1996 (2) TMI 202 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement to deduction under section 80M of the Income-tax Act.
2. Status determination of the assessee as a private limited company or a trust.
3. Applicability of sections 11 to 13 of the Income-tax Act.
4. Validity of the Commissioner's order under section 263 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80M of the Income-tax Act:
The primary contention was whether the assessee, a private limited company with charitable objects, was entitled to a deduction of Rs. 1,10,520 under section 80M. The Commissioner argued that the assessee was not a "domestic company" within the meaning of section 80B(2) and had not made the prescribed arrangements for the declaration and payment of dividends within India. However, the Tribunal found that the assessee, being an Indian company incorporated under the Companies Act, 1956, automatically qualified as a domestic company. Therefore, the deduction under section 80M should not be denied. The Tribunal also noted that sections 11 to 13 are not charging sections but provide exemptions if certain conditions are met, which the assessee did not claim for the year under consideration.

2. Status Determination of the Assessee:
The Commissioner directed the Assessing Officer to assess the assessee as a private limited company and compute the income derived from property held under trust for charitable purposes. The Tribunal, however, noted that the assessee had filed the return in the status of a private limited company and claimed the status of a domestic company. The Tribunal held that the status should have been accepted by the revenue, and there was no error in the Assessing Officer's order in this regard.

3. Applicability of Sections 11 to 13 of the Income-tax Act:
The Commissioner argued that the assessee, being registered under section 12A as a charitable institution, should have its income computed under sections 11 to 13. The Tribunal disagreed, stating that these sections grant exemptions if conditions are fulfilled, and since the assessee did not claim such exemptions, its income should be computed under other provisions of the Act. The Tribunal cited the case of Saurashtra Trust, which held that if a trust loses exemption under section 11, its income should be computed under other provisions, including deductions under section 80M.

4. Validity of the Commissioner's Order under Section 263:
The Tribunal found that the Commissioner was wrong in invoking section 263, which allows for revising orders prejudicial to the interest of revenue. The Tribunal concluded that the Assessing Officer's order was neither erroneous nor prejudicial to the revenue's interest. The Tribunal emphasized that sections 11 to 13 are not charging sections and cannot be forcefully applied if the assessee did not claim exemptions under these sections. Therefore, the Tribunal vacated the Commissioner's order and allowed the appeal.

Conclusion:
The Tribunal concluded that the assessee was entitled to the deduction under section 80M, should be assessed as a private limited company, and that sections 11 to 13 were not applicable as the assessee did not claim exemptions under these sections. The Tribunal vacated the Commissioner's order under section 263, allowing the appeal in favor of the assessee.