2011 (3) TMI 1064 - HC - Income Tax

Exemption under sections 11 & 12 - Whether the ITAT was correct in law in holding that the assessee was entitled to exemption under sections 11 & 12 despite the fact that it had not disinvested the investment upto 31-3-1993? - Held that - As can be seen from the impugned order of the Tribunal extracted above these shares were to be disinvested upto 31-3-1993 or within one year from the end of previous year in which they were acquired whichever is later. Thus shares could be disinvested by 31-3-1994. We are concerned here with the assessment year 1992-93 and therefore the time allowable by the aforesaid provisions had not lapsed. It is clear from the above that the assessee had the time as per the aforesaid provisions for disinvestment of the said shares which were received during the Financial Year 1991-92 i.e. relevant assessment year 1992-93 (with which we are concerned as this case relates to the assessment year 1992-93). The question could have arisen if at all in the assessment year 1993-94. Thus agree with the aforesaid view taken by the Tribunal answer the question in favour of the assessee.

Summary

Issues:
Interpretation of provisions under sections 11, 12, and 13 of the Income-tax Act, 1961 regarding exemption for charitable trusts and institutions.

Analysis:
The case involved an appeal under section 260A of the Income-tax Act, 1961, arising from an order of the Income-tax Appellate Tribunal for the assessment year 1992-93. The main question of law was whether the assessee was entitled to exemption under sections 11 and 12 of the Act despite not disinvesting the investment by a certain date. The respondent, a charitable trust, received shares as donations, which were not disposed of within the stipulated time frame, leading to a reassessment by the Assessing Officer under section 147/148 of the Act. The Assessing Officer denied the exemption under section 11, resulting in the computation of the assessee's income. The CIT(A) upheld the validity of the reassessment proceedings but granted relief on merits. The Revenue challenged the CIT(A)'s order on merits, leading to the appeal before the High Court.

The CIT(A) relied on the judgment of the Madras High Court in a similar case to support the assessee's claim for exemption under sections 11 and 12. The Tribunal affirmed this view, interpreting the provisions of section 13(1)(d) of the Act. It noted that the assessee had time to disinvest the shares as per the relevant provisions, hence the exemption under sections 11 and 12 could not be denied. The Tribunal's decision was based on the legal position that the assessee was allowed to hold the investment without losing the benefits of the Act. The Revenue argued that the corpus donation received should be treated as income under section 2(24) of the Act, which includes voluntary contributions received by charitable trusts. However, the Tribunal held that the shares could be disinvested within the allowable time frame, and the denial of exemption was premature.

The High Court agreed with the Tribunal's interpretation, emphasizing that the time for disinvestment had not lapsed during the relevant assessment year. The shares in question were to be disinvested by a later date, and the issue could potentially arise in a subsequent assessment year. Therefore, the High Court dismissed the appeal, ruling in favor of the assessee and upholding the exemption under sections 11 and 12 of the Act.