The Income Tax Appellate Tribunal( ITAT ), Mumbai Bench, has recently in an appeal filed before it, directed the Income Tax Department to Re-Consider the case, if Activities of Slum Rehabilitation Authority constitutes “Charitable” in Nature.
The aforesaid observation was made by the Mumbai ITAT, when appeals were preferred before it by the assessee, a Bandra based Slum Rehabilitation Authority, challenging the separate orders passed under section 250 of the Income Tax Act, 1961, by the Commissioner of Income Tax (Appeals), for assessment years 2010–11 to 2016–17.
The brief facts of the case were that the assessee was a local authority created by the State of Maharashtra under Maharashtra Slum Area (Improvement, Clearance and Rehabilitation) Act, 1971, who was also registered as a charitable organisation with DIT (Exemptions), Mumbai under section 12A of the Act vide registration No. INS/36857 dated 24/02/2003.
Being a local authority in terms of the aforesaid statute as well as within the meaning of the then existing section 10(20) and section 10(20A) of the Income Tax Act, the assessee enjoyed the blanket exemption under the provisions of the Income Tax Act up to the assessment year 2002–03.
Later, the Finance Act, 2002, deleted the provisions of section 10(20A) and introduced a new definition of local authorities under section 10(20) wherein Panchayat, Municipality, Municipal Committee and District Boards and Cantonment Boards only were included under section 10(20) of the Income Tax Act.
In view of the deletion of section 10(20A) and insertion of new definition of local authority under section 10(20), the local authorities like MHADA, MMRDA and assessee, etc., came into the tax net. However, the assesseestill continued to claim the exemption under section 11 of the Income Tax Act. And for the assessment year 2011–12, the assessee filed its return of income on 28/09/2011, along with income and expenditure account, balance sheet and audit report in form No. 10B, declaring total income at Rs. Nil.
During the course of assessment proceedings, upon perusal of details, it was observed so by the department that the assessee was engaged in various commercial activities, which prima facie were in the nature of business. And accordingly, the assessee was asked to show cause as to why exemption under section 11 of the Income Tax Act, as claimed, should not be denied in the view of the amendment to section 2(15) of the Income Tax Act. And in reply to the same, it was submitted by the assessee that proviso to section 2(15) was introduced with effect from assessment year 2009–10 and the issue of applicability of proviso was raised in earlier years in the course of assessment proceedings.
However, the issue being dropped pursuant to the reply of theassessee and the assessment being made without invoking proviso to section 2(15) of the Act, it was further submitted by the assessee that there is no change in the facts of the case since earlier assessment years.
The assessee also submitted that it is a statutory authority constituted by an Act of State of Maharashtra with the primary objective of the assessee being rehabilitation of slum dwellers and promotion of their welfare by providing better residential accommodation.
However, the Assessing Officer (AO), vide order dated 19/02/2014, passed under section 143(3) of the Income Tax Act did not agree with the submissions of the assessee and, inter-alia, held that every assessment year has to be treated independent of earlier years and that the principle of res judicata doesn’t apply to the proceedings under the Act.
The AO further held that the main source of funds for the assessee were various fees and levies raised for the approval of plan from the developers, interest income etc , and also that the assessee was providing deferment facilities to various builders/developers , along with which it was providing instalment facilities also,for which interest was charged at the rate of 16% to 18% per annum.
Accordingly, the AO, by applying provisions of section 2(15), as amended with effect from 01/04/2009, held that the assessee was not entitled to the exemption under section 11 in view of provision of section 13(8) of the Income Tax Act and hence that the entire income of the assessee was liable to tax.
In appeal, the CIT(A) vide impugned order dated 02/02/2015, for assessment year 2011–12, dismissed the appeal filed by the assessee on this issue, and it is being aggrieved by this, that the assessee has preferred the instant appeal before the Mumbai ITAT.
With Shri Bharat Raichandani and Shri Aditya Navandar submitting on behalf of the assesse that that assessee was established for providing ‘relief to the poor’, as it was engaged in facilitating the provisions of housing to slum dwellers, who are economically weaker section of the society and thus the proviso to section 2 (15) of the Act is not applicable in the case of the assessee as the same only qualifies the term ‘any other object of general public utility’, Shri Manoj Kumar representing the Revenue, relied upon the order of the Department Authorities.
Hearing the contentions of both the sides and perusing the materials available on record, the ITAT Bench consisting of Om Prakash Kant , the Accountant Member, along with Sandeep Singh Karhail , the Judicial Member observed as follows :
“As all the other grounds raised by the assessee, in these appeals, revolve around assessee’s claim of exemption under section 11 of the Act, therefore, these grounds are also remanded to the AO for de novo adjudication”
“Since all these appeals are remanded to the AO for fresh consideration, the assessee shall be at liberty to raise any other plea in support of its claim including the one raised vide additional ground in some of the present appeals”, the ITAT Bench added while allowing the assesse’s appeals.
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