Charitable exemption and reassessment limits: Government funding, state registration, and reopening must meet the Income-tax Act's strict tests.

Charitable exemption under the Income-tax Act is governed by its own code, so registration under the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987 is not a prerequisite for section 11 relief. Denial under section 13(1)(c) requires a benefit to a specified person; the State Government is not treated as a "person" or interested person merely because it supplied grants or received equipment for Government hospitals, where the use is for public welfare and no personal pecuniary benefit arises. Reassessment under sections 147 and 148 cannot be sustained on mere suspicion or on reasons that do not survive the reopening, and the Assessing Officer cannot travel beyond the recorded basis.

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Issues: (i) Whether the State Government could be treated as a "person" or "interested person" so as to attract section 13(1)(c) and deny exemption under section 11 on account of equipment supplied to Government hospitals; (ii) Whether exemption under section 11 could be denied merely because the assessee was not registered under the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987; (iii) Whether the reassessment under sections 147 and 148 was valid when it was founded on information regarding utilisation of grants and the addition ultimately did not survive on that basis.

Issue (i): Whether the State Government could be treated as a "person" or "interested person" so as to attract section 13(1)(c) and deny exemption under section 11 on account of equipment supplied to Government hospitals.

Analysis: The definition of "person" in section 2(31) of the Income-tax Act, 1961 was held not to include the Government itself. The contribution made by the State Government did not give it any financial stake or entitlement to profits in the assessee society, and the supply of equipment to Government hospitals did not result in any personal pecuniary benefit to the Government or any other specified person. The use of the equipment was found to be for public welfare and not for the private benefit contemplated by section 13(1)(c).

Conclusion: The State Government was not a "person" or "interested person" for the purpose of section 13(1)(c), and exemption under section 11 could not be denied on this ground.

Issue (ii): Whether exemption under section 11 could be denied merely because the assessee was not registered under the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987.

Analysis: Sections 11 to 13 of the Income-tax Act, 1961 operate as a self-contained code for charitable exemption. Eligibility for exemption under section 11 has to be tested under the Income-tax Act and not by reference to registration under a separate local statute. The absence of registration under the State enactment was therefore held to be irrelevant for denial of income-tax exemption once the assessee otherwise satisfied the requirements of the Act.

Conclusion: Exemption under section 11 could not be denied merely for want of registration under the A.P. Charitable and Hindu Religious Institutions and Endowments Act, 1987.

Issue (iii): Whether the reassessment under sections 147 and 148 was valid when it was founded on information regarding utilisation of grants and the addition ultimately did not survive on that basis.

Analysis: Reopening cannot rest on a roving enquiry or mere suspicion. The recorded reason for reopening related to alleged utilisation of grant money for acquisition of overseas equipment, but no addition survived on that basis and the Assessing Officer was not permitted to travel beyond the reasons recorded for reopening. On that footing, the jurisdiction assumed for reassessment was unsustainable.

Conclusion: The reassessment was not sustainable, and the assessee succeeded on the reopening issue.

Final Conclusion: The revenue's appeal failed on merits, and the assessee's cross-objection succeeded on the jurisdictional challenge to reopening, resulting in the sustaining of exemption and the setting aside of the reassessment.

Ratio Decidendi: For charitable exemption, the Government is not a "person" under section 2(31), denial under section 13(1)(c) requires identifiable personal benefit to a specified person, exemption under section 11 is governed exclusively by the Income-tax Act, and reassessment cannot be sustained on reasons that do not survive or on mere suspicion.

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