NORKA ROOTS vs. THE COMMISSIONER OF INCOME TAX

ITA/246/2015HC KeralaKLHC01025647201507 December 2017Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON8 pages
AI SummaryDismissed

What were the facts?

This is the third round of litigation concerning NORKA ROOTS' application for registration as a charitable institution under Section 12A of the Income Tax Act, 1961. The High Court had previously directed the Commissioner to verify the source and utilization of funds to determine if the appellant's activities aligned with its stated objectives. The appellant, established to promote the interests of non-resident Keralites, argued it aids them through various schemes, including those sponsored by the State Government for returnees. The revenue contended that while charitable activities were funded by the State, the appellant also generated significant income from certification processes, a portion of which was not utilized for charity but rather for administrative expenses, leading to profits.

What did the High Court hold?

The Tribunal held that while the appellant's objects technically fall within the ambit of advancing an object of general public utility under Section 2(15) (prior to AY 2009-2010), it has not carried out any such charitable activity from its own income. The Commissioner's verification revealed that income from certification, bank interest, and other sources exceeded Rs. 1 crore in FY 2006-07 and Rs. 3.33 crores in FY 2012-13. However, no expenditure for charitable purposes was made from this income. All charitable activities were funded by the Government through specific schemes, and even then, the expenditure from these funds decreased over the years (between 28% to 60%). Administrative expenses consumed a significant portion of the income, with the remainder ending up as profits. The appellant failed to demonstrate the utilization of its income for its stated objectives, and its charitable activities were limited to expending government funds, often not to their full extent. Therefore, the appellant did not apply any part of its net income to its stated objectives and did not carry out charitable activities from its derived income.

What were the issues?

1. Whether the appellant's activities constitute a charitable purpose under Section 2(15) of the Income Tax Act, 1961, as it existed prior to Assessment Year 2009-2010, and if so, whether the appellant has carried out such charitable activities. Assessee's contention: The appellant was constituted to aid non-resident Keralites, intervening in their issues and providing succour. It also implements government-sponsored schemes for returnees. Revenue's contention: Charitable schemes were funded by the State. The appellant charges substantial amounts for certification and other processes, with a significant portion of income not spent on charity. The objects do not indicate it's merely a channel for government funds.

Which sections of the Income-tax Act were involved?

Section 12A,Section 2(15),Section 12AA

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THUR AY, THE 7TH DAY OF DECEMBER 2017/16TH AGRAHAYANA, 1939 ITA.No. 246 of 2015 () ----------------------- AGAINST THE ORDER/JUDGMENT IN ITA 179/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 06-03-2015 APPELLANT(S)/APPELLANT/APPLICANT : --------------------------------- NORKA ROOTS NORKA CENTRE, THYCAUD, THIRUVANANTHAPURAM-695 014. BY ADVS.SRI.P.BALAKRISHNAN (E) SRI.MOHAN PULIKKAL SRI.P.P.NARAYANAN SRI.K.S.MENON (K) RESPONDENT(S)/RESPONDENT : -------------------------- THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM.

R1 BY ADV. SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT R1 BY ADV. SRI.K.M.V.PANDALAI, INCOME TAX DEPARTMENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-12- 2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 246/15 APPENDIX PETITIONER'S EXHIBITS ANNEXURE-A : COPY OF ORDER DATED 7.3.2005 PASSED BY THE COMMISSIONER OF INCOME TAX. ANNEXURE-B : COPY OF ORDER DATED 5.5.2006 OF THE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.570/COCH/2005-06. ANNEXURE-C : COPY OF ORDER

The order continues below.

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