2013 (10) TMI 1374 - AT - Income Tax

Exemption u/s 11 - Held that - Since the activities of the assessee are charitable in nature, and, hence, the assessee is entitled for exemption under section 11 of the Act and accordingly, we decline to interfere with the order passed by the CIT(A) in directing the AO to allow exemption under section 11 of the Act.

Summary

Issues:
1. Exemption under section 11 of the Income Tax Act, 1961 denied by the AO.
2. Appeal filed by the department against the order of CIT(A) directing the AO to allow exemption under section 11 of the Act.
3. Interpretation of the eligibility for exemption under section 11 based on the nature of activities and profit motive.

Analysis:
Issue 1: Exemption under section 11 denied by the AO
The AO denied exemption under section 11 of the Income Tax Act for the assessment year in question, citing reasons similar to those used in the assessment order for the AY 2007-08. The AO observed that the Finance Act 2002 had widened the tax base, bringing local authorities like the Slum Rehabilitation Authority (SRA) into the tax net. Despite SRA being registered under section 12AA, the AO determined the taxable income, leading to the dispute.

Issue 2: Appeal against CIT(A) order directing exemption under section 11
The CIT(A), relying on a Tribunal order for AY 2003-04 and decisions of the Hon'ble Supreme Court, directed the AO to allow exemption under section 11 to the assessee. The department, aggrieved by this order, appealed before the ITAT. The ITAT considered the previous Tribunal order and upheld the CIT(A)'s decision, emphasizing that the activities of SRA were charitable in nature, making it eligible for exemption under section 11.

Issue 3: Interpretation of eligibility for exemption under section 11
The Hon'ble Bombay High Court also considered the matter, affirming that the primary purpose of SRA was charitable in nature, as it aimed to provide residential settlements to slum dwellers without a profit motive. The absence of a profit motive was deemed crucial for eligibility for exemption under section 11. The ITAT, following the decisions of the Hon'ble Supreme Court and the jurisdictional High Court, concluded that since the activities of the assessee were charitable, exemption under section 11 should be allowed.

In conclusion, the ITAT dismissed the Revenue's appeal for AY 2009-10, aligning with the precedents set by the Hon'ble Supreme Court and the jurisdictional High Court. The decision emphasized the charitable nature of the activities carried out by the assessee, leading to the rejection of the department's grounds for denying exemption under section 11 of the Income Tax Act.