2012 (5) TMI 84 - HC - Income Tax

Whether the Income-tax Appellate Tribunal was justified in denying exemption under section 11 of the Income-tax Act for violation of section 13(1)(d) - The finding of the Assessing Officer is that the funds of the Trust have been utilised substantially for personal benefits of the Chairman and family members - Held that the finding of the Tribunal because as a matter of fact the Tribunal found that there is a violation of section 13(1)(d) inasmuch as Rs. 50,000/- belonging to the trust remained invested during the previous year in a private finance company. Even though counsel for the appellant raised a contention that investment itself is not made in the previous year relevant for the assessment year i.e. 1998-99, we do not think disqualification applies only for deposit made in the previous year, but applies to deposits retained in the previous year - Appeal is dismissed

Summary

Issues:
- Whether the Income-tax Appellate Tribunal was justified in denying exemption under section 11 of the Income-tax Act for violation of section 13(1)(d) of the Income-tax Act.

Analysis:
The judgment addresses the issue of denial of exemption under section 11 of the Income-tax Act due to a violation of section 13(1)(d). The appellant, claiming exemption as a charitable institution, had the Assessing Officer rule against them, citing violations that disqualified the assessee for exemption. The key violation highlighted was the utilization of trust funds for personal benefits of the Chairman and family members. Specifically, the Assessing Officer noted that Rs. 50,000 belonging to the Trust was deposited in a private finance company, Integrated Finance Company, leading to the disallowance of exemption under section 13(1)(d).

The First Appellate Authority initially allowed the appeal, but upon a second appeal by the Revenue, the Tribunal reversed the decision, focusing on the violation of Section 13(1)(d) as the sole basis for disallowing the exemption. The Tribunal's decision was challenged by the assessee in the High Court. After hearing both sides, the High Court upheld the Tribunal's decision, emphasizing that the violation of section 13(1)(d) was established by the investment of Rs. 50,000 in a private finance company during the relevant previous year.

The High Court clarified that the disqualification under section 13(1)(d) applies not only to deposits made in the previous year but also to deposits retained in the previous year. The judgment underscored that the specific provisions governing charitable institutions prohibit the deposit of surplus amounts in unauthorized ways. While the appellant's counsel argued that the investment was not made in the previous year relevant for the assessment year, the court maintained that the violation of section 13(1)(d) was sufficient to justify the denial of exemption, regardless of other potential grounds raised by the Revenue.

Ultimately, the High Court dismissed the Income-tax Appeal filed by the assessee, concluding that there was no substantial question of law arising from the Tribunal's order. The judgment affirms the Tribunal's decision based on the violation of section 13(1)(d) as a valid reason for denying the exemption under section 11 of the Income-tax Act.