2010 (6) TMI 643 - AT - Income Tax

Summary

Issues Involved:
1. Denial of exemption claimed u/s 11.
2. Levy of interest u/s 234B.
3. Disallowance of payment of interest u/s 40(a)(ia).

Summary:

1. Denial of Exemption Claimed u/s 11:
The assessee, an educational institution registered under the Bombay Public Trust Act, 1950, Societies Registration Act, 1860, and u/s 12A of the Income-tax Act, 1961, claimed exemption u/s 11. The CIT(A) denied this exemption, arguing that the advance of Rs. 30 lakhs to Baramati Club was not aligned with the institution's objectives. The Tribunal found that the advance was made towards membership fees for gymkhana and recreational facilities for teachers and students, which aligns with the institution's objectives. The Tribunal held that Baramati Club, being a public charitable trust, is not a prohibited person u/s 13(3) and thus, there was no contravention of section 13(2)(a) read with section 13(1)(c)/13(3). The Tribunal also noted that the membership fee advance was neither a deposit nor an investment but an application of income towards the institution's objectives. Consequently, the Tribunal allowed the exemption claimed u/s 11.

2. Levy of Interest u/s 234B:
The assessee objected to the levy of interest u/s 234B on the grounds that there was no specific direction for charging the interest in the assessment order. Since the Tribunal decided the main issue in favor of the assessee, this ground became infructuous.

3. Disallowance of Payment of Interest u/s 40(a)(ia):
The revenue appealed against the CIT(A)'s decision to delete the addition made by the Assessing Officer u/s 40(a)(ia) for non-deduction of tax at source on interest payments to Dewan Housing Finance Ltd. The Tribunal upheld the CIT(A)'s decision, stating that the income earned by the assessee is not chargeable under the head "Profits and gains of business or profession," and hence, the provisions of section 40(a)(ia) are not applicable. Therefore, the disallowance of interest payments for assessment years 2005-06 and 2006-07 was deleted.

Conclusion:
The Tribunal allowed the assessee's appeals for assessment years 2004-05, 2005-06, and 2006-07, granting the exemption claimed u/s 11 and dismissing the levy of interest u/s 234B. The revenue's appeals for assessment years 2005-06 and 2006-07 were dismissed, upholding the deletion of disallowance of interest payments u/s 40(a)(ia).