1999 (9) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the initiation of proceedings under section 147.
2. Validity of the reassessment made.
3. Application of the trust fund for the purchase of premises in Suraj Plaza-II complex and its eligibility for exemption under section 11 of the Income-tax Act.

Detailed Analysis:

1. Validity of the Initiation of Proceedings Under Section 147:
The CIT(A) held that the initiation of proceedings under section 147 was not justified. The original assessments were reopened under section 147(a) based on the grounds that the income derived from the property held under trust was not applied for charitable purposes and that the trust had spent large sums on acquiring property/flats named Suraj Plaza, which were let out to outside parties. The CIT(A) concluded that the reassessment was based on an audit report and not on any omission or failure by the assessee to disclose material facts necessary for assessment. The CIT(A) relied on the Supreme Court's decision in Indian & Eastern Newspaper Society v. CIT, which held that the opinion of the audit party on a point of law could not be regarded as information within the meaning of section 147(b). The CIT(A) also cited several other judicial decisions to support the conclusion that the reopening of the assessment was void as the conditions set out in section 147(a) were not fulfilled.

2. Validity of the Reassessment Made:
The CIT(A) found that the reassessment was not valid. The original assessments had accepted the trust's claim for exemption under section 11, and the reassessment was merely a change of opinion by the Assessing Officer on the same set of facts. The CIT(A) noted that the trust had disclosed all material facts necessary for the assessment in the original proceedings, and there was no failure or omission on the part of the assessee. The CIT(A) cited various judicial decisions, including those of the Supreme Court and High Courts, to support the conclusion that the reassessment was invalid.

3. Application of the Trust Fund for the Purchase of Premises in Suraj Plaza-II Complex:
The CIT(A) also discussed the merits of the case regarding the application of the trust fund for charitable purposes. The CIT(A) found that the trust had accumulated its income for the objects set out in Form No. 10 and had acquired properties out of the sums set apart for charitable purposes. The properties were let out to Bank of Baroda, and the funds received from the sale of the properties were used for donations to M.S. University of Baroda. The CIT(A) concluded that the expenditure incurred for the acquisition of the property could not be considered as applied for purposes other than the charitable purposes of the trust. The CIT(A) relied on several judicial decisions to support this conclusion.

Conclusion:
The Tribunal upheld the order of the CIT(A), concluding that the reassessment proceedings were invalid and that the application of the trust funds for the purchase of premises in Suraj Plaza-II complex was for charitable purposes and eligible for exemption under section 11 of the Income-tax Act. The Tribunal noted that the trust had complied with the procedural formalities laid down in section 11 read with sections 12, 12A, and 13 for the various assessment years in question. The appeals were dismissed.