2015 (9) TMI 592 - AT - Income Tax

Eligibility for exemption U/s. 11 - whether both the AO as well as CIT(A) erred in law as well as on facts in holding that the appellant trust was carrying the business of renting vastu etc. for a fee and, therefore, it attracted the first provisio to Section 2(15)? - Held that - The assessee a Public Charitable trust, was created vide deed of trust dated 01.06.2000, that it was granted registration u/s. l2A of the Act, w.e.f. 27.07.2001 that it was granted approval u/s. 80G(5)of the Act, in 2009, that during the year under consideration the AO held that the activities carried out by it were not eligible for claiming the exemption, that in earlier and subsequent years claim made by the assessee about exemption was accepted by the AO. But, it is not known as to whether any of the orders was passed u/s. l43(3) of the Act. During the appellate proceedings, the FAA has not fully mentioned the submissions made by the assessee and has decided the issue relying upon a judgment that has been overruled long back i.e. in Addl. CIT v. Surat Art Silk Cloth Mfrs. Association 1979 (11) TMI 1 - SUPREME Court . It is surprising that the FAA had not considered the later judgment which is considered one of the landmark judgments dealing with charitable activities since 1980. He totally ignored the judgment of Hon ble Delhi High Court delivered in the case of Institute of Chartered Accountants of India (2013 (7) TMI 205 - DELHI HIGH COURT) that was relied upon by the assessee. His order is cryptic and does not contain the facts narrated by the AO . Thus the order of justice matter should be restored back to the file of the FAA for re-adjudication, who will decide the issue afresh after affording the assessee a reasonable opportunity of hearing - Decided in favour of assessee by way of remand.

Summary

Issues Involved:
1. Interpretation of the first proviso to Section 2(15) of the Income Tax Act, 1961 regarding the income of a trust.
2. Whether the activities of the trust fall under the definition of "charitable purpose" for exemption under Section 11 of the Income Tax Act.
3. Consideration of judgments by higher courts in determining the applicability of tax provisions.
4. Disallowance of expenses on account of chijjat while computing business income.
5. Validity of the First Appellate Authority's (FAA) decision and the need for re-adjudication.

Detailed Analysis:

1. The primary issue in this case was the application of the first proviso to Section 2(15) of the Income Tax Act, 1961, concerning the income of a trust derived from activities like 'Rent of Vastu', 'Scrap Sale', and 'Cloth Washing'. The Assessing Officer (AO) held that these activities were not covered under charitable purposes and were business receipts, thus attracting the first proviso. The First Appellate Authority (FAA) upheld this decision, citing precedents and the absence of specific provisions in the trust deed for providing relief to the poor.

2. The next issue revolved around whether the trust's activities qualified as "charitable purpose" under Section 2(15) for exemption under Section 11 of the Income Tax Act. The appellant argued that the trust aimed to provide relief to the poor by offering utensils at low rates during social functions. However, the FAA, referencing past judgments, ruled against the appellant, emphasizing the need for explicit provisions in the trust deed for such activities to be considered charitable.

3. The judgment also delved into the significance of legal precedents in interpreting tax provisions. The appellant highlighted the overruling of certain judgments by higher courts, indicating a shift in legal interpretation. This aspect played a crucial role in determining the applicability of tax provisions to the trust's activities.

4. Additionally, the AO disallowed expenses related to chijjat, considering them as part of fixed assets and not deductible as expenditure while computing business income. This decision added another layer of complexity to the assessment of the trust's financial affairs and raised questions about the treatment of such expenses under tax laws.

5. Finally, the judgment scrutinized the FAA's decision-making process, critiquing the lack of thorough consideration of submissions and legal precedents. The Tribunal found the FAA's order lacking in reasoning and clarity, leading to the decision to remand the matter for re-adjudication. The need for a well-reasoned and balanced decision by tax authorities was emphasized, highlighting the importance of due process in tax assessments.

Overall, the judgment underscored the intricate nature of tax law interpretation, the significance of legal precedents, and the importance of transparent and reasoned decision-making in tax assessments involving charitable trusts.