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Armed Forces Flag Day Fund Kendriya Sainik Board, West Block-IV, R.K. Puram,New Delhi. Vs. Addl. Director of Income-tax (E), Investigation Circle-I, N. Delhi.
March, 07th 2014
              IN THE INCOME TAX APPELLATE TRIBUNAL
                    DELHI BENCH "A" NEW DELHI
          BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA

                       ITA No. 2176/Del/2013
                       Asstt. Yr: 2009-10
Armed Forces Flag Day Fund Vs. Addl. Director of Income-tax (E),
Kendriya Sainik Board,               Investigation Circle-I, N. Delhi.
West Block-IV, R.K. Puram,
New Delhi.
PAN: AACTA 0965 G
( Appellant )                       ( Respondent )

              Appellant by     :      Shri M.K. Madan CA
              Respondent by    :      Shri H.G. Sema Sr. DR


                                ORDER

PER R.P. TOLANI, J.M::

      This is assessee's appeal against the order of CIT(A)-XXI, New
Delhi dated 31-1-2013 relating to A.Y. 2009-10. Following grounds are
raised:
      "1. That the order passed by Ld. CIT(A)-XXI, New Delhi is
      bad in law and on facts.

      2.    That the appellant is not liable to income-tax, not being a
      "person" within the meaning of section 2(31) of the Income
      Tax Act, 1961.

      3.     That the Ld. CIT(A) has erred in confirming the addition
      of Rs. 1.96 crores by ignoring the fact that the approval u/s
      10(23c)(iv) was granted vide letter dated 26-03-2007 and
      condition of application of funds within 5 years should apply
      w.e.f. 26-03-2007 and not retrospectively from assessment year
      2003-04.
                                       2





       4.    That the Ld. CIT(A) has erred in ignoring that the
       appellant has spent a sum of Rs. 2.00 crores for construction of
       Gaurav Senani Bhavan in assessment year 2008-09.

       5.    That the Ld. CIT(A) has wrongly ignored that appellant
       is applying the income on year to year basis and unspent funds
       of AY 2003-04 are applied in assessment year 2004-05.

       6.    That appellant craves leave to alter, vary, add and
       modify and grounds of appeal.

2.     At the out set, ld counsel for the assessee made a prayer for admission
of additional ground, relying on Hon'ble Supreme Court judgment in the
case of NTPC 229 ITR 283. The additional ground proposed to be admitted
is as under:
       "Ground no. 3d

       (i)     That the Assessment framed u/s 143(3) by the Ld. ACIT
               making an addition of Rs. 7,44,05,591/- and confirmed
               by ld. CIT(A) of Rs. 1.96 crores is against the provision
               of sub clause (ii) to the proviso of sub section (3) of
               section 143 of the Income Tax Act, 1961.

       (ii)    That the appellant's income is exempt under sub clause
               (iv) of clause (23C) of section 10 of the Income-tax Act,
               1961.

       (iii)   That the relevant notification no. 78/2007 dated 26-03-
               2007 is annexed vide page 111 of the paper book filed."

2.1.   After hearing both the parties we are of the view that the issue in
question is legal in nature and goes to the root of adjudication as the
relevancy of sub-clause (ii) to the proviso of sub-section (3) of sec. 143 is
applicable to the assessee's case. Accordingly, we admit the above
proposition of additional ground.
                                       3




3.       Ld. Counsel for the assessee contends that the assessee i.e. Armed
Forces Flag Day Fund is constituted by the Government of India by an
appropriate notification in the official gazette. Earlier returns of income were
not filed as the assessee was under a bona fide belief that being a notified
fund of Defence Ministry, govt. of India its income was exempt.


3.1.     Clause (iv) to sec. 10(23C) was amended by the Finance Act, 2007
w.e.f. 1-6-2007 to cover such institution "which may be notified by the
Central Government in the Official gazette". Amended clause (iv) reads as
under:
         "(iv). any other fund or institution established for charitable
         purposes, which may be approved by the prescribed authority,
         having regard to the objects of the fund or institution and its
         importance throughout India or throughout any State or
         States."

3.2.     The assessee was accordingly approved and notified in the official
gazette and . Assessing officer proceeded to tax the assessee. During the
course of assessment it was found that the surplus of income prior to issue
of notification was un-utilized, the aggregate thereof is held by assessing
officer as taxable income. Ld. Counsel explained that funds could not be
utilized in prior years as sec. 10(23C) was not applicable earlier and the
spending of funds is not in the control of the assessee, which is being
regulated by the Ministry of Defence. In any case during the entire income-
tax proceedings, the lower authorities failed to take cognizance of this
specific amendment in sec. 143(3) i.e. the proviso which was inserted by the
Finance Act 2003 w.e.f. 1-4-2003, which reads as under:.
                                4


"[Provided that in the case of a--
(a) [research association] referred to in clause (21) of section
10;
 (b) news agency referred to in clause (22B) of section 10;
(c) association or institution referred to in clause (23A)
of section 10;
(d) institution referred to in clause (23B) of section 10;
 (e) fund or institution referred to in sub-clause (iv) or trust or
institution referred to in sub-clause (v) or any university or
other educational institution referred to in sub-clause (vi) or
any hospital or other medical institution referred to in sub-
clause (via) of clause (23C) of section 10,




which is required to furnish the return of income under sub-
section (4C) of section 139, no order making an assessment of
the total income or loss of such [research association], news
agency, association or institution or fund or trust or university
or other educational institution or any hospital or other
medical institution, shall be made by the Assessing Officer,
without giving effect to the provisions of section 10, unless--
 (i) the Assessing Officer has intimated the Central
Government or the prescribed authority the contravention of
the provisions of clause (21) or clause (22B) or clause (23A) or
clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause
(vi) or sub-clause (via) of clause (23C) of section 10, as the
case may be, by such [research association], news agency,
association or institution or fund or trust or university or other
educational institution or any hospital or other medical
institution, where in his view such contravention has taken
place; and
(ii) the approval granted to such [research association] or
other association [or fund or trust] or institution or university
or other educational institution or hospital or other medical
institution has been withdrawn or notification issued in respect
of such news agency or fund or trust or institution has been
rescinded :]
                                        5


        [Provided further that where the Assessing Officer is satisfied
       that the activities of the university, college or other institution
       referred to in clause (ii) and clause (iii) of sub-section (1) of
       section 35 are not being carried out in accordance with all or
       any of the conditions subject to which such university, college
       or other institution was approved, he may, after giving a
       reasonable opportunity of showing cause against the proposed
       withdrawal to the concerned university, college or other
       institution, recommend to the Central Government to withdraw
       the approval and that Government may by order, withdraw the
       approval and forward a copy of the order to the concerned
       university, college or other institution and the Assessing
       Officer:]

        [Provided also that notwithstanding anything contained in the
       first and the second provisos, no effect shall be given by the
       Assessing Officer to the provisions of clause (23C) of section
       10 in the case of a trust or institution for a previous year, if the
       provisions of the first proviso to clause (15) of section 2 become
       applicable in the case of such person in such previous year,
       whether or not the approval granted to such trust or institution
       or notification issued in respect of such trust or institution has
       been withdrawn or rescinded.]

        [(4) Where a regular assessment under sub-section (3) of this
       section or section 144 is made,--
       (a) any tax or interest paid by the assessee under sub-section
       (1) shall be deemed to have been paid towards such regular
       assessment ;
       (b) if no refund is due on regular assessment or the amount
       refunded under sub-section (1) exceeds the amount refundable
       on regular assessment, the whole or the excess amount so
       refunded shall be deemed to be tax payable by the assessee and
       the provisions of this Act shall apply accordingly."
3.3.   Thus before disallowing any income from 10(23C) cover, the
assessing officer was under obligation to intimate to the Central Government
about the alleged contravention. Thus, assessing officer has failed to give
                                       6


effect to a mandatory obligation in this behalf, therefore, the assessment may
be set aside to comply with this mandatory requirement. .
4.    Ld. DR is heard who supported the orders of lower authorities.
5.    We have heard rival contentions and perused the material available on
record. Since we have admitted the additional ground, there is no doubt that
the said proviso is to be read along with sec. 10(23C). The proposal for
denial of benefit of sec. 10(23C) can be made after prior approval by the
Central Government. In view thereof, we are inclined to set aside the matter
back to the file of assessing officer to decide the same afresh in accordance
with law after giving the assessee adequate opportunity of being heard.
6.    In the result, assessee's appeal is allowed for statistical purposes.

Order pronounced in open court on 05-03-2014.

            Sd/-                                                 Sd/-
( SHAMIM YAHYA)                                           ( R.P. TOLANI )
ACCOUNTANT MEMBER                                    JUDICIAL MEMBER
Dated: 05-03-2014.
MP
Copy to :
   1. Assessee
   2. AO
   3. CIT
   4. CIT(A)
   5. DR

 
 
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