2003 (9) TMI 303 - AT - Income Tax

Summary

Issues Involved:

1. Applicability of Section 263 of the IT Act, 1961.
2. Charitable nature of the assessee's activities.
3. Violation of Section 13(1)(d) read with Section 13(3) of the IT Act.
4. Assessment of contributions received from member institutions.
5. Consideration of the Mumbai Tribunal's judgment in a similar case.
6. Examination of the assessee's activities in subsequent years.
7. Treatment of interest income earned from deposits.

Detailed Analysis:

1. Applicability of Section 263 of the IT Act, 1961:

The Director of IT (Exemption) (DI) issued notices under Section 263, claiming the assessment orders were erroneous and prejudicial to the interest of Revenue. The Tribunal noted that the Assessing Officer (AO) had conducted detailed inquiries and applied relevant provisions of the Act before allowing exemptions under Section 11. The Tribunal emphasized that Section 263 could not be invoked merely because the DI had a different opinion on the same set of facts.

2. Charitable Nature of the Assessee's Activities:

The assessee argued that its activities fell under "advancement of any other object of general public utility" as per Section 2(15) of the Act. The Tribunal observed that the assessee's primary objective was to develop a physical environment for institutions engaged in habitat-related activities. The construction of the building and allocation of space were integral to achieving this objective, thus qualifying as charitable activities.

3. Violation of Section 13(1)(d) read with Section 13(3) of the IT Act:

The DI contended that the assessee violated Section 13(1)(d) read with Section 13(3) by providing benefits to substantial contributors. The Tribunal found no evidence that the member institutions were substantial contributors as defined under Section 13(3). The amounts received from these institutions were for the proportionate cost of land and construction, not contributions or donations, and were utilized for the intended purpose.

4. Assessment of Contributions Received from Member Institutions:

The DI argued that the amounts received from member institutions should be treated as contributions, thus attracting the provisions of Section 13. The Tribunal disagreed, stating that the amounts were received for specific purposes (land and construction costs) and were recorded as liabilities in the assessee's books. These transactions were in line with the objectives of the assessee and did not constitute income or contributions under Section 13.

5. Consideration of the Mumbai Tribunal's Judgment in a Similar Case:

The DI relied on the Mumbai Tribunal's judgment in Visveswaraya Industrial Research Development Centre vs. Dy. CIT (1997) 59 ITD 156 (Mumbai), where construction activities were deemed non-charitable. The Tribunal distinguished the present case, noting that the construction of the building was essential for the assessee's charitable objectives. The Mumbai case involved commercial leasing activities unrelated to the assessee's primary purpose.

6. Examination of the Assessee's Activities in Subsequent Years:

The DI cited the assessee's activities in subsequent years (1998-99 onwards) to argue that they were not habitat-related. The Tribunal emphasized that the assessment should be based on the activities during the relevant assessment years (1990-91, 1991-92, 1995-96, and 1996-97). The activities during these years were focused on construction and allocation of space, aligning with the assessee's charitable objectives.

7. Treatment of Interest Income Earned from Deposits:

The DI contended that interest income earned from deposits was passed on to member institutions, resulting in undue benefits and violating Section 13(1)(c). The Tribunal observed that the interest income was derived from funds temporarily placed in deposits until required for construction. This income was used to reduce the cost of space for member institutions, aligning with the self-financing model. There was no violation of Section 13(1)(c) as the funds belonged to the member institutions and were utilized for the intended purpose.

Conclusion:

The Tribunal quashed the orders passed under Section 263 for the four assessment years, stating that the revisionary action of the DI was not justified either on facts or in law. The appeals were allowed, reaffirming the AO's decision to exempt the assessee's income under Section 11 of the IT Act, 1961.