2019 (4) TMI 2056 - HC - Income Tax

Exemption u/s 11 - rejecting the method of computing the income followed by the assessee - HELD THAT - While going through Section 11 (4A) of the Act which clearly barred that sub-Section (1) or sub-Section(2) or sub-Section (3) or sub-Section 3(A) shall not apply in relation to any income of a trust or an institution being profits and gains of business unless the business is incidental to the attainment of the objectives of the trust or as the case may be institution and separate books of account are maintained by such trust or institution in respect of such business. In our considered opinion although the separate books of account is attempted to be maintained for the business of the trust but there is no material to show that it was incidental to the trust objective. In that view of the matter the provisions of Section 11 (4A) of the Act will not be applicable to the case of the assessee. Hybrid system of accounting adopted by the assessee - Tribunal has rightly come to the conclusion in the last paragraph of the impugned order i.e. paragraph-6 which reads as under as far as ground no.4 is concerned this ground is relevant only if the assessee s changed method of accounting from this year is found to be acceptable. Since the changed method of accounting has not been accepted by the lower authorities and the assessee has not challenged this action of the lower authorities on this issue before us we find no merit in this ground taken by the assessee before us and the same is also dismissed - in that view of the matter we are of the considered view that question no.4 is not raised in its proper form.

Summary

Issues Involved:
1. Quantum of assessment for the assessment years 1985-86, 1989-90, and 1993-94.
2. Penalty imposed on the assessment for the assessment years 1985-86, 1989-90, and 1993-94.
3. Applicability of Section 11(4A) of the Income Tax Act.
4. Adoption of hybrid system of accounting by the assessee.

Issue-wise Detailed Analysis:

1. Quantum of Assessment for the Assessment Years 1985-86, 1989-90, and 1993-94:
The appellant challenged the Income Tax Appellate Tribunal's (ITAT) order dated 31.03.2010, which dismissed the appeals regarding the quantum of assessment for the years 1985-86, 1989-90, and 1993-94. The initial assessment order dated 28.03.1988 was upheld by the CIT (A) and the ITAT. Subsequent appeals and rectifications led to a series of orders, including a High Court order dated 02.12.1991 that quashed the ITAT's rectification order. The Supreme Court's interim order on 18.01.1993 stayed tax collection while allowing assessment proceedings to continue. Ultimately, the Tribunal's order dated 17.06.2004 directed the Assessing Officer (AO) to reconsider the case, which resulted in the AO's order dated 28.03.2006 denying the exemption under Section 11 and rejecting the hybrid accounting method. This was confirmed by the CIT(A) on 16.10.2006 and upheld by the ITAT on 31.03.2010.

2. Penalty Imposed on the Assessment for the Assessment Years 1985-86, 1989-90, and 1993-94:
The appeals also addressed the penalties imposed on the assessments for the same years. The Tribunal's decision to uphold the penalties was based on the AO's findings that the assessee's method of accounting and the denial of exemption under Section 11 were justified. The Tribunal found no merit in the assessee's arguments against the penalties, given the consistent findings of the lower authorities.

3. Applicability of Section 11(4A) of the Income Tax Act:
The main contention was whether the provisions of Section 11(4A) applied to the assessee's case. The High Court's order dated 15.01.2003 directed the Tribunal to consider the applicability of Section 11(4A), which requires that the business income of a trust be incidental to its objectives and that separate books of account be maintained. The Tribunal, in its order dated 31.03.2010, concluded that the assessee did not demonstrate that the business was incidental to the trust's objectives, thus denying the exemption under Section 11. The Tribunal's decision was based on the AO's findings and the lack of arguments presented by the assessee regarding the applicability of Section 11(4A).

4. Adoption of Hybrid System of Accounting by the Assessee:
The assessee's adoption of a hybrid accounting system was a significant point of contention. The Tribunal found that the hybrid system was not acceptable and that the assessee had not challenged the lower authorities' rejection of this method. The Tribunal's conclusion, as stated in paragraph 6 of the impugned order, was that the ground related to the hybrid system of accounting was meritless since the changed method of accounting was not accepted by the lower authorities, and the assessee had not presented arguments to support its adoption.

Conclusion:
The High Court found no substantial questions of law to be adjudicated and dismissed the appeals. The Tribunal's decisions regarding the quantum of assessment, penalties, applicability of Section 11(4A), and rejection of the hybrid accounting system were upheld. The appeals were deemed devoid of merit, and all connected miscellaneous cases and interim applications were accordingly disposed of.