The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the penalty under Section 271B of the Income Tax Act on the grounds that the NLU-Delhi is not engaged in "business" and exists solely for educational purposes.The bench of Anubhav Sharma (Judicial Member) and Anil Chaturvedi (Accountant Member) has observed that to justify invoking the mandate of Section 44AB, it...
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the penalty under Section 271B of the Income Tax Act on the grounds that the NLU-Delhi is not engaged in "business" and exists solely for educational purposes.
The bench of Anubhav Sharma (Judicial Member) and Anil Chaturvedi (Accountant Member) has observed that to justify invoking the mandate of Section 44AB, it was necessary to see if the assessee university can be said to be engaged in business as defined under Section 2(13) of the Act, where the word "business" includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture.
The assessee university filed a return of income for the assessment year 2018-19, declaring a total income of Rs. nil. The assessee has claimed exemption under Section 10(23C)(iiiab) in its return of income for the year under consideration. The case was assigned for faceless assessment. A notice was issued, and the case was taken up for scrutiny. During the assessment proceedings, AO was not satisfied with the claim of exemption for the purpose of Section 10(23C)(iiiab) r.w.r. 2BBB.
The reply of the assessee was not found sustainable, and the AO held that the assessee is not eligible for exemption. The AO observed that the assessee university has not audited its account as per Section 12A (1)(b) despite the fact that its total income as computed under the Act without giving effect to the provisions of Section 12 exceeds the maximum amount that is not chargeable to income tax in FY 2017-18. Therefore, it was directed that penalty proceedings under Section 271B be initiated.
The assessee university has been established by the Act of the Legislative Assembly of the National Territory of Delhi, and Sub-section (3) of Section 3 of the University Act, provides for the establishment of universities. The preamble of the University Act makes it very apparent that the purpose of the establishment of a law university is the establishment of a national-level institution of excellence in the field of legal education and research in the NCT of Delhi. The object of the university as specified in Section 4 of the University Act and the powers and functions of the university defined in Section 5 grossly indicate that the university is not engaged in any ‘business’ as understood for the purpose of the Act. It exists solely for educational purposes. It is not established for the purpose of profit.
The tribunal has held that the tax authorities have passed the orders bereft of judicious mind. The university has claimed exemption of income earned by it from tax under Section 10(23C)(iiiab). However, AO has erroneously introduced provisions of Section 12A(1)(b) to the income of the assessee university and then considered it in the light of the Proviso to Section 44AB to conclude that as the assessee has not had its account audited in terms of Section 12A(1)(b) of the Act, a penalty is liable to be imposed under Section 271B of the Act.
Case Title: National Law University Versus Additional/Joint/Deputy/Assistant Commissioner of Income Tax
Case No.: ITA No. 2288/Del/2022
Counsel For Appellant: R.S.Ahuja
Counsel For Respondent: Kirti Sankratyayan