Acquisition, construction and commercial letting of premises held business under amended s.2(15); s.197(1) certificates denied

Whether petitioners were entitled to a s.197(1) certificate for non-deduction given their charitable-status exemptions under ss.11/12A, in light of the amendment to s.2(15) effective 1.4.2009: Court held that the assessee's activities-acquisition, construction, infrastructure development and letting of premises on a business-oriented basis-fall within the fourth limb of amended s.2(15) prohibiting activities "in the nature of trade, commerce or business" notwithstanding governmental connection; the commercial character evidenced by income schedules and business-style deductions (including depreciation) defeats charitable exemption. Consequence: refusal to issue s.197(1) certificates was lawful and the writ petitions were dismissed.

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Issues: Whether the refusal to issue a certificate under section 197(1) of the Income-tax Act, 1961 for non-deduction of tax at source to institutions engaged in letting out premises is justified in view of the proviso added to section 2(15) of the Income-tax Act, 1961 with effect from April 1, 2009.

Analysis: The legal framework comprises section 11 (exemption of income from property held for charitable purpose) and the definition of "charitable purpose" in section 2(15), as amended by the proviso effective April 1, 2009, which excludes from charitable purpose the advancement of any other object of general public utility if it involves carrying on trade, commerce or business or rendering any service in relation to trade, commerce or business for a fee or consideration. Whether the activities of the institutions fall within the excluded categories is a question of fact and must be determined by the departmental authorities in the assessment process. The amended proviso operates to displace automatic entitlement to exemption under the fourth limb of section 2(15) where trade/business activity or service-for-consideration is involved, and the issuance of a certificate under section 197(1) is not a substitute for the fact-based eligibility determination at assessment.

Conclusion: The refusal to issue certificates under section 197(1) was justified and lawful; decision is in favour of Revenue.

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