2006 (4) TMI 348 - AT - Income Tax

Summary

Issues Involved:
1. Exemption of income under section 10(23C)(vi) regarding an advance for property purchase.
2. Compliance with section 11(5) of the Income-tax Act.
3. Validity of the Commissioner's direction to exempt income under section 10(23C)(vi).
4. Alleged misuse of funds advanced to Shri Dayananda Pai.
5. Authority to withdraw approval under section 10(23C)(vi).

Detailed Analysis:

1. Exemption of Income under Section 10(23C)(vi) Regarding an Advance for Property Purchase:
The revenue contested the exemption of income under section 10(23C)(vi) for an advance of Rs. 37 crores paid to Shri Dayananda Pai, arguing it violated section 11(5). The Commissioner of Income-tax (Appeals) had directed the exemption, which the revenue opposed, citing non-compliance with the conditions of section 11(5).

2. Compliance with Section 11(5) of the Income-tax Act:
The Assessing Officer noted that the advance for property purchase was not utilized within the year, and neither was the property registered nor possession taken. This led to the conclusion that the assessee infringed section 11(5), resulting in the rejection of the exemption claim under sections 11 and 12. The Commissioner of Income-tax (Appeals) also found an infringement of section 11(5).

3. Validity of the Commissioner's Direction to Exempt Income under Section 10(23C)(vi):
The Commissioner of Income-tax (Appeals) held that the assessee qualified for exemption under section 10(23C)(vi) due to a notification from the Central Board of Direct Taxes (CBDT) approving the trust. The Tribunal emphasized that the authority to withdraw approval under section 10(23C)(vi) lies with the CBDT, not the Assessing Officer or the Commissioner of Income-tax (Appeals).

4. Alleged Misuse of Funds Advanced to Shri Dayananda Pai:
The revenue argued that the funds advanced to Shri Dayananda Pai were used for personal purposes, supported by a detailed chart of fund utilization. The assessee countered that the funds were advanced as per an agreement for land acquisition, and any subsequent misuse by Shri Dayananda Pai was beyond their control. The Tribunal noted that the revenue did not establish any misuse of funds for the benefit of the trustees.

5. Authority to Withdraw Approval under Section 10(23C)(vi):
The Tribunal highlighted that any action regarding non-compliance with section 11(5) should be taken by the CBDT, which has the authority to withdraw approval after giving a reasonable opportunity for the assessee to show cause. The Tribunal vacated the finding of the Commissioner of Income-tax (Appeals) on the infringement of section 11(5) as it was beyond their jurisdiction.

Conclusion:
The Tribunal concluded that the assessee's income is exempt under section 10(23C)(vi) as approved by the CBDT. The appeal of the revenue was dismissed, and the cross-objection by the assessee was disposed of accordingly. The Tribunal refrained from giving a finding on the alleged infringement of section 11(5), leaving it to the CBDT's jurisdiction.