DETAXIFICATION

Meaning of ‘education'

Educational institution, for the purpose of tax exemption, would not mean only institutions recognised by any university or board but also any institution engaged in systematic imparting of education. This was the decision of the Delhi High Court in the Delhi Music Society's writ, recently.The two-member Bench decided the case where the petitioner, a registered society established in 1953 with the aim and object of teaching music and dancing, sought recognition for tax exemption which was earlier rejected by the Director of Income-tax (Exemptions).

Explains Mr V. K. Subramani, an Erode-based chartered accountant, that in the court's view the DIT (Exemptions) had given an unduly restricted meaning to the word ‘education' which was not warranted in law or on facts. It was noted that the petitioner, teaching and promoting all forms of music and dance, collected tuition fee and admission fee from the students, and employed teachers who were paid salaries; also, that it incurred expenditure by way of acquisition and maintenance of musical instruments, he adds, in the course of an email exchange withBusiness Line. “Many students of the institution had gone abroad though the institution had not given any formal degree or certificates to them. The court held that the absence of degree or certificate cannot be a ground for denial of tax exemption sought by the petitioner.” The court referred to the case of the Institute of Chartered Accountants of India (14 Taxmann.com 5) and also the Supreme Court decision in the Loka Shikshana Trust's case (101 ITR 234) to hold that the assessee deserves tax exemption sought by it.

When creditors did not confirm the balances…

Amounts payable to creditors cannot be taxed as income, as cash credit. That was the categorical finding of Delhi High Court in the Shri Vardhaman Overseas Ltd case decided on December 23, 2011. The company could not get confirmation letters from sundry creditors except one. In assessment, the entire creditors balance was added and taxed as cash credit. In the first appeal, the Commissioner opined that it is not taxable as cash credit but as a waiver of loan.

The court held that there was no waiver by the creditors; and that, in spite of the debt being time-barred, the amount is not taxable unless it is voluntarily admitted as income by credit to the profit and loss account. Only unilateral transfers are taxable, and when there is no such transfer it cannot be taxed, the court stated. According to Mr N. C. Hegde, Partner of Deloitte Haskins & Sells, the decision is welcome as it reiterates that just because creditors had not confirmed the balances, there cannot be an ad hoc addition under section 41(1) of the Income-Tax Act. “Though the decision follows the principles laid down by the Supreme Court in the case of Siguali Sugar Works and Kesaria Tea Company, it has made certain important observations on the interplay between the provisions of section 41(1) and section 28(iv),” he observes. As regards limitation, the court held that when a debt is shown as outstanding, it tantamounts to acknowledgement of debt, and the time limitation must be counted from that date. Also, that when shown in a public document like the annual report of a company every year, it is to be construed as acknowledgment of debt.

D.MURALI

(This article was published in the Business Line print edition dated January 30, 2012)