2013 (10) TMI 161 - HC - Income Tax

Violations of condition specified in section 11(5) of the Income Tax Act - exemption u/s 10(23C)(vi) - advance against purchase of property - During the year no purchase of property had been made and it remained as advance. - whether such advance amount can be treated as utilized for educational purpose Held that - When two fact finding authorities recorded a categorical finding that there is violation of Section 11(5) of the Act, the Tribunal committed a serious error by ignoring the same holding that the assessee is entitled to the benefit - If the Tribunal was not inclined to go into the merits of the case, the proper course would have been to set- aside the order of the authorities, remit the matter back to the Assessing Authority to take note of the exemption and then to see whether the violation of Section 11(5) of the Act. - matter restored to AO to reconsider the issue and pass fresh orders Decided in favor of Revenue.

Summary

Issues Involved:
1. Infringement of Section 11(5) of the Income Tax Act, 1961.
2. Validity of exemption under Section 10(23C)(vi) of the Income Tax Act, 1961.
3. Jurisdiction and procedural propriety of the Tribunal in addressing the exemption and infringement issues.

Detailed Analysis:

1. Infringement of Section 11(5) of the Income Tax Act, 1961:
The core issue revolves around whether the assessee violated Section 11(5) by advancing Rs. 37 crores to Sri. Dayananda Pai for the purchase of property, which was not utilized within the year. The Assessing Officer and the First Appellate Authority both concurred that this advance did not qualify as an investment for educational purposes, thus infringing Section 11(5). The Tribunal refrained from recording a finding on this infringement, deferring to the Board's jurisdiction.

2. Validity of Exemption under Section 10(23C)(vi) of the Income Tax Act, 1961:
The assessee claimed exemption under Section 10(23C)(vi), but initially failed to produce the necessary government notification. The Central Board of Direct Taxes later approved the assessee for the relevant assessment years, subject to specific conditions. Both the Assessing Officer and the First Appellate Authority acknowledged the exemption but noted the violation of Section 11(5). The Tribunal, however, granted the exemption based on the Board's approval, without addressing the infringement issue.

3. Jurisdiction and Procedural Propriety of the Tribunal:
The Tribunal held that it was unnecessary to record a finding on the infringement of Section 11(5) since the Board's approval was still in effect. The High Court found this approach erroneous, emphasizing that the Tribunal should have either addressed the merits of the case or remitted the matter back to the Assessing Authority. The proper procedure involves the Assessing Authority investigating compliance with the exemption conditions and notifying the prescribed authority of any violations for potential rescission of the exemption.

Conclusion:
The High Court set aside the orders of the Tribunal and the lower authorities, remitting the matter back to the Assessing Authority. The Assessing Authority is directed to determine whether the assessee violated Section 11(5) and notify the prescribed authority if so. The prescribed authority must then decide on rescinding the exemption after providing the assessee an opportunity to be heard. If rescinded, the Assessing Authority will proceed accordingly with the assessment. The appeal was allowed, and the substantial question of law was answered in favor of the Revenue.