2011 (7) TMI 1019 - AT - Income Tax

Violation of Section 13 - Whether, there was any violation of Section 13 by Assessee. - Held that - Assessing Officer himself has mentioned that the assessee is a trust registered under section 12A(1) of the Act. This finding itself makes the income of the assessee-trust exempt under section 11. However, the registration under section 12A(a) does not give a blanket approval to the trust that its income is exempt. The Assessing Officer is duty bound to verify violations, if any, in regard to sections 11 and 13. Once the Assessing Officer has made a finding in regard to the violations, then such finding would have to be dislodged before the income in relation to the violation is granted the benefit of exemption under section 11. Here, the Assessing Officer has specifically mentioned that the books of account were not produced for verification. The Assessing Officer has also specifically mentioned violation in regard to the provisions of section 13(1)(b) and 13(1)(c). This finding of the Assessing Officer has not been adjudicated by the learned Commissioner of Income-tax (Appeals) even though it is a subject matter of the appeal before the learned Commissioner of Incometax (Appeals). The learned Commissioner of Income-tax (Appeals) has only adjudicated upon the issue as to whether the business of running the Kalyanamandapam is incidental to the attainment of the objects of the trust and therefore it is entitled to the exemption under section 11. In the circumstances as it is noticed that the learned Commissioner of Income-tax (Appeals) has not adjudicated on the issue of violation of sections 11 and 13(1)(b) and 13(1)(c), the issues in the appeals are restored to the file of the learned Commissioner of Income-tax (Appeals) for readjudication after granting the assessee adequate opportunity to substantiate its claim - Decided in favour of Revenue.

Summary

Issues Involved:
1. Violation of provisions under section 13(1)(c) of the Income-tax Act.
2. Entitlement to exemption under section 11 of the Income-tax Act.
3. Non-production of books of account for assessment.
4. Applicability of section 13(1)(b) to the trust's activities.
5. Reopening of assessments for specific assessment years.
6. Cancellation of registration under section 12A of the Income-tax Act.

Detailed Analysis:

Violation of Provisions under Section 13(1)(c):
The Revenue argued that the assessee trust violated section 13(1)(c) of the Income-tax Act, which was not disputed by the assessee nor adjudicated by the Commissioner of Income-tax (Appeals). The Assessing Officer's findings on this violation were not addressed by the Commissioner of Income-tax (Appeals), who instead focused on the trust's entitlement to exemption under section 11.

Entitlement to Exemption under Section 11:
The Commissioner of Income-tax (Appeals) held that the income earned by the trust through rentals and amenity charges for running a marriage hall was incidental to the attainment of the trust's objectives, thus qualifying for continued exemption under section 11. However, the Assessing Officer denied this exemption due to the alleged violation of section 13(1)(c). The Tribunal noted that while the trust's registration under section 12A(a) makes its income generally exempt under section 11, this does not provide blanket approval if there are violations of sections 11 and 13.

Non-production of Books of Account:
The Revenue also contended that the assessee did not produce its books of account for assessment. This claim was not adjudicated by the Commissioner of Income-tax (Appeals), who only considered whether the business of running the marriage hall was incidental to the trust's objectives.

Applicability of Section 13(1)(b):
The Joint Director of Income-tax (Exemptions) under section 144A had previously held that there was a violation of section 13(1)(b) because the trust was created for the benefit of a particular religious community, the Vysya 108 Gothram community. This finding was followed by the Assessing Officer but not addressed by the Commissioner of Income-tax (Appeals).

Reopening of Assessments:
The assessments were reopened under section 148 due to the trust being created for the benefit of a specific community, thus violating section 13(1)(b). The Tribunal upheld the reopening of assessments for the years 1998-99 to 2003-04, as directed by the Joint Director of Income-tax (Exemptions).

Cancellation of Registration under Section 12A:
The assessee argued against the cancellation of registration under section 12A, stating that the trust had been spending its income on charitable purposes without discrimination. However, the Tribunal found that the trust's objectives were primarily for the benefit of a specific community, thus justifying the reopening of assessments and the potential cancellation of registration.

Conclusion:
The Tribunal restored the issues regarding violations of sections 11, 13(1)(b), and 13(1)(c) to the Commissioner of Income-tax (Appeals) for re-adjudication. The appeals filed by the Revenue were allowed for statistical purposes, and the cross-objections filed by the assessee were dismissed as infructuous. The order was pronounced on July 22, 2011.