2010 (9) TMI 210 - HC - Income Tax

Exemption under Section 10(23-B) - certificate/approval was duly granted by the Khadi and Village Industries Commission for the relevant assessment years and the same was rejected for no valid reason by the assessing authority - no finding has been recorded even by the First Appellate Authority, to show that the institution applied its income, or accumulated it for application, solely for the development of Khadi or Village Industries or both - Held that - no finding has been recorded by the Tribunal despite a clear cut finding recorded by the First Appellate Authority as per the requirement of condition (i) the institution applies its income, or accumulates it for application, solely for the development of khadi or village industries or both - matter is remanded back for reconsideration including on the issue

Summary

Issues:
1. Interpretation of Section 10(23-B) for exemption eligibility based on specific conditions.

Analysis:
The High Court addressed the substantial question of law raised by the revenue regarding the entitlement of the assessee for exemption under Section 10(23-B) of the Income Tax Act. The key issue was whether the institution fulfilled the mandatory conditions specified in the section, particularly focusing on the requirement that the institution applies its income solely for the development of Khadi and Village Industries. The Court emphasized the importance of compliance with both sub-clauses (i) and (ii) of the proviso under Section 10(23-B) for claiming the benefit of exemption.

Regarding the first requirement under sub-clause (i), the Income Tax Appellate Tribunal (ITAT) had found in favor of the assessee, stating that the approval from the Khadi and Village Industries Commission was validly obtained for the relevant assessment years. However, the assessing authority had rejected this approval without a valid reason. On the other hand, the First Appellate Authority did not provide any finding on whether the institution applied its income solely for the specified purposes, which is a crucial condition for availing the exemption under Section 10(23-B).

The Court highlighted that if any of the conditions mentioned in sub-clauses (i) and (ii) were not met, the benefit of exemption could not be extended to the assessee. It noted that the Tribunal's decision to accept the belated certificates from the K.V.I.C., Bombay as sufficient evidence was not justified. As the Tribunal failed to address the requirement of condition no. (i) adequately, the High Court set aside the Tribunal's order and remanded the matter for reconsideration, emphasizing the importance of fulfilling all essential requirements for claiming the exemption.

In conclusion, the High Court allowed the appeal by the revenue, emphasizing the significance of meeting all conditions specified under Section 10(23-B) for eligibility for exemption. The Court clarified that the certificates issued by the K.V.I.C., Bombay in favor of the assessee did not require further adjudication, indicating that compliance with the conditions outlined in the section is crucial for availing the exemption under the Income Tax Act.