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High Court of Delhi
SANJIV KHANNA & R.V. EASWAR
Director Of Income Tax
Versus
Maruti Center For Excellence
ITA No. 1335 OF 2010 & 50 OF 2011
Decided on : 21-05-2012
Income Tax - Charitable Institution - Income Tax Act, 1961, Section 13(1)(c)(ii), Section 13(3)
Fact of the Case:
The Director of Income Tax (Exemptions) filed appeals against Maruti Center for Excellence, challenging the tribunal's decision that the assessee is a charitable institution and has not violated the Income Tax Act, 1961.
Finding of the Court:
The tribunal's order lacked reasoning and did not adequately examine the factual matrix and details relevant to determining whether the institution violated Section 13(1)(c)(ii) read with Section 13(3) of the Act. The tribunal's decision was set aside for further examination of the factual position.
Issues: The main issue was whether the assessee violated Section 13(1)(c)(ii) read with Section 13(3) of the Income Tax Act, 1961, by using income or property for the benefit of specific persons mentioned in the Act.
Ratio Decidendi: The court emphasized that the application of income and use of property of a charitable institution should primarily benefit the public or serve the object of general public utility, and should not directly or indirectly benefit specific persons mentioned in Section 13(3) of the Act.
Final Decision: The tribunal's decision was set aside, and the case was remitted for further examination of the factual matrix and position in light of the legal provisions mentioned above.
SANJIV KHANNA, J.
1. Director of Income Tax (Exemptions) has filed these two appeals against Maruti Center for Excellence (assessee/respondent, for short). In ITA No. 1335/2010, which relates to assessment year 2005-06, order dated 2nd September, 2009, passed by the Income Tax Appellate Tribunal (tribunal, for short) has been challenged. In ITA No. 50/2011, order dated 12th May, 2010 which relates to the assessment year 2006-07, passed by the tribunal has been challenged. As the issue and question involved in the above two appeals are identical and similar, they are being disposed of by this common order. We heard the learned counsel for the parties on the following substantial question of law framed on 3rd May, 2012:-
“Whether the Income Tax Appellate Tribunal was right in holding that the assessee is a charitable institution and has not violated the Section 13(1)(c)(ii) read with 13(3) of the Income Tax Act, 1961?”
2. The assessee is a society which was set up on or about 24th June, 2002. Its office was initially located at c/o Maruti Udyog Limited, 11th Floor, Jeevan Prakash, 25 Kasturba Gandhi Marg, New Delhi 110 001. The persons desirous of setting up the society and the initial members of the governing body were Mr. Jagdish Khattar, and six others. It is an undisputed position that Jagdish Khattar was the Managing Director of Maruti Udyog Limited. Rules and regulations of the society have been placed on record. Some of the relevant rules read as under:-
“MEMBERSHIP:
4. An individual, partnership firm, company or a body corporate who is associated with Maruti Udog Limited (MUL) as vendor, dealer, transportation, & logistic company, casual supplier or civil contractor or is sub-vender of big vendors of MUL, shall be entitled to apply to become a member of the society.
5. An application for membership shall be made in writing on the application form prescribed by the Governing Board and shall be accompanied by the prescribed admission fee for the membership.
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7. (a) The membership fee shall be determined by the Government Board from time to time. For the time being it shall be Rs.25,00,000/-.
(b) Membership fee shall be determined by the Association shall be the founder members of the society and shall not be required to pay any admission fee. However, they have subscribed as nominees of MUL and shall remain as members of the society so long as they are not withdrawn by MUL.
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10. A member shall cease to be member of the Society, if,
(i) By notice in writing addressed to the Society he resign from his/its membership
(ii) In the case of an individual members upon the death of the said member.
(iii) In the case of his/its disassociation with MUL as its vendor, dealer, transportation & logistic company, casual supplier or civil contractor or as sub-vendor of big vendors of MUL.
(iv) On his /its expulsion of membership under the Rules & regulation of the Society.
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GOVERNING BOARD/COUNCIL
13. The property and affairs of the society shall be managed by the Governing Board/Council.
14. The Governing board shall consist of not less than seven members and not more that twelve members. Majority members, not exceeding severs shall be nominated by MUL, the founding member and the balance shall be elected members.
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MANAGING COMMITTEE
22. The Governing Board shall have powers to constitute a managing committee to provide it necessary guidance and supervision in important matters of the centre. The Managing Committee shall comprise of the following five members:
1. CEO
2. Four Governing Board members two each representing MUL and elected members.”
3. The aims and objects for which the society was established are stated in the Memorandum and Articles of Association and read as under:-
“a. To propagate amongst organizations up-gradation in terms of quality, cost and technology orientation through training, consultancy and other supportive services.
b. To help organizations to reach world class l
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