2014 (12) TMI 257 - HC - Income Tax

Nature of activity of assesse charitable or not u/s 2(15) Whether the activity of the assessee falls within the description of Section 2(15) of the Act Held that - CIT(A) relied on the orders of assessment for AYs 2003-04 to 2008-09 and directed the AO to re-compute the income of the assessee in terms of Sections 11 to 13, keeping in view that the Commissioner of Income Tax-II, Kanpur had already granted registration u/s 12AA - CIT(A) has simply relied on certain orders for previous assessment years without having regard to the facts pertaining to the assessment year in question thus, the matter is remitted back to the CIT(A) for fresh consideration Decided in favour of revenue.

Summary

Issues:
1. Interpretation of provisions of amended Section 2(15) r/w Section 13(8) regarding charitable nature of the assessee.
2. Eligibility of the assessee for exemption under Sections 11 to 13 of the Income Tax Act.

Analysis:

Issue 1: Interpretation of provisions of amended Section 2(15) r/w Section 13(8) regarding charitable nature of the assessee:
The appeal before the Allahabad High Court involved the interpretation of provisions of the Income Tax Act, specifically Section 2(15) read with Section 13(8), regarding the charitable nature of the assessee. The main contention was whether the assessee, a Government Company, qualified as a charitable entity. The Assessing Officer noted that the assessee derived income from the business of manufacturing and selling artificial limbs, raising doubts about its charitable status. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to recompute the income of the assessee under Sections 11 to 13, considering the registration certificate under Section 12AA. The Tribunal affirmed these findings without delving into the core issue of whether the activity of the assessee fell within the description of Section 2(15) of the Act. The High Court emphasized the need for a detailed examination of the facts pertaining to the assessment year in question to determine the charitable nature of the assessee. The Court held that the CIT(A) and the Tribunal had not adequately considered this crucial aspect, and thus, restored the proceedings back to the CIT(A) for a fresh consideration of the appeal, keeping all rights and contentions open.

Issue 2: Eligibility of the assessee for exemption under Sections 11 to 13 of the Income Tax Act:
The second issue revolved around the eligibility of the assessee for exemption under Sections 11 to 13 of the Income Tax Act. The Assessing Officer had concluded that the income derived by the assessee from manufacturing and selling artificial limbs did not qualify for exemption under Section 11 due to the commercial nature of the activity. The Commissioner of Income Tax (Appeals) directed the re-computation of the assessee's income under Sections 11 to 13, taking into account the registration certificate under Section 12AA. The Tribunal upheld this decision without delving into the core issue of whether the activity of the assessee aligned with the definition of charitable purpose under Section 2(15) of the Act. The High Court, while restoring the proceedings back to the CIT(A) for fresh consideration, refrained from expressing any finding on the questions of law as framed, as the primary focus was on the need for a thorough assessment of the charitable nature of the assessee's activities.

In conclusion, the judgment by the Allahabad High Court highlighted the importance of a detailed examination of the facts and legal provisions concerning the charitable nature of the assessee's activities. The Court emphasized the need for a comprehensive analysis by the CIT(A) to determine whether the assessee's income qualified for exemption under Sections 11 to 13 of the Income Tax Act, particularly in light of the specific provisions governing charitable purposes.