2015 (2) TMI 667 - HC - Income Tax

Exemption/approval to the petitioner society under section 10(23C)(vi) denied - there was no stipulation in the trust deed regarding utilization of the funds of the trust in the event of the dissolution/winding up of the society - Held that - It was not shown by the respondent that any money had ever been diverted to any other trust and it did not carry on any activity for which the society had been constituted. The defect, as pointed out by the Director General of Income-tax, was curable as the utilisation of the funds in the event of dissolution or winding up of the society was an event which was yet to take place and the defect pointed out by the Director General was cured prior thereto. Moreover, there was no allegation of utilization of funds in violation of the trust deed of the petitioner. In such a situation, declining approval/exemption to the petitioner under section 10(23C)(vi) of the Act was unjustified. - Decided in favour of assessee.

Summary

Issues: Challenge to order declining exemption under section 10(23C)(vi) of the Income-tax Act, 1961.

Analysis:
1. The petitioner, a society registered in Punjab, sought exemption under section 10(23C)(vi) of the Income-tax Act, 1961. The Director General of Income-tax (Inv.) declined the exemption citing a lack of provision in the trust deed regarding the utilization of funds in the event of dissolution or winding up of the society.

2. The petitioner argued that the defect was curable and had subsequently included a provision in the trust deed stating that in case of dissolution, assets would be transferred to another society with similar objectives. The petitioner had not diverted any funds contrary to the trust deed and had rectified the deficiency pointed out by the Director General before the actual event of dissolution occurred.

3. The respondents contended that the reliance on section 14 of the Act was unfounded, and the provisions of section 10(23C) would override any conflicting provisions. They argued that the petitioner could only claim benefits for subsequent years after amending the trust deed.

4. The Court found merit in the petitioner's argument, emphasizing that the defect in the trust deed was curable, as the event of dissolution had not yet occurred. The petitioner had rectified the deficiency by amending the trust deed, ensuring assets' transfer to a similar society in case of dissolution. As there was no evidence of fund misuse and the rectification was done in advance, the denial of approval/exemption was deemed unjustified.

5. Consequently, the Court allowed the writ petition, setting aside the order declining exemption. The matter was remanded to the respondent for a fresh decision on the petitioner's application for approval/exemption under section 10(23C)(vi) of the Income-tax Act, 1961.