2021 (8) TMI 331 - AT - Income Tax

Exemption u/s. 10(23C)(vi) denied - eligibility to Assessment u/s 11 - Charitable activity u/s 2(15) - an expenditure which did not even form a part of application claimed - reason for withdrawal of approval issued u/s. 10(23C)(vi) of the Act was that the trust has not applied its income in accordance with the provisions contained in clause a of the third proviso - HELD THAT - As the assessee wholly and exclusively carried out its objects for which it was established and even if there is a violation as suggested by CCIT, it was not claimed for the purpose of application of income. Further, there is no allegation by the CCIT that assessee has not carried out the objects for which it was established and examination of the accounts of the assessee shows that assessee duly carried out its activities so as to attain its objects mentioned in the trust deed. There was no activities carried out in violation of its object clause so as to deny exemption u/s. 10(23C)(vi) of the Act. Accordingly, this ground of appeal of the assessee is also allowed.

Issues Involved:
1. Jurisdiction of the Chief Commissioner of Income Tax (CCIT), Panaji to withdraw the exemption under Section 10(23C)(vi) of the Income-tax Act, 1961.
2. Alleged violation of conditions for exemption under Section 10(23C)(vi) by the assessee trust.
3. Application of income and adherence to the third proviso of Section 10(23C).
4. Compliance with statutory requirements for Tax Deducted at Source (TDS).

Issue-Wise Detailed Analysis:

1. Jurisdiction of the CCIT, Panaji:
The assessee contended that the CCIT, Panaji lacked jurisdiction to withdraw the exemption under Section 10(23C)(vi) as per Rule 2CA of the Income-tax Rules, 1962, which designates the Principal Commissioner or Commissioner as the prescribed authority. The Tribunal noted that the original approval was granted by the CCIT, Panaji, but subsequent amendments to the rules post-2014 designated the Principal Commissioner or Commissioner as the authority. The Tribunal concluded that the CCIT, Panaji, did not have the requisite jurisdiction to withdraw the exemption, rendering the order dated 04/05/2020 void ab initio and without legal standing.

2. Alleged Violation of Conditions for Exemption:
The CCIT, Panaji alleged that the assessee trust violated conditions under Section 10(23C)(vi) by not applying its income according to the third proviso and not adhering to the conditions of approval. The Tribunal examined the payments totaling ?3,57,83,690/- and found that these payments were not claimed as an application of income for the assessment year 2017-18. The Tribunal emphasized that the mere failure to produce original receipts does not prove misuse of funds or non-application of income for educational purposes. The Tribunal held that there was no evidence to support the claim that the trust's activities were not genuine or that they violated the conditions of approval.

3. Application of Income and Adherence to the Third Proviso:
The Tribunal scrutinized the third proviso to Section 10(23C), which mandates that the income must be applied or accumulated for the objects of the trust. The Tribunal found that the payments in question were not claimed as an application of income and thus did not violate the third proviso. The Tribunal also noted that the trust consistently incurred a deficiency of income, indicating that its income was applied wholly and exclusively for educational purposes.

4. Compliance with Statutory Requirements for TDS:
The assessee argued that there was no statutory requirement for TDS on the expenditures in question for the assessment year 2017-18, as the requirement came into effect only from 01/04/2019. The Tribunal accepted this argument, noting that there was no violation of TDS provisions at the relevant time.

Conclusion:
The Tribunal annulled the order passed by the CCIT, Panaji, withdrawing the exemption under Section 10(23C)(vi), citing lack of jurisdiction and absence of any substantive violation of statutory provisions by the assessee trust. The appeal by the assessee was allowed, and the exemption under Section 10(23C)(vi) was reinstated.

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