2016 (1) TMI 1022 - AT - Income Tax

Exemption claimed u/s.10(23B) denied - development of khadi or village industries or both (KVIC) - Held that - In AY 2008-09 an identical issue was raised before the Tribunal and the Tribunal has adjudicated the issue in the light of the relevant provisions of the Act and has concluded that the assessee is not entitled for the benefit of exemption u/s 10(23B) of the Income Tax Act as the assessee could not furnish exemption certificate for the impugned assessment year duly granted by the prescribed authority. He has simply placed reliance upon the earlier certificate granted for assessment year 2007-08. He has also placed reliance upon the recommendation of the U.P. Khadi and Village Industries Board, Planning Division, Lucknow vide letter dated 16.6.2009 to the State Director, Khadi and Village Industries Commission. This recommendation was made in June 2009 and till date exemption certificate has not been granted to the assessee. Therefore, it cannot be presumed or assumed that once recommendations are made, exemption certificate will certainly be granted to the assessee. Therefore, the contention of the ld. counsel for the assessee that the assessee has made best efforts for obtaining the exemption certificate and in the light of its efforts, exemption may be granted, cannot be accepted, as before allowing exemption, assessee must have exemption certificate as per provisions of section 143(3) of the Act. Moreover, this exemption certificate is to be granted for a particular assessment year, therefore, it cannot be used for other assessment year for which it was not granted. In the light of the totality of the facts and circumstances of the case, we are of the considered opinion that the ld. CIT(A) has rightly denied the benefit of exemption under section 10(23B) of the Act to the assessee - Decided against assessee

Issues Involved:
1. Interpretation of Section 10(23B) of the Income Tax Act, 1961.
2. Fulfillment of conditions for claiming exemption under Section 10(23B).
3. Engagement in development activities of Khadi and Village Industries Commission (KVIC).
4. Determination of total income and tax liabilities.
5. Validity of the order passed by the CIT(A).
6. Renewal of exemption under Section 10(23B) for the assessment year in question.
7. Application of the theory and principles of legitimate expectation.

Detailed Analysis:

1. Interpretation of Section 10(23B) of the Income Tax Act, 1961:
The appellant contended that the CIT(A) erred in law and on facts by wrongly interpreting Section 10(23B) of the Income Tax Act, thereby denying the exemption. The Tribunal examined the relevant provisions and concluded that institutions existing solely for the development of Khadi and Village Industries, if approved by the prescribed authority, are entitled to exemption. However, the approval can be withdrawn if the institution's activities contravene the provisions of Section 10(23B).

2. Fulfillment of Conditions for Claiming Exemption under Section 10(23B):
The appellant argued that all necessary conditions for claiming the exemption were fulfilled. The Tribunal noted that the institution must apply its income solely for the development of Khadi or village industries and must be approved by the KVIC. The approval is valid for a maximum of three assessment years and can be withdrawn if the conditions are not met. The Tribunal found that the appellant did not furnish the exemption certificate for the relevant assessment year, which is a prerequisite for claiming the exemption.

3. Engagement in Development Activities of KVIC:
The appellant claimed that the CIT(A) failed to appreciate that the society was engaged in the development activities of KVIC. The Tribunal emphasized that the Assessing Officer must examine whether the institution's activities align with its objectives and whether it holds a valid exemption certificate for the relevant assessment year. The Tribunal found that the appellant did not provide sufficient evidence to prove its engagement in KVIC development activities for the assessment year in question.

4. Determination of Total Income and Tax Liabilities:
The appellant contested the determination of total income and tax liabilities by the CIT(A). The Tribunal upheld the CIT(A)'s decision, stating that without a valid exemption certificate, the benefit of Section 10(23B) cannot be granted. Consequently, the determination of total income and tax liabilities was deemed accurate and in accordance with the law.

5. Validity of the Order Passed by the CIT(A):
The appellant argued that the order passed by the CIT(A) was invalid and should be quashed. The Tribunal, however, found no justification to take a contrary view, as the CIT(A) had rightly denied the exemption based on the absence of a valid exemption certificate. The Tribunal confirmed the CIT(A)'s order and dismissed the appeal.

6. Renewal of Exemption under Section 10(23B) for the Assessment Year in Question:
The appellant claimed that the society had applied for renewal of the exemption, which was forthcoming. The Tribunal noted that the recommendation for renewal was made in June 2009, but the exemption certificate had not yet been granted. The Tribunal emphasized that the exemption certificate must be obtained for the relevant assessment year, and reliance on previous certificates or pending recommendations is insufficient for claiming the exemption.

7. Application of the Theory and Principles of Legitimate Expectation:
The appellant argued that the principles of legitimate expectation should apply, given that the society had previously enjoyed the exemption. The Tribunal rejected this argument, stating that the exemption certificate must be valid for the specific assessment year in question. Without a valid certificate, the benefit of exemption cannot be granted, regardless of past approvals or expectations.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, denying the exemption under Section 10(23B) of the Income Tax Act for the relevant assessment year due to the absence of a valid exemption certificate. The appeal was dismissed, confirming the determination of total income and tax liabilities.

← Previous Next →