2011 (10) TMI 173 - HC - Income Tax

Tribunal Grants Tax Relief to Assessee under Income Tax Act

The Tribunal reversed the Commissioner of Income Tax's decision to revise the Assessing Officer's order, granting the assessee the benefit of section 11 ... Exemption under section 11 of the IT Act - violation of the provisions of section 13(1)(c) - assessee was set up in 1989 under the sponsership of Government of India, Ministry of Urban Development for the sole purpose of providing physical environment to various institutions for the purposes of carrying out their activities - assessee received contributions from institutional members - Held that: no violation of the provisions of section 13(1)(c) of the IT Act as the interest earned on the funds received from institutional members would only reduce the cost which in turn would get proportionately divided amongst the institutional members. Issues Involved:1. Whether the Commissioner of Income Tax (CIT) erred in revising the order of the Assessing Officer (AO) which held the assessee's income as exempt under section 11 of the Income Tax Act.2. Whether the assessee's activities fell within the definition of charitable purpose under section 2(15) of the Income Tax Act.3. Whether the institutional members were substantial contributors under section 13(3) of the Income Tax Act.4. Whether the assessee's activities were functioning as a club and deviated from its original object.5. Whether the principle of consistency should be applied in the assessment of the assessee's income.Issue-wise Detailed Analysis:1. Revision of AO's Order by CIT:The Tribunal reversed the CIT's view, which had set aside the AO's assessment order dated 20.03.1998. The CIT had deemed the AO's order erroneous and prejudicial to the revenue's interest, directing a fresh assessment. However, the Tribunal restored the AO's order, which had granted the benefit of section 11 of the IT Act to the assessee.2. Charitable Purpose under Section 2(15):The CIT did not dispute that the assessee's aims and objects fell within the definition of charitable purpose under section 2(15) of the IT Act. The assessee had obtained registration under section 12A(a) of the IT Act, and its habitat-related activities qualified for exemption under section 11.3. Institutional Members as Substantial Contributors:The CIT concluded that institutional members were substantial contributors under section 13(3) and that the space was allotted below market price, violating section 13(1)(c). The Tribunal found no evidence supporting this and noted that the allotment was subject to government approval, based on a self-financing model. The funds received were shown as liabilities, not corpus contributions, and the institutional members were not substantial contributors under section 13(3).4. Assessee Functioning as a Club:The CIT observed that the assessee had started functioning as a club, deviating from its original habitat-related activities. The Tribunal noted that these activities were not relevant to the assessment years in question. The Tribunal focused on the period before 1997/1998 and found no deviation from the assessee's original object.5. Principle of Consistency:The Tribunal emphasized the principle of consistency, noting that in several assessment years, the revenue had not appealed against favorable orders for the assessee. The Tribunal upheld the AO's orders for the years in question, aligning with the principle of consistency. The Tribunal's decision was supported by the Supreme Court's judgment in Chandra Prakash v. State of U.P. and the Division Bench judgment in Dy. DIT v. Shanti Devi Progressive Education Society.Conclusion:The Tribunal correctly appreciated the facts and legal principles, setting aside the CIT's order and restoring the AO's assessment. The Tribunal's findings were based on material evidence, and no substantial question of law arose. The appeal of the revenue was dismissed, and the Tribunal's order was sustained. The principle of consistency was applied, and the Tribunal's judgment was upheld for the assessment years in question.