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2015 (12) TMI 1422 - HC - Income TaxEntitlement for exemption under Section 11 - nature of interest income from FD with the banks - the respondent being a Trust not having submitted Form No.10 and not having applied 85% of income towards Charitable & Religious purposes - Held that - Assessee is a statutory authority created under the Karnataka Improvement Boards Act to carry out public purposes. Therefore, ratio of judgement in the case of CIT v. Gujarat Maritime Board 2007 (12) TMI 7 - SUPREME COURT OF INDIA is applicable to the facts of this case wherein held that Section 10(20) and Section 11 of the 1961 Act operate in totally different spheres. Even if the Board has ceased to be a local authority , it is not precluded from claiming exemption under Section 11(1) of the 1961 Act. Therefore we have to read Section 11(1) in the light of the definition of the words charitable purposes as defined under Section 2(15) of the 1961 Act.. - interest earned by parking the funds received from the Government also assumed the character of funds provided by the Government and cannot be brought to tax as Income from other sources. In the premise, we are of the considered view that the argument advanced on behalf of the Revenue that assessee was not entitled for exemption under Section 11 of the Act for the reasons recorded by the Commissioner of Income Tax, is untenable and deserves to be rejected and accordingly rejected. - Decided in favour of assessee
Issues:
1. Interpretation of provisions of Section 11 of the Income Tax Act, 1961 regarding exemption criteria for a Trust. 2. Compliance with statutory requirements under Section 11(2) and Rule 17 of the Income Tax Rules, 1962 for income accumulation and utilization. 3. Filing of Form No.10 after completion of assessment and its impact on reopening assessment. 4. Applicability of exemption under Section 11 for a statutory authority created for public purposes. Issue 1: Interpretation of Section 11 for Trust Exemption The appellant challenged the ITAT's decision on whether the interest earned on funds parked in FDS should be excluded from gross receipts for exemption under Section 11 of the Income Tax Act. The appellant argued that the respondent, being a Trust, was not entitled to exemption under Section 11 without complying with statutory requirements. The Tribunal, following precedent, considered the interest earned as part of funds provided by the Government and not taxable as Income from other sources. The Court analyzed the nature of the respondent's activities, its relationship with the Government, and concluded that the respondent acted in a fiduciary capacity, entitling it to exemption under Section 11. Issue 2: Compliance with Statutory Requirements The Commissioner of Income Tax had found discrepancies in the respondent's compliance with Section 11(2) and Rule 17, leading to a reassessment directing the addition of unutilized income. The Tribunal remanded the matter for reassessment and to obtain Form No.10. The appellant contended that the respondent had not met the 85% income utilization requirement. However, the Court noted that the respondent, as a statutory authority, was following government directives in fund deployment, and the nature of its activities aligned with the public welfare, meeting the criteria for exemption under Section 11. Issue 3: Filing of Form No.10 and Assessment Reopening The appellant argued against the filing of Form No.10 after assessment completion, citing mandatory time limits under Rule 17. The Court examined the respondent's role as a statutory authority for public purposes, akin to the case law precedent cited, and held that the respondent's activities aligned with charitable purposes, warranting exemption under Section 11. The Court rejected the argument that the respondent was not entitled to exemption, emphasizing the public welfare aspect of the respondent's functions. Issue 4: Applicability of Exemption for a Statutory Authority The Court referenced a Supreme Court judgment regarding the interpretation of "charitable purposes" under Section 2(15) of the Income Tax Act to support the respondent's eligibility for exemption under Section 11. The Court found that the respondent, as a statutory authority created for public purposes, was entitled to tax exemption under Section 11. Consequently, the Court dismissed the appeal, holding that the Revenue's arguments lacked merit, and upheld the respondent's entitlement to tax exemption.
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