
  • The Court also took note that the assessee is an important constituent of the Central Government, which strengthens its charitable character.
  • Consequently, the Court held that no substantial question of law arises for consideration.
  • The appeals filed by the Revenue were dismissed.

 Important Clarification

  • The proviso to Section 2(15) excludes activities from “charitable purpose” if they involve trade, commerce, or business for consideration.
  • However, mere receipt of fees does not automatically render an activity commercial; the dominant purpose test remains crucial.
  • Where the primary objective is charitable and not profit-driven, exemption under Sections 11 and 12 can still be availed.

 Sections Involved

  • Section 11 – Income from property held for charitable or religious purposes
  • Section 12 – Income of trusts or institutions
  • Section 2(15) – Definition of “charitable purpose” (including proviso relating to business activities)

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

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