Scholarship By Hamdard Foundation, Exemption Under Income Tax Act Can't Be Denied: Delhi High Court

The Bench, consisting of Justices Manmohan and Dinesh Kumar Sharma, while noting that similar factual findings were made by the appellate authorities with respect to previous assessment years, held that though the principle of res-judicata and estoppel are not applicable to taxation matters, a consistency of approach must be maintained.

The Assessing Officer (AO) passed an order denying exemption under Section 11 of Income Tax Act, 1961 to the Assessee Hamdard National Foundation. The AO ruled that the Assessee had given merit-cum scholarship/financial assistance to candidates predominantly belonging to a particular religious community, and therefore under Section 13(1)(b) of the Income Tax Act exemption under Section 11 could not be given to the Assessee. The Assessee filed an appeal before the Commissioner of Income Tax Act (Appeals) (CIT (A)) against the order of the AO, which was allowed by the CIT (A). The revenue authorities filed an appeal before the ITAT against the order of the CIT(A). The ITAT observed that the facts involved in the relevant assessment year were similar to the one involved in the previous assessment year. The ITAT noted that the CIT(A) had made a factual finding with respect to the previous assessment year that the scholarships provided by Hamdard were not restricted to a particular religious community and therefore, there was no violation of the provisions of Section 13(1)(b) of the Income Tax Act, which was accepted by the revenue authorities. The ITAT ruled that it was not open to the AO to raise an issue selectively for few years and accept the findings of the CIT(A) with respect to the same issue for only some years. The ITAT thus dismissed the appeal of the revenue authorities and confirmed the findings of the CIT (A). Against the order of the ITAT, the revenue authorities filed an appeal before the High Court.

The revenue department submitted before the High Court that the ITAT had overlooked the fact that the AO had found that the Assessee Hamdard National Foundation had given merit-cum scholarship / financial assistance to candidates predominantly belonging to a particular religious community, and thus the provisions of Section 13(1)(b) of the Income Tax Act were attracted. The department contended that the Assessee had published an advertisement for educational scholarship in Urdu language and only in one newspaper. The department averred that therefore the Assessee wanted to restrict the circulation of the scholarship advertisement and wanted to provide benefit to only a particular religious community.

Section 11 of the Income Tax Act provides for exemption of income from property held under a trust for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. Section 13(1)(b) provides that in the case of a trust established for charitable purposes or a charitable institution established after the commencement of the Act, exemption under Section 11 shall not operate if the trust or institution is created or established for the benefit of any particular religious community or caste.

The High Court observed that the CIT(A) and the ITAT had given a concurrent finding of fact that the benefit of scholarship given by the Assessee to the poor and needy students was not confined to students of a particular community. The Court ruled that the list submitted by the Assessee showed that the benefit had been granted to students from all communities without any discrimination.

The High Court ruled that just because the advertisement was published in Urdu language and only in one newspaper, it could not be presumed that it was targeted at the students belonging to a particular community. The Court noted that the CIT(A) had given a similar factual finding with respect to the previous assessment year, which was accepted by the revenue department and not challenged before the ITAT.

The High Court held that though the principle of res-judicata and estoppel are not applicable to taxation matters, a departure from a factual finding made with respect to the previous assessment years would result in contradictory findings. Therefore, the Court ruled that consistency of approach must be maintained.

The Court thus dismissed the appeal filed by the revenue department.

Case Title: Commissioner of Income Tax (Exemptions) Delhi versus Hamdard National Foundation (India)

Citation: 2022 LiveLaw (Del) 302

Dated: 06.04.2022 (Delhi High Court)

Counsel for the Appellant: Mr. Abhishek Maratha, Sr. Standing Counsel.

Counsel for the Respondent: Mr. Salil Aggarwal, Sr. Advocate with Mr. Madhur Aggarwal and Mr. Uma Shankar, Advocates.

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