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2012 (7) TMI 344 - AT - Income TaxDis allowance of claim of exemption u/s.80-IB(10)- invoking provisions of Sec 263 by DIT - Held that - Assessee s claim for deduction u/s.80-IB(10) for AY 2009-10 relates to the profit derived from developing housing project, cannot be regarded as income of a charitable trust or institution within the meaning of Sec.11(1)(a) because carrying on of the housing project was not a charitable purpose even in AY 2009-10 in view of the first proviso to Section 2(15) of the Act - the activity of construction of building and sale was in the nature of trade, business, commerce for consideration and therefore the income from the said activity will stand excluded from the provisions of Sec.11 & if Sec.11 is excluded, then the income of the Assessee has to be computed in accordance with the provisions of the Act and therefore the claim of the Assessee for deduction u/s.80-IB(10)has to be allowed - exercise of jurisdiction u/s. 263 by DIT on the ground of lack of inquiry regarding eligibility of the Assessee for deduction u/s.80-IB(10)cannot therefore be upheld - in favour of assessee.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Eligibility of charitable trust for deduction under Section 80-IB(10) of the Act. 3. Computation of income for charitable trusts under Section 11 of the Act. 4. Set-off of earlier years' deficit against the current year's income. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The Director of Income Tax (Exemption) ("DIT") invoked Section 263, asserting that the Assessing Officer's (AO) order dated 18.03.2011 was erroneous and prejudicial to the interests of the Revenue. The DIT argued that the AO failed to make proper inquiries regarding the Assessee's eligibility for deduction under Section 80-IB(10) and whether the income was applied for charitable purposes as per Section 11. The Tribunal noted that the AO had accepted the Assessee's claim for deduction after due inquiry, and the adequacy of the inquiry cannot be the basis to conclude the order was erroneous. The Tribunal cited the Delhi High Court's decision in Eon Technologies, emphasizing the difference between lack of inquiry and adequacy of inquiry. Therefore, the exercise of jurisdiction under Section 263 on the ground of lack of inquiry was not upheld. 2. Eligibility of Charitable Trust for Deduction under Section 80-IB(10): The DIT contended that charitable trusts are not eligible for deduction under Section 80-IB(10) and that the AO's action in allowing such a claim was erroneous. The Tribunal observed that the AO had allowed the deduction after considering the details provided by the Assessee. The Tribunal also noted the retrospective amendment by the Finance Act, 2012, which introduced Section 13(8) with effect from 1.4.2009. This amendment clarified that if the provisions of the first proviso to Section 2(15) apply, Sections 11 and 12 would not exclude any income from the total income. Therefore, the income from the housing project would not be considered as income derived from property held for charitable purposes under Section 11(1)(a). Consequently, the Assessee's income had to be computed in accordance with the provisions of the Act, making the Assessee eligible for deduction under Section 80-IB(10). 3. Computation of Income for Charitable Trusts under Section 11: The DIT argued that the income of a charitable trust should be computed based on the commercial concept of income and not under the various heads of income specified in Section 14. The Tribunal referred to the Calcutta High Court's decision in Giridharilal Shewnarain Tantia Trust, which held that income for charitable purposes should be applied for such purposes to claim exemption under Section 11. However, the Tribunal concluded that the retrospective amendment under Section 13(8) altered this position, as income from business activities would now form part of the total income under the Act, making the computation under Section 11 irrelevant for such income. 4. Set-off of Earlier Years' Deficit against Current Year's Income: The Assessee argued for the set-off of earlier years' deficits against the current year's income, citing decisions from the Gujarat High Court and Madras High Court. The DIT rejected this contention, stating that there was no carry forward of deficit claimed or allowed by the AO in earlier years and that Sections 70, 71, and 72 did not apply to income computed under Section 11. The Tribunal did not provide a detailed analysis on this point, as the primary focus was on the eligibility for deduction under Section 80-IB(10) and the computation of income under Section 11. Conclusion: The Tribunal quashed the DIT's order under Section 263, holding that the AO's order was not erroneous or prejudicial to the interests of the Revenue. The Tribunal allowed the Assessee's appeal, emphasizing that the income from the housing project should be computed under the Act's provisions, making the Assessee eligible for deduction under Section 80-IB(10). The retrospective amendment under Section 13(8) played a crucial role in this decision, altering the computation of income for charitable trusts engaged in business activities.
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