2010 (9) TMI 533 - AT - Income Tax

Addition of income Deemed income - The facts of the case are that the assessee filed nil return of income on 1.4.2006 claiming deduction under section 11 of the I.T. Act - The AO further observed that as per provisions of section 11(3)(d) of the Act any income referred to in section 11(1) credited or paid to any other charitable institution was deemed to be the income of the assessee of the previous year in which the amount was credited or paid - Since the accumulated funds have been transferred in accordance with the second proviso to section 11(3A) Appeal of the revenue is rejected Addition of Rs. 6, 80, 783 as per provisions of section 11(3)(b) of the Act challenged by the assessee has remained to be adjudicated by the ld.CIT(A) - This ground of appeal is treated as allowed for statistical purposes - The appeal of the Revenue is dismissed whereas the Cross Objection filed by the assessee is allowed for statistical purposes

Summary

Issues Involved:
1. Deletion of addition of Rs. 5,48,45,373 made by the AO under section 11(3)(d) on account of deemed income.
2. Deemed addition of Rs. 6,80,781 under the provisions of section 11(3)(b).

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 5,48,45,373 under Section 11(3)(d):

Facts of the Case:
- The assessee, a sports association, filed a nil return of income claiming deduction under section 11 of the I.T. Act.
- The association had accumulated Rs. 5,05,26,154 by 31-3-2005 and set apart Rs. 50 lacs during the year under section 11(2).
- The association resolved to dissolve and transfer its assets, liabilities, and functions to a new company, M/s. Uttar Pradesh Cricket Association, licensed under section 25 of the Companies Act, 1956.

Assessment by AO:
- The AO observed that the transfer of accumulated funds to another charitable organization was not to be treated as application of income for charitable purposes.
- As per section 11(3)(d), any income credited or paid to another charitable institution is deemed to be the income of the assessee.
- Based on Circular No. 8 of 2002, the AO treated the payment of Rs. 5,48,45,373 to Uttar Pradesh Cricket Association as deemed income.

Assessee's Argument:
- The assessee contended that the funds were transferred to an institution with similar objects and functions, thus should be considered as application of income for charitable purposes.
- Cited the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC) to argue for a liberal interpretation of the law.

CIT(A)'s Decision:
- The CIT(A) held that the addition was not sustainable because the Uttar Pradesh Cricket Association was also granted registration under section 12A.
- The transfer was covered by the second proviso to section 11(3A), as the accumulated funds were invested in specified securities as per section 11(2)(b) read with section 11(5).

Tribunal's Analysis:
- The Tribunal found that the funds were transferred to another institution registered as a charitable institution under section 12A.
- The Tribunal rejected the Revenue's argument that the transfer violated the Societies Registration Act, noting that the Income-tax Act allows such transfers under the second proviso to section 11(3A).
- The Tribunal emphasized a liberal construction of the Income-tax Act provisions in favor of the assessee.

Conclusion:
- The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeal and confirming that the transfer of accumulated funds did not constitute deemed income under section 11(3)(d).

2. Deemed Addition of Rs. 6,80,781 under Section 11(3)(b):

Facts of the Case:
- The assessee challenged the assessment of an income of Rs. 5,55,26,150, which included an addition of Rs. 6,80,781 under section 11(3)(b).

Tribunal's Analysis:
- The CIT(A) had not adjudicated on the issue of the addition of Rs. 6,80,781.
- The Tribunal restored this issue to the file of the CIT(A) for proper adjudication after giving both sides an opportunity to be heard.

Conclusion:
- The Tribunal allowed the cross-objection filed by the assessee for statistical purposes, directing the CIT(A) to decide on the addition of Rs. 6,80,781.

Final Decision:
- The appeal of the Revenue was dismissed.
- The cross-objection filed by the assessee was allowed for statistical purposes, with the issue of the addition of Rs. 6,80,781 being remanded to the CIT(A) for further consideration.