Facts of the Case

The present batch of appeals was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT), which had allowed the assessee’s appeal. The core allegation by the Assessing Officer was that the respondent-assessee, a charitable foundation, had distributed scholarship/financial assistance predominantly to students belonging to a particular religious community.

The Revenue contended that such distribution violated Section 13(1)(b) of the Income Tax Act, 1961, which restricts charitable trusts from benefiting a specific religious community.

However, as noted from records (Page 3 of the judgment), the Commissioner of Income Tax (Appeals) [CIT(A)] had previously found that scholarships were granted to students across all communities without discrimination, and this finding had been accepted by the Revenue in earlier assessment years.

Issues Involved

  1. Whether granting scholarships allegedly favoring a particular religious community constitutes a violation of Section 13(1)(b) of the Income Tax Act, 1961.
  2. Whether the ITAT erred in relying on past factual findings accepted by the Revenue.
  3. Whether consistency in tax proceedings should be maintained when facts remain identical across assessment years.

Petitioner’s Arguments (Revenue)

  • The assessee provided scholarships predominantly to students of a particular religious community.
  • The scholarship advertisement was published only in Urdu and in a single newspaper, indicating targeted benefit.
  • Such conduct amounted to violation of Section 13(1)(b) of the Income Tax Act.

Respondent’s Arguments (Assessee)

  • Scholarships were granted purely based on merit and need, without discrimination.
  • Records demonstrated beneficiaries from multiple communities.
  • Similar findings in earlier assessment years (2010–11 and 2011–12) were accepted by the Revenue and not challenged.
  • The Revenue cannot selectively dispute identical facts in subsequent years.

Court Findings / Judgment

  • The Delhi High Court observed that both CIT(A) and ITAT had recorded concurrent findings of fact that scholarships were not restricted to any particular religious community.
  • The Court rejected the argument that publication in Urdu implied religious restriction.
  • It held that absence of supporting material from the Revenue made it difficult to overturn factual findings.
  • The Court emphasized that although res judicata does not strictly apply in tax matters, consistency must be maintained where facts remain unchanged.
  • Reliance was placed on Commissioner of Income Tax vs Sridev Enterprises (1991) 192 ITR 165.
  • The Court concluded that no substantial question of law arose, and accordingly dismissed the appeals.

Important Clarifications by the Court

  • Mere publication of scholarship advertisements in a particular language does not establish religious discrimination.
  • Section 13(1)(b) is attracted only when benefits are exclusively restricted to a specific religious community.
  • Consistency in findings across assessment years is crucial unless there is a material change in facts.
  • Revenue cannot selectively challenge identical factual situations in different years.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1249-DB/MMH06042022ITA1172021_182026.pdf

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