1988 (10) TMI 77 - AT - Income Tax

Summary

Issues:
Exemption under section 11 of the Income Tax Act, 1961 for a company deriving income from commercial activities.

Analysis:
The case involves the question of whether an assessee company, deriving income from commercial activities like publication of a magazine, is entitled to exemption under section 11 of the Income Tax Act, 1961. The company, a federation of Hotel and Restaurant Associations, claimed exemption but was denied by the Income Tax Officer (ITO) on the grounds that it was not registered under section 12-A(a) with the CIT, Delhi-II. The ITO held that the company's activities were not for the advancement of general public utility and its income sources were commercial in nature, thus not meeting the charitable purpose definition under section 2(15). Consequently, the ITO framed the assessment denying the exemption.

Upon appeal, the Commissioner of Income Tax (Appeals) upheld the ITO's decision, stating that the company's purpose was not charitable but that of a trade association. The Commissioner noted that the application for registration under section 12-A was filed after the relevant assessment year, hence rejecting the claim for exemption under section 11. The assessment was set aside, and the ITO was directed to recompute the income as that of a trade association under section 28(iii).

However, the Tribunal, after considering past decisions and the pending application for registration under section 12-A, allowed the company's appeal. It held that since the company was granted exemption under section 11 for previous years and the application for registration was pending, the exemption should be granted for the current assessment year. The Tribunal referred to relevant case laws to support its decision, ultimately allowing the appeal filed by the assessee.

Regarding the issue of costs, the Tribunal deliberated on whether the assessee should be awarded costs against the Department for a frivolous reference application. The assessee argued for costs citing various legal precedents emphasizing fair and just proceedings. However, the Tribunal concluded that no award of costs was justified in this case as the Department's reference application was not deemed false or vexatious. The request for costs by the assessee was thus rejected, and the reference application was ultimately rejected.

In a separate note, one of the Members of the Tribunal highlighted the Tribunal's inherent power to award costs if warranted by the facts of a given case, concurring with the decision on costs made in the main order.