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2013 (10) TMI 745 - AT - Income TaxEven after registration given u/s 12AA of the Income tax act, A.O. is can enquire about the details to provide exemption u/s 11 & 12 of the act Held that - Case laws relied upon by the learned first appellate authority arc relating to granting registration under s. 12AA of the Act and not relating to exemption provided under ss. 11 and 12 of the Act - When the registration is granted, it does not mean that the AO is barred from examining the details of various activities/work undertaken by the trust to achieve the object of the assessee-trust. The AO is within his power to call complete details of income and expenditure of the assessee whether these have been spent on the activities to achieve the objects of the trust or not - In spite of various opportunities given by the AO, the assessee, nor his Authorized Representative filed details as required by the AO - Learned counsel for the assessee has not filed any details specifically asked - Assessee-trust has not proved its case for seeking exemption under s. 11 of the Act by producing various details of expenditure incurred by the assessee-trust on various activities undertaken to achieve its objects before any Revenue authorities - Learned first appellate authority has wrongly deleted the additions in dispute by passing the impugned orders which deserves to be cancelled Order of the A.O. is upheld Decided in favor of Revenue.
Issues Involved:
1. Deletion of addition by treating surplus income as business income. 2. Deletion of disallowance of employees' PF debited to income and expenditure account. 3. Qualification for exemption under Section 11 of the Income Tax Act. 4. Nature of the trust's activities as charitable or commercial. Detailed Analysis: 1. Deletion of Addition by Treating Surplus Income as Business Income: The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 5,38,12,792 made by the AO by treating the surplus income as business income. The AO argued that the assessee-trust's activities were confined to developing new housing/commercial projects, benefiting only a handful of people who purchased properties from the trust. The AO relied on the Tribunal, Chandigarh Bench's decision in the case of PUDA vs. CIT, which held that the activities were of a commercial nature and not charitable. The CIT(A) reversed this, holding that the trust's activities were charitable in nature and entitled to exemption under Section 11, relying on the Punjab & Haryana High Court's decision in the case of Improvement Trust, Moga. 2. Deletion of Disallowance of Employees' PF Debited to Income and Expenditure Account: The AO disallowed Rs. 20,78,026 debited to the income and expenditure account for employees' PF, arguing that the assessee did not fulfill the conditions for deduction under Section 36(1)(iv) as the PF was kept in the form of FDRs/Savings accounts. The CIT(A) held that the assessee-trust had utilized the entire income towards its main objective and that the PF amount was enforceable under the Provident Fund Act, resulting in no taxable surplus. 3. Qualification for Exemption under Section 11 of the Income Tax Act: The AO argued that merely granting registration under Section 12AA does not exempt the assessee from fulfilling the requirements of Sections 11 and 12. The AO is within his power to verify whether the income and expenditure were utilized for achieving the trust's objectives. The CIT(A) held that the trust's activities were charitable and that the trust had applied more than 85% of its gross receipts towards its aims and objectives, thereby qualifying for exemption under Section 11. 4. Nature of the Trust's Activities as Charitable or Commercial: The AO argued that the trust's activities were of a commercial nature, similar to private builders, and did not qualify as charitable. The CIT(A) relied on the Punjab & Haryana High Court's decision, which held that the Improvement Trust's activities were of general public utility and charitable in nature. Conclusion: The Tribunal found that the CIT(A) had not adequately addressed the AO's concerns regarding the details of the activities undertaken by the trust. The Tribunal emphasized that registration under Section 12AA does not preclude the AO from examining whether the trust's activities meet the requirements of Sections 11 and 12. The Tribunal upheld the AO's decision, stating that the trust's activities did not qualify for exemption under Section 11 and were of a commercial nature. Both appeals filed by the Revenue were allowed, and the CIT(A)'s orders were cancelled.
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