2020 (3) TMI 341 - HC - Income Tax

Exemption u/s 11 - applicability of Section 13 of the Act - lease agreement between the assessee and the lessor whether a transaction is not at arm's length and is between interested parties - HELD THAT - First appellate authority considered the lease agreement and the fact that the deposit was made pursuant to the same for user of premises and other assets, such as, building, building ground etc. for carrying out educational activities / charity. First appellate authority came to the conclusion that respondent assessee had proved that the premises and the assets envisaged in the lease agreement were actually used by the respondent assessee for its educational activities / charitable purposes. In such circumstances, the first appellate authority held that there was no case of any benefit given / derived by specified person. Holding that denial of exemption was unjustified being not based on facts, the first appellate authority directed the Assessing Officer to delete the additions and to allow the exemption. Tribunal reiterated as a finding of fact that deposit of ₹ 6,68,00,000.00 was in pursuant of a valid lease agreement for user of the premises and various other facilities. Respondent - assessee had used the premises and other leased assets for carrying out educational activities / charitable purposes. Tribunal further held that departmental representative of the revenue could not controvert the findings of fact returned by the appellate authority. - Decided in favour of assessee

Summary

Issues Involved:
1. Interpretation of Section 13 of the Income Tax Act, 1961 regarding diversion of funds.
2. Applicability of exemption under Section 11 of the Act to a charitable trust.

Analysis:

Issue 1: Interpretation of Section 13 of the Income Tax Act
The case involved a charitable trust that was assessed for diverting funds to an excluded person under Section 13(3) of the Act. The Assessing Officer concluded that an agreement between the trust and the excluded person was a colorable device, leading to the diversion of funds for the excluded person's benefit. Consequently, the Assessing Officer invoked Sections 13(1)(c)(ii) and 13(2)(g) read with Section 13(3)(cc) to deny exemption under Section 11 of the Act to the trust. The first appellate authority, however, held that the Assessing Officer's findings were based on suspicion and directed the deletion of additions, allowing the exemption under Section 11.

Issue 2: Applicability of Exemption under Section 11
The first appellate authority considered the lease agreement between the trust and the excluded person, where a deposit was made for leased assets for educational and charitable purposes. The authority found that the trust had utilized the premises and assets as per the agreement for its activities, concluding that no benefit was derived by the excluded person. Consequently, the authority directed the Assessing Officer to delete the additions and grant the exemption under Section 11. The Tribunal upheld this decision, emphasizing that the trust had used the leased assets for educational and charitable purposes, and the revenue failed to provide any material to counter the findings of the appellate authority.

In the final judgment, the High Court noted that the issues involved were questions of fact with concurrent findings. As such, the Court declined to interfere with the lower authorities' conclusions, finding no merit in the revenue's appeal and dismissing it. The Court also ruled that there would be no order as to costs in this matter.