2018 (1) TMI 282 - AT - Income Tax

Entitlement to the benefit of tax exemption u/s 11 - proof charitable activities - donation given by assessee trust to a university - Held that - We note that ld.CIT(A) took a different stand to deny the exemption which was not arising out of the assessment order passed by Assessing Officer under section 143(3)/11 of the Act. The ldCIT(A) held that in case of assessee trust under consideration the explanation below sub-section (2) of Section 11 are applicable as the trust made payments to a university approved under section 10(23C)(vi) therefore there cannot be claim of deduction at both ends that is an application by the assessee and as income by the recipient. Neither the stand taken by Assessing Officer nor the stand taken by CIT(A) is justifiable as per the provisions of law. We are of the view that donation given by assessee trust to a university approved under section 10(23C)(vi) is for charitable purpose subject to verification of the basic information which were not available on record as per Ld. DR such as (i) Property from which the rental income of the trust has derived that is rental agreement and assessee s Trust entitlement to receive rental income. and (ii) Agreement between Singhania Foundation Education Trust and Singhania Foundation Education Samity about use of services of service providers namely International Legal Consultants Ltd. and Law Firm Management Services Ltd( LFMS). Therefore we are of the view that this issue requires a fresh examination at the end of the Assessing Officer. Therefore we set aside the order of the ld. CIT(A) and remand the matter back to the file of AO and direct him to examine the basic information like agreement of rental income and agreement between assessee and service provider as discussed above and adjudicate the issue afresh - Appeal filed by the assessee allowed for statistical purposes.

Summary

Issues:
Appeal against denial of exemption u/s 11 of IT Act for AY 2010-11.

Analysis:
1. The appeal was filed against the order denying exemption u/s 11 of the Income Tax Act for the assessment year 2010-11. The Assessing Officer (AO) observed that the assessee had transferred a sum to Singhania University, which was later found to be deposited in various bank accounts without routing through the assessee's accounts. The AO concluded that the transaction was not bona fide and violated provisions of the Act, leading to the denial of exemption u/s 11.

2. The Commissioner of Income Tax (Appeals) upheld the AO's decision, citing the Explanation below sub-section (2) of Section 11. The Commissioner noted that payments made to a university approved u/s 10(23C)(vi) could not be claimed as both application by the assessee and income by the recipient. Thus, the Commissioner denied the exemption u/s 11 based on this interpretation.

3. The appellant argued that the denial of benefit u/s 11 was incorrect as the sum transferred to Singhania University was used for educational purposes out of the current year's income. The appellant contended that the Commissioner's decision was based on a different issue not part of the original assessment order. The appellant also highlighted that the AO's denial was based on unfounded claims of mutual benefit and violation of provisions, which the appellant disputed.

4. During the appeal hearing, the Revenue's representative raised concerns about the lack of clear information regarding the property generating rental income for the trust and the agreement with LFMS consultants. The Revenue argued that without this crucial information, the AO's decision should be upheld.

5. The Tribunal noted discrepancies in both the AO and Commissioner's reasoning and found that neither decision was justifiable under the law. The Tribunal emphasized the need for verification of basic information such as the rental income source and agreements between the trust and service providers. Consequently, the Tribunal set aside the Commissioner's order and remanded the matter to the AO for a fresh examination, ensuring compliance with legal provisions and providing the appellant with a fair hearing.

6. Ultimately, the appeal was allowed for statistical purposes, with the Tribunal's decision to remand the case back to the AO for a thorough reevaluation based on the necessary information and in accordance with the law.