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Case Law Assignment II
Consortium vs. Ministry of Finance
Introduction of the case:
The background of the case is at the Supreme Court
of Nepal, Kathmandu. The court topic is of “Mandamus”. Mandamus is a judicial
order from the Supreme Court to any corporation, government court or a public
authority to do or not to do a specific act which that body is obliged under
law to do or refrain from doing. It basically tells what to do or not to do according
to the department’s statutory duty. The purpose of mandamus is to provide
remedy for the defects of justice. The procedure is by filling a writ
application of mandamus by the aggrieved party, stating the denial of his/her
legal right from the defendant.
Case filed on 2066, Supreme Court Bench
Writ No.: 0598
Corporate Social Consortium (CSC), Application made by on behalf of CSC
Respondent: Ministry of Finance
Legal Representative: Deputy Attorney
Income Tax Act 2058 Section 2 (S)
Companies Act 2063 Section 3(3), 4,
Association Registration Act 2034
Corporate Social Consortium is a non for profit,
social benevolent organization working on the issue of HIV/AIDS. It is
registered under companies act 2063, Section 166 (1). It files for a tax
exemption certificate at the Inland Revenue Department, Patan. Inland Revenue
Department, Lazimpat rejects the plea made by CSC sitting no provision made for
such organizations in accordance to the Companies Act. CSC files a writ
petition to the Supreme Court to change the decision made by IRD. The Supreme
Court deals with three questions to come to a verdict. Those were: `
is the objective and the meaning of Income Tax Act 2058, Section 2 (s)?
Does Corporate Social Consortium fall
under the Income Tax act 2058, Section 2 (S) 1 for tax exemption?
Does corporate social consortium
registered under Companies act 2063, Section 166(1) receive tax exemption
certificate from the Inland Revenue Department?
After evaluating all the three questions the Supreme
Court on Sunday 2068/03/12 ordered the right to tax exemption to CSC by the
IRD. In addition, as per mandamus the court directed the IRD to provide tax
exemption to non for profit organization with a motive of social benevolence.
B. Parties and their claim
The Petitioner: Corporate Social
On 2065/07/05 Corporate Social Consortium is
registered according to the Companies Act 2063 Section 166 (1). It is a social
benevolent and social welfare company. The director of the organization is Mr.
Meraj Roshan Thakuri. It has been registered as a nonprofit organization which
does not share its profits with the shareholders of the company. The purpose of
the company is to provide a platform for HIV/AIDS victims to establish
themselves in the society as normal citizens.
collaboration with various organizations such as NGO’s, INGO’s and government
organizations it is trying to control the disease and asses the issue behind
HIV/AIDS. It also deals with treating HIV/AIDS affected victims. The claim of
the petitioner is that when it filed an application for tax exemption at Inland
Revenue Department, Sanepa, the Inland revenue Department, Lazimpat on
2065/05/2 rejected the plea of CSC. CSC claims that it is a non for profit
organization with no intention of distributing its profits to its promoters and
should be eligible for tax exemption according to Income Tax Act 2034 Section 2
(S) 1. Additionally they have stated on their writ petition that the act by the
Inland Revenue Department, Lazimpat is unconstitutional as it is against the
Interim Constitution of Nepal, Section 32 and Section 107 (2). Also, the
provision made for organizations registered Association Act 2034 should be made
for organizations registered under the companies Act 2063 and be granted
provisions similar to the Association Act. Hence, It claims that its right be
restored by cancelling the decision made by the Inland Revenue Department.
The Respondent: Ministry of Finance and
the Inland Revenue Department
The claim of Inland Revenue Department is that CSC
is a non for profit organization registered under the company’s act 2063, and
is not eligible for tax exemption as it is registered under the company’s act
2063 and a provision for tax exemption is only valid if an organization is
registered under Association Act 2034. On 2066/10/4 the court asked the
respondents for the reason for their decision. They claimed the decision of not
providing tax exemptions due to the following reason:
The Director General of Inland Revenue department
claimed that the company is not exempted from paying tax and submitting its
financial data as CSC is registered under the Companies Act 2063 and cannot be
Rameshwor Khanal, Secretary of Ministry of Finance
claimed that CSC is an organization that is exclusive from the type of
organizations which are under the provision of tax exemption under the Income
Tax Act 2058 Section 2(S) 1.
C. Causes of the disputes:
The cause of the dispute is that the petitioner is
claiming that the respondent has rejected its right to tax exemption by
ignoring significance of the organization. The respondent is a government
organization which has interpreted the law very narrowly and analyzed the
organization as a non for profit organization only. Rather the petitioner
claims the organization as a social benevolent and social welfare company
working to tackle HIV/AIDS which is a social issue as well as a dangerous
infectious disease. The cause of the dispute is also because of the insensitive
nature shown by the government organizations on the matter of CSC’s meaning and
D. Legal provisions given to profit not
According to Companies Act 2063, Section 166 (1)
notwithstanding anything contained elsewhere in this Act, any company may be
incorporated to develop and promote any profession or occupation or to protect
the collective rights and interests of the persons engaged in any specific
profession or occupation or to carry on any enterprise for the attainment of
any scientific, academic, social, benevolent or public utility or welfare
objective on the condition of not distributing dividends. The above is the
provision for incorporating a non for profit organization.
According to Companies Act 2063 Section 167 (1)
notwithstanding anything contained in this Act or the prevailing law, the
following matters of a company incorporated pursuant to Section 166 shall be as
There shall not be required share
capital to incorporate a company not distributing profits. Provided, however,
that the company may receive membership fees from its members and receive any
donation, gift pursuant to law for the accomplishment of its objectives.
No member of the company shall be liable
for the debts and liabilities of the company except in the case where any
member accepts such liability in writing the liability of the company, with
specification of the limit of such liability; his/her liability shall be
limited to the extent of that limit.
The company shall not distribute
dividend, bonus or any other amount, from the profits earned by it, to its
members or employees; and the profits earned by the company shall be used to
increase the capital of the company or for the attainment of its objectives.
company shall obtain prior approval of the Office to change objectives.
Any company not distributing profits
shall not be merged with any company distributing profits.
The members of a company incorporated
under this Chapter shall elect the directors from amongst themselves in such
number as fixed in the articles of association, on the basis of one member one
According to Income Tax Act 2058,
section 2 (S) the organization entitled to enjoy exemption if it is:
A social, religious, educational and
benevolent organization of public nature established with non – profit motive.
An amateur sports organization so formed
with a view to promoting social or sports related facilities that the
organization or its members does not derive profits.
E. Major Tax Issues:
The major tax issues faced in this case by the
petitioner and the respondent is that of taxation of nonprofit organization. As
many acts are formulated in a narrow view and almost disregards correlation
with any other act of the nation, it faces numerous problems. One such problem
has been encountered in this case. The companies act majorly deals with the
legal provision for incorporation and working of a particular types of
companies but it is totally silent about the taxation policy the different
types of companies are to follow. Also, another issue is that is anybody is registered
according to a certain act is it entitled only to the provisions of that
particular act or can it be related to other accts and enjoy facilities
provided in that act. This is one of the main tax issues raised by the
respondent side. Hence, mandamus is an effective way of rectifying laws but
this is a non efficient way as it is very time consuming and issues have to be
brought up to the authority rather than proactively dealt by the concerned
F. Verdict of Different Courts:
On Sunday, 2068/3/12 the joint bench of the Supreme
Court, Honorable justice Tap Bahadur Magar and Honorable Justice Mr. Bharat Raj
Upreti Magar, gave the verdict in favor of the Corporate Social Consortium. It
has defined its verdict as follows:
Even though Corporate Social Consortium
is registered under the companies act, it is same as the Association
Registration Act 2034 and hence is eligible to be tax exempted.