2023 (5) TMI 1215 - AT - Income Tax

Appeal upheld for university's tax exemption; penalty order quashed for non-profit status.

National Law University Versus Additional/Joint/Deputy/Assistant Commissioner of income Tax, Delhi

National Law University Versus Additional/Joint/Deputy/Assistant Commissioner of income Tax, Delhi - TMI Issues involved:The judgment involves issues related to the eligibility of an assessee university for exemption under Section 10(23C)(iiiab) of the Income Tax Act, imposition of penalty under Section 271B for failure to audit accounts as per Section 12A(b), and the interpretation of provisions related to business activities and profit-making.Eligibility for Exemption under Section 10(23C)(iiiab):The appeal was filed by the Assessee against the order of the CIT(A) regarding the exemption claimed under Section 10(23C)(iiiab) of the Act. The Assessee, a university, declared a total income of Rs. Nil for the assessment year 2018-19 and claimed exemption for a specific amount. The Assessing Officer (AO) raised concerns about the ratio of grants received by the university in relation to total receipts, which led to a dispute regarding the eligibility for the exemption.Imposition of Penalty under Section 271B:The AO initiated penalty proceedings under Section 271B of the Act due to the university's failure to audit its accounts as required by Section 12A(b). The Assessee argued that as a university established by an Act of the Delhi Government, it follows specific accounting practices and is not engaged in business or profession, thus exempting it from the audit requirement. However, the AO and CIT(A) upheld the penalty citing non-compliance with audit provisions.Interpretation of Business Activities and Profit-making:The judgment analyzed whether the university, being a local authority, can be considered engaged in business activities as defined under the Act. It was highlighted that the university's primary objective is educational, not profit-making. The Bench observed that the tax authorities failed to apply a judicious approach in their orders, especially in linking the exemption claim under Section 10(23C)(iiiab) with the audit requirement under Section 12A(b).Conclusion:The Tribunal found errors in the tax authorities' application of penalty provisions and interpretation of relevant sections. It was noted that the penalty imposed under Section 271B was not justified, considering the nature of the university as a non-profit educational institution. The appeal was allowed, and the penalty order was quashed. The judgment emphasized the need for a thorough examination of facts and legal provisions before imposing penalties or drawing conclusions in tax matters.