2008 (1) TMI 824 - HC - Income Tax

Assessment barred by limitation - claim of exemption as a charitable institution, under section 16 of the Kerala Agricultural Income-tax Act, 1991 - Held that - The assessment in this case, is in substance, one made under section 41(1) of the Act which is within time and is not barred by limitation. We are of the view that the claim of exemption under section 16 of the Act does not really arise from the Tribunal s order, as the petitioner has not established compliance with the procedure for getting exemption. Besides, the benefit which the charitable trust constituted by the petitioner enures only to members of the Jain community and it is to be noted that a charitable institution constituted for the benefit of a community, is not entitled to exemption.Revision petition dismissed.

Summary

Issues:
1. Assessment barred by limitation under section 39(6) of the Act.
2. Nature of assessment completed under section 39(4) or section 41 of the Act.
3. Permissibility of reassessment under section 41(1) without a regular assessment.
4. Claim of exemption as a charitable institution under section 16 of the Act.

Analysis:

1. The petitioner contended that the assessment completed for the year 1994-95 is barred by limitation under section 39(6) of the Act, as the return was filed on July 13, 1995, and the assessment was not completed by July 13, 1997. However, the Government pleader argued that the officer had up to 10 years from the end of the financial year for completing the assessment under section 41 of the Act. The court held that the assessment was an income escaping assessment under section 41, not a regular assessment under section 39(4), and thus, the limitation was 10 years from the end of the financial year.

2. The court clarified that the assessment in question was not a regular assessment under section 39(4) based on a return filed under section 35, but an income escaping assessment under section 41. Even though section 41 was not mentioned in the assessment order, the assessment was deemed to be under section 41, as the officer initiated the assessment based on a belated return. The court emphasized that the procedure for assessment under section 39(4) applies to an assessment under section 41, and the limitation for such assessment is 10 years from the end of the relevant financial year.

3. Regarding the permissibility of reassessment under section 41(1) without a regular assessment, the court rejected the petitioner's contention that reassessment under section 41(1) required a prior regular assessment. The court interpreted section 41(1) to allow for income escaping assessment in any situation where income chargeable to tax has escaped assessment, without the condition of a prior regular assessment. Therefore, the assessment under section 41 in this case was deemed valid and not barred by limitation.

4. The petitioner claimed exemption as a charitable institution under section 16 of the Act. However, the court found that the petitioner failed to produce the necessary documentation to establish eligibility for exemption. Additionally, the charitable trust formed by the petitioner only benefited members of a specific community, which was not entitled to exemption according to a Supreme Court ruling. Therefore, the court concluded that the claim of exemption under section 16 was not valid in this case.

In conclusion, the court dismissed the revision petition, as the contentions raised by the petitioner regarding limitation, nature of assessment, and exemption claim were found to be untenable based on the detailed analysis provided in the judgment.