2026 (2) TMI 454 - HC - Income Tax

Tax exemption for trust receipts disclosed as other income does not bar relief; appellate authorities must grant entitled relief.

Disclosure of trust receipts as 'income from other sources' does not automatically defeat entitlement to tax exemption; authorities must apply a ... Exemption u/s 11 - Simply because the assessee had disclosed the income arising from the trust property under the head ‘income from other sources’, can the exemption be denied? - appellant is a trust registered as a Non-Governmental Organisation (NGO) with the Ministry of Culture, Government of India and also registered under the provisions of Section 12A and Section 80G HELD THAT:- Case in hands is a classic example of callousness. AO while making the scrutiny assessment has taken advantage of the assessee’s fault. According to us, while passing an order u/s 143(3) the AO is required to apply a judicious approach and confer due benefits, including exemption or deduction, for which the assessee is otherwise entitled to. In the instant case, rather a strange situation has come to fore – while processing the appellant’s return of income, it has been assessed in accordance with law with a justice-oriented approach whereas during scrutiny assessment the AO has proceeded akin to a machine which does not have the ability to think for itself. The machine has processed the return as if it has a pulsating heart and a human mind with the ability to analyse, while the man (the Assessing Officer) has proceeded as a machine. Such approach mocks at the adjudicatory mechanism. We are surprised to see that both the appellate authorities too have applied a telescopic view of the matter and have rejected the appellant's appeal by simply observing that the said amount had not been added by the AO Even if that was so, at least they were expected to consider the material & petitioner’s contentions. Appellate proceedings are a continuation of regular proceedings and if any error has been committed by the AO, it is the duty of the appellate authority to correct such error. AO might have been swayed by the revenue considerations, (ideally, which he should not) but at least the CIT(A) ought to have taken into account, the correct factual and legal position instead of non-suiting the appellant on technical count. Similar has been the approach of the learned Tribunal, which should have been avoided. It is because of such approach that the appellant has to come to this Court. A lis, which could have been given a quietus, has to be brought to this Court. It is the duty of the appellate authorities to assist taxpayers in securing legitimate reliefs and not be fettered by mere technicalities. This view stands affirmed in the judgment rendered by this Court in CIT v. Jai Parabolic Springs Ltd. [2008 (4) TMI 3 - DELHI HIGH COURT] wherein it was held that there is no bar on the appellate authorities to entertain a claim for deduction not made in the return. A reference was also made to the judgment of National Thermal Power Co. Ltd. [1996 (12) TMI 7 - SUPREME COURT (LB)] wherein it was held that appellate authorities including the Tribunal remain fully empowered to grant relief or allow claims to which the assessee is entitled, even if unclaimed in the return. The view is further reinforced vide the CBDT Circular No. 14-XL (35) dated 11.04.1955 which enjoins a duty upon the officers of the department to aid taxpayers in every reasonable way to correctly determine their tax liability, particularly when some refund or relief is due to them and to refrain from taking advantage of an assessee’s ignorance of his rights. We allow the appeal and impose a cost of Rs. 25,000/- upon the Income Tax Department. Issues: Whether exemption under sections 11 and 12 of the Income-tax Act, 1961 can be denied merely because interest from fixed deposits was disclosed under the head 'income from other sources' in the return of income.Analysis: The assessee was registered under section 12A and 80G and satisfied conditions for exemption under sections 11 and 12; the interest in question was applied for charitable purposes and the assessee had utilised the amounts in meeting trust expenditures. The assessment initially processed under section 143(1) assessed income at nil and granted refund, but on scrutiny under section 143(3) the assessing authority treated the bank interest as taxable because it was shown under 'income from other sources'. The appellate authorities and the Tribunal did not rectify the position despite material demonstrating entitlement to exemption. Appellate authorities possess power to grant relief to which an assessee is entitled even if not claimed in the return, and departmental officers have a duty to assist taxpayers in securing legitimate reliefs rather than taking advantage of inadvertent errors.Conclusion: The exemption cannot be denied solely on the ground that interest was disclosed under 'income from other sources'; the appeal is allowed and the assessment and subsequent orders are quashed. The result is in favour of the assessee.