Facts of the Case

The Revenue (Commissioner of Income Tax) filed appeals challenging the order of the Income Tax Appellate Tribunal (ITAT), which had granted relief to the assessee, India Trade Promotion Organisation (ITPO), for Assessment Years 2009–10, 2010–11, and 2011–12.

The Revenue contended that the activities of ITPO did not qualify as “charitable purpose” under Section 2(15) due to the proviso, and therefore it was not entitled to exemption under Sections 10(23C)(iv), 11, and 12.

It was noted that in an earlier writ petition, the Delhi High Court had already directed the Revenue to grant approval to ITPO under Section 10(23C)(iv), holding its activities as charitable in nature.

Issues Involved

  1. Whether the activities of India Trade Promotion Organisation fall within “charitable purpose” under Section 2(15) of the Income Tax Act.
  2. Whether the proviso to Section 2(15) excludes the assessee from claiming exemption.
  3. Whether exemption under Section 10(23C)(iv) can be denied despite earlier judicial findings.

 Petitioner’s Arguments (Revenue)

  • The ITAT erred in holding that the assessee qualifies as a charitable institution.
  • The activities of the assessee involve trade, commerce, or business, thus attracting the proviso to Section 2(15).
  • Consequently, the assessee should not be entitled to exemption under Sections 10(23C)(iv), 11, and 12.

 Respondent’s Arguments (Assessee – ITPO)

  • The dominant objective of the organisation is promotion of trade and commerce for public benefit and not profit-making.
  • Collection of fees or charges does not alter the charitable nature of the institution.
  • The issue is already settled by the earlier Delhi High Court judgment granting approval under Section 10(23C)(iv).

Court’s Findings / Judgment

  • The Court relied on its earlier judgment in India Trade Promotion Organisation vs Director General of Income Tax (Exemptions).
  • It reiterated that:
    • The dominant purpose test is crucial in determining charitable nature.
    • Mere receipt of fees does not convert charitable activity into business.
    • The proviso to Section 2(15) must be read down to preserve constitutional validity.
  • The Court further observed:
    • If the primary objective is not profit-making but advancement of general public utility, the institution remains charitable.
    • The earlier judgment continues to operate as there is no stay by the Supreme Court, despite pendency of SLP.
  • Applying the principles from:
    • Kunhayammed & Others vs State of Kerala (2000) 6 SCC 359
    • Shree Chamundi Mopeds Ltd. vs Church of South India Trust Association (1992) 3 SCC 1

the Court held that absence of stay means the prior judgment is binding.

  • Result: Appeals filed by the Revenue were dismissed.

Important Clarification

  • The proviso to Section 2(15) does not automatically exclude institutions earning incidental income.
  • The dominant objective must be examined, not isolated activities.
  • Reading down of statutory provisions is permissible to preserve constitutional validity (Article 14).
  • Pending SLP without stay does not dilute binding precedent.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:136-DB/MMH11012022ITA32022_142435.pdf

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