Tamil Nadu Advocates Welfare Fund Entitled For Income Tax Exemption: ITAT
The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has held that the Central Act is not applicable to the Tamil Nadu Advocates Welfare Fund and is eligible for Income Tax exemption.
The bench of Manu Kumar Giri (Judicial Member) and S. R. Raghunatha (Accountant Member) has observed that since the assessee fund is enacted prior to the formation of the Central Act, namely the Advocate's Welfare Fund Act, 2001, and the saving clause is provided u/s. 38 by the Advocate's Welfare Fund Act, 2001, there is an exemption for the applicability of the Central Act of the State of Tamilnadu. Since Section 23 of the Central Act provides for exemption of income tax to the Advocates Welfare Fund of the State against the provisions of Section 11, Section 2(15) of the Act is not applicable to the Tamil Nadu Advocates Welfare Fund.
The respondent/assessee, Tamil Nadu Advocates Welfare Fund (TNAWF), was created under Section 6(2) of the Advocates Act 1961 and constituted by the state legislature under the Tamil Nadu Advocates Welfare Fund Act 1987 as the Tamil Nadu Advocates Welfare Fund Trust Committee. The Welfare Fund Committee was constituted to provide for welfare funds to advance the profession of advocacy in the state of Tamil Nadu by extending the benefit to the advocates on cessation of practice and for other instances and matters connected therewith. Tamil Nadu State was one of the first to introduce such a fund. The respondent fund is a benevolent and welfare fund with no intent or objective of profit or motive of profit.
Later on 14 September 2001, the Parliament enacted the Advocates Welfare Fund Act, 2001, to provide for and bring in special provisions for the state-sponsored Advocates Welfare Fund. After the Central Enactment Act, the TNAWF was deemed to become one and formed part of the Central Scheme. The major income of the fund as enshrined in the TNAWF Act 1987 r.w. the Advocates Welfare Fund Act, 2001 comprises the sale of welfare fund stamps, lifetime subscriptions from members, interest on corpus and earmarked deposits, grants from the state, and other incidental and related miscellaneous income.
The assessee had filed a return of income for the assessment year 2013-14 on 29.09.2013, declaring a total income of Rs. Nil. The gross income earned by the assessee was Rs. 2.79 crore against the revenue expenditure of Rs. 3.54 crore. The case was selected for scrutiny and concluded the assessment by passing an order by the Assessing Officer denying the exemption under Section 11 of the Income Tax Act by invoking the proviso to Section 2(15) for the reason that the assessee has been involved in the nature of trade or business by selling the welfare funds stamps.
The CIT(A) allowed the exemption and also accepted the claim of the assessee that the sale of welfare fund stamps to its members even to the general public would render the activity to be advancement of other objects of general public utility.
The department contended that CIT(A) has erred in allowing the exemption under Section 11 of the Income Tax Act to the assessee even though the sale of welfare fund stamps to the members as well as the general public shows that overriding the profit motive is inconsonance with the first proviso to Section 2(15). The CIT(A) failed to appreciate that the assessee has received an amount of Rs. 1.53 crores in the form of trading receipts and sale of welfare fund stamps during the period without incurring much expenditure on the same. Therefore, the order of the CIT(A) is bad in law and prayed for setting aside the order and to confirm the order of the Assessing Officer.
The assessee contended that the Tamilnadu Advocates Welfare Fund has been established under Section 6(2) of the Advocate Act, 1961, constituted by the State Legislature dated 07.12.1987. The Act has been enacted for providing death benefits to the family members of the deceased Advocates who have joined as members in the scheme, and a sum of Rs. 7 lakhs is being provided as death benefits, which is now increased to Rs. 10 lakhs as per the order passed by the government. The source of income for the scheme is income generated through the sale of welfare fund stamps, lifetime subscriptions from members, interest and corpus deposits, and government grants.
The tribunal noted that the Tamilnadu Advocate's Welfare Fund Act, 1987 comes under Schedule II in Sl. No. 7, and the provisions of the Advocate Welfare Fund Act, 2001 shall not apply to the State of Tamilnadu. The Tamilnadu Advocate's Welfare Fund Act, 1987, is already enacted and is functioning for the welfare of advocates at large, even much prior to the enactment of the Central Act.
The tribunal, while dismissing the department's appeal, held that the assessee is exempted from income tax and upheld the order of the CIT(A).
Counsel For Appellant: D. Hema Bhupal
Counsel For Respondent: M.K. Rangaswamy
Case Title: Income Tax Officer Versus Tamilnadu Advocate Welfare Fund
Case No.: ITA Nos.: 699 & 700/Chny/2024