Kerala High Court Rules Against IT Department's Revisional Powers in Favor of Charitable Trust

Save A Family Plan (India) wins appeal as the High Court emphasizes limits on revisional powers under Section 263 of the Income Tax Act.

In a significant ruling, the Kerala High Court delivered a judgment in favor of Save A Family Plan (India), a charitable trust, upholding its challenge against the Income Tax Department's revisional order under Section 263 of the Income Tax Act, 1961. The court, comprising Justices A. Muhamed Mustaque and Harisankar V. Menon, ruled that the revisional powers exercised by the Commissioner of Income Tax were unjustified and beyond the prescribed legal framework, as they were inconsistent with the objects of the trust.

The case arose when the Commissioner of Income Tax (Exemptions) initiated suo motu revisional steps, setting aside the assessment order for the financial year 2013-14 concerning the appellant's donations to various institutions. The Commissioner argued that only donations to institutions with similar categorization under the Foreign Contribution (Regulation) Act, 2010, as the appellant, qualified for exemption. However, this approach was challenged by the trust.

The Income Tax Appellate Tribunal initially upheld the revisional order but acknowledged that the donations made by the appellant constituted an application of income for charitable purposes. Despite this, the Tribunal found fault with the assessment order's silence on whether the donations aligned with the trust's objects, leading to the continuation of the revisional order.

In its judgment, the High Court clarified that the benefits under Section 11 of the Income Tax Act are unrelated to the FCRA Act provisions and criticized the Tribunal for exceeding its scope by supporting the revisional order on grounds not relied upon by the Commissioner. The court referenced the Division Bench judgment in Commissioner of Income Tax v. Chandrika Educational Trust, affirming that the Tribunal cannot sustain a revisional order on different grounds than those used by the Commissioner.

The ruling underscores the importance of adhering strictly to the grounds cited by the Commissioner when exercising revisional powers and emphasizes that tribunals should not exceed their remit by introducing new grounds in support of such orders.

This decision is a significant victory for the appellant, Save A Family Plan (India), and reinforces the legal framework governing the use of revisional powers under the Income Tax Act. The appeal was allowed, with the court answering the legal questions in favor of the assessee, thus rejecting the grounds of the Income Tax Department's revisional order.

Bottom Line:

Income Tax - Revisional powers under Section 263 of the Income Tax Act - Commissioner cannot invoke revisional powers under Section 263 based on grounds not consistent with the objects of the trust, and Tribunal not entitled to sustain the revisional order on grounds different from those relied on by the Commissioner.

Statutory provision(s): Section 263 of the Income Tax Act, 1961

Save A Family Plan (India) v. Deputy Commissioner Of Income Tax (Exemptions), (Kerala)(DB) : Law Finder Doc Id # 2816630