2012 (11) TMI 348 - AT - Income Tax

Exemption u/s. 11 - denial of claim as sum had been paid to founder members out of the corpus fund - Held that - The amount was paid to the non-founder members on account of a dispute between the assessee society and them and there was a practical problem to keep these recipients of the amount within the committee of office bearers and the situation so warranted that had the assessee not paid this amount, the society could not have continued affecting the interest of larger number of students of the assessee. Being so, the assessee refunded this portion of money contributed by these two persons, and that refund of money cannot be considered as a benefit given to these persons - The fact whether defaulting office bearers are the founder members of the assessee trust or not has to examined. Regarding allowability of exemption u/s. 10(23C)(iiiad)/(vi) there is no allegation that the assessee is not imparting education. Firstly, there is no evidence that such benefit has been given to the founder member of the trust. Secondly, even if it is so, such instances would only hit the case of the assessee within the meaning of sections 11 to 13 and cannot be imported to deny exemption u/s. 10(23C)(iiiad) provided a clear finding on the basis of material on record is given that the assessee trust is not solely for the purpose of imparting education. Some disallowances of expenses or payments claimed by the assessee cannot be held to be a separate object for which the trust is existing thereby holding that the trust is not existing solely for education purposes. Mere certain lapses and disallowances cannot become basis for denying exemption u/s. 10(23C)(iiiad) - matter is restored to the file of the AO to have a fresh look on the entire subject - in favour of assessee for statistical purposes.

Summary

Issues:
Non-granting of exemption u/s. 11 of the Income-tax Act, 1961 and consideration of alternate claim u/s. 10(23C)(vi) for assessment years 2003-04 and 2004-05.

Analysis:
The case involved appeals by the assessee against orders of the CIT(A) for assessment years 2003-04 and 2004-05 regarding exemption u/s. 11 and u/s. 10(23C)(vi) of the Income-tax Act, 1961. The Assessing Officer found violations by the assessee society in payments made to certain individuals from the corpus fund, leading to denial of exemptions. The CIT(A) upheld the Assessing Officer's decision, stating that the assessee failed to prove that the donations received were of corpus nature. The CIT(A) also highlighted a transfer of funds to society members, which the assessee claimed was a clerical error. The Appellate Tribunal considered the arguments presented by both parties.

In its defense, the assessee provided detailed accounts showing an increase in the corpus fund, emphasizing that the payments made were not withdrawals but contributions by the individuals. The assessee argued that the payments were necessary for the trust's benefit and that the defaulting office bearers were not founder members. The Tribunal agreed with the assessee, stating that the payments were made for the trust's benefit and did not violate the provisions of section 13(1)(c) of the Act.

Regarding the exemption u/s. 10(23C)(iiiad)/(vi), the Tribunal noted that there was no evidence of the trust not imparting education. It emphasized that any benefits given to founder members should not automatically disqualify the trust from exemption. The Tribunal directed the Assessing Officer to reevaluate the case, considering the observations made and ensuring a fair assessment based on the facts presented. The appeals of the assessee were allowed for statistical purposes only, indicating a favorable outcome for the assessee in terms of the issues raised.

In conclusion, the judgment addressed the issues of exemption u/s. 11 and u/s. 10(23C)(vi) for the assessment years 2003-04 and 2004-05. It highlighted the importance of proving the nature of donations and the justification for payments made from the corpus fund. The Tribunal emphasized the need for a thorough examination of the practical circumstances surrounding the payments and the trust's primary purpose of imparting education. The decision provided clarity on the interpretation of relevant provisions and instructed a fresh review by the Assessing Officer to ensure a fair and just outcome.