Case Law Details
Vivekananda Resham Khadi Gramodyog Sangha Vs ACIT (ITAT Kolkata)
Introduction: In a recent order by the Income Tax Appellate Tribunal (ITAT) Kolkata, the denial of exemption under section 10(23B) of the Income Tax Act for a mere technical violation has been challenged. This article delves into the background of the case, the ITAT’s decision, and its implications.
Background of the Case: The case, titled “Vivekananda Resham Khadi Gramodyog Sangha Vs ACIT,” pertains to an exemption under section 10(23B) of the Income Tax Act. The applicant in this case is a society registered under the Societies Registration Act and is also registered with the Khadi and Village Industries Commission. It is primarily engaged in the promotion and development of khadi.
Section 10(23B) of the Income Tax Act: Section 10(23B) of the Income Tax Act deals with the exemption of income for institutions constituted as public charitable trusts or registered under the Societies Registration Act. To qualify for this exemption, an institution must be engaged solely in the development of khadi or village industries, not for profit, and its income must be attributable to the business of producing, selling, or marketing khadi or village industry products. Additionally, the institution should be approved by the Khadi and Village Industries Commission, with certain conditions and limitations.
The ITAT’s Decision: The crux of the issue revolves around the denial of the exemption claimed by the applicant under section 10(23B) of the Income Tax Act. The Central Processing Center (CPC) rejected the claimed exemption amount of Rs. 33,15,998 while processing the applicant’s income tax return.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] further observed that the applicant had not filed the return of income in the prescribed form under section 139(4C) of the Act. Instead, the applicant had filed the return in the form prescribed under section 139(4A) of the Act.
The CIT(A) pointed out that according to the second proviso to section 10(23B), the Khadi Commission is not permitted to grant approval for more than three consecutive assessment years. In the applicant’s case, the approval had been granted for five consecutive years, which, according to the CIT(A), violated the second proviso to section 10(23B).
Applicant’s Arguments: The applicant contended that the approval or renewal period is not within its control. The decision to grant approval or renewal for a specific duration falls under the discretion of the Khadi and Village Industries Commission. The applicant highlighted its long-standing registration and consistent renewal history with the Commission.
ITAT’s Decision and Precedent: The ITAT Kolkata examined the case and found that it was technically similar to a precedent set by the Delhi Bench of the Tribunal in the case of “Barapur Gram Udyog Vikas Samiti vs. ITO(E) Ward Bareilly.” In that case, it was held that the period for which the certificate is granted is not within the control of the applicant. The ITAT concluded that a technical violation could not justify the denial of an exemption.
Implications of the ITAT Decision: The ITAT’s decision underscores the importance of considering the technical aspects of tax laws. It emphasizes that when entities apply for exemptions under specific sections of the Income Tax Act, technical violations should not lead to the denial of legitimate benefits. This decision serves as a precedent for cases where genuine compliance with the law is demonstrated, despite technical deviations.
In conclusion, the ITAT Kolkata’s decision in the case of “Vivekananda Resham Khadi Gramodyog Sangha” reaffirms the principle that technical violations should not lead to the denial of legitimate tax exemptions under section 10(23B) of the Income Tax Act. The decision is a reminder that tax laws should be applied in a fair and practical manner, taking into account the true intent of the provisions.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal has been preferred by the assessee against the order dated 29.12.2022 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
2. The sole issue raised by the assessee in this appeal is relating to the denial of deduction under section 10(23B) of the Income Tax Act.
3. The provisions of section 10(23B) of the act, for the sake of ready reference, are produced as under:
“(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries:
Provided that-
(i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both; and
(ii) the institution is, for the time being, approved for the purpose of this clause by the Khadi and Village Industries Commission:
Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted.
Provided also that where the institution has been approved by the Khadi and Village Industries Commission and subsequently that Commission is satisfied that –
(i) the institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso; or
(ii) The activities of the institution are not being carried out in accordance with all or any of the conditions subject to which such institution was approved,
It may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such institution and to the Assessing Officer.
Explanation.- For the purposes of this clause,-
(i) ” Khadi and Village Industries Commission” means the Khadi and Village Industries Commission established under the Khadi and Village Industries Commission Act, 1956 (61 of 1956 );
(ii) ” Khadi” and” village industries” have the meanings respectively assigned to them in that Act;]”
4. The assessee admittedly, is a society registered under the societies, registration act and is also registered with the Khadi and Village Industries Commission and is engaged in the promotion and development of khadi and has also been granted approval for the purpose of claiming deduction under section 10 (23B)of the Act.
5. The CPC while processing the return of income of the assessee denied the exemption claimed by the assessee of Rs.33 15998/-. Being aggrieved, the assessee filed appeal before the CIT (A), the learned CIT (A), however, observed that the assessee had not filed the return of income in the prescribed form u/s 139(4C) of the Act, whereas the assessee had filed the return of income in the form prescribed u/s 139(4A) of the Act. However, without prejudice to the above, the Ld. CIT(A), further observed that as per the second proviso to section 10(23B), the Khadi Commission, was not supposed to grant approval at any one point of time for more than three consecutive assessment years. He, in this respect observed that in the case of the assessee, the approval/ renewal of approval was granted for 5 consecutive years. He, therefore, held that the case of the assessee was hit by violation of second proviso to section 10 (23B) of the Act.
6. Before us, the Ld. Counsel for the assessee has submitted that it was not within the control of the assessee to get the approval or renewal for three years only. That it was the prerogative of the Commission to grant approval/renewal for the period as per the policy of the Commission. That the assessee is registered with the Khadi and Village Industries Commission since the year 1974 and it has been granted approval and thereafter renewal of the approval from time to time and the renewal is granted for consecutive five years at one point of time and there is nothing in the control of the assessee to get the renewal of approval for three years only. It has been further submitted that the assessee has been granted deduction from time to time. That even for subsequent period also, the approval was granted for 5 years i.e. 01/04/202 1 to 31/03/2026. That for the assessment year 2020–2 1and in earlier years, the exemption was not denied. The learned counsel, therefore, has submitted that the Ld. CIT(A) was not justified in denying the exemption to the assessee. The learned counsel in this respect has relied upon the decision of the Delhi Bench of the Tribunal in the case of Barapur gram, Udyog Vikas Samiti vs. ITO(E) Ward Bareilly, vide order dated 27.05.2022 in ITA No. 1505/Del/2021.
7. We find that the issue is squarely covered by the decision of the Tribunal in the case of “Barapur Gram Udyog Samiti” (supra), wherein, the coordinate Bench of the Tribunal, under similar facts and circumstances has observed that the time period for which the certificate has to be granted is not within the control of the assessee. That, in any case, it was only a technical violation for which the assessee could not be penalized by denying the exemption, which otherwise is allowable to the assessee, the relevant part of the order of the Tribunal, for the sake of ready reference, is reproduced as under:
“7. Therefore, the certificate issued by Khadi & Village Industries Commission clearly show that it relates to the period from 11.06.2012 to 31.03.2016 and followed by the letter issued by the Commission to the ITO, Bijnore, Uttar Pradesh clearly shows that the assessee is entitled to claim exemption u/s 10(23B) of the Act. The reason for denying the exemption by the AQ is that the Commission has given certificate to the assessee for more than three years. It is pertinent to note that the time period for which the certificate has to be granted is not within the control of the assessee. In any case it is only a technical violation for which the assessee could not be penalized by denying the exemption otherwise allowable to the assessee. Thus, I hold that the assessee is entitled for exemption u/s 10(23B) of the Act. Accordingly, the Assessing Officer is directed to allow the claim for exemption u/s 1 0(23B) as claimed by the assessee.
8. In the result, the appeal of the assessee is allowed.”
8. The issue before us is squarely covered by the above decision of the coordinate Bench of the Tribunal, respectfully following the above decision, it is held that the assessee is entitled to the exemption under section 10 (23B) of the act.
9. In the result, the appeal of the assessee stands allowed.
Kolkata, the 16th October, 2023.
