Mere Deduction Of TDS By Donor On Grants Would Not Disentitle The NGO From Sections 11 Exemption: Delhi High Court

The Delhi High Court has held that a mere deduction of TDS by a donor on grants would not disentitle the assessee-NGO from exemption under Section 11 of the Income Tax Act.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav, while allowing the petition, set aside the assessment order and held that the receipt of Rs. 5.90 crore shall not be treated as income and allowed the claim of the assessee under Sections 11 and 12 of the Income Tax Act.

The petitioner/assessee is a non-governmental organization and registered as a charitable institution under Sections 12A, 12AA, and 80G. The assessee claims to have been working for the upliftment of the poor, underprivileged children and women, health, preservation of the environment, and other social causes. In order to fulfill its charitable objectives, the assessee receives various grants from the government as well as the private sector, which is exempt from tax under Sections 11 and 12.

At no point in time, except for the AY 2017–18, was the charitable status of the assessee doubted by the respondent department. For all previous AYs, specifically the AYs 2011–12, 2012–13, 2013–14, and 2015–16, under similar circumstances, exemption under Sections 11 and 12 was granted to the assessee, and even for the subsequent AY, i.e., AY 2018–19, a 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 under Sections 194C and 194J of the Act while allocating the requisite grants to the assessee.

The assessee submitted that neither in the assessment order nor in the revisional order, by which the revision has been dismissed, was any reason assigned to lawfully deny benefits under Sections 11 and 12. The assessee stated that 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 or receipt, the benefits under Sections 11 and 12 had been conferred. Therefore, there was no reason to depart from a consistent approach adopted by the department itself.

The department argued that even TDS has been deducted from those fees and receipts by the respective entities under Sections 194C and 194J of the Income Tax Act by treating them as professional or contractual fees paid to the assessee. Those receipts cannot be treated as being in the nature of the voluntary contribution of the assessee.

The court noted that there is no element of activity in the nature of trade, commerce, or business, or any activity or rendering of any service in relation to any trade, commerce, or business. In the absence of any cogent reason, receipts in question cannot be 'advancements of any other object of general public utility'.

Counsel For Petitioner: Kamal Sawhney

Counsel For Respondent: Abhishek Maratha

Case Title: Aroh Foundation Versus Commissioner Of Income Tax Exemption & Anr.

Citation: 2024 LiveLaw (Del) 189

Case No.: W.P.(C) 4365/2021

Click Here To Read The Order