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2016 (5) TMI 253 - AT - Income TaxBenefit of exemption under sec. 11 denied - A.O. was of the opinion that though, its objects are charitable in nature and activities are genuine, the activities carried out by the assessee are akin to any commercial activity and hence, computed the income under the head profits and gains of business or profession - Held that - Admittedly, The Society is registered under sec. 12A of the Act and it is imparting education. It is not a case of A.O. that the objects are not charitable in nature and the activities of the assessee are not genuine. The A.O., one side admitted that the objects of the society are not under debate, nor any case is being made out for reconsideration of exemption allowable to assessee, but on the other hand, denied the exemption for the reason that the assessee gross receipts have increased over a period. On perusal of assessment order we find that the A.O. neither doubted the genuineness of the activities of the society, nor pointed out any violation referred to sec. 13(1)(c) or 13(1)(d), which are pre conditions for denying exemption u/s 11 of the Act. Therefore, we are of the opinion that the A.O. was not correct in denying exemption under sec. 11 and assessed income under the head profits and gains of business of profession. - Decided against revenue Applicability of provisions of sec. 40(a)(ia) and 43B when income computed under sec. 11, 12 & 13 of the Act - Held that - If any expenditure is disallowed by invoking the provisions of section 40(a)(ia) and 43B, it leads to a situation where assessee income available for application is enhanced without being any real income for application for charitable purpose, which leads to an absurd situation where the trusts/societies enjoying exemption u/s 11 have to pay taxes. This is because, the assessee claiming exemption u/s 11, shall apply 85% of income for the purpose of objects of the Trust. The legislature in its wisdom has kept separate provisions which are independent from any other provisions of the Act for computation of income of trusts claiming exemption u/s 11 of the Act. Therefore, we are of the opinion that, when income is computed under sec. 11 of the Act, the provisions of sec. 40(a)(ia) & 43B are not applicable. Hence, the A.O. was not correct in disallowing the amounts by invoking the provisions of sec. 40(a)(ia) and 43B for failure to deduct TDS and failure to remit the unpaid liabilities. - Decided against revenue
Issues:
1. Denial of exemption under sec. 11 and computation of income under the head "income from business." 2. Applicability of provisions of sec. 40(a)(ia) and 43B when income is computed under sec. 11 of the Act. Detailed Analysis: 1. The appeal was filed by the Revenue against the order of Commissioner of Income Tax (Appeals) concerning the assessment for the Asst. Year 2009-10. The assessee, a Society registered under Andhra Pradesh Societies Registration Act and sec. 12A of the Income Tax Act, declared nil total income under sec. 11. The Assessing Officer (A.O.) observed an increase in receipts over four years and assessed the income under "income from business," disallowing certain expenditures. The CIT(A) deleted the additions, holding sec. 40(a)(ia) and 43B inapplicable when income is computed under sec. 11. 2. The dispute revolved around whether sec. 40(a)(ia) and 43B are applicable when income is computed under sec. 11. The Revenue argued for sustaining the additions, while the assessee contended that these provisions are not relevant for trusts/societies claiming exemption under sec. 11. The Tribunal noted that sec. 40(a)(ia) and 43B fall under the computation of profits and gains from business or profession, whereas sec. 11 deals with income not forming part of total income. The Tribunal emphasized that the real income concept applies to sec. 11, ensuring that income is available for application for charitable purposes. 3. The Tribunal analyzed the judgment of ITAT, Mumbai Bench in a similar case, which held that sec. 40(a) is not applicable when income is computed under sec. 11. Applying this precedent and considering the facts of the case, the Tribunal upheld the CIT(A)'s decision to delete the additions, concluding that sec. 40(a)(ia) and 43B do not apply when income is assessed under sec. 11. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order. In conclusion, the Tribunal ruled in favor of the assessee, holding that the provisions of sec. 40(a)(ia) and 43B are not applicable when income is computed under sec. 11 of the Income Tax Act. The judgment emphasized the distinction between income from business or profession and income exempt under sec. 11 for trusts and societies, ensuring that the real income concept is applied for charitable purposes.
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