2005 (3) TMI 717 - AT - Income Tax

Summary

Issues:
Denial of exemption under section 10(22) of the Income-tax Act to the assessee trust.

Analysis:
The appeal arose from the order of the Commissioner of Income-tax (Appeals)-IV, Bangalore, concerning the denial of exemption under section 10(22) of the Income-tax Act to the assessee trust for the assessment year 1998-99. The primary issue was the violation of provisions of section 13(1) and section 11 by the assessee trust, leading to the denial of exemption under sections 11 and 12 of the Income-tax Act. The Assessing Officer concluded that the institution was run in a manner benefiting family members, thus not meeting the criteria of being 'not for profit.'

The learned CIT(A) held that while the advance for acquisition of agricultural land was permissible, the amount advanced to the trustee, Shri R. Venkatesh, was considered a misuse of funds under section 13(2)(a). This misuse led to the conclusion that the assessee trust could not be deemed to exist 'solely for educational purposes,' thereby disqualifying it from exemption under section 10(22).

The counsel for the assessee argued that the violation of section 13(1) would not disentitle the assessee from exemption under section 10(22), citing Circular No. 712, dated 25-7-1995. The decision of the Hon'ble Delhi High Court in a similar case supported this interpretation, emphasizing that the conditions of section 11 or 13 were irrelevant for exemption under section 10(22).

The Departmental Representative supported the CIT(A)'s order, contending that the advance to the trustee for personal benefit indicated a deviation from existing solely for educational purposes, justifying the denial of exemption under section 10(22).

The Tribunal, after considering the submissions and relevant facts, held that while the trust violated section 13(1), this did not automatically disqualify it from exemption under section 10(22). The Tribunal emphasized that the trust's educational purpose was not compromised by advancing funds to the trustee, especially since the trust had been eligible for exemption under section 10(22) in previous years. The Circular No. 712 and the decision of the Hon'ble Delhi High Court supported the Tribunal's view. Consequently, the Tribunal allowed the appeal, granting the assessee trust exemption under section 10(22) for the income earned by the institution.