2016 (5) TMI 1175 - AT - Income Tax

Exemption u/s 11 - charitable purposes - business activity incidental to the attainment of objectives of the trust - the words not involving the carrying on any activity for profit were dropped from section 2(15). - Held that - As long as broader public cause is served, whether by the State funding or by efficient regulation of the affairs, it is an object of general public utility. It is also important to bear in mind that costs of proper development of area are also costs incidental to the plots and units sold by the assessee and, therefore, these two things should not be seen in isolation The authorities below were not justified in declining the benefit of section 11 read with section 2(15) to the assessee, and in holding that the assessee-trust was not covered by advancement of any object of general public utility. We, therefore, direct the Assessing Officer to delete the disallowance of exemption - Decided against revenue

Summary

Issues Involved:
1. Legality and jurisdiction of the assessment orders.
2. Legality of the notice for enhancement of income.
3. Legality of the enhancement of income by the Commissioner of Income-tax (Appeals).
4. Wrongful assessment of income in the hands of the assessee.
5. Disallowance of exemption under section 11 of the Income-tax Act.
6. Ad hoc addition/disallowance of Rs. 2,88,41,750.
7. Treatment of the assessee as an association of persons instead of a trust.
8. Excessiveness and lawfulness of additions/disallowances.
9. Basis of additions made by the Assessing Officer.
10. Consideration of explanations and evidence provided by the assessee.
11. Principles of natural justice and opportunity of being heard.
12. Wrongful charging of interest under section 234B.

Detailed Analysis:

1. Legality and Jurisdiction of the Assessment Orders:
The assessee challenged the assessment orders passed under section 143(3), asserting that the additions/disallowances made by the Assessing Officer are illegal, bad in law, and without jurisdiction.

2. Legality of the Notice for Enhancement of Income:
The assessee contended that the notice issued by the Commissioner of Income-tax (Appeals) for the enhancement of income was illegal and bad in law.

3. Legality of the Enhancement of Income by the Commissioner of Income-tax (Appeals):
The Commissioner of Income-tax (Appeals) enhanced the income by Rs. 6,58,59,246 on account of the excess of income over expenditure. The assessee argued that this enhancement was illegal, bad in law, and without jurisdiction.

4. Wrongful Assessment of Income in the Hands of the Assessee:
The assessee claimed that the income was wrongly and illegally assessed in its hands, considering that the appellant-trust was taken over by the Punjab Government from April 12, 2007, to March 31, 2008.

5. Disallowance of Exemption under Section 11 of the Income-tax Act:
The Commissioner of Income-tax (Appeals) disallowed the exemption under section 11, stating that the activities carried out by the assessee were not for charitable purposes as per section 2(15) of the Act. The Tribunal, referencing its order dated September 10, 2015, for the assessment years 2009-10 and 2011-12, decided this issue in favor of the assessee, stating that the activities were indeed for charitable purposes.

6. Ad Hoc Addition/Disallowance of Rs. 2,88,41,750:
The Commissioner of Income-tax (Appeals) made an ad hoc addition/disallowance of Rs. 2,88,41,750, treating the assessee's status as an association of persons instead of a trust. The Tribunal noted that the assessee is a trust and that this addition/disallowance was wrongly upheld.

7. Treatment of the Assessee as an Association of Persons Instead of a Trust:
The Tribunal found that the Commissioner of Income-tax (Appeals) wrongly treated the assessee as an association of persons, whereas it is a trust.

8. Excessiveness and Lawfulness of Additions/Disallowances:
The assessee argued that the additions/disallowances made were unjust, unlawful, without jurisdiction, and highly excessive. The Tribunal directed the Assessing Officer to delete the disallowance of exemption of Rs. 65,20,690.

9. Basis of Additions Made by the Assessing Officer:
The assessee claimed that the additions made were based on mere surmises and conjectures, without any material on record to justify them.

10. Consideration of Explanations and Evidence Provided by the Assessee:
The Tribunal noted that the explanations, evidence, and material provided by the assessee were not properly considered and judicially interpreted by the Assessing Officer and the Commissioner of Income-tax (Appeals).

11. Principles of Natural Justice and Opportunity of Being Heard:
The assessee contended that the impugned assessment order and the Commissioner of Income-tax (Appeals) orders were against the principles of natural justice, as they were passed without affording a reasonable and adequate opportunity of being heard.

12. Wrongful Charging of Interest under Section 234B:
The assessee argued that the interest under section 234B was wrongly and illegally charged, as it could not have foreseen the disallowances/additions made and could not have included the same in the current income for payment of advance tax.

Conclusion:
The Tribunal remitted the issue concerning the disallowance of exemption under section 11 for the assessment years 2008-09 and 2010-11 to the Assessing Officer to be decided afresh in accordance with the Tribunal's order dated September 10, 2015. The other issues raised in these appeals were not addressed at this stage. Both appeals were treated as allowed for statistical purposes.