2012 (8) TMI 386 - AT - Income Tax

Exemption under S.10(1) of the Act in respect of agricultural income Held that - Once it is established that such agricultural activities are carried out by the assessee, assessee is entitled for exemption in respect of such agricultural income under S.10(1) of the Act, irrespective of any violation of the statutory provisions - infraction of the statutory provisions may expose the assessee to the risks of being penalized or punished under the relevant statutes, but the same do not change nature of the agricultural income, and as such, cannot be fatal to the assessee s claim for exemption under S.10(1) of the Act. Charitable or religious trust - Non-registration of the assessee under S.43(1) of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987 Held that - Mere fact that the assessee-trust is not registered under the provisions of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987, shall not render the assessee trust as a non-charitable one, and registration under S.12A of the Income-tax Act alone is enough for an assessee to claim exemption in respect of its income under S.11 of the Act - Revenue s appeal is dismissed.

Issues Involved:
1. Exemption of income under Section 11 of the Income-tax Act.
2. Exemption of agricultural income under Section 10(1) of the Income-tax Act.
3. Alleged violation of provisions of Section 13(1)(c) and Section 13(1)(d) read with Section 11(5) of the Income-tax Act.
4. Non-registration under Section 43(1) of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987.

Detailed Analysis:

1. Exemption of Income under Section 11 of the Income-tax Act:
The Revenue's grievance was against the relief granted by the CIT(A) by accepting the assessee's claim for exemption under Section 11. The assessing officer determined the total income of the assessee at Rs. 11,38,73,120, rejecting the claim for exemption. The CIT(A) held that the State Government, being a non-taxable entity, is not a 'person' under Section 2(31) of the Act and thus cannot be considered an 'interested person'. The assessee's loan to the State Government was deemed an application of income, not a violation of Section 13(1)(c) or Section 13(1)(d) read with Section 11(5). The funds were advanced as a temporary arrangement and not as a deposit or investment. The CIT(A) concluded that the advancing of funds did not confer any personal benefit to the State Government or any other interested person.

2. Exemption of Agricultural Income under Section 10(1) of the Income-tax Act:
The assessing officer denied the exemption, claiming that the agricultural operations violated various legal provisions. The CIT(A) held that the assessing officer did not dispute the agricultural operations but denied exemption based on alleged violations of other laws. The CIT(A) emphasized that the definition of agricultural income under Section 2(1A) does not consider violations of law. The CIT(A) accepted the assessee's argument that the activities were monitored by the State and Central Governments, and any income derived from such operations is agricultural income exempt under Section 10(1).

3. Alleged Violation of Provisions of Section 13(1)(c) and Section 13(1)(d) read with Section 11(5):
The assessing officer claimed that the loan to the State Government violated these provisions. The CIT(A) held that the Government is not a taxable entity and cannot be considered an 'interested person'. The funds were advanced as per the State Government's directions, and the interest received was compensatory, not earned from deposits or investments. The CIT(A) found no evidence that the lease rent paid to the State Government was excessive or unreasonable.

4. Non-registration under Section 43(1) of the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987:
The CIT(A) noted that registration under Section 12A of the Income-tax Act is sufficient for claiming exemption under Section 11. The Tribunal's consistent view supports this position, and the lack of registration under the A.P. Act does not render the trust non-charitable.

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding that the Revenue's appeal lacked merit. The CIT(A) provided a well-reasoned order, addressing each aspect raised by the assessing officer. The Tribunal dismissed the Revenue's appeal, affirming the assessee's entitlement to exemptions under Sections 10(1) and 11 of the Income-tax Act.

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