2010 (1) TMI 782 - AT - Income Tax

Exemption u/s 10(26B) - AO found that assessee-society was just doing work for general urban public as a whole and was not promoting schedule caste or tribe, therefore not eligible for exemption u/s 10(26B) - AO also found that assessee was granted registration u/s 12A only w.e.f. 24.4.2006, therefore income of the society is not eligible for exemption u/s 12A during the relevant year under consideration - Accordingly, surplus as per income and expenditure account and the amount of grant not utilized during the year were brought to tax - Held that - assessee society was not doing any work in the interest of scheduled castes or scheduled tribes or backward classes, but doing the work for general urban public as a whole. Accordingly, it was not entitled for claim of exemption u/s 10(26B), Assessee society was not only in receipt of interest income from bank but it was also paying interest on the funds borrowed by it from HUDCO. All these facts and figures are duly fortified by the audited income and expenditure account filed with the return of income, AO directed to bring to tax the surplus income as shown by assessee in its Audited Income and Expenditure Account, appeal of the Revenue is allowed.

Summary

Issues:
1. Whether the assessee-society is eligible for exemption under section 10(26B) of the Income Tax Act.
2. Whether the assessee-society is liable to file a return of income under section 139(1) of the Act.
3. Whether the surplus income of the assessee-society is taxable.

Issue 1:
The Appellate Tribunal analyzed whether the assessee-society, registered under the Societies Registration Act, was eligible for exemption under section 10(26B) of the Income Tax Act. The Tribunal found that the society was not primarily established for promoting the interests of scheduled castes or scheduled tribes, as required by the provision. The Tribunal noted that the society's activities were aimed at the general urban public as a whole, rather than specifically benefiting the mentioned groups. Consequently, the Tribunal held that the assessee-society was not entitled to claim exemption under section 10(26B).

Issue 2:
The question of whether the assessee-society was obligated to file a return of income under section 139(1) of the Act was deliberated. The Revenue contended that, based on the audited income and expenditure account, which showed a surplus income exceeding the non-taxable limit, the society was required to file a return. The Revenue argued that even charitable institutions must file returns if their income surpasses the non-taxable threshold, as per section 139(4A). The Tribunal agreed with the Revenue's position, emphasizing that the society's surplus income necessitated the filing of a return, despite the society's claims to the contrary.

Issue 3:
Regarding the taxability of the surplus income of the assessee-society, the Tribunal upheld the Revenue's appeal. The Tribunal directed the Assessing Officer to tax the surplus income of Rs.14.31 lakhs, as indicated in the Audited Income and Expenditure Account. The Tribunal rejected the arguments presented by the society's representative, emphasizing that the audited accounts and audit report supported the taxability of the surplus income. The Tribunal concluded that the society was liable to pay tax on the surplus income, in accordance with the provisions of the Income Tax Act.

This comprehensive analysis of the judgment highlights the key issues addressed by the Appellate Tribunal ITAT, Delhi, regarding the eligibility for exemption, filing obligations, and taxability of the surplus income of the assessee-society under the Income Tax Act.