2017 (9) TMI 563 - AT - Income Tax

Withdrawing the approval granted u/s 10(23c)(VI) - violation of provisions of investment contained in Sec. 13(1) (d)/11(5) - whether the Ld. CIT(E) was justified in withdrawing the notification and benefit u/s 10(23C)(vi) of the Act, on the basis that the assessee has not made investment in the specified assets? - Held that - There is no dispute with regard to the fact that the assesee kept this investment as it is without converting into the same in the mode specified under the Act despite elapse of several years, the proviso of Section 10(23C)(vi) empowers the prescribed authority under the Act to withdraw the approval granted u/s 10(23C)(vi). It is borne out of records that the Revenue chose not to rescind the approval in earlier years. The Ld. Counsel for the assessee urged that withdrawal of exemption is very harsh step as the assessee has been enjoying the benefit of exemption, for several years. We deem it proper to restore this issue to the file of the CIT(E) to reconsider the submissions of the assessee, and give last opportunity to convert the shares into specified assets within a specified period, and meantime withdraw exemption u/s 11 & 12 in respect of income earned from the investment made in non-specified assets. This ground of assessee s appeal is allowed for statistical purpose.

Summary

Issues:
Withdrawal of exemption u/s 10(23C)(VI) of Income Tax Act, 1961 based on the holding of assets in non-specified modes.

Analysis:
The appeal was against the order of Ld. CIT (E)-III, Jaipur withdrawing the approval granted u/s 10(23C)(VI) for the assessment year 2009-10. The assessee contended that the withdrawal was unjustified as there was no investment out of the funds of education. The Ld. CIT(E) withdrew the exemption citing that the assessee held assets in the form of shares of a company for many years, not in specified modes, as per the Auditor's report. The Ld. CIT(E) noted that trusts cannot hold funds in non-specified modes as per Section 10(23C) of the Act.

The issue was whether the withdrawal of exemption was justified. The assessee argued that the shares were not acquired from educational funds and cited precedents where only income from ineligible investments was taxed. They also highlighted that the investment in shares was not from educational income, thus not attracting the 13th proviso of Sec. 10(23C). The Ld. CIT(E) observed that the assessee did not provide evidence of shares receipt and donation in 2006-07. The Tribunal noted that the assessee had not made investments as per Section 13 of the Act, allowing authorities to withdraw exemptions u/s 11 & 12. The Tribunal directed reconsideration by the CIT(E) to convert shares into specified assets within a specified period, withdrawing exemption in the meantime for income from non-specified assets.

The Tribunal emphasized that the withdrawal of exemption was a harsh step and allowed the appeal for statistical purposes. The decision aimed to give the assessee an opportunity to rectify the non-compliance while maintaining the taxability of income from non-specified assets. The judgment highlighted the importance of complying with specified investment modes under the Act and the authority's power to withdraw exemptions in case of non-compliance.