2022 (7) TMI 1549 - HC - Income Tax

Society's tax exemption denial overturned due to inadequate consideration of investment evidence under section 11

Assistant Director of Income-tax (Exemption) Versus Aditanar Educational Institution

Madras HC set aside appellate authorities' orders denying section 11 exemption to a registered society. The Revenue alleged the assessee held ... Denial of exemption u/s 11 - assessee made investments in violation of section 13(1)(d) r/w section 11(5) - assessee is a registered society and was granted exemption u/s 10(22) in respect of all the income arising from the educational institutions run by them - HELD THAT:- It is an admitted fact that the assessee did not comply with the provisions of law, subsequent to the amendment, for claiming exemption under section 11, though they enjoyed the said benefit till the assessment year 1998-99, without any restrictions. It is the specific case of the appellant/Revenue that the assessee is holding shares and other investments in private companies, which are outside the scope of section 11(5) and hence, they are not entitled for the benefit of section 11 as provided in section 13(1)(d), for the assessment years under consideration. Whereas the assessee stated that they are not holding any impermissible investments and they had not violated the provisions of section 11(5), as alleged. In support of the same, a memo dated 28-6-2022 was filed detailing the shares purchased and sold by the assessee in the form of a chart. Such being the submissions made by the parties, this court, in the light of the factual matrix and as agreed by the learned counsel appearing for both sides, is inclined to set aside the orders of the appellate authorities and remand the matter to the assessing officer for fresh consideration. Accordingly, the orders of the appellate authorities are set aside and the matter is remitted to the assessing officer for fresh consideration, by considering the memo filed by the assessee before this Court. AO shall complete the said exercise, after providing due opportunity to the assessee for submission of both oral and documentary evidence, if any, and pass appropriate orders, on merits and in accordance with law, within a period of two months from the date of receipt of a copy of this judgment. Issues:- Interpretation of provisions of section 13(1)(d) and section 11(5) of the Income-tax Act.- Application of exemption under section 11 to a registered society running educational institutions.- Compliance with investment regulations for exemption eligibility.- Time limit for disinvesting impermissible investments.- Judicial review of orders passed by lower authorities.Analysis:The judgment by the High Court of Madras involved Tax Case Appeals arising from an order passed by the Income-tax Appellate Tribunal related to assessment years 1999-2000 to 2002-2003. The substantial questions of law revolved around the permissibility of investments under sections 13(1)(d)(ii) and 11(5) of the Income-tax Act. The appellant, the Revenue, challenged the denial of exemption under section 11 to the respondent, a registered society operating educational institutions, based on alleged impermissible investments. The Commissioner of Income-tax (Appeals) had initially allowed the appeals in favor of the assessee, leading to the Revenue's appeal to the Tribunal, which was subsequently dismissed.The appellant contended that the investments made by the assessee were impermissible under section 13(1)(d) and section 11(5) as they were not in compliance with the prescribed modes and no efforts were made to convert them. However, the respondent argued that the investments predated the relevant amendments and were not impermissible. The CIT(A) and the Tribunal had upheld the exemption for the respondent, emphasizing the lack of a time limit for disinvesting impermissible holdings and the historical nature of the investments.Upon review, the High Court found that the appellant's claim of impermissible investments was disputed by the respondent, supported by a detailed memo of shares transactions. Acknowledging the factual discrepancies and submissions from both parties, the Court set aside the orders of the lower authorities and remanded the matter to the assessing officer for fresh consideration. The assessing officer was directed to review the memo provided by the respondent and make a decision within two months, ensuring compliance with legal provisions and principles.In conclusion, the High Court's judgment focused on the interpretation of tax laws regarding investments, application of exemptions to registered societies, and the necessity for compliance with statutory requirements for eligibility. The decision highlighted the importance of factual accuracy and due process in tax assessments, emphasizing the need for a thorough review by the assessing officer in light of the parties' submissions.