Karnataka High Court
M/S Karnataka State Seed And vs The Chief Commissioner Of Income Tax on 10 June, 2024
Author: Krishna S Dixit
Bench: Krishna S Dixit
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ITA No. 394 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 10TH DAY OF JUNE, 2024
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR
INCOME TAX APPEAL NO. 394 OF 2022
BETWEEN:
M/S KARNATAKA STATE SEED AND
ORGANIC CERTIFICATION AGENCY
BENGALURU-560 002.
...APPELLANT
(BY SRI. K SHASHIKIRAN SHETTY., ADVOCATE GENERAL FOR
SRI. MALLAHAR RAO.,ADVOCATE)
AND:
1. THE CHIEF COMMISSIONER OF INCOME TAX
KARNATAKA AND GOA,
QUEENS ROAD, BENGALURU-560 095.
2. THE COMMISSIONER OF INCOME TAX (EXEMPTION)
BENGALURU -560 095.
Digitally signed
by SHARADA ...RESPONDENTS
VANI B (BY SRI. THIRUMALESH M.,ADVOCATE)
Location: HIGH
COURT OF
KARNATAKA
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A
OF INCOME TAX ACT 1961, PRAYING TO I) FORMULATE THE
SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND II)
ALLOW THE APPEAL AND SET ASIDE THE COMMON ORDER OF
THE INCOME TAX APPELLATE TRIBUNAL DATED 20/07/2022
PASSED IN ITA NO. 517/BANG/2021 FOR THE ASSESSMENT
YEAR 2016-2017 AND ITA NO. 518/BANG/2021 FOR THE
ASSESSMENT YEAR 2017-2018 AND ETC.,
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ITA No. 394 of 2022
THIS INCOME TAX APPEAL COMING ON FOR FINAL
HEARING, THIS DAY, KRISHNA S DIXIT.J., DELIVERED THE
FOLLOWING:
JUDGMENT
This appeal by the Assessee seeks to call in question
the order dated 20.07.2022 by the Income Tax Appellate
Tribunal, Bengaluru Benches "C" at Bengaluru whereby
his two appeals viz., ITA No.517/Bang/2021 in re Asst.
Year 2016-2017 & ITA No.518/Bang/2021 in re Asst. Year
2017-2018 have been negatived. In the said appeals, the
subject matter was as to denial of exemption to it u/s.11
of Income Tax Act, 1961 as amended from time to time
and that such denial was on the ground that the Assessee
was carrying on the activities which predominantly had the
elements of Trade, Business or Commerce as contra
distinguished from charitable activities. This view of the
revenue was founded on the Andhra Pradesh High Court
decision rendered in W.P.No.31640/2011 between
ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY
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vs. THE CHIEF COMMISSIONER OF INCOME TAX disposed
off on 17.12.2012.
2. A Co-ordinate Bench of this court vide order
dated 06.09.2022 had admitted the appeal on the
following two substantial questions of law:
(i) Whether on the facts and circumstances
of the case, the common order dated 20.07.2022,
passed by the Hon'ble Tribunal in dismissing the
appeals in the appellant case, is maintainable in
law?
(ii) Whether on the facts and circumstances
of the case, the provisions of Section 263 of the
Income Tax Act, 1961, attracts in the appellant
case, or not?
3. Learned Sr. Advocate Mr.Shashi Kiran Shetty
appearing for the Appellant-Assessee crisply submits that
the impugned common order denying exemption to his
client has to go inasmuch as the subject Andhra Pradesh
High Court decision along with other having been reversed
by the Apex Court in ASSISTANT COMMISSIONER OF
INCOME TAX (EXEMPTIONS) vs. AHMEDABAD URBAN
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DEVELOPMENT AUTHORITY, (2023) 4 SCC 561,
exemption to entities of the kind has been accorded, and
therefore his client too is entitled to the same.
4. After service of notice, the Department having
entered appearance through its learned Panel Counsel
resists the appeal making submission in justification of the
impugned order and the reasons on which it has been
structured. He points out that although decision of the
Apex Court is reversed as submitted from the side of
Assessee, clauses (i) & (ii) of the proviso to sub-sec.15 of
Sec.2 makes an exception to the rule of exemption and
therefore impugned order is unassailable. He hastens to
add that in any event matter needs to be remanded for
consideration afresh in the light of observations made by
the Apex Court.
5. Having heard the learned counsel for the parties
and having perused the appeal papers, we are inclined to
grant indulgence in the matter as under by answering the
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aforesaid substantial questions of law in the affirmative
and for the following reasons:
(a) There is no dispute that the Appellant-Assessee
is a registered Society and it holds a Certificate issued
u/s.12A of the Act. It has also obtained an order
u/s.10(23)(C)(iv) on 29.10.2009 from the office of
Commissioner of Income Tax. It had declared the total
income at Rs.7,61,42,114/- for the Assessment Year
2016-17 and Rs.7,58,72,631/- for the Assessment Year
2017-18, claiming exemption in terms of Sec.11(1) of
1961 Act on the ground that it is only a 'Scientific &
Charitable Society' and that its activities of examining the
seeds and issuing Seed Certification documents do not
have any elements of Trade, Commerce or Business.
The case of Appellant was taken up under CASS by issuing
notice u/s.143(2) and subsequent notice u/s.142(1) of the
Act. The assessment u/s.143(3) having been
accomplished, the Assessment Orders dated 28.12.2008
for the Assessment Year 2016-17 and the Assessment
Order dated 25.11.2019 for the Assessment Year 2017-
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18 came to be passed according the benefit of exemption
u/s.11(1) of the Act.
(b) The Commissioner of Income Tax (Exemption)
vide order dated 3.3.2021 passed u/s.263 inter alia held
that the activities of the Assessee of rendering certification
of seeds falls within the meaning of 'Trade, Commerce or
Business' as defined under the proviso to Sec.2(15) of the
Act and therefore it is not entitled to any exemption. This
view was structured in terms of the decision of Andhra
Pradesh High Court. Learned Sr. Advocate Mr. Shashi
Kiran Shetty is right in submitting that after the reversal of
this decision by the Apex Court, the substratum on which
the orders of the Commissioner of Income Tax as affirmed
by the Tribunal in the impugned order having withered
away, the benefit of exemption needs to be restored to the
Assessee. The Apex Court in the case supra at paragraphs
274 & 275 has observed as under:
"B. Authorities, corporations, or bodies
established by statute
274. The amounts or any money whatsoever charged
by a statutory corporation, board or any other body
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set up by the State Governments or Central
Government, for achieving what are essentially
"public functions/services" (such as housing,
industrial development, supply of water, sewage
management, supply of foodgrain, development and
town planning, etc.) may resemble trade,
commercial, or business activities. However, since
their objects are essential for advancement of public
purposes/functions (and are accordingly restrained
by way of statutory provisions), such receipts are
prima facie to be excluded from the mischief of
business or commercial receipts. This is in line with
the larger Bench judgments of this Court in Shri
Ramtanu Coop. Housing Society [Shri Ramtanu
Coop. Housing Society Ltd. v. State of Maharashtra,
(1970) 3 SCC 323] and NDMC [NDMC v. State of
Punjab, (1997) 7 SCC 339] .
275. However, at the same time, in every
case, the assessing authorities would have to
apply their minds and scrutinise the records, to
determine if, and to what extent, the
consideration or amounts charged are
significantly higher than the cost and a nominal
markup. If such is the case, then the receipts
would indicate that the activities are in fact in
the nature of "trade, commerce or business" and
as a result, would have to comply with the
quantified limit (as amended from time to time)
in the proviso to Section 2(15) of the IT Act".
Mr.Shashi Kiran Shetty is justified in drawing our attention
to the observations at paragraph 284 which extends the
benefit of exemption to the non-statutory entities like the
Appellant-Society as well provided that foundational facts
therefor are established by record.
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(c) The above being said, learned Panel Counsel
appearing for the Revenue is also justified in seeking
remand of the matter for ascertaining the factuals as to
whether an exception to the rule of exemption as enacted
under clauses (i) & (ii) of the Proviso to Sec.2(15) of the
1961 Act is invokable. Obviously such an exercise cannot
be undertaken by this Court nor by the Tribunal, the
appropriate authority being the Commissioner of Income
Tax (Exemption) who has either custody of records or
power to call for the same from the concerned quarters.
In the above circumstances, this appeal succeeds
and the impugned order of the Tribunal is set aside.
Matter is remitted to the portals of Respondent-
Commissioner of Income Tax (Exemptions) for
consideration afresh in accordance with law keeping in
view the decision of the Apex Court supra after notice to
the Assessee. It is open to the Assessee & the Revenue
to lead legal evidence in support of their respective claim
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for exemption or for denial of exemption, as the case may
be. All contentions of the parties are kept open.
Costs made easy.
Sd/-
JUDGE
Sd/-
JUDGE
Bsv
