1999 (12) TMI 95 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to exemption under section 10(23) of the Income-tax Act, 1961.
2. Entitlement to exemption under section 11 of the Income-tax Act, 1961.
3. Computation of taxable income and application of the correct rate of tax.
4. Levy of interest under sections 139 and 215 of the Income-tax Act, 1961.

Detailed Analysis:

1. Entitlement to Exemption under Section 10(23):
The primary issue is whether the assessee is entitled to exemption under section 10(23) of the Income-tax Act, 1961. The Assessing Officer and the Deputy Commissioner of Income-tax (Appeals) [Dy. CIT(A)] denied this exemption on the grounds that the assessee had not obtained approval from the prescribed authority. The Tribunal noted that the assessee failed to produce any evidence or Gazette Notification to substantiate its claim of being notified by the Central Government for exemption under section 10(23). The relevant provision requires notification by the Central Government and adherence to specific procedural requirements, which the assessee did not fulfill. Consequently, the Tribunal upheld the denial of exemption under section 10(23).

2. Entitlement to Exemption under Section 11:
The alternative submission by the assessee was for exemption under section 11. The Dy. CIT(A) dismissed this ground, agreeing with the Assessing Officer. The assessee argued that registration under section 12A should automatically entitle it to exemption under section 11. The Tribunal examined various judicial precedents and noted that registration under section 12A does not ipso facto guarantee exemption under section 11. The Assessing Officer must examine the details of income, application of income, and compliance with conditions under sections 11, 12, and 13. The Tribunal concluded that the assessee's objects, which include promoting sports and games, qualify as charitable purposes. Therefore, the assessee should be entitled to exemption under section 11, provided it complies with the relevant provisions.

3. Computation of Taxable Income and Application of the Correct Rate of Tax:
The Assessing Officer computed the taxable income by considering income under the head 'other sources' and deducting 10% towards expenses. The Dy. CIT(A) agreed with this computation but directed the tax to be charged under section 164(2) instead of section 167B. Since the Tribunal found that the assessee is entitled to exemption under section 11, it directed the Assessing Officer to recompute the taxable income, if any, in accordance with sections 11, 12, and 13. The Tribunal emphasized that any income applied for charitable purposes should be exempt, and any surplus must comply with the provisions for accumulation and investment in specified securities.

4. Levy of Interest under Sections 139 and 215:
The issues related to the levy of interest under sections 139 and 215 are consequential and depend on the recomputation of taxable income. The Tribunal directed the Assessing Officer to consider the levy of interest while recomputing the income and charging tax under section 164(2), keeping in mind the decision of the Gujarat High Court in CIT v. Bharat Machinery & Hardware Mart.

Conclusion:
The appeals were treated as partly allowed. The Tribunal upheld the denial of exemption under section 10(23) due to non-compliance with procedural requirements. However, it found merit in the assessee's claim for exemption under section 11, provided the conditions are met. The Tribunal directed the Assessing Officer to recompute the taxable income in accordance with the provisions of sections 11, 12, and 13, and to reconsider the levy of interest as per the recomputed income.