2008 (2) TMI 536 - AT - Income Tax

Summary

Issues Involved:
1. Exemption under Section 11 of the IT Act, 1961.
2. Violation of principles of natural justice.
3. Applicability of judgments in similar cases.
4. Jurisdiction of CIT(A) in deleting additions.

Detailed Analysis:

1. Exemption under Section 11 of the IT Act, 1961:
The primary issue raised by the Department was that the CIT(A) erred in allowing the assessee exemption under Section 11 of the IT Act, 1961. The AO observed that the clauses in the Articles of Association regarding the declaration of dividend and distribution of profit violated the requirements of Section 11, which mandates that property be held for charitable or religious purposes benefiting the public. The AO held that the assessee was not entitled to exemption under Section 11 due to these provisions. The CIT(A), however, allowed the exemption, noting that the assessee had retrospectively deleted the clauses regarding the declaration of dividends. The Tribunal found that the CIT(A) misinterpreted the retrospective application of the amendments and that the original Articles of Association did not prohibit the distribution of dividends, thus violating Section 11.

2. Violation of Principles of Natural Justice:
The Department raised an additional ground that the CIT(A) passed the appellate order without giving an opportunity of being heard to the AO, violating the principles of natural justice. However, this ground was not pressed by the Departmental Representative and was thus rejected.

3. Applicability of Judgments in Similar Cases:
The Department contended that the CIT(A) failed to appreciate the applicability of the judgments in the cases of Delhi Stock Exchange Association Ltd. v. CIT and CIT v. Kamla Town Trust. The AO relied on these judgments to deny the exemption under Section 11, arguing that the presence of clauses for dividend distribution indicated an element of private gain. The CIT(A) distinguished these cases, stating that the amendments to the Articles of Association were made retrospectively. The Tribunal, however, found that the CIT(A) misinterpreted the retrospective application and that the cited judgments were indeed applicable, as the amendments could not be applied retrospectively to claim exemption under Section 11.

4. Jurisdiction of CIT(A) in Deleting Additions:
The Department argued that the CIT(A) exceeded his jurisdiction by deleting additions that were confirmed by a predecessor CIT(A) and not appealed by the Department. The CIT(A) held that the AO did not correctly follow the directions of the Tribunal, which had stated that the AO should confine himself to the issue of exemption under Section 11 and not make additions on issues that had attained finality. The Tribunal found that the CIT(A) erred in going beyond the Tribunal's directions and that the additions deleted on merits had become final as the Department did not appeal against them.

Conclusion:
The Tribunal allowed all eight appeals filed by the Department, finding that the CIT(A) erred in granting the exemption under Section 11, misinterpreted the retrospective application of amendments, and exceeded jurisdiction by deleting confirmed additions. The Tribunal upheld the AO's findings and restored the assessments.