1987 (5) TMI 73 - AT - Income Tax

Issues Involved:
1. Justification of exemption under section 10(22) of the Income-tax Act.
2. Restoration of the matter to the Income-tax Officer to examine the allowability of accumulation under section 11(2) of the Act.

Detailed Analysis:

Issue 1: Justification of exemption under section 10(22) of the Income-tax Act

The Tribunal was asked to determine whether the assessee society was justified in being exempted under section 10(22) of the Income-tax Act, despite no educational institution being in existence. The Tribunal reviewed the previous assessments and noted the following key points:

- The assessee society, registered under the Societies Registration Act, 1860, claimed exemption as an educational institution under section 10(22). The Income-tax Officer (ITO) had initially rejected this claim, stating there was no evidence to show the assessee was a genuine educational institution and that the income was taxable under section 12(2) of the Act.
- The Appellate Assistant Commissioner (AAC) held that the funds received by the assessee were towards its corpus from Shri Bhagwan Charitable Trust and thus not taxable. The Tribunal confirmed this finding for the assessment year 1971-72.
- For the assessment year 1976-77, the ITO again rejected the exemption claim, noting that the society had not utilized its income for charitable purposes for nine years and had not started the proposed college. The ITO taxed the interest income of Rs. 45,110.
- The Tribunal found that the assessee society was indeed an educational institution and that the funds received were part of its corpus. The ITO's decision to tax the amount was incorrect as the funds were received with a specific direction to form part of the corpus, which cannot be deemed as income derived from property held under trust.

Issue 2: Restoration of the matter to the Income-tax Officer to examine the allowability of accumulation under section 11(2) of the Act

The second issue was whether the Tribunal was justified in restoring the matter to the ITO to examine the allowability of accumulation under section 11(2) of the Act. The Tribunal noted:

- The AAC directed the ITO to compute the income in accordance with previous Tribunal decisions and allow accumulation of income under section 11(2). However, the Tribunal found that the AAC had not given the ITO an opportunity to verify whether the prescribed conditions for accumulation were fulfilled.
- The Tribunal observed that the AAC should have allowed the ITO to conduct a factual inquiry into the allowability of accumulation under section 11(2). Therefore, the Tribunal restored this specific aspect to the ITO for fresh disposal after hearing the assessee.

Conclusion:

The Tribunal concluded that the first question raised by the Commissioner did not arise from the Tribunal's order, as the Tribunal had not held the income to be exempt under section 10(22) but under section 11. The second question was based on a misconception, as the Tribunal had exercised its discretionary power appropriately in restoring the matter to the ITO for further examination. Consequently, the reference application was rejected.

Separate Judgment:

A Judicial Member disagreed with the conclusion, suggesting that the question of law regarding exemption under section 10(22) should be referred to the High Court. However, the Third Member, agreeing with the Accountant Member, concluded that the question did not arise from the Tribunal's order, thus supporting the rejection of the reference application.

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