2008 (8) TMI 885 - HC - Income Tax

E xemption u/s 11(i)(d) of the IT Act, 1961 - Reopening of Assessment. Applicability of the provisions under ss. 11, 13 and section 12AA - charitable trust - granted registration u/s 12AA - Whether the Tribunal is justified in allowing the exemption u/s 11(i)(d) of the IT Act, 1961, ignoring the fact that the objects of the trust providing benefit to Maheshwari community was hit by the provisions contained in clause (i) of section 13? - HELD THAT - We have gone through the judgment in Ghulam Mohidin Trust vs. CIT 2000 (11) TMI 99 - JAMMU AND KASHMIR HIGH COURT , and a look thereat, makes it clear that the beneficiaries of the trust were confined to Muslim community intelligentsia. In the case in hand, even from reading of two clause 6 and 13, as quoted by learned CIT, it does not show, that the trust was created or established for the benefit of any particular religion, community, or caste. At best, clause 13 shows to be providing for some preference, in favour of the persons belonging to a particular community. So far clause 6 is concerned, that does not talk anything about as to for whose benefit the trust has been created. On perusal of trust deed shows a detailed list of objects of the trust, and all those objects in categorical terms state, about the beneficiaries being the society at large, and does not confine to any particular caste, community, or even religion. In that view of the matter, to say the least, the ineligibility provided in section 13(1)(a) or (b) is not attracted. The question is accordingly answered against the Revenue and in favour of the assessee. Reopening of Assessment - Whether the Tribunal is justified in setting aside the assessment order, ignoring the provisions of section 147 of the IT Act, 1961 the AO validly issued notice u/s 148 of the Act? - Applying the views taken in the case of Lakhmani Mewaldas's case 1976 (3) TMI 1 - SUPREME COURT and Ganga Saran's case 1981 (4) TMI 5 - SUPREME COURT , it has been found by the Tribunal that one of the conditions necessary for issuance of notice u/s 148, being under statement of income of the assessee, is not fulfilled. It has been held, that in order to bring an item within the purview of section 147, it is of utmost importance, that the AO should have reason to believe, based on relevant and cogent material, that such income has escaped assessment. It has been found, that there was no material direct or indirect, available with the AO, which could show that the receipt of donations was without any specific direction of corpus fund. The assessee has shown the receipts, as having been received in the corpus fund, coupled with the report of the auditor. The AO had not inquired into the nature of the receipts, before issuing notice u/s 148, and in earlier years also, the amount was held to be received in the corpus fund. Therefore, Tribunal has rightly examined the controversy. It is significant to note that the Tribunal has further found that AO cannot initiate reassessment proceedings, simply to verify the contents of the return, unlike before it was vested in him in making regular assessment. It was found that the time-limit available for issuance of notice and making assessment u/s 143(3) had expired, but then, on that count, he cannot assume the jurisdiction by venturing to make assessment u/s 148. Even after hearing learned counsel for the parties at length, we are satisfied that the reasons given by the Tribunal are in accordance with law - Accordingly, question is also answered against the Revenue. The net result is that the appeal therefore has no force and is dismissed.

Summary

Issues:
1. Validity of notice under section 148 of the IT Act
2. Admissibility of exemption under section 11(i)(d) of the IT Act

Issue 1: Validity of notice under section 148 of the IT Act
The appeal before the High Court challenged the order of the Tribunal, which allowed the appeal of the assessee. The Tribunal had set aside the assessment order, raising questions about the validity of the notice issued under section 148 of the IT Act. The Court analyzed the reasons for issuing the notice, which were related to the receipt of donations by the trust and the timing of registration under section 12AA. The Court found that the Assessing Officer (AO) did not have sufficient material to believe that income had escaped assessment. The Court referred to Supreme Court judgments emphasizing the importance of a material basis for forming a belief of income escapement. The Tribunal's decision was upheld, stating that the AO cannot initiate reassessment proceedings solely to verify return contents after the time limit for regular assessment has expired.

Issue 2: Admissibility of exemption under section 11(i)(d) of the IT Act
The second issue revolved around the exemption under section 11(i)(d) of the IT Act concerning funds received before the grant of registration under section 12AA. The Court examined the provisions of section 12AA and found that the exemption applied from the date of registration, which in this case was 1st April, 1997. The Court further analyzed section 13(1)(a) and (b) which exclude certain income from the purview of section 11. The Court noted that the trust's objects did not indicate a benefit restricted to a particular community or caste, and the trust was created for the society at large. The Court reviewed the trust deed provided by the assessee, confirming that the trust's beneficiaries were not limited to any specific group. Consequently, the Court ruled in favor of the assessee, stating that the ineligibility provisions of section 13(1)(a) or (b) did not apply.

In conclusion, the High Court dismissed the appeal by the Revenue, upholding the Tribunal's decision in favor of the assessee on both issues. The Court's detailed analysis of the legal provisions and precedents ensured a comprehensive understanding of the judgment's implications on the validity of the notice under section 148 and the admissibility of exemption under section 11(i)(d) of the IT Act.