2015 (3) TMI 967 - AT - Income Tax

Tribunal orders reassessment of income, removes penalties, and maintains Section 11 exemption pending verification.

Joint Commissioner of Income Tax(OSD), Dy. Director of Income Tax. (Exemptions- II) & Others Versus M/s. Young Christian & Others

Joint Commissioner of Income Tax(OSD), Dy. Director of Income Tax. (Exemptions- II) & Others Versus M/s. Young Christian & Others - TMI Issues Involved1. Entitlement to exemption under Section 11 of the Income Tax Act.2. Treatment of rental income as business income or income from house property.3. Violation of Section 13(1)(d) due to advancing monies to other trusts.4. Treatment of cash credits under Section 68 of the Act.5. Levy of penalty under Section 271D and 271E for violation of Section 269SS and 269T.Detailed Analysis1. Entitlement to Exemption under Section 11The primary issue was whether the assessee was entitled to the benefit of Section 11 of the Income Tax Act. The Assessing Officer denied this exemption, arguing that the assessee was conducting business by renting out properties and advancing money to other trusts, violating Section 13(1)(d). The Commissioner of Income Tax (Appeals) reversed this decision, stating that rental income should be assessed as income from house property, not business income, and that advancing money to other registered trusts did not violate Section 13(1)(d).2. Treatment of Rental IncomeThe Department contended that the rental income should be considered business income, as the properties were let out systematically. The Commissioner of Income Tax (Appeals) disagreed, ruling that the rental income was from house property and thus eligible for exemption under Section 11. The Tribunal directed the Assessing Officer to re-examine whether the income was incidental to the assessee's charitable activities or constituted a separate business.3. Violation of Section 13(1)(d)The Assessing Officer argued that advancing money to other trusts violated Section 13(1)(d). However, the Commissioner of Income Tax (Appeals) found no violation, as the recipient trusts were also registered under Section 12A. The Tribunal upheld this view, referencing a similar case where advancing money to another registered charitable institution was not considered a violation.4. Treatment of Cash CreditsFor the assessment year 2008-09, the Commissioner of Income Tax (Appeals) ruled that Rs. 14,60,000 could not be considered unexplained cash credits as they were loans from the General Secretary, Mr. G. Ebinesan, and had been repaid. For the assessment year 2009-10, out of Rs. 1,16,18,000, only Rs. 16,18,000 was considered explained for the same reason, while Rs. 1 crore from unknown persons was treated as unexplained credits and assessed as income from other sources. The Tribunal directed the Assessing Officer to re-examine the nature of these transactions.5. Levy of Penalty under Section 271D and 271EThe Assessing Officer imposed penalties under Section 271D and 271E for receiving and repaying loans in cash, violating Sections 269SS and 269T. The Commissioner of Income Tax (Appeals) deleted these penalties, stating that once the cash credits were treated as unexplained under Section 68, the provisions of Sections 269SS and 269T could not be invoked. The Tribunal upheld this decision, citing precedents where treating amounts as undisclosed income precluded penalties for cash transactions.ConclusionThe Tribunal remanded the matter back to the Assessing Officer for re-examination of the nature of the income and transactions. The penalties under Sections 271D and 271E were deleted, and the exemption under Section 11 was upheld, provided the transactions with other trusts were verified as compliant with Section 12A registration. The Tribunal's directions emphasized a detailed re-evaluation of whether the income was incidental to the charitable activities or constituted a separate business.