Monday, July 8, 2013

HC denies quashing settlement order; SetCom could verify true and full disclosure made by assessee till its final order

SetCom to decide whether the assessee had made full and true disclosure and  indicated the manner in which income was derived, till it passed its final order under section 245D(4)

The instant writ petition was filed by the Revenue against the orders of Commission (SetCom) declining to declare settlement applications of assessees as invalid. Revenue, aggrieved by the orders of commission, was of the view that settlement applications ought to have been held invalid as these applications failed to satisfy the prerequisites of full and true disclosure and the manner in which the undisclosed income had been derived

The High Court declined to interference with the orders of SetCom and made following observations:

1) The foundation for settlement was an application from the assessee in which he was required to make a full and true disclosure but such requirement hadn’t to be examined at the threshold stage of proceeding initiated before the Commission;

2) There might be cases where it was possible for the Commission to record a finding that the disclosure made in the application was full and true. At the same time, there could also be situations in which the Commission might not be able to record a finding with certainty at the stage of admission.  In such a situation it would be permissible for the Commission to keep the question open, to be examined at a later stage or at the stage of disposal of the application;

3) The Commission might, at any stage till it passed a final order under Section 245D(4), examine the issues and if there was sufficient material on record, determine the question of full and true disclosure and the manner in which the undisclosed income was derived and, depending on such a decision, the applications might be thrown out or they might be proceeded with further;

4) The proceedings were pending before the Settlement Commission and the final order was yet to be passed by the Commission under Section 245D(4). All the conclusions drawn by the Settlement Commission in the instant case, were only prima facie conclusions and didn’t foreclose the issues raised by the Revenue in the present proceedings.

5) Thus, the impugned issue was left open for Commission's decision till it passed its final order under section 245D(4). Writ petition were, accordingly, to be dismissed. It was for commission to decide whether the assessee have made full and true disclosure and/or indicated the manner in which income was derived  - CIT v. Income Tax Settlement Commission [2013] 35 56 (Delhi)

ICAI can’t be deemed to be pursuing commercial activities by taking coaching classes or campus placements for a fee

Exemption under 10(23C)(iv) can’t be denied to ICAI on account of  fees received by it for providing coaching classes and campus placement for its students

The HC held as under:

1) The petitioner (i.e, ICAI) is the sole body empowered to conduct or approve of a course in the field of accountancy. No other person can conduct any course or award any degree or certificate which indicates a level of proficiency or competence in the field of accountancy similar to that as of a chartered accountant;

2) The activity of petitioner in conducting coaching classes was integral to its activity of conducting the courses in accountancy. The coaching classes being conducted by the petitioner couldn’t be equated with private coaching classes being conducted by organizations on commercial basis for preparing students to undertake entrance or other examinations in various professional courses;

3) The comparison of the petitioner with UPSC was also not apposite. The object of the study programme or post-qualification courses being conducted by the petitioner, was to impart knowledge and skill in the field of accountancy and related subjects to students and the same was not similar to the function as performed by UPSC;

4) It was not necessary that a person would give something for free or at a concessional rate to qualify as being established for a charitable purpose. If the object or purpose of an institution was charitable, the fact that the institution collected certain charges wouldn’t alter the character of the institution;

5) The fact that the petitioner charged a uniform fee from all students for coaching would not exclude it from the ambit of Section 2(15), unless it was found that the petitioner fell within the scope of the first proviso to Section 2(15), i.e., the petitioner carried on any trade, business or commerce or any activity of rendering any service in relation to any trade, commerce or business, for a cess or a fee;

6) The functions performed by the petitioner were in the genre of public welfare and not for any private gain or profit and, thus, it couldn’t be said that the petitioner was involved in carrying on any business, trade or commerce;

7) Accordingly, even though fees were charged by the petitioner for providing coaching classes and for holding interviews with respect to campus placements, the said activities couldn’t be stated to be rendering of service in relation to any trade, commerce or business, as such activities were being undertaken by the petitioner in furtherance of its main object which were not trade, commerce or business. Thus, Petitioner’s  writ petition was to be allowed and Department was to be directed to allow it exemption under section 10(23C)(iv) – ICAI v. Director General of Income-tax (Exemptions) [2013] 35 140 (Delhi)