COMMISSIONER OF INCOME TAX AND THE DEPUTY DIRECTOR OF INCOME-TAX, (EXEMPTIONS) Vs. KSRTC EMPLOYEES DEATH-CUM-RETIREMENT BENEFIT FUND

JUDGEMENT

(1.) As in these two appeals a common question of law is involved, they are taken up for consideration together and disposed of by this common order. The assessee in both the appeals is one and the same. These two appeals pertain to the assessment years 2000-01 and 2001-02. The assessee is KSRTC Employees Death-cum-Retirement Benefit Fund. The assessee filed the return of income for the assessment year 2000-01 on 18.09.2000 declaring total income as Nil by claiming exemption under Section 11 and 12/10(23AAA). Similarly, the returns of the year 2001- 02 was also filed on 16.08.2001 claiming the said benefit. The case was taken up for scrutiny. On perusal of the Income and Expenditure Statement and Balance Sheet, it was noticed that the assessee had made deposits with M/s. Veerashaiva Sahakara Sangha and M/s. Karnataka Veerashaiva Vidyabhivrudhi Samsthe Ltd. The Assessing Officer was of the view that the said two Institutions do not fall under the purview of Section 11(5) of the Income Tax Act, 1965 (for short, hereinafter referred to as 'the Act'). Therefore, a notice under Section 148 was issued calling upon them to file a revised return. On receipt of the same, the assessee filed a letter requesting them to treat the original return, as return filed in response to the notice under Section 148 of the Act. The Assessing Authority held that the assessee had claimed its income to be exempt under Section 11 in view of the registration obtained by it under Section 12A. The assessee has invested Rs. 1,40,00,000/- with M/s. Veerashaiva Sahakara Sangha and M/s. Karnataka Veerashaiva 1 Vidyabhivrudhi Samsthe, which is in violation of Section 11(5) of the Act. He called upon the assessee to withdraw the deposits and regularize the same by investing the amount in the modes prescribed under Section 11(5) of the Act in order to avail the benefit under Section 10(23AAA) of the Act. Therefore, he disallowed the claim for exemption. However, he held that the assessee has obtained the necessary approval under Section 10(23AAA) of the Act. Assessee is an Association having the employees of Karnataka State Road Transport Corporation as its member. The return of Income is filed in the status of AOP. The object of the Association is to render monetary assistance to the members of the Trust/Fund on the eve of retirement due to superannuation, retirement, termination of service on medical grounds and to render help to the nominee or nominees of the deceased member. As the deposits of that amount was not made as specified under Section 11(5) of the Act, the assessee is not entitled to the benefit under the said provision also and therefore, he proceeded to pass an assessment order denying the exemption.

(2.) Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Appeals. The Appellate Authority held that the violation of Section 11(5) is due to the mistaken impression of the Secretary of the Fund. Then he relied on the judgment of the Madras High Court, which has held that in the event of such violation, the income arising from the said violation to that extent shall be denied exemption under Section 10(23AAA) of the Act and therefore, he directed the Assessing Authority to restrict the denial of exemption under Section 10(23AAA) to the amount of income generated out of the Investment of Rs. 1,40,00,000/- in violation of Section 11(5) of the Act. Accordingly, the appeal was partly allowed.

(3.) Aggrieved by the said order of the Appellate Authority, the Revenue preferred an appeal to the Tribunal. The Tribunal held that the Lower Appellate Authority was justified in denying the exemption to the extent of income generated on the Investment made in violation of Section 11(5) and not to the entire income of the Trust and therefore, the appeal came to be dismissed. Aggrieved by the said order, the Revenue is in appeal.