2014 (7) TMI 1369 - HC - Income Tax

Income Tax Appeal: Trustees not Misusing Funds, AO Faulty Procedure

The Commissioner of Income Tax, Allahabad And Another Versus Hindi Sahitya Sammelan

The High Court dismissed the department's appeal against the judgment and order of the Income Tax Appellate Tribunal. The decision upheld the lower ... Exemption u/s 11 - AO has declined to extend the benefit of Section 11 of Income Tax Act, though the Society is registered under Section 12A - HELD THAT:- As undisputed fact that the assessee has been granted registration under Section 12A of the Act. The objects of the Societies are the general public utility as defined under Section 2(15) of the Act. No action was taken by the A.O. under Section 12-AA(3) of the Act, before denied the benefit, but directly disallowed the exemption/benefit under Section 11 of the Act. From the order of the CIT (A), it appears that there is no instance of misuse of the funds by the trustees of the Society. The grant of exemption under Section 11 is not automatic and the assessee shall have to meet out the requirements of Section 11 - Once, the registration is granted to the assessee under Section 12-A, then the A.O. cannot pass a contrary order without following the provisions of Section 12AA(3), but the same was not done in the instant case. When it is so, then by keeping mind the ratio laid down in the case of CIT Vs. Gujarat Maritime Board [2007 (12) TMI 7 - SUPREME COURT] as well as C.M.S. Vs. Union of India, [2009 (5) TMI 41 - ALLAHABAD HIGH COURT] we find no reason to interfere with the impugned orders passed by both the Appellate Authorities, the same are hereby sustained alongwith the reasons mentioned therein. No substantial question of law is emerging from the impugned orders. Issues Involved:- Denial of benefit under Section 11 of Income Tax Act- Registration under Section 12A of the Act- Misuse of funds by trustees- Requirements of Section 11- Contrary order without following Section 12AA(3)- Precedents: CIT Vs. Gujarat Maritime Board, C.M.S. Vs. Union of IndiaDenial of Benefit under Section 11 of Income Tax Act:The case involved the denial of the benefit under Section 11 of the Income Tax Act to a society registered under Section 12A of the Act. The Assessing Officer (A.O.) declined to extend the benefit for the assessment year despite the society's registration. The A.O. made various additions, which were later deleted by the Commissioner of Income Tax (CIT) and the Tribunal. The Department filed appeals against these deletions.Registration under Section 12A of the Act:The society in question had been granted registration under Section 12A of the Act. The objects of the society were considered to be for general public utility as defined under Section 2(15) of the Act. The A.O. did not take any action under Section 12-AA(3) before denying the benefit under Section 11. The CIT found no instance of misuse of funds by the trustees of the society.Misuse of Funds by Trustees:The judgment highlighted that there was no evidence of misuse of funds by the trustees of the society. This factor played a role in the decision-making process regarding the denial of benefits under Section 11 of the Income Tax Act.Requirements of Section 11:It was emphasized that the grant of exemption under Section 11 is not automatic, and the assessee must meet the requirements of the section. Once registration is granted under Section 12-A, the A.O. cannot pass a contrary order without following the provisions of Section 12AA(3). Failure to follow this process was noted in the case at hand.Contrary Order without Following Section 12AA(3):The judgment pointed out that the A.O. had not followed the prescribed procedure under Section 12AA(3) before denying the benefit under Section 11. This failure to adhere to the statutory requirements was a crucial factor in the decision-making process.Precedents: CIT Vs. Gujarat Maritime Board, C.M.S. Vs. Union of India:The judgment referred to precedents such as CIT Vs. Gujarat Maritime Board and C.M.S. Vs. Union of India to support the decision to sustain the orders passed by the Appellate Authorities. These precedents were cited to justify the dismissal of the department's appeal against the Tribunal's order.In conclusion, the High Court dismissed the department's appeal against the judgment and order of the Income Tax Appellate Tribunal, upholding the decisions of the lower authorities based on the facts and legal provisions discussed in the judgment.