2017 (3) TMI 1476 - AT - Income Tax

Denial of benefits of exemption under s.10(23B) - AO treated the interest income as income from other sources and held that the interest income cannot equated with income earned from activities of development of Khadi or village industries - whether interest income on surplus funds deployed in fixed deposits and other investments etc. partakes the character of income attributable to business of production, sale or marketing of khadi and allied products in terms of section 10(23B)? - Held that - As decided in assessee s own case in earlier years the provisions under which relief is claimed by the assessee is part of exemption provisions whose purpose is also to encourage prescribed activities of such institutions and therefore as per settled judicial principal in this regard such provisions are always to be given a beneficial interpretation with a view to advance the legislative intent. From the facts and financial figures on record we also note that the income of interest is attributable to and arises from working funds in an integrated manner and for this reason also we find that interest cannot be separated from the overall income and activities of the Trust. For the reasons above we therefore hold that the interest income earned by the assessee is entitled to the exemption u/s.10(23B) of the Act. This ground of appeal of the department is therefore dismissed.

Summary

Issues:
Challenge to deletion of addition under section 10(23B) of the Income Tax Act.

Analysis:
The appeal involved a challenge by the Revenue against the Commissioner of Income Tax(Appeals)'s order concerning the deletion of an addition made by the Assessing Officer under section 10(23B) of the Income Tax Act for the Assessment Year 2011-12. The Assessing Officer had disallowed an amount of ?39,22,560 as interest income earned on investments of surplus funds, stating that it did not qualify for exemption under section 10(23B) as income from activities of Khadi or village industries. The CIT(A) deleted this disallowance based on a decision by the ITAT in the assessee's own case for earlier years.

The core issue was whether the interest income on surplus funds invested in fixed deposits and other avenues could be considered as income attributable to the business of producing, selling, or marketing Khadi and allied products under section 10(23B) of the Act. The ITAT analyzed the facts, including the nature of the assessee's business, the application of income solely for the specified purpose, and compliance with relevant regulations. Referring to judicial precedents, the ITAT emphasized the importance of a wider interpretation of the provision to promote the legislative intent behind section 10(23B) and to encourage activities of charitable institutions. It concluded that the interest income was integral to the overall activities of the trust and thus qualified for exemption under section 10(23B).

The ITAT relied on previous decisions in the assessee's case for consistency and dismissed the Revenue's appeal, maintaining that the interest income was entitled to exemption under section 10(23B). The judgment highlighted the need for a beneficial interpretation of exemption provisions to advance the intended purpose of encouraging prescribed activities by institutions. The decision was made in line with earlier tribunal orders, with the possibility of amendments if required. Ultimately, the appeal by the Revenue was dismissed, affirming the application of section 10(23B) to the interest income earned by the assessee trust.

In conclusion, the ITAT upheld the CIT(A)'s decision to delete the addition, emphasizing the importance of interpreting tax provisions in a manner that supports the legislative intent and promotes the objectives of encouraging specific activities by charitable institutions.