COMMISSIONER OF INCOME-TAX,TRIVANDRUM vs. EDAMON VANITHA SOCIETY,EDAMON,PUNALUR

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ITA/134/2008HC KeralaKLHC01027039200819 February 2009Author: HONOURABLE MR.JUSTICE K.SURENDRA MOHAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the assessee has not discharged its burden of proving that it is a charitable institution and that its income is applied for charitable purposes. The Court noted that the application for registration under Section 12A was rejected and that the assessee did not even file a return. The burden cast upon the assessee under Section 11 cannot be shifted to the department. Therefore, the Court set aside the orders of the Tribunal and the first appellate authority. The Assessing Officer was directed to grant one more opportunity to the assessee to prove the application of its income for charitable purposes. If the income is not applied for charitable purposes authorized by the trust deed, tax could be recovered in accordance with law. The ratio is that the onus is on the assessee to prove its charitable nature and application of income for charitable purposes to claim exemption under Section 11, and failure to do so disentitles it to the benefit.

What were the facts?

The assessee, Edamon Vanitha Society, is engaged in manufacturing and supplying stabilizers. The assessment was completed under Section 148 as income escaping assessment. The assessee claimed exemption, but had not obtained registration as a charitable institution, and its application under Section 12A was rejected. The Commissioner of Income Tax (Appeals) allowed the exemption, holding the department had not established the income was not utilized for charitable purposes. The Income Tax Appellate Tribunal (ITAT) confirmed this order. The Revenue filed an appeal against the ITAT's order. The respondent assessee did not appear before the High Court or the ITAT.

What were the issues?

1. Whether the assessee, not having obtained registration as a charitable institution and having its Section 12A application rejected, is entitled to claim exemption under Section 11 of the Income Tax Act, 1961, by proving its income was utilized for charitable purposes. Assessee's contentions: Not recorded as the assessee did not appear. Revenue's contentions: The assessee failed to discharge its burden of proving it is a charitable institution and that its income is applied for charitable purposes. The Revenue relied on the decision in COMMISSIONER OF INCOME-TAX V. ERNAKULAM DISTRICT CEMENT DEALERS ASSOCIATION (2002) 253 ITR 198.

Which sections of the Income-tax Act were involved?

Section 148,Section 12A,Section 11

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN THURSDAY, THE 19TH FEBRUARY 2009 / 30TH MAGHA 1930 ITA.No. 134 of 2008() ITA NO. 447/COCH/2002 OF ITAT, COCHIN BENCH. -------------------- APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- EDAMON VANITHA SOCIETY, EDAMON P.O., PUNALUR. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19/02/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. .................................................................... I.T. Appeal No.134 of 2008 .................................................................... Dated this the 19th day of February, 2009.

JUDGMENT Ramachandran Nair, J. Since respondent refused notice, only option for us is to hear the Standing Counsel for the appellant and dispose of the appeal. Moreover, we find that even before the Tribunal, the respondent did not make any appearance. Therefore, we proceed to hear the Standing Counsel and dispose of the appeal.

2.

It appears the assessee is a society engaged in manufacture and supply of stabilizers to a brandname holder. Even though it's claim is exemption, it has not obtained registration as a charitable institution. It is seen that the assessment itself is completed as an income escaping assessment under Section 148 of the Income Tax Act. On appeal, the C.I.T. (Appeal) allowed the claim holding that the department has not established that the income is not utilised for charitable purpose. It is this order that is confirmed by the Tribunal against which this appeal is filed.

2

3.

Standing Counsel has relied on decision of this court in COMMISSIONER OF INCOME-TAX V. ERNAKULAM DISTRICT CEMENT DEALERS ASSOCIATION (2002) 253 ITR 198. We are unable to uphold the order of the Tribunal and that of the first appellate authority because assessee has not discharged it's burden of proving that it is a charitable institution and that it's income is applied for charitable purposes. In fact, application for registration made under Section 12A was rejected by the Commissioner. Unless the assessee establishes that the income derived is used for charitable purposes and whatever is carried over for utility in subsequent years is done in accordance with the provisions of the Act and Rules, assessee will not be entitled to claim the benefit. It is also seen that assessee does not even care to file return. We are of the view that the burden cast upon the assessee under Section 11 cannot be shifted to the department. It is for the assessee to establish utilisation of income for charitable purposes, failing which tax could be demanded. We, therefore, set aside the orders of the Tribunal and that of the first appellate authority with direction to the Assessing Officer to grant one

3 more opportunity to the assessee to prove the application of income of the society and if income is not applied for charitable purposes authorised by the trust deed, tax could be recovered in accordance with law.

C.N.RAMACHANDRAN NAIR Judge K.SURENDRA MOHAN Judge pms

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