2006 (6) TMI 75 - HC - Income Tax

Benefits under section 11- charitable trust - 1. Whether Tribunal was correct in law in directing the Assessing Officer to allow the benefits under section 11 of the Income-tax Act 1961? 2. Whether Tribunal was correct in law in holding that the provisions contained in section 12A(b) are only directory in nature and not mandatory? - Board s Instruction No. 1/1148 lays down that exemption under section 11 should not be rejected only on the ground that there had been delay in filing the report by the accountant in terms of section 12A(b). - Since the Supreme Court has laid down that the Department has no right to challenge a circular issued by the Board on any ground whatsoever therefore both questions will have to be answered in favour of the assessee and against the Department.

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal was correct in directing the Assessing Officer to allow benefits under section 11 of the Income-tax Act, 1961?
2. Whether the Income-tax Appellate Tribunal was correct in holding that the provisions in section 12A(b) are only directory and not mandatory?

Analysis:
The judgment by the Andhra Pradesh High Court addresses two key questions referred by the Revenue. The case involves the Andhra Pradesh State Road Transport Corporation seeking exemption under section 11 of the Income-tax Act, 1961. The Corporation was declared a charitable institution in previous judgments by the High Court and Supreme Court. The assessment years in question are 1974-75 to 1976-77 and 1978-79. The first issue questions the correctness of the Income-tax Appellate Tribunal's direction to the Assessing Officer to allow benefits under section 11. Given the Corporation's charitable status, this issue loses significance. However, it becomes relevant in light of the second question regarding the mandatory nature of section 12A(b) requirements for availing benefits under section 11.

The crux of the matter lies in the interpretation of section 12A(b), which mandates certain conditions for claiming exemption under section 11. The Revenue argues that the Corporation failed to furnish the required audit report by a chartered accountant along with the return of income, as stipulated in Form No. 10B. On the other hand, the Corporation contends that the report submission was not mandatory and was provided before the final assessment. The Corporation relies on Board instructions issued in 1978, suggesting flexibility in cases of delayed audit reports. The Revenue, however, disputes the binding nature of these instructions and asserts that the courts, not the Board, should interpret statutes.

In support of their stance, the Corporation cites a Bombay High Court judgment emphasizing the permissibility of filing Form No. 10 after the assessment is completed. Additionally, a circular referenced by the Corporation emphasizes that delays in filing audit reports should not automatically disentitle trusts from claiming exemptions under sections 11 and 12. The judgment also cites a Supreme Court ruling highlighting the binding nature of Board circulars on the Department, preventing challenges to their consistency with statutory provisions.

Ultimately, the High Court rules in favor of the Corporation, citing the Supreme Court's precedent that bars the Department from challenging Board circulars. Consequently, both questions are answered in favor of the assessee, emphasizing the importance of adhering to circulars in force at the relevant time.