2013 (6) TMI 152 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - Exemption u/s 11 - application of income - transfer of four immovable properties - revocable transfer - accumulation of income - Held that - For a transfer to become a revocable transfer , there has to be a provision whereby the transferee agrees to, directly or indirectly, transfer any part of the income or assets to the transferor. Alternatively, the transfer should be such that the transferor has a right to resume power over the transferred assets. Thus both these conditions were not satisfied. When M/s. India Financial Association transferred the properties to the ultimate purchaser, there was no provision for any re-transfer. There was no agreement between the assessee and the India Financial Association, for any re-transfer of properties or any income to the assessee. Just because the India Financial Association had sold the properties and given the money to the assessee, that would not be sufficient to hold that there was an agreement in the nature of a revocable transfer between them. None of the relevant conveyance would show that the assessee had any right to re-assume power over the transferred properties. There was neither any transfer effected by the assessee during the relevant previous year, much less any transfer which was revocable. So, not only had the AO taken a lawful view after considering the issues relating to holding of the property, but the view with which the DIT (Exemptions) was trying to substitute was a patently unlawful one. Both the assessee as well as M/s. India Financial Association were entitled to claim exemption under section 11 and hence there could never have been any prejudice caused to the Revenue, this way or that way. There was nothing in the assessment order which could be considered as erroneous and/or prejudicial to the interests of the Revenue. The order of the Director of Income-tax (Exemptions) passed under section 263 stands quashed In favour of assessee.

Issues Involved:
1. Whether the assessment made by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue under section 263 of the Income-tax Act, 1961.
2. Whether the transactions between the assessee and India Financial Association (IFA) constituted a "revocable transfer" under sections 60 to 63 of the Act.
3. Whether the exemption under section 11 of the Act could be denied based on the alleged revocable transfer.
4. Whether the revised return filed by the assessee should be considered by the Assessing Officer.

Detailed Analysis:

Issue 1: Erroneous and Prejudicial Assessment
The Director of Income-tax (Exemptions) held that the assessment made for the impugned year was erroneous and prejudicial to the interests of the Revenue. The Director argued that the Assessing Officer had not appropriately considered the transactions between the assessee and IFA, leading to an erroneous assessment. The Tribunal noted that for section 263 to apply, the order must be both erroneous and prejudicial to the Revenue. It was often held by the apex court that if the Assessing Officer takes a lawful view where two views are possible, the order cannot be considered erroneous.

Issue 2: Revocable Transfer
The Director of Income-tax (Exemptions) issued a show-cause notice to the assessee, arguing that the transactions constituted a revocable transfer under sections 60 to 63 of the Act. The Director contended that since the properties were purchased in the name of IFA but funded by the assessee, and the proceeds from the sale of these properties were returned to the assessee, the transactions were revocable. The Tribunal, however, found no evidence of any provision for re-transfer or any agreement giving the transferor a right to reassume power over the transferred assets. The Tribunal concluded that there was no revocable transfer as defined under section 63.

Issue 3: Exemption under Section 11
The Director of Income-tax (Exemptions) argued that exemption under section 11 could not be granted due to the revocable transfer, as section 11 is subject to sections 60 to 63. The Tribunal disagreed, noting that both the assessee and IFA were registered under section 12A(a) and had been enjoying exemptions under sections 11 and 12 for a long period. The Tribunal emphasized that there was no transfer during the relevant year that could be considered revocable, and thus, the exemption under section 11 could not be denied.

Issue 4: Revised Return
The Assessing Officer refused to consider the revised return filed by the assessee because the original return was filed out of time. However, the Tribunal noted that the revised return was necessary due to the late availability of details regarding the transfers by IFA. The Director of Income-tax (Exemptions) had condoned the delay in filing Form No. 10 for accumulation of income. The Tribunal found that the Assessing Officer had indeed considered the transactions shown in the revised return while framing the original assessments.

Conclusion:
The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal found that the Assessing Officer had taken a lawful view after considering all aspects of the transactions. The view of the Director of Income-tax (Exemptions) was deemed unlawful. The Tribunal quashed the order passed under section 263 of the Act, allowing the appeal filed by the assessee.

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