2012 (10) TMI 706 - HC - Income Tax

Rejection of application for renewal of exemption u/s 10(23C)(iv) - assessee claiming exemption under section 11 in revised return - Held that - In the present case it is an admitted position that the assessee had filed Form No.10 as required under rule 17 of the Rules r.w.s. 11(2) alongwith the revised returns filed in respect of all the assessment years under consideration before the assessment came to be completed therefore while completing the assessments for the assessment years under consideration the AO had the necessary information in respect of the claim for exemption under section 11 of the Act made by the assessee before him thus the assessee was therefore entitled to the benefit of section 11 on the basis of the information supplied by it prior to framing of the assessment orders. As decided in Commissioner of Income-Tax Versus Mayur Foundation 2004 (12) TMI 48 - GUJARAT HIGH COURT the assessment proceedings cannot be said to be complete and are pending till the appeal is heard and disposed of by the Tribunal and accordingly held that the Tribunal was justified in considering a new ground by the assessee claiming benefit under section 11 during the course of the appeal - not possible to state that there is any legal infirmity in the impugned order of the Tribunal in holding that rule 17 of the Rules is directory in nature and in holding that the assessee had duly complied with the requirements of sub-section (2) of section 11 of the Act.

Issues Involved:
1. Validity of the time limit prescribed for filing Form No.10 under Rule 17 of the Income Tax Rules, 1962, in conjunction with Section 11(2) of the Income Tax Act, 1961.
2. Compliance with the requirements of Section 11(2) of the Income Tax Act, 1961, for claiming exemption.

Issue-Wise Detailed Analysis:

1. Validity of the Time Limit Prescribed for Filing Form No.10 Under Rule 17:
The appellant-revenue challenged the common order passed by the Income Tax Appellate Tribunal, which allowed the respondent-assessee's appeals for the assessment years 1989-90 to 1995-96. The primary contention was whether the time limit prescribed for filing Form No.10 under Rule 17 of the Income Tax Rules, 1962, read with Section 11(2) of the Income Tax Act, 1961, is mandatory or directory.

The Tribunal observed that Section 11(2) of the Act does not prescribe any specific time limit for furnishing the notice in writing or for making the investments in the prescribed modes. It noted that various High Courts have held that the time limits laid down under the rules are ultra vires the Act and should be treated as directory in nature. Consequently, the Tribunal held that the assessee had duly complied with the requirements of Section 11(2) of the Act for the assessment years under consideration, and thus, the Assessing Officer was not justified in denying the claim for exemption on this ground.

The court referred to the Supreme Court's decision in Commissioner of Income-Tax vs. Nagpur Hotel Owners' Association, which emphasized that the details required under Rule 17 in Form 10 must be furnished before the completion of the assessment proceedings. The court concluded that since the assessee had submitted Form No.10 along with the revised returns before the assessment was completed, the requirements of Section 11(2) had been met.

2. Compliance with the Requirements of Section 11(2) for Claiming Exemption:
The respondent-assessee, a non-registered association of members, initially claimed exemption under Section 11 of the Income Tax Act, which was allowed up to the assessment year 1983-84. For the subsequent years, the assessee sought exemption under Section 10(23C)(iv), which was initially rejected but later reconsidered and denied by the Central Government.

For the assessment years 1989-90 to 1993-94, the assessee filed revised returns claiming exemption under Section 11. The Assessing Officer rejected the claim on the grounds that the applications for accumulation of income in Form No.10 were not filed within the prescribed time and were submitted along with the fresh returns of income. The Commissioner (Appeals) upheld this decision.

Upon appeal, the Tribunal consolidated the appeals and allowed them, noting that the assessee had filed applications in Form No.10 before the completion of the assessments, thus complying with the requirements of Section 11(2). The Tribunal held that the time limits prescribed under Rule 17 are directory, not mandatory.

The court affirmed the Tribunal's decision, noting that the assessee had furnished the necessary information before the completion of the assessments. The court referenced its own decision in Commissioner of Income-Tax v. Mayur Foundation, which held that assessment proceedings are pending until the appeal is disposed of by the Tribunal, allowing the Tribunal to consider new grounds for claiming benefits under Section 11 during the appeal.

Conclusion:
The court concluded that there was no legal infirmity in the Tribunal's order, which held that Rule 17 of the Income Tax Rules is directory in nature and that the assessee had complied with the requirements of Section 11(2) of the Income Tax Act. Consequently, the appeals were dismissed with no order as to costs.

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