2013 (10) TMI 1524 - HC - Income Tax

Summary

Issues involved:
The judgment involves appeals arising from assessment orders for the years 1999-2000 and 2001-2002, concerning the entitlement of the assessee under Section 10(23C)(vi) of the Income Tax Act and the alleged violation of Section 11(5) of the Act.

Issue 1: Entitlement under Section 10(23C)(vi) of the Act
The assessee, a charitable society running an educational institution, applied for approval under Section 10(23C)(vi) of the Act and was granted approval subject to certain conditions by the Central Board of Direct Taxes. The Assessing Officer, despite the approval, denied the exemption citing investments made in violation of conditions. The Tribunal held that the Assessing Authority must first inform the prescribed authority of any contravention before denying the exemption. The Tribunal also found that the contribution to the chit fund did not violate the provisions of Section 11(5) of the Act. Consequently, the Tribunal allowed the appeal and set aside the Assessing Authority's order. The Revenue appealed against this decision.

Issue 2: Interpretation of Proviso to Section 143(3) of the Act
The dispute centered on the proviso to Section 143(3) inserted by the Finance Act, 2002, effective from 1.4.2003. The Revenue argued that the Assessing Authority had the jurisdiction to deny exemption if the assessee breached conditions prior to this amendment. Conversely, the assessee contended that the proviso is procedural and applies to all assessments post 1.4.2003. The Tribunal held that the proviso is mandatory, requiring the Assessing Officer to inform the prescribed authority of any contravention before denying exemption. The Tribunal's decision was upheld, emphasizing that without complying with this provision, the Assessing Authority lacks jurisdiction to re-open assessments.

Judgment:
Regarding Issue 1, the Tribunal's decision was upheld, stating that the Assessing Authority must follow the mandatory provisions of the proviso to Section 143(3) before denying exemption. The argument that prior to 1.4.2003, the Assessing Authority had the power to deny exemption without a specific provision for withdrawal was dismissed. Issue 1 was decided in favor of the assessee.
On Issue 2, in light of the finding on Issue 1, the second substantial question of law was left open for future consideration. Consequently, both appeals were dismissed.