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TMI Blog2011 (8) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2009 raising the following questions for our consideration:- "(A) Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by CIT (A) and thereby holding that the assessee is entitled to exemption u/s. 11 of the Act? (B) Whether the Appellate Tribunal is right in law and on facts in reversing the order passed by CIT (A) and thereby cancelling the assessment of income of Rs.1,60,86,248/- being excess of income over expenditure of the company?" 2. Question no.A is the principal question and pertains to the exemption claimed by the assessee under Section 11 of the Income Tax Act, 1961. Question no.B is consequential in nature. Answer to question no.A would, therefore, cover question no.B also. These questions arise in the following factual background. 3. The respondent-assessee is Saurashtra Kutch Stock Exchange Ltd. (hereinafter referred to as "the stock exchange"). While framing the assessment, the assessee was granted registration under Section 12A of the Act by the Commissioner by an order dated 20.2.1998. One of the conditions contained in the said order for registration was as under:- "However, since the applicant has fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 6. The assessee carried the issue in appeal. In a detailed order, the CIT (Appeals) confirmed the view of the Assessing Officer. The assessee not being satisfied, carried the issue further in appeal before the Tribunal. The Tribunal primarily placing reliance on the decision of this Court in the case of Hiralal Bhagwati vs. Commissioner of Income Tax, (2000) 246 ITR 188, formed an opinion that once the registration under Section 12A of the Act was granted to the assessee, it was thereafter not open for the Assessing Officer to make any inquiry regarding exemption under Section 11 of the Act. 7. Before us counsel for the revenue assailed the decision of the Tribunal contending that in the present case, facts were different from those involved in the case of Hiralal Bhagwati (supra) and the decision of this Court would not, therefore, apply. Heavy reliance was placed on the conditional registration granted by the Commissioner under Section 12A of the Act. In particular it was pointed out that the registration order itself permitted the Assessing Officer to examine applicability of Section 11 for each assessment year. It was, therefore, contended that the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dominant object of the trust and not an isolated clause. 11. With respect to applicability of Section 13 of the Act, though the counsel conceded that even if registration under Section 12A of the Act is granted, in a given case, it may be possible to deny exemption to the assessee if any of the disqualification clause as contained under Section 13 of the Act are found existing. He, however, submitted that in the present case, no such conclusions have been arrived at by the Assessing Officer or CIT Appeals. 12. Having heard the learned counsel for the parties, we find that undisputedly registration under Section 12A of the Act granted by the Commissioner was in operation during the assessment year in question. Ordinarily, therefore, in view of the decision of this Court in case of Hiralal Bhagwati (supra), no further inquiry could have been undertaken by the Assessing Officer while granting exemption under Section 11 or 12 of the Act. In the present case, however, counsel for the revenue heavily relied on the condition on which such registration was granted. We have already recorded the relevant portion of the registration order which contained such condition. Short que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the appellant: Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard." 14. Thus, while granting registration under Section 12A of the Act, the Commissioner has to make necessary inquiries and such registration would be granted only if necessary requirements are fulfilled. It was in this background that this Court in case of Hiralal Bhagwati (supra) held and observed that "It is also required to be noted that once the registration under Section 12A(a) of the Act is granted, the grant of benefit cannot be denied. The Income Tax Officer was not justified in refusing the benefits which would otherwise accrue under the registration. If there is no registration, as contemplated under Section 12A(a) read with Rule 17(A), the revenue would have been justified in making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer must grant exemption of whatever claim put forth by the assessee. It is in this background that the condition would be read and understood. While granting exemption under Section 11 of the Act, the claim of the assessee shall have to be examined by the Assessing Officer irrespective of registration granted under Section 12A of the Act. This, however, would not mean that the Assessing Officer can re-examine the question of eligibility of the trust to seek exemption under Sections 11 and 12 of the Act. 18. In view of the above discussion, we do not find that the view any different from the case of Hiralal Bhagwati (supra) could be taken in the present case also. In our view, therefore, the Assessing Officer was not justified in examining different clauses of the objects of the trust to reopen the question of eligibility of the trust for exemption under Sections 11 and 12 of the Act. In view of this discussion, we do not find it necessary to consider other contentions of the assessee in this regard. 19. Coming to the question of applicability of Section 13 of the Act, though we find that the Tribunal has not examined this question at any length, it would not be necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or manager (by whatever name called) of the institution; (d) any relative of any such author, founder, person, member, trustee or manager as aforesaid; (e) any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest." 21. We may recall that it was contended that in view of the observations of SEBI with respect to functioning of the respondent-assessee and diversion of its some of the funds, sub-section (3) of Section 13 would apply in the present case so as to deny exemption to the assessee under Section 11 of the Act. 22. Upon reading the order of the Assessing Officer as well as CIT Appeals in no way do we find any reference to any of the bodies or persons referred to in sub-section (3) of Section 13 which would enable the Assessing Officer to rely on clause (c) of sub-section (1) of Section 13 to withhold exemption under Section 11 of the Act. In general terms, the Assessing Officer noted certain irregularities of the assessee in managing its funds as pointed out by SEBI. However, there is no conclusion that any part of the funds were diverted or applied as not permitted under sub-section (3) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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