Deduction of TDS by Donor on Grants does not Disentitle NGO from exemption u/s 11 of Income Tax Act: Delhi HC [Read Order]

he Delhi High Court ruled that the deduction of TDS by donor on grants does not disentitle NGO from exemption under Section 11 of the Income Tax Act, 1961. The petition has been preferred by the petitioner-Aroh Foundation [ “assessee” ] under Article 226 of the Constitution of India against the impugned order, whereby, the revision under Section 264 of the Income Tax Act, 1961 preferred by the assessee, has been rejected while affirming the original scrutiny assessment under Section 143(3) of the Income Tax Act, wherein, exemption under Sections 11 and 12 of the Income Tax Act had been denied to the assessee. The present writ petition relates to Assessment Year [ “AY” ] 2017-18.

It is the case of the assessee that at no point of time, except for the AY 2017-18 was the charitable status of the assessee doubted by the respondent-Revenue and for all previous AYs, specifically for the AYs 2011-12, 2012-13, 2013-14, and 2015-16, under similar circumstances, exemption under Sections 11 and 12 of the Income Tax Act was granted to the assessee and even for the subsequent AY i.e., AY 2018- 19 as well, similar benefit was extended. However, the benefits for the relevant AY in question have been denied merely on the ground that the donor has deducted tax at source [ “TDS” ] under Sections 194C and 194J of the Income Tax Act, while allocating requisite grants to the assessee.

The assessee submitted that neither in the assessment order nor in the revisional order, whereby, the revision has been dismissed, was any reason assigned to lawfully deny benefits under Sections 11 and 12 of the Act. According to the assessee, the donor’s deduction of TDS under a particular head is not in the assessee’s control and in any case, for a similar donation/receipt, the benefits under Sections 11 and 12 of the Act had been conferred. Therefore, there was no reason to depart from a consistent approach adopted by the Department itself. The counsel appearing on behalf of the respondent-Revenue opposed the submissions advanced by the counsel for the assessee and that the original scrutiny assessment order fundamentally records that the assessee has earned consultancy fees and was in receipt of contractual receipts.

It was submitted that analysing the terms of the agreement entered into between the assessee and companies like Flex Foods Ltd., Uflex Limited etc. [ Grantor Companies ] would indicate that during the course of the work carried out by the assessee, the assessee acted as per instructions and guidance of the Grantor Companies and not of its own volition. A Single Bench of Justice Purushaindra Kumar Kaurav observed that “It is thus seen that deduction of TDS by donor would not be the determinative factor for denial of benefits under Sections 11 and 12 of the Income Tax Act. The respondent-Revenue, in the instant case, in the preceding years as well as in the succeeding years, under almost similar circumstances, has accepted the exemption claimed by the assessee under Sections 11 and 12 of the Income Tax Act and, therefore, should not have deviated from its consistent approach in denying benefits to the assessee.”

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