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2016 (5) TMI 253 - ITAT VISAKHAPATNAM

2016 (5) TMI 253 - ITAT VISAKHAPATNAM - TMI - Benefit of exemption under sec. 11 denied - A.O. was of the opinion that though, its objects are charitable in nature and activities are genuine, the activities carried out by the assessee are akin to any commercial activity and hence, computed the income under the head profits and gains of business or profession - Held that:- Admittedly, The Society is registered under sec. 12A of the Act and it is imparting education. It is not a case of A.O. that .....

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y, nor pointed out any violation referred to sec. 13(1)(c) or 13(1)(d), which are pre conditions for denying exemption u/s 11 of the Act. Therefore, we are of the opinion that the A.O. was not correct in denying exemption under sec. 11 and assessed income under the head profits and gains of business of profession. - Decided against revenue

Applicability of provisions of sec. 40(a)(ia) and 43B when income computed under sec. 11, 12 & 13 of the Act - Held that:- If any expenditure is di .....

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rovisions which are independent from any other provisions of the Act for computation of income of trusts claiming exemption u/s 11 of the Act. Therefore, we are of the opinion that, when income is computed under sec. 11 of the Act, the provisions of sec. 40(a)(ia) & 43B are not applicable. Hence, the A.O. was not correct in disallowing the amounts by invoking the provisions of sec. 40(a)(ia) and 43B for failure to deduct TDS and failure to remit the unpaid liabilities. - Decided against revenue .....

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Society, registered under Andhra Pradesh Societies Registration Act and also registered under sec. 12A of the Income Tax Act, 1961. The Society has filed its return of income for the A.Y. 2009-10, declaring nil total income by claiming exemption under sec. 11 of the Income tax Act, 1961. The Case has been selected for scrutiny assessment and accordingly, notice under sec. 143(2) and 142(1) of the Income Tax Act, 1961 were issued. In response to notices, the authorised representative of the asses .....

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there is perceptible and gradual increase in receipts from ₹ 1,58,84,406/- to ₹ 22,57,55,509/- over a period of four years starting from A.Y. 2005-06 to 2008-09. The Society has availed term loans from banks which have been used for construction of college buildings etc. Though, the objects are not under dispute, nor any case is being made out for reconsidering the exemption by virtue of registration under sec. 12A of the Act, the assessee s activities are akin to any commercial acti .....

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. The assessee further submitted that the A.O. has never doubted the objects and genuineness of its activities and also not made out any case of violations of section 13(1)(c) or 13(1)(d) of the Act, so as to deny the benefit of exemption under sec. 11, which is evident from the assessment order, wherein the A.O. himself made observations about the genuineness of the activities of the society. The only point on which, the A.O. came to the conclusion that the activity of society is akin to any co .....

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relied upon the judgment of ITAT, Mumbai Bench decision in the case of Mahatma Gandhi Seva Mandir vs. DDIT (2012) 52 SOT 26. The CIT(A), after considering the submission of assessee and also considering the decision of ITAT, Mumbai Bench, in the case of Mahatma Gandhi Seva Mandir vs. DDIT (2012) 52 SOT 26, deleted the additions. The CIT(A), further held that the provisions of sec. 40(a)(ia) and 43B are not applicable, when income is computed under the provisions of sec. 11 of the Act. 4. The Ld .....

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er different facts. 5. Per contra, the Ld. A.R. submitted that the CIT(A) rightly held that the provisions of sec. 40(a)(ia) and 43B are not applicable to trust/society claiming exemption under sec. 11. The A.R. further submitted that the income of trust registered under sec. 12A is to be computed under the provisions of sec. 11, 12 & 13 of Act, which are fall under chapter III which deals with incomes which do not form part of the total income . It was further submitted that sec. 40(a)(ia) .....

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ant, if income is computed under the head profits and gains of business or profession. The A.O. has not doubted the genuineness of the activities of the trust and without pointing out any violations referred to in section 13(1)( c) or 13(1)(d), simply assessed the income under the head income from business and disallowed the expenditures, by invoking sec. 40(a)(ia) and 43B which is not correct. In support of his arguments, the A.R. relied upon the judgments of ITAT, Mumbai Bench decision in the .....

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mercial activity and hence, computed the income under the head profits and gains of business or profession. It was the contention of assessee that the A.O. has never doubted the objects and genuineness of its activities and also not made out any case of violations of section 13(1)(c) or 13(1)(d) of the Act, so as to deny the benefit of exemption under sec. 11, which is evident from the assessment order, wherein the A.O. himself made observations about the genuineness of the activities of the soc .....

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ovisions of sec. 11, 12 & 13 of the Act. On perusal of reasons, the reasons given by the A.O. for denying the exemptions, appears to be quite contrary to the law. Admittedly, The Society is registered under sec. 12A of the Act and it is imparting education. It is not a case of A.O. that the objects are not charitable in nature and the activities of the assessee are not genuine. The A.O., one side admitted that the objects of the society are not under debate, nor any case is being made out fo .....

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ing exemption under sec. 11 and assessed income under the head profits and gains of business of profession. 8. Having said that let us examine, whether the provisions of sec. 40(a)(ia) and 43B are applicable, when income is computed under sec. 11, 12 & 13 of the Act. Chapter III deals with incomes which do not form part of total income. Sce. 11, 12 & 13 deals with income from property held for charitable or religious purposes and the mode of computation of income subject to certain condi .....

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all be computed in accordance with the provisions of sec. 28 to 43D. Therefore, the provisions of sec. 40(a)(ia) and 43B are relevant, if income is computed under the head profits and gains of business or profession. In the present case on hand, the income of the assessee is eligible for exemption under sec. 11 of the Act by virtue of registration under sec. 12A. The income of any trust/society, enjoying exemption u/s 11, is exempt from tax, subject to certain conditions. If, such conditions are .....

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allowed by invoking the provisions of section 40(a)(ia) and 43B, it leads to a situation where assessee income available for application is enhanced without being any real income for application for charitable purpose, which leads to an absurd situation where the trusts/societies enjoying exemption u/s 11 have to pay taxes. This is because, the assessee claiming exemption u/s 11, shall apply 85% of income for the purpose of objects of the Trust. The legislature in its wisdom has kept separate pr .....

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