The Himachal Pradesh High Court’s division bench has dismissed the petitions filed by Chief Minister Virabhadra Singh, his wife Pratibha, and son Vikramaditya. They were challenging the Income Tax department’s orders to reassess their revised returns. The court found that the income tax commissioner’s orders were legally correct.
The petitioners argued that the Income Tax department erred in issuing reassessment notices based on revised returns, claiming that agricultural income is non-taxable. They contended that the case reopening was legally flawed, there was no income escapement, and the sanction was granted mechanically. They also alleged that the Assessing Officer exceeded their jurisdiction.
On the other hand, the Revenue argued that the petitioner’s original return did not declare agricultural income and failed to disclose the purchase of an insurance policy. Only after receiving information from the Life Insurance Corporation of India did they discover this fact. The source of investment was not disclosed even after a notice under Section 148 of the Income Tax Act. The court proceedings related to the Hindu Undivided Family (HUF) were also stayed at the petitioner’s request.
The division bench, in its dismissal, stated that the objections’ rejection was not based on frivolous or extraneous factors. They found a proper application of mind to the facts and circumstances, and the objections were duly communicated. Mere rejection of objections does not automatically favour the revenue, as there was no material justifying the substantial investment from the declared HUF income. The assessment process still allows for the presentation of such material to the Assessing Officer.
In a recent decision, the Allahabad High Court ruled that an intimation under section 143(1) of the Income Tax Act can be considered as an ‘order’ for the purpose of section 264 of the Income Tax Act. The court quashed a revision order passed by the Commissioner of Income Tax, stating that the taxpayer, Dr. Jyothi Vajpayee, had rightly filed a revision petition to claim exemption under section 10(8) of the Act. Initially, she was unaware of the exemption and filed her returns without claiming it.
Dr. Jyothi Vajpayee had worked as an associate trainee in connection with a project-grant-agreement between the Indian government and the United States through the Agency for International Development (AID) for innovations in Family Planning Services. She was paid remuneration from the grant received through AID for this project.
The court examined the provisions of Section 10(8)(a) and noted that the duties were assigned to the petitioner in connection with Cooperative Technical Assistance Programs and Projects as per the agreement between the Indian government and the United States. Thus, her remuneration, received directly or indirectly from the U.S. government for these duties, was exempt from taxation.
The court also clarified that ‘remuneration’ is a broader term than ‘salary’ and includes any consideration for services rendered. They rejected the argument that the taxpayer couldn’t invoke a revision petition because she hadn’t revised her return or claimed a refund.
The Madras High Court division bench has ruled that a Non-Banking Financial Company (NBFC) can deduct bad debts from their income under the Income Tax Act, even if they maintain two separate sets of books. The company maintains accounts as per the Companies Act and the Reserve Bank of India’s regulations for NBFCs. Simultaneously, they keep records in compliance with the Income Tax Act for income computation.
The dispute arose when the company claimed a deduction for bad debts written off in its Profit and Loss Account under section 36(1)(vii) of the Income Tax Act. The assessing officer initially disallowed the claim, but the Commissioner of Income Tax (Appeal) and the Tribunal allowed it. The appellants argued that maintaining two sets of books, each with a different treatment of bad debts, created anomalies and distorted facts.
The division bench, comprising Justice Nooty Ramamohana Rao and Justice Anita Sumanth, rejected the appellants’ contentions. They upheld the practice of maintaining two separate sets of books and clarified that there is no legal restriction against doing so.
The court also emphasised that the claim for bad debts pertains to debts that were actually written off, not just a provision made for them. They referred to the Supreme Court’s judgment in the case of Vijaya Bank vs. Commissioner of Income Tax, which explained the correct method for write-offs based on the earlier judgment in the case of Southern Technologies vs. The Joint Commissioner of Income Tax, Coimbatore. The division bench dismissed the appeal, affirming the company’s right to deduct bad debts from their taxable income.
In a recent case involving CIT (Ex), Chandigarh v. M/s Improvement Trust, a two-judge bench of the Punjab and Haryana High Court has unequivocally affirmed that a Trust generating income through land development and sales under a statutory scheme does not lose its “charitable nature.” Consequently, the exemption granted to such a Trust under section 12A of the Income Tax Act cannot be revoked. The bench, consisting of Chief Justice S.J. Vasifdar and Justice Deepak Sibal, stressed that such commercial activities are secondary to the primary purpose of the trust and, therefore, do not warrant the withdrawal of the exemption.
In this specific case, the Trust, M/s. Improvement Trust, derives its income from constructing and selling residential apartments, commercial flats, and booths. The Assessing Officer disallowed the exemption claimed under section 12A, arguing that the trust’s activities resembled those of a private builder or colonizer rather than an institution established for charitable purposes. The First Appellate Authority upheld this decision, but the Tribunal determined that the trust’s activities fell within the category of “objects of general public utility” and noted that the trust maintained separate books for its business activities.
The division bench rejected the appellants’ arguments and confirmed the legitimacy of maintaining two sets of books for different purposes. They emphasized that the primary purpose of the trust was the “advancement of an object of general public utility,” as stated in Section 2(15). The profit earned from ancillary activities did not disqualify the trust from receiving exemptions. Even when the trust developed and sold plots and premises, it was considered incidental to its main objective, which was town improvement driven by public needs, not solely a commercial venture.
The bench concluded that the omission of Section 10(20A) from the Act did not affect the rights of entities seeking benefits under Sections 2(15), 11, 12, 12A, and 12AA, as these sections are independent and distinct from Section 10(20A). Therefore, the omission of one section did not impact the validity or existence of the others, and entities could still claim benefits under these sections.
The Madras High Court division bench has ruled that the Assessing Officer (AO) cannot invoke section 14A of the Income Tax Act and Rule 8D of the Income Tax Rules when the taxpayer hasn’t earned exempted income in the relevant assessment year.
In the case, the AO disallowed the taxpayer’s claimed expenses using these provisions, but the taxpayer argued that section 14A and Rule 8D shouldn’t be applied when no exempt income was earned that year. The Dispute Resolution Panel (DRP) and the ITAT had upheld the AO’s view, citing a CBDT circular suggesting the application of section 14A even when no taxable income was earned.
However, the division bench rejected this, emphasizing that Section 14A pertains to actual income, not hypothetical or anticipated income. They underlined that the calculation of total income is based on real income and that there is no legal provision for assessing hypothetical income for disallowances. The bench also stressed the need for interpreting Section 14A(1) in alignment with the overall scheme of the Income Tax Act, asserting that disallowing expenses in a year without exempt income contradicts this scheme.
The Madras High Court upheld the single bench’s decision that a notice for reassessment issued more than four years after the assessment is invalid if the Assessing Officer (AO) hasn’t provided a reason for reassessment. The division bench affirmed that such a notice is not legally sustainable under section 148 of the Income Tax Act, 1961.
The petitioner, a hospital company, filed its income tax returns, showing NIL income and claiming deductions for software expenses related to MRI and Cardiovascular System Cathlab machines for the relevant assessment year. The original return was accepted by the AO in 2000. However, in 2005, the petitioner received a reassessment notice without any recorded reason. The single bench of the High Court quashed the notice, citing that a notice issued beyond four years from the end of the relevant assessment year, without recording reasons for believing income escaped assessment, cannot be considered valid.
The Revenue challenged this decision before the division bench, but the division bench concurred with the single bench’s findings. It emphasised that the single bench’s decision was consistent with established legal principles, noting that the proceedings were time-barred as per section 147 of the Act.
The bench also observed that the reassessment was for the year 1997-98, initiated in 2005 without any valid reason for delay. The absence of proof that the notice was served within the statutory time frame led to the rejection of the Department’s arguments. Furthermore, the court highlighted that the Department’s reliance on explanation (1) to Section 147, which requires detailed particulars in the notice, was unfounded, as such details should have been included in the notice itself for it to be valid.
The division bench of the Madras High Court ruled that the provisions related to ‘deemed dividend’ do not apply when a credit arises from a business transaction and is not in the form of a loan or deposit.
The case involved the assessee, who is the proprietor of Ceebros Property Development (CPD). During the assessment, the Assessing Officer (AO) noticed that the assessee held shares in Ceebros Hotels Private Limited (CHPL) and that CHPL had accumulated profits as of March 31, 2001, potentially triggering section 2(22)(e) of the Income Tax Act, which deals with deemed dividend. The AO treated the amount received by the assessee as ‘deemed dividend.’
The division bench found that the credit in question arose from a contractual obligation and a business transaction, and it had been settled in the following year. The assessee did not derive any personal benefit, and the credit did not meet the definition of an ‘advance’ or ‘loan.’ The bench concluded that the fiction of ‘deemed dividend’ did not apply in this case.
The Revenue relied on the Supreme Court’s decision in Miss P. Sarada vs. Commissioner of Income Tax and the Calcutta High Court’s decision in M.D. Jindal vs. Commissioner of Income Tax, which highlighted certain circumstances for invoking the provisions of ‘deemed dividend.’
However, the division bench rejected these contentions, stating that the facts in those cases were different from the present case. In the cases cited, the withdrawals from accumulated profits were treated as ‘deemed dividend,’ and in M.D. Jindal, the transaction was considered to be a device to circumvent the provisions of the Act. In the present case, no such allegations or circumstances existed, and the credit was a result of a business transaction and not a loan or deposit.
In the case of CIT Jaipur vs. M/s. Sunny Developers Pvt. Ltd, the division bench of the Rajasthan High Court clarified that TDS (Tax Deducted at Source) under section 194 of the Income Tax Act does not apply to payments classified as deemed dividends to a partnership in which a shareholder with substantial interest in the assessee company is a member.
The Assessing Officer (AO) had rejected the assessee’s claim, arguing that TDS was not deducted on payments of deemed dividends to a partnership where a shareholder (holding not less than 10% of the voting power) of the assessee company was a member with substantial interest. However, the ITAT (Income Tax Appellate Tribunal) ruled in favour of the assessee in the second appeal.
The Department, in its argument before the High Court, relied on a Bombay High Court decision in Star Chemicals Pvt. Ltd. vs. Commissioner of Income Tax asserted that TDS provisions applied in such cases.
However, the division bench rejected this argument and stated that TDS is not required to be deducted at source under Section 194 of the Income Tax Act for deemed dividend payments to a partnership where a shareholder of the assessee company is a member and holds a substantial interest, as per Section 2(22)(e) of the Act. This situation does not fall within the scope of Section 194.
In the case of DCIT Jaipur v. M/s. Baid Leasing & Finance Co. Ltd, the Rajasthan High Court’s division bench ruled that the lessor of a vehicle is entitled to depreciation under section 32 of the Income Tax Act. The bench also upheld the deduction of interest paid on advances provided to individuals related to the Directors for non-business purposes.
The assessee-company, which leased vehicles, had claimed depreciation under section 32(1) of the IT Act. The assessing officer initially denied the depreciation claim and disallowed the deduction for interest paid on loans/advances given to individuals related to the Directors for non-business purposes.
However, the Appellate Tribunal, in the second appeal, reversed the assessment order and allowed both claims. The bench, citing various judicial decisions, confirmed that depreciation is allowable to the lessor, even if the vehicles are not owned and used by them but merely financed. The benefit of depreciation goes to the financer (the assessee) rather than the actual vehicle owner.
Regarding the deduction of interest, the bench relied on Supreme Court decisions and found that the interest did not come from borrowed funds and was justified by the CIT and the Tribunal. Therefore, the interest deduction was also allowed.
The Punjab and Haryana High Court clarified that an organization can maintain its charitable status under Section 80G of the Income Tax Act, even if it generates a significant surplus, as long as the surplus is reinvested in building infrastructure or assets for educational or charitable purposes. The case involved Gulabdevi Memorial Hospital, which initially faced denial of 80G exemption due to its surplus generation, but the Tribunal ruled in favor of the organization, emphasizing that surplus generation is not a hindrance to 80G exemption when the surplus is used to expand charitable facilities. While registration under Section 12A and exemptions under Sections 10(23) and 10(23C) are important factors, they do not guarantee 80G exemption, and necessary documentation and genuine charitable intent are crucial aspects in the decision.
The High Court rejected a reference to a Karnataka case and upheld the organization’s entitlement to the benefits of Section 80G, highlighting the importance of investing surpluses in charitable and educational missions.
The division bench of Gujarat High Court quashed assessment proceedings based on the report of the Departmental Valuation Officer (DVO). The court clarified that the Assessing Officer cannot refer a matter to the DVO under the provisions of the Income Tax Act without first rejecting the books of accounts.
The division bench relied on the Supreme Court decision in the case of Sargam Cinema vs. Commissioner of Income Tax, which emphasized that the reference to the DVO is only valid after the Assessing Officer rejects the books of account. Therefore, in this case, as the reference was made without rejecting the books of account, it was deemed invalid, and the DVO’s report could not be used as the basis for making additions to the assessment.
The Gujarat High Court’s division bench ruled that the amount received by a club as a security deposit from members for enrollment is considered a capital receipt and is not taxable under the Income Tax Act. The court clarified that the nature of the income does not change, even if the funds collected are used for construction and providing amenities.
The case involved Gulmohar Green Gold and Country Club Ltd, which collected security deposits from members as an entrance fee. The Assessing Officer initially denied the claim that this income was a capital receipt, citing its utilization for construction and club facilities. However, the Income Tax Appellate Tribunal (ITAT), relying on the Supreme Court’s decision in S.S. Sakhar Karkhana Ltd. vs. CIT, Kolhapur, upheld the club’s contentions, stating that the membership fee is indeed a capital receipt.
The bench emphasized that the security deposit, as per the club’s rules and regulations, is refundable after 25 years or in specific contingencies, and it cannot be considered as revenue income, even if it is utilized for club improvements. The court found no error in the ITAT’s decision to classify it as a capital receipt based on the precedent set by the Supreme Court.
The Delhi High Court’s division bench ruled that a charitable institution registered under the Indian Societies Act is entitled to claim income tax exemption under section 10(22A) of the Income Tax Act, even if the managing trustee participates in the profits of the trust. The case involved M/S Skin Institute and Public Services Charitable Trust, established for charitable medical services.
The Assessing Officer had challenged the exemption based on the founder, Dr. Behl, receiving income from the trust. The court held that the disqualifications in section 13 of the Income Tax Act, which apply to certain income categories, do not automatically extend to institutions covered by section 10(22A).
The court emphasized that the mere receipt of benefits by the founder does not undermine the trust’s charitable nature and its entitlement to exemption under section 10(22A). The court set aside the ITAT decision and clarified that the Income Tax Act’s subsequent amendments did not affect the trust’s eligibility under section 10(22A).
The Rajasthan High Court’s division bench ruled that membership in a Stock Exchange cannot be considered a capital asset as per section 2(14) of the Income Tax Act, 1961. The court clarified that the admission fees paid by the appellant should not be treated as the cost of acquisition, affecting the calculation of capital gains under section 45 of the Income Tax Act.
The appellant, a member of the Jaipur Stock Exchange, transferred his membership to another person, and he argued that since he didn’t pay for obtaining the membership, it should not be deemed a capital asset.
The court referred to decisions by the Supreme Court in Stock Exchange, Ahmedabad Vs. Assistant Commissioner of Income Tax and Techno Shares and Stocks Ltd. Vs. Commissioner of Income Tax, which established that stock exchange membership is a personal privilege or a license and not a capital asset under section 2(14) of the Income Tax Act, and therefore, the admission fee should not be considered as a cost of acquisition.
In the case of M/S Central Office Mewar Palace Organization Pvt. Ltd. v. The Joint Commissioner of Income-Tax, the Rajasthan High Court’s division bench ruled that employers can claim a deduction under the Income Tax Act for the amount paid toward the Employee State Insurance (ESI) Contribution Fund, even if the payment was made after the due date. This decision overturns the order of the Income Tax Appellate Tribunal (ITAT), which had allowed the deduction for the employer’s contribution but disallowed it for the employee’s contribution.
The appellant argued that they were entitled to the deduction under Section 43B of the Income Tax Act, which allows deductions for sums payable by the employer for contributions to various funds.
The bench held that the provision in Section 43B(b) applies to both the employer’s and employee’s contributions, as long as they are paid by the due date and supported by evidence furnished with the tax return for the relevant previous year. This interpretation allows employers to claim deductions for both contributions within the provisions of the Income Tax Act.
The Bombay High Court’s division bench ruled that an assessee who received an advance amount on the sale of a capital asset, as per an Agreement to Sale, and subsequently invested that amount in specified bonds is eligible for the benefit of capital gain exemption under section 54EC of the Income Tax Act, 1961.
The court analyzed the provisions of the Agreement to Sale and found that the advance received under such an agreement for the sale of a capital asset, when invested in specified bonds, qualifies for the benefits under Section 54EC of the Act.
The court referred to previous cases and held that the facts in this case were similar to those in prior decisions. Additionally, it cited a CBDT Circular to support this interpretation, emphasizing that the exemption under Section 54EC applies to such cases where advance amounts are invested in specified bonds, even in the context of reopening assessments.
The Kerala High Court’s Single bench upheld the constitutional validity of Section 234E of the Income Tax Act, 1961. This section allows for the imposition of late fees in cases of failure to deliver or cause to be delivered a statement within the prescribed time, as per Section 200(3) of the Income Tax Act.
The petitioners, a lower primary school in Kerala, were fined by the Income Tax Department for failing to file the quarterly TDS statement in Form 24Q for the 2nd and 3rd quarters. The petitioners challenged the levy on the grounds of arbitrariness, violation of constitutional articles, and lack of hearing.
However, the court cited the Bombay High Court’s decision in a similar case, emphasizing that the late filing fee is intended to compensate for the additional work burden on the department due to the deductor’s fault, and it is a form of quid pro quo for allowing delayed filing. The petition was dismissed, and the court upheld the constitutional validity of Section 234E.
The Gujarat High Court’s division bench ruled that re-assessment proceedings initiated after a lapse of 6 years, following the order of the CIT(A) which was subsequently overturned by the Tribunal, are subject to the provisions of section 151 of the Income Tax Act.
The Assessing Officer, in such cases, is obligated to obtain approval from the appropriate authorities before proceeding with the re-assessment. The petitioners had challenged notices proposing re-assessment, arguing that they were time-barred and that the Assessing Officer had not obtained the necessary approval under section 151.
The Revenue contended that since the re-assessment was initiated based on the directions of the first appellate authority, further approval was unnecessary, and the proceedings couldn’t be challenged on the basis of the statute of limitations.
However, the bench noted that the Tribunal had set aside the CIT(A)’s directions, and therefore, the re-assessment proceedings lacked the required approval under section 151. The bench stated that the Assessing Officer should either obtain the necessary approval before reopening the assessments for the relevant years or the notices should be set aside, contingent on the outcome of any potential appeal by the Revenue against the Tribunal’s decision that led to the notices.
In a recent case, the single bench of the Kerala High Court ruled that a Writ Petition filed by the Commissioner of Income Tax (CIT) against the order of the Settlement Commission is maintainable. The court stated that the Commissioner is entitled to challenge the order of the Settlement Commission since the report filed by the Commissioner before the Settlement Commission is not an adjudication but rather an adversarial role within the scheme of Chapter XIXA of the Income Tax Act, 1961.
The case arose when the Commissioner filed a writ petition against the Settlement Commission’s order that reduced the demand against the assessee. The assessee argued that the petition was not maintainable, given the Commissioner’s statutory authority under the Act. However, the court clarified that Chapter XIXA provides a distinct scheme for assessment, and the Commissioner’s role is adversarial, not adjudicatory. The Commissioner has the right to make a report on the matters specified in the application and other related issues, but the Settlement Commission holds the power to pass orders in accordance with the provisions of the Income Tax Act. Therefore, the Commissioner is entitled to file a writ petition against the order of the Settlement Commission.
In a recent ruling, the division bench of the Bombay High Court determined that additional depreciation under section 32(1)(iia) of the Income Tax Act can be claimed in respect of plant and machinery, even if they were not installed by the assessee.
The case involved M/s. Industrial Credit & Investment Corpn., a financial institution engaged in leasing machinery, which had claimed investment allowance and additional depreciation under the Income Tax Act. The Assessing Officer initially denied these claims, but the first appellate authority quashed the assessment.
The Tribunal upheld the order of the CIT(A) and allowed the investment allowance claim. The division bench noted that there is no requirement in Section 32(1)(iia) for the plant and machinery to be installed and used by the assessee for the manufacture of articles or things, similar to the provision for investment allowance under Section 32A. The court cited previous rulings to support its decision and allowed the claim for additional depreciation.
Additionally, the bench addressed the claim for extra shift allowance, noting that the lessees of the plant and machinery had worked in an extra shift. Citing relevant precedent, the court stated that the assessee was entitled to the extra shift allowance for depreciation, even though the lessees and not the assessee had used the machinery in a double shift. The court’s decision emphasized that the lessees’ utilization of the machinery in an extra shift made the assessee eligible for the extra shift allowance.
The division bench of the Delhi High Court clarified that the power to allow compounding of an offense is a discretionary authority vested in the Chief Commissioner of Income Tax. The court emphasized that while this power is discretionary, it should be exercised judiciously with careful consideration of the facts of each case.
In this particular case, the petitioner-assessee had failed to deposit tax deducted at source (TDS) amounts from various contracts related to services for the 2010 Commonwealth Games. As a result, a penalty was initiated against the petitioners, and their application for compounding the offense was rejected by the Chief Commissioner.
The court accepted the petitioners’ argument that they had faced genuine difficulties in complying with the law due to the seizure of their material and documents by the CBI in April 2011, which prevented them from making the necessary TDS payment. The Chief Commissioner’s rejection was deemed to be an error in jurisdiction, as it did not take into account the unique circumstances of the case. The court further stated that while guidelines are important to consider when exercising this discretion, they should not blind the authority to the objective facts before them. The power to accept or refuse a plea for compounding is discretionary and must be exercised judiciously and impartially.
The division bench of the Bombay High Court clarified that the subsidy received from the Bihar Government in the form of excise duty reimbursement is a capital receipt under the provisions of the Income Tax Act and, as such, is not taxable from the hands of the assessee.
The court dismissed the appeal filed by the Revenue and made it clear that the subsidy cannot be added to arrive at the book profits of the respondent-assessee under Section 115J of the Act.
The Revenue had contended that the subsidy received as excise duty reimbursement was a revenue receipt and argued against the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to delete the addition made to book profits based on the subsidy received.
The bench highlighted that the subsidy scheme’s purpose was to attract capital investment and encourage the establishment or expansion of existing units, ultimately promoting capital investments in the State of Bihar. The court’s decision aligns with the Supreme Court’s ruling in CIT, Madras v. Ponni Sugars & Chemicals Ltd, which established that the character of a subsidy as revenue or capital is determined by its objective and purpose. Therefore, the subsidy received by the respondent-assessee was classified as a capital receipt.
The court emphasized that the Assessing Officer’s power to adjust book profits is limited to examining whether the books of account have been maintained in accordance with the provisions of the Companies Act and have been duly audited.
The Madras High Court clarified that the sale and purchase of computer software by a dealer should not be categorized as “royalty” under the Income Tax Act. This ruling means that Tax Deducted at Source (TDS) provisions under Section 194J do not apply to such transactions. The dispute originated from an Assessing Officer’s disallowance of consideration for computer software purchases, claiming it as “royalty” under Section 9(1)(vi) of the Income Tax Act and requiring TDS under Section 194J.
However, the Tribunal reversed this assessment order, and the Madras High Court emphasized that the distinction lies in transactions involving the sale of copyrighted products versus those pertaining to the copyright itself. It reaffirmed that Section 9(1)(vi) should only apply to the latter, not to the former category of transactions, citing a precedent from the Delhi High Court. As a result, the court concluded that TDS provisions under Section 194J did not apply to payments made for computer software purchases.
This decision by the Madras High Court provides a significant clarification for businesses involved in buying and selling computer software. It ensures that the tax treatment of such transactions aligns with the nature of the activity and distinguishes between purchases of copyrighted articles and transactions related to the copyright itself. By restricting the application of Section 9(1)(vi) to the latter, the ruling helps alleviate tax compliance concerns for software dealers, as TDS under Section 194J will not be applicable in straightforward sales and purchase scenarios.
The Rajasthan High Court’s division bench declared a notice issued under Section 158BC of the Income Tax Act as illegal. The notice had demanded the assessee to file a return ‘within 15 days,’ which was in direct violation of the provision stating that the assessing officer should grant time ‘not less than 15 days’ to the assessee.
The appellant-assessee had challenged the validity of the notice, contending that it contradicted the requirement in Section 158BC, which clearly specifies a minimum period of 15 days.
The bench, consisting of Justice K.S. Jhaveri and Justice Vinit Kumar Mathur, observed that previous court decisions in cases like Surya Dev Kumawat vs. CIT and Commissioner of Income Tax vs. Amit K. Jain had emphasized the mandatory nature of granting a full 15-day period as stipulated in Section 158BC. Consequently, the appeal was granted, and the notice was quashed.
In this case, the Allahabad High Court ruled that merely submitting an application under Section 12AA is insufficient to grant Income Tax exemption under Section 11 to a Trust. The division bench, consisting of Justice Sudhir Agarwal and Justice Ravindranath Misra, clarified that the mandatory condition for granting exemption under the Income Tax Act is the registration provided by the Commissioner.
In this case, the Trust had applied for registration under Section 12A(1) long ago, and the Commissioner had not granted the registration. The assessing officer initially allowed the exemption, which was later revised by the Commissioner under Section 263 of the Income Tax Act.
The ITAT had previously nullified the revisional order, prompting the Revenue to seek relief from the High Court. The High Court concluded that exemption cannot be claimed solely based on the submission of an application for registration until the registration certificate is granted, as required by Section 12A(1). This decision reversed the ITAT’s ruling and emphasized compliance with Section 12A(1) for the relevant assessment year in question.
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