2014 (10) TMI 924 - AT - Income Tax

Benefit of exemption u/s 11 - whether the activities of the assessee-society are in the nature of business for a cess or fee, irrespective of the nature of use or application or retention of the income from such activity? - AO disallowing claim for exemption u/s 11 made by the assessee and assess its income under the head Profits and gains of business or provision when the registration granted u/s 12A was in operation - commercial activity of office-bearers - Held that - Considering that the assessee was constituted as an entity on 11.04.2008 and got registration u/s 12AA of the I.T.Act w.e.f 08.10.2008, the past commercial activity of its office-bearers, even though under the same brand name, cannot cast a shadow of taint on it. Unless the assessee is tainted by the failure to satisfy the procedural requirements for exemption, the benefit of exemption cannot be denied to it simply because the persons connected with it were carrying out similar activities as a business in the past or, for that matter, are carrying out the same even at present separately in their personal capacity. Hon ble Gujarat High Court in the case of Ahmedabad Urban Development Authority vs DRIT (2010 (3) TMI 847 - Gujarat High Court) holding that on the date when the assessment order was framed, the income of the petitioner was exempt entirety and the AO could not have travelled beyond the certificates of registration granted u/s 12AA, once the procedure is complete as provided in sub-section (1) of the section 12AA and a certificate issued granting registration to the trust or institution, it is apparent that the same is a document evidencing satisfaction that conditions laid down in section 12A stand fulfilled. The fact of the certificate cannot be ignored by the AO by adopting a stand that the trust or institution is not fulfilling conditions for applicability of section 11 & 12 of the Act. - Decided in favour of assessee

Summary

Issues:
1. Whether the assessee is entitled to exemption u/s 11 of the Income Tax Act, 1961?
2. Whether the CIT(A) has the authority to direct the AO to re-examine information/documents during appellate proceedings?

Analysis:

Issue 1:
The primary issue in this case was whether the assessee, a society engaged in organizing tours to religious and historical places, was eligible for exemption u/s 11 of the Income Tax Act. The Assessing Officer (AO) had denied the exemption, treating the society as a business entity. However, the society was registered u/s 12A of the Act and was involved in charitable activities as well. The CIT(A) allowed the claimed exemption, leading to the deletion of the addition made by the AO. The CIT(A) emphasized that as long as the registration granted by the Commissioner of Income Tax (CIT) is valid, the AO cannot independently analyze the charitable nature of the activities. The CIT(A) concluded that the society's activities were indeed charitable and religious in nature, thereby justifying the exemption u/s 11. The decision was supported by relevant case laws, including judgments from the Hon'ble High Courts of Uttarakhand and Gujarat.

Issue 2:
The second issue revolved around the authority of the CIT(A) to direct the AO to re-examine information or documents during appellate proceedings. The revenue contended that the CIT(A) had erred in asking the AO to reconsider the documents already presented during the assessment proceedings. However, the CIT(A) had the power to call for a remand report during appellate proceedings. The Tribunal found that the CIT(A)'s decision was in line with legal provisions and upheld the first appellate order. The Tribunal relied on precedents from the Hon'ble High Courts of Uttarakhand and Gujarat, which emphasized the importance of registration under section 12AA and the limitations it imposes on the AO's assessment.

In conclusion, the Tribunal dismissed the appeal and upheld the first appellate order, emphasizing the significance of valid registration under section 12AA for claiming exemptions u/s 11 of the Income Tax Act. The judgment highlighted the need for assessing officers to adhere to the procedural requirements and respect the registration status granted to charitable entities.