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2011 (9) TMI 222 - AT - Income TaxExemption under s. 10(20) and sec. 12AA - definition of local authority - Exemption under s. 10(20) was no longer available to the assessee after the legislative amendment w.e.f. 1st April 2003 - assessee is a major port trust set up by the virtue of Gazette Notification No. 159 - So Assesse demanded exemption u/s 12AA - Even as the assessee was granted registration under s. 12AA the CIT(A) declined to grant the consequential benefits on procedural grounds - Keeping in view the case CIT v. U.P. Forest Corpn 2007 -TMI - 40389 - SUPREME Court held that deem it fit and proper to remit the matter to the file of the AO with a direction to examine the matter on merits for eligibility to tax exemption as a result of the registration under s. 12AA now available to the assessee - Appeal allowwed
Issues:
1. CIT(A)'s refusal to direct the AO to compute the income according to sections 11 to 13 of the IT Act for a charitable institution registered under section 12AA. 2. Impact of legislative amendment on the eligibility of the assessee for exemption under section 10(20) of the Act. 3. Procedural grounds for denying the assessee the benefits of taxation under sections 11 to 13 despite registration under section 12AA. 4. Request for restoration of the matter to the AO for fresh examination in light of registration under section 12AA. 5. Interpretation of the powers of the Tribunal in issuing directions to the AO for tax exemption eligibility. 6. Discrepancy between the stance of the Departmental Representative and the CBDT representative on procedural issues. 7. Observations on reducing unproductive litigation and the role of the Committee on Disputes. Analysis: 1. The primary grievance raised by the assessee was against the CIT(A) for not directing the Assessing Officer (AO) to compute the income in accordance with sections 11 to 13 of the IT Act, despite being a charitable institution registered under section 12AA. The issue pertained to the assessment years 2003-04, 2004-05, and 2005-06. 2. The assessee, a major port trust, faced challenges due to a legislative amendment that narrowed down the definition of 'local authority' under section 10(20) of the Act from April 1, 2003. Consequently, the assessee lost the exemption under section 10(20) and had to seek registration under section 12AA, which was granted from April 1, 2003. 3. Despite obtaining registration under section 12AA, the CIT(A) denied the assessee the benefits of taxation under sections 11 to 13 on procedural grounds, such as not filing the IT return as a charitable institution, lacking necessary audit reports, and the AO's authority limitations. The CIT(A) rejected the claim in a detailed order. 4. The assessee appealed against the CIT(A)'s decision, seeking restoration of the matter to the AO for a fresh examination considering the registration under section 12AA. The counsel argued that the AO should reevaluate the case based on the current legal position and allow the assessee to fulfill procedural requirements for tax exemption. 5. The Tribunal, following the guidance from the Supreme Court, directed the matter to be remitted to the AO for a thorough examination of the eligibility for tax exemption under section 11 in light of the registration under section 12AA. The AO was instructed to issue a speaking order after providing a fair hearing to the assessee. 6. The Tribunal criticized the Departmental Representative's strict procedural stance, contrasting it with the more reasonable approach of the CBDT representative. Emphasizing the need to avoid unproductive litigation, the Tribunal highlighted the importance of considering the interest of justice and the spirit of the law. 7. The appeals were allowed for statistical purposes, and the Tribunal expressed hope for a more pragmatic and fair approach by the field authorities to reduce unnecessary litigation and uphold the objectives of the legal system.
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