2014 (7) TMI 1370 - HC - Income Tax

Disallowance u/s 11 - whether objects of the Societies are the general public utility as defined under Section 2(15)? - HELD THAT - Assessee has been granted registration u/s 12A - The objects of the Societies are the general public utility as defined u/s 2(15) - No action was taken by the A.O. u/s 12-AA(3) before denied the benefit, but directly disallowed the exemption/benefit under Section 11 of the Act. From the order of the CIT (A), it appears that there is no instance of misuse of the funds by the trustees of the Society. The grant of exemption under Section 11 is not automatic and the assessee shall have to meet out the requirements of Section 11 of the Act. Once, the registration is granted to the assessee under Section 12-A, then the A.O. cannot pass a contrary order without following the provisions of Section 12AA(3), but the same was not done in the instant case. When it is so, then by keeping mind the ratio laid down in the case of CIT Vs. Gujarat Maritime Board, 2007 (12) TMI 7 - SUPREME COURT as well as C.M.S. Vs. Union of India 2009 (5) TMI 41 - ALLAHABAD HIGH COURT we find no reason to interfere with the impugned orders passed by both the Appellate Authorities, the same are hereby sustained alongwith the reasons mentioned therein. No substantial question of law is emerging from the impugned orders.

Summary

Issues:
1. Denial of benefit under Section 11 of the Income Tax Act for the assessment year.
2. Validity of the denial of exemption under Section 11.
3. Compliance with the requirements of Section 11 after registration under Section 12A.
4. Misuse of funds by the trustees of the Society.
5. Applicability of Section 12AA(3) before disallowing exemption under Section 11.
6. Comparison with relevant case laws for decision-making.

Analysis:

1. The case involved the denial of the benefit under Section 11 of the Income Tax Act for the assessment year despite the assessee being registered under Section 12A of the Act.

2. The Assessing Officer (A.O.) declined to extend the benefit of Section 11 without following the provisions of Section 12AA(3) of the Act. However, no misuse of funds by the trustees of the Society was found, as per the order of the Commissioner of Income Tax (CIT).

3. It was noted that the grant of exemption under Section 11 is not automatic, and the assessee must fulfill the requirements of Section 11 after being registered under Section 12A. The A.O. cannot pass a contrary order without following the prescribed procedure under Section 12AA(3).

4. The Court emphasized that the registration under Section 12A should be duly considered before denying the benefit under Section 11. In this case, the A.O. failed to follow the necessary steps under Section 12AA(3) before disallowing the exemption under Section 11.

5. Referring to relevant case laws such as CIT Vs. Gujarat Maritime Board and C.M.S. Vs. Union of India, the Court found no reason to interfere with the orders passed by the Appellate Authorities, as the assessee had met the requirements of Section 11 after being registered under Section 12A.

6. Ultimately, the Court dismissed the appeal filed by the department against the judgment and order passed by the Income Tax Appellate Tribunal for the Assessment Year 2005-06, stating that no substantial question of law emerged from the impugned orders.

This detailed analysis highlights the key issues addressed in the judgment, the legal principles applied, and the final decision rendered by the High Court.