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2012 (8) TMI 305 - AT - Income TaxCharitable purpose - denial of exemption u/s 11 - local authority created by the Government of Maharashtra claiming exemption of its income as per section 10(20A) till A.Y.2002-03 and subsequently on withdrawal of Section 10(20A), registered u/s 12A - assessee contented that AO is not entitled to examine whether such Trust or Institution was created for charitable or religious purpose or not once it was registered u/s 12A - Held that - Principles laid down in the case of Gujarat Maritime Board (2007 (12) TMI 7 - SUPREME COURT OF INDIA) are squarely applicable to assessee s case wherein it was held that advancement of any object of benefit to the public or a section of the public as distinguished from benefit to an individual or a group of individuals would be a charitable purpose. Since Coordinate Bench in other cases where the appellant were local authority created by the Govt. of Maharashtra have held in favor of appellants on similar issue, therefore, we uphold the orders of the CIT(A) directing AO to allow exemption under section 11 - Decided against Revenue
Issues Involved:
1. Whether the assessee is entitled to exemption under section 11 of the Income Tax Act. 2. Whether the Assessing Officer (AO) can deny exemption under section 11 despite the registration under section 12A. 3. Whether the assessee qualifies as a valid trust under sections 11 to 13 of the Income Tax Act. 4. Whether the activities of the assessee are genuine and charitable in nature. 5. Whether the assessee is a local authority entitled to exemption under section 10(20) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Entitlement to Exemption Under Section 11: The primary issue is whether the assessee, a local authority created by the Government of Maharashtra, is entitled to exemption under section 11 of the Income Tax Act. The assessee was previously exempt under section 10(20A), which was removed from the statute from AY 2003-04. Consequently, the assessee applied for and was granted registration under section 12A. The AO examined the issue and concluded that despite the registration under section 12A, the assessee was not engaged in charitable activities and thus not entitled to exemption under section 11. The AO argued that the MMRDA does not qualify as a valid trust and that the provisions of sections 11 to 13 are more applicable to private individuals or groups creating valid public trusts. 2. AO's Authority to Deny Exemption Despite Section 12A Registration: The CIT (A) upheld the assessee's contention that the AO is not entitled to examine whether the trust or institution was created for charitable purposes once it was registered under section 12A. The CIT (A) relied on various decisions, including those of the Delhi ITAT, Bombay ITAT, and High Courts of Madhya Pradesh and Gujarat, which established that the AO must give effect to the registration granted under section 12A and can only verify the application of income, not the charitable status of the institution. 3. Validity of the Trust Under Sections 11 to 13: The CIT (A) also addressed whether a local authority is entitled to exemption under sections 11, 12, and 13. Following the decision of the ITAT Ahmedabad Bench in the case of Gujarat Maritime Board, which was upheld by the Hon'ble Gujarat High Court and the Supreme Court, it was held that for the purpose of falling under section 11, it is not necessary for the entity to be a trust. Any institution or trust that satisfies the conditions mentioned in sections 11 to 13 is entitled to claim exemption. 4. Genuineness and Charitable Nature of Activities: The CIT (A) considered the AO's findings that the activities of the assessee are not genuine and not charitable in nature. The CIT (A) held that since the activities undertaken by the assessee were accepted as charitable at the time of granting registration under section 12A, the AO was precluded from making inquiries about the genuineness of the institution. The AO was only empowered to verify the application of income. 5. Local Authority Entitlement Under Section 10(20): The CIT (A) held that the assessee is not a local authority for the purpose of section 10(20), relying on decisions of the Supreme Court in cases such as Adityapur Industrial Area Development Authority and U.P. State Road Transport Corporation. However, this issue became academic as the assessee was granted exemption under section 11, rendering the question of local authority status moot. Conclusion: The Tribunal upheld the CIT (A)'s order, confirming that the assessee is entitled to exemption under section 11 and that the AO cannot deny this exemption despite the registration under section 12A. The Tribunal also dismissed the Revenue's appeal, affirming that the activities of the assessee are charitable in nature and that the assessee is entitled to the benefits of section 11. The issue of whether the assessee is a local authority under section 10(20) was left open for future adjudication. Both the appeals filed by the Revenue and the assessee were dismissed.
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