2024 (7) TMI 210 - AT - Income Tax

Denial of exemption u/s 11 - violation of provisions of section 13(1)(c) - two parties who had contributed to the assessee trust exceeding fifty thousand rupees and guest house of the assessee trust was let out to the interested parties at an inadequate rent - society is Notified u/s. 10(23C)(iv) of the Act from the assessment year 1977-78 - HELD THAT - It is an admitted fact that society has been registered u/s. 10(23C)(iv) of the Act along with the registration u/s.12A(a) of the Act. Assessee is a charitable society and hence the conditions prescribed u/s. 13 of the Act are not applicable to it as per the CBDT circular No.557 dated 19.03.1990 once the society is notified u/s. 10(23C) of the Act. Similarly the Assessing Officer cannot make any disallowance u/s.11 as the society is an organization having notified u/s. 10(23C)(iv) of the Act. Considering the entire facts and circumstances of the case we are of the view that there is no infirmity in the order of CIT(A) in allowing the appeal of the assessee and therefore there is no need for us to interfere and hence we are inclined to dismiss the appeal of the Revenue.

Summary

Issues:
1. Interpretation of provisions of section 13(1)(c) of the Income-tax Act.
2. Applicability of CBDT Circular No. 557 dated 19.03.1990 in exemption claims.
3. Assessment of exemption under section 11 and 10(23C)(iv) of the Act.

Analysis:
1. The appeal involved a dispute regarding the invocation of section 13(1)(c) of the Act by the Assessing Officer due to alleged violation by the assessee trust. The revenue contended that the AO's assessment clearly established the violation, leading to the denial of exemption under section 11. However, the CIT(A) allowed the appeal of the assessee, highlighting that individuals staying in the society's guest house were providing services without remuneration for theosophical work. The CIT(A) referenced CBDT Circular No. 557, dated 19.03.1990, to argue that provisions of section 11 should not be applied while examining exemption claims under section 10(23C)(iv). The tribunal upheld the CIT(A)'s decision, emphasizing that the donors staying in society lodgings for service purposes did not benefit from the society, thus dismissing the revenue's appeal.

2. The second issue revolved around the reliance on CBDT Circular No. 557 dated 19.03.1990 in the exemption claim under section 11 and 10(23C)(iv) of the Act. The CIT(A) and the tribunal both referred to this circular to support the assessee's position that the provisions of section 11 should not be applied when assessing exemption under section 10(23C)(iv). The tribunal reiterated the circular's stance that interested person provisions should not apply in such cases, ultimately leading to the dismissal of the revenue's appeal.

3. Lastly, the assessment of exemption under section 11 and 10(23C)(iv) of the Act was a crucial aspect of the case. The tribunal observed that the assessee, being a charitable society notified under section 10(23C)(iv) of the Act, was not subject to the conditions prescribed under section 13. Citing the CBDT circular and the organization's registration status, the tribunal concluded that the Assessing Officer could not disallow any claims under section 11. After considering all facts and circumstances, the tribunal upheld the CIT(A)'s decision to allow the appeal of the assessee, leading to the dismissal of the revenue's appeal.

In summary, the judgment focused on the interpretation of statutory provisions, the application of relevant circulars, and the assessment of exemption claims under different sections of the Income-tax Act. The tribunal's decision was based on the specific circumstances of the case, highlighting the importance of registration status and relevant circulars in determining the tax implications for the assessee trust.