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Issues:
1. Validity of notice under section 148 of the Income-tax Act, 1961. 2. Granting of exemption under section 11 to the assessee. Issue 1: Validity of notice under section 148 of the Income-tax Act, 1961: The appeals were filed by the Department against the CIT(A)'s observations regarding the weak nature of the notice issued under section 148 of the Income-tax Act, 1961. The assessee, a registered society, had not filed income tax returns for the assessment years 1997-98 and 1998-99. The Assessing Officer issued notices under section 147 as no returns were filed. The CIT(A) held that the initiation of proceedings under section 147 was weak and not sustainable. However, the Tribunal found that not filing returns amounted to escapement of assessment, making the notice valid. For the assessment year 1998-99, although the return was filed and processed under section 143(1), the notice under section 148 was justified as no opinion was expressed. Thus, the first ground of the appeals was allowed. Issue 2: Granting of exemption under section 11 to the assessee: The Department contested the granting of exemption under section 11 to the assessee, a society establishing a medical college. The Assessing Officer argued that no educational activity was conducted during the relevant years, making the income taxable. The CIT(A) accepted the assessee's explanation, noting that the Medical College had become functional with admissions and classes. The Departmental Representative relied on judgments to support their argument, including the Madras High Court case of CIT v. Devi Educational Institution. However, the Tribunal distinguished the cases cited and held that the creation of infrastructure for educational purposes qualifies as educational activity. Considering the Society's objectives and the establishment of the Teaching Hospital, the Tribunal upheld the CIT(A)'s decision to grant exemption under section 11. Consequently, both appeals of the Department were partly allowed. ---
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