2013 (2) TMI 209 - HC - Income Tax

Reopening of assessment - assessee claimed exemption u/s 10 (22) - whether addition u/s 68 was possible even where the income of the appellant was exempt under Section 10 (22) ? - Held that - CIT has held that if the AO had reasons to believe that the appellant trust was not being run for its genuine object and was being run for private profit of family members of the trustees, AO should have reported the matter to the CIT, who could have initiated proceedings for withdrawal of exemption. ITAT has upheld the order of AO. The very receipt of money by the appellant for the purpose of running the activities of educational institutions itself has been doubted by the ITAT. Hence the ITAT is justified in going into the facts which was incidental to the question of law raised and no estoppel plea can be raised by the assessee. Further, it was noticed by AO that in a suit filed between Trust members, there was asset sharing compromise was arrived at. Thus from the overall facts and circumstances, it is evident that unless it is proved that the income derived is covered under Section 10(22) of the Income Tax Act, 1961, it cannot be decided as to whether addition of the same under Section 68 of the Income Tax Act, 1961, is possible or not. Therefore, on the facts and circumstances of this case, this court deems it appropriate to remand the matter for consideration of the assessing officer in the light of the legal position and observations to locate the source of income.

Issues involved:
1. Exemption under Section 10 (22) of the Income Tax Act, 1961 for a Charitable Trust running educational institutions.
2. Reopening of assessments for various years.
3. Addition of loans received from individuals.
4. Upholding of Assessing Officer's order by Commissioner of Income Tax (Appeals).
5. Appeal before Income Tax Appellate Tribunal.
6. Substantial questions of law raised by the assessee.
7. Interpretation of Section 10 (22) of the Act.
8. Source of income to educational institution.
9. Cross-examination of witnesses.
10. Compliance with legal provisions by the trust.

Analysis:

1. The case involved a Charitable Trust claiming exemption under Section 10 (22) of the Income Tax Act, 1961 for running educational institutions. The assessments for multiple years were reopened, leading to additions of loans received from individuals. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's order, prompting the assessee to appeal before the Income Tax Appellate Tribunal.

2. The main contention was whether the trust, operating solely for educational purposes, was entitled to exemption under Section 10 (22). The Tribunal's finding that the money was not used for educational purposes was challenged. The Revenue argued that without knowing the source of income, it cannot be considered exempt. The appellant provided confirmation letters from some lenders to explain the source of income.

3. The appellant raised substantial questions of law regarding the Tribunal's rejection of the appeal, addition under Section 68, and denial of an opportunity to cross-examine a disputing lender. Legal precedents were cited to support the appellant's position that the trust's income should be exempt if used for educational purposes.

4. The Tribunal's decision was remanded for reconsideration by the assessing officer, emphasizing the need for cross-examination of witnesses and compliance with legal provisions by the trust. The court highlighted the importance of proving that income falls under Section 10 (22) before considering additions under Section 68.

5. The judgment emphasized the significance of ensuring that educational institutions meet the criteria for exemption under Section 10 (22) and the need for proper documentation and compliance with legal requirements to avoid disputes regarding the source and utilization of income.

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