In a recent case, the Kerala High Court dismissed the income tax appeal filed by the income tax department as the tax effect was below the monetary limit of Rs. 1 crore.
The Court observed that, as per Circular No. 3 of 2018 issued by the Central Board of Direct Taxes, appeals cannot be maintained by the revenue before the High Court if the tax effect in the appeal does not exceed Rs. 50 lakhs and later enhanced the limit to 1 crore by the subsequent Circular No. 17 of 2019 dated August 8, 2019 was issued by the CBDT.
Kunhitharuvai Memorial Charitable Trust, the respondent-assessee is a trust instituted in 1999 that was granted registration under Section 12A/12AA of the Income Tax Act,1961 as early as 2002. The trust runs medical, dental, engineering, and ayurvedic colleges on a self-financed basis.
A search conducted on the premises of the Trust and its satellite institutions on October 31, 2011, under Section 132 of the act. The Department initiated proceedings for cancellation of the registration and consequent denial of the exemption that was available to the Trust in terms of the Act.
The proceedings that the Income Tax Department initiated for sustaining the additions made to the taxable income of the trust for the assessment years. It would appear that, based on material that was obtained during the search, additions were made to the income of the trust for the various assessment years, except for the years 2006–07 and 2007–08.
The Income tax assessing officer also had a case that the income of the trust for these years had to be brought to tax under the normal rate of tax since, according to him, the benefits under Section 11 were not available to the respondent-assessee since they had not satisfied the conditions under Section 13.
The assessee preferred appeals before the First Appellate Authority against the assessment order passed by the assessing authority for the various assessment years. The First Appellate Authority confirmed the denial of exemption to the assessee on the ground that it had not filed the returns of income within time during the various assessment years in question.
The additions made by the assessing authority were also partly sustained, save for the assessment year 2008–09, where the additions were completely deleted by the First Appellate Authority. There was no appeal filed by the revenue against the said deletion by the First Appellate Authority.
On appeals before the Income Tax Appellate Tribunal ( ITAT ), it was found that there had been no application of the funds of the assessee trust for purposes unconnected with the objects of the trust. The assessee had not violated any of the conditions mentioned in Section 13 of the Act for denial of the benefits under Section 11 or for cancellation of its registration under Section 12AA of the Act. The Tribunal held that the assessee was entitled to the benefit of the exemption envisaged for registered trusts.
The assessee contended that, in view of Circular No. 3 of 2018 issued by the Central Board of Direct Taxes, Government of India (Ministry of Finance, Department of Revenue), appeals cannot be maintained by the revenue before the High Court if the tax effect in the appeal does not exceed Rs. 50 lakhs. A subsequent Circular issued which enhance the monetary limit to Rs. 1 crore.
The division bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. has observed that, as per Circular No. 3 of 2018 issued by the Central Board of Direct Taxes, appeals cannot be maintained by the revenue before the High Court if the tax effect in the appeal does not exceed Rs. 50 lakhs and later enhanced the limit to 1 crore by the subsequent Circular No. 17 of 2019 dated August 8, 2019 was issued by the CBDT.
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