Tribunal grants appeal on tax exemption withdrawal, emphasizes compliance with specified investment modes.

The Tribunal allowed the appeal for statistical purposes, emphasizing the withdrawal of exemption under Section 10(23C)(VI) of the Income Tax Act was a harsh step. The decision directed reconsideration by the CIT(E) to convert shares into specified assets within a specified period, withdrawing exemption temporarily for income from non-specified assets. This aimed to provide the assessee with an opportunity to rectify non-compliance while upholding the taxability of income from non-specified assets, stressing the significance of adhering to specified investment modes and the authority's ability to withdraw exemptions for non-compliance.

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Issues:
Withdrawal of exemption u/s 10(23C)(VI) of Income Tax Act, 1961 based on the holding of assets in non-specified modes.

Analysis:
The appeal was against the order of Ld. CIT (E)-III, Jaipur withdrawing the approval granted u/s 10(23C)(VI) for the assessment year 2009-10. The assessee contended that the withdrawal was unjustified as there was no investment out of the funds of education. The Ld. CIT(E) withdrew the exemption citing that the assessee held assets in the form of shares of a company for many years, not in specified modes, as per the Auditor's report. The Ld. CIT(E) noted that trusts cannot hold funds in non-specified modes as per Section 10(23C) of the Act.

The issue was whether the withdrawal of exemption was justified. The assessee argued that the shares were not acquired from educational funds and cited precedents where only income from ineligible investments was taxed. They also highlighted that the investment in shares was not from educational income, thus not attracting the 13th proviso of Sec. 10(23C). The Ld. CIT(E) observed that the assessee did not provide evidence of shares receipt and donation in 2006-07. The Tribunal noted that the assessee had not made investments as per Section 13 of the Act, allowing authorities to withdraw exemptions u/s 11 & 12. The Tribunal directed reconsideration by the CIT(E) to convert shares into specified assets within a specified period, withdrawing exemption in the meantime for income from non-specified assets.

The Tribunal emphasized that the withdrawal of exemption was a harsh step and allowed the appeal for statistical purposes. The decision aimed to give the assessee an opportunity to rectify the non-compliance while maintaining the taxability of income from non-specified assets. The judgment highlighted the importance of complying with specified investment modes under the Act and the authority's power to withdraw exemptions in case of non-compliance.

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