2011 (9) TMI 576 - HC - Income Tax

Exemption u/s 11 - Registration u/s 12A - Tribunal has set out the decision on which the Appellate Commissioner relied on to come to the conclusion that contribution made towards corpus fund cannot be treated as income for the purpose of levying of tax. Even if that corpus fund is misused it cannot be treated as income and income tax levied. - Decided in favor of the assessee

Summary

Issues:
1. Treatment of contribution towards corpus fund as income for tax purposes.
2. Jurisdiction to exercise under section 254(2) of the Act.
3. Entitlement to claim tax exemption under section 11 of the Act.
4. Existence of a genuine trust and application of funds for charitable purposes.

Analysis:

1. The judgment addressed the issue of the treatment of contributions towards the corpus fund as income for tax purposes. The assessee received Rs. 20,000 for a temple site and Rs. 21 lakhs towards the corpus fund, which was kept in a fixed deposit. The revenue treated this corpus fund contribution as income, but the Appellate Commissioner and the Tribunal disagreed. They held that even if the corpus fund is misused, it cannot be treated as income for tax purposes. The Tribunal emphasized that the proper course would be to seek cancellation of the registration granted under section 12A of the Act.

2. The judgment also discussed the jurisdiction to exercise under section 254(2) of the Act. The Tribunal's decision was based on the observation that exercising jurisdiction under this section would amount to a review and examination of the judgment of the Apex Court. The Tribunal's stance was that it was not permissible to exercise such jurisdiction in this case.

3. Another issue addressed in the judgment was the entitlement of the assessee to claim tax exemption under section 11 of the Act. The Appellate Authorities held that the assessee was entitled to claim exemption despite the Assessing Officer's finding that no charitable activity was carried out and the corpus fund was not utilized for charitable purposes. The registration granted under section 12A of the Act played a crucial role in this determination.

4. The judgment delved into the existence of a genuine trust and the application of funds for charitable purposes. The Assessing Officer had recorded a finding that there was no genuine trust in existence and suggested bringing the entire income to tax due to the lack of application of funds for the trust's objects. However, the Appellate Authorities did not find this argument compelling, emphasizing the significance of the corpus and non-corpus receipts in the context of tax exemption.

In conclusion, the High Court ruled in favor of the assessee, upholding the decisions of the Appellate Authorities and the Tribunal. The judgment dismissed the appeal on merits and also rejected the application for condonation of delay, citing insufficient cause under section 5 of the Limitation Act.