Delhi High Court Quashes Tax Demand On NGO, Raps Revenue for 'Taking Advantage' Of Taxpayer's Ignorance

The Delhi High Court has granted tax exemption to the International Buddhist Confederation, a Non-Governmental Organisation holding that tax authorities can't deny statutory benefits merely because of an inadvertent disclosure error made in the income tax return.

A division bench of Justices Dinesh Mehta and Vinod Kumar also criticised the Revenue for taking advantage of the assessee's ignorance of his rights while passing the scrutiny assessment.

Briefly put, the NGO filed its income tax return for the assessment year 2017–18 and declared interest earned from fixed deposits and bank deposits under the head “income from other sources”.

Although the trust had utilised the entire income, including voluntary contributions and interest earnings, for charitable purposes, the Assessing Officer, during scrutiny assessment, accepted the interest income of Rs 13.02 lakh as returned under the head 'income from other sources' and assessed it to tax

The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the assessment, prompting the trust to approach the High Court.

Allowing the appeal, the Division Bench observed that the Assessing Officer had adopted an unduly technical approach and ignored the undisputed fact that the trust satisfied all conditions for exemption under Sections 11 and 12 of the Act.

The Court noted that the trust had utilised more than 85% of its income towards charitable activities, and its eligibility for exemption was never in dispute. It held that merely because the assessee mistakenly classified interest income under a particular head, the statutory exemption could not be denied.

Making strong remarks on the assessment process, the Court described the case as “a classic example of callousness” and observed that the Assessing Officer had taken advantage of the assessee's inadvertent error instead of applying a judicious approach.

“In the instant case, rather a strange situation has come to fore – while processing the appellant's return of income, it has been assessed in accordance with law with a justice-oriented approach whereas during scrutiny assessment the Assessing Officer has proceeded akin to a machine which does not have the ability to think for itself. The machine has processed the return as if it has a pulsating heart and a human mind with the ability to analyse, while the man (the Assessing Officer) has proceeded as a machine. Such approach mocks at the adjudicatory mechanism,” the Court remarked.

It further expressed surprise at both the appellate authorities, who took a “telescopic view” of the matter and rejected the appellant's appeal.

It is the duty of the appellate authorities to assist taxpayers in securing legitimate reliefs and not be fettered by mere technicalities, the Court said.

“The Assessing Officer might have been swayed by the revenue considerations, (ideally, which he should not) but at least the CIT(A) ought to have taken into account, the correct factual and legal position instead of non-suiting the appellant on technical count. Similar has been the approach of the learned Tribunal, which should have been avoided. It is because of such approach that the appellant has to come to this Court. A lis, which could have been given a quietus, has to be brought to this Court,” it added.

As such, it set aside the assessment order and imposed costs of Rs 25 thousand on the Income Tax Department.

For Appellant: Advocates Akshit Pradhan and Ayush Shekhawat

For Respondent: Advocate Gaurav Gupta, SSC with Shivendra Singh