2018 (9) TMI 770 - AT - Income Tax

Benefit of section 11 denied - registration u/s.12AA is continuing - taxation of interest income - Held that - So far as the status of registration u/s.12AA is concerned, the same still stands as on date, because registration cancelled by the learned CIT(E) has been set aside and reversed by the Tribunal. Once, the assessee is registered u/s.12AA, then it is sine-qua-non that benefit of Section 11 has to be given. The Assessing Officer has granted exemption to the assessee on its entire income following the principle of mutuality . Only taxed the interest income. If income is to be computed u/s.11, then ostensibly interest income would also form part of the income and expenditure account. Accordingly, the same has to be computed in the same manner and the benefit of Section 11 has to be given. We find that this precise issue had come up for consideration before this Tribunal in assessee s own case in the Assessment Year 2009-10, wherein the Tribunal has allowed the benefit of Section 11 after following the Tribunal s order for the Assessment Year 2008-09. Once in the earlier assessment years the assessee has been granted exemption u/s.11 and registration u/s.12AA is still continuing, then we do not find any reason as to why benefit of section 11 should be denied. Accordingly, the order of the learned CIT (A) is confirmed and Revenue s appeal is dismissed.

Summary

Issues:
1. Whether the assessee society qualifies as a charitable organization under the Income Tax Act, 1961.
2. Whether the bank interest amounting to ?72,78,575/- is covered under the principle of mutuality.

Analysis:

Issue 1:
The appeal was filed by the Revenue against the order passed by the ld. CIT(A)-XL, New Delhi for the Assessment Year 2011-12, questioning the charitable status of the assessee society. The Assessing Officer had denied exemption u/s. 11(1) to the assessee, stating that the society was engaged in business activities and not charitable activities as per the amended provisions of section 2(15) of the Income Tax Act, 1961. However, the ld. CIT(A) held that the society's activities did not fall under trade, commerce, or business, as per the judgment of the Hon'ble Delhi High Court, and directed the Assessing Officer to allow exemption u/s. 11(1). The Tribunal confirmed this decision, emphasizing that once the society is registered under section 12AA, the benefit of Section 11 must be granted, and upheld the exemption based on the principle of mutuality.

Issue 2:
Regarding the addition of bank interest of ?72,78,575/-, the Assessing Officer had added this amount, claiming it was not covered under the principle of mutuality. However, the Tribunal noted that in previous assessment years, the society had been granted exemption u/s. 11 and its registration u/s. 12AA was still valid. Therefore, the Tribunal held that the interest income should also be considered under Section 11, and the benefit of exemption should be extended. The Tribunal dismissed the Revenue's appeal, affirming the order of the ld. CIT(A) and upholding the exemption for the assessee society.

In conclusion, the Tribunal ruled in favor of the assessee society, confirming its charitable status and granting exemption under Section 11, while also including the bank interest under the principle of mutuality. The decision highlighted the importance of registration under section 12AA for claiming benefits under Section 11 and emphasized consistency in granting exemptions based on past precedents.