ESS KAY FOUNDATION,JAIPUR vs. CIT(E), JAIPUR

In the assessee has taken the following sole ground of appeal:- “

In the assessee has taken the following sole ground of appeal:- “1. In the facts and circumstances of the case and in law the ld. CIT(Exemptions), Jaipur has erred in not granting approval u/s 80G w.e.f. A.Y. 2020-21 and granting the same only w.e.f. 2021- 22 ignoring the fact that the application for grant of approval was moved on 05.02.2020 making the assessee trust eligible for approval w.e.f. 2020-21. The action of the ld. CIT(Exemptions) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by directing ld. CIT(Exemptions) to grant approval w.e.f. A.Y. 2020-21.

During the course of hearing, the ld. AR submitted that both these appeals relate to grant of approval U/s 12AA and 80G of the Act respectively. It was submitted that the ld. CIT(E) has granted approval w.e.f. A.Y. 2021-22 instead of A.Y. 2020-21 which is the limited matter under dispute and the subject matter of the present appeals.

It was submitted that in the instant case, the application seeking registration u/s 12AA was filed on 04-02-2020 and, therefore, the &304/JP/2020 3 M/s Ess Kay Foundation vs. CIT(E) approval should have been granted from A.Y. 2020-21. It was submitted that Ld. CIT(E), while granting the approval, cannot defer the Assessment Year for which the approval should be effective as provided in section 12A(2). Section 12AA(1)(b) provides that after the necessary enquiry, the CIT(E) can either register or refuse to register the trust. If registration is granted, the applicability would be governed by the provisions of section 12A(2) and CIT(E) has no discretion in this regard.

It was further submitted that without prejudice to above, it may be noted that while application was filed on 04-02-2020, the first notice by ld. CIT(E) was issued on as late as 14-07-2020. The notice required as many as 26 documents/ clarifications/ information. All the 26 queries were responded vide letter dated 17-08-2020. Thereafter the notice dated 11-09-2020 was issued by ld. CIT(E) and in response to query related to certain Object Clauses of the Trust as desired in the said notice, the trust filed an affidavit dated 22-09-2020 and thereafter, the Ld. CIT(E) has granted the approval w.e.f. A.Y. 2021-22 only because of the fact that affidavit was filed on 22-09-2020. It was submitted that the proviso to section 2(15) has nothing to do with the grant of approval. This is also manifest from the provisions of Section 13(8). Thus an enquiry which had no relevance for grant of approval was still conducted by the ld. CIT(E) and the approval was granted w.e.f. subsequent Assessment Year just because the desired affidavit in this regard was filed on 22-09-2020.

It was further submitted that approval is granted by ld. CIT(E) subject to as many as 18 conditions. The undertaking obtained by ld. &304/JP/2020 4 M/s Ess Kay Foundation vs. CIT(E) CIT(E) through the affidavit could also have been made a condition, by ld. CIT(E), while granting the approval. Otherwise also, irrespective of whether compelled through affidavit or imposed through condition, the requirements of proviso to Section 2(15) remain mandatory in nature. Compliance of proviso to Section 2(15) would be seen on year-on-year basis, by AO while framing assessment and granting benefit of section 11. In this regard, the attention is also drawn towards CBDT Circular No. 21/2016 dated 27-05-2016 wherein at para 4, the Board has directed that registration u/s 12AA shall not be cancelled merely on the ground of violation of proviso to section 2(15) of the Act.

In support, reliance was placed on the order of Hon’ble Rajasthan High Court in the case of CIT vs. Jaipur Stock Exchange [1996] 217 ITR 101 wherein the order of Tribunal dated 27-09-1991 is referred in which it was held that if a belated application is admitted by the Commissioner in exercise of his discretion under the proviso to section 12A(a), it would be as good as an application moved before 1-7-1973 or before the expiry of one year from the date of creation of the trust or the establishment of the institution, whichever is later. If the Commissioner decides to exercise his discretion for granting registration, he cannot put a rider on the effect of his order that it would be effective from a particular date.

Reliance was also placed on the judgment of Hon’ble Madras High Court in the case of New Life in Christ Evangelistic Association (NLC) vs. CIT [2000] 246 ITR 532. In the said order, at para 7, it was held that the language of the section does not show that in order to be able to &304/JP/2020 5 M/s Ess Kay Foundation vs. CIT(E) get registration under section 12A, there is necessity of first establishing as to how the concerned institution or, as the case may be, the society would be able to claim the exemptions under section 11 or 12. In insisting upon the society in changing or amending its bye-laws and in refusing to consider the application on the ground that those bye-laws have not been changed so as to exclude the religious aspect from those bye-laws, the Commissioner has clearly over-stepped his limits. It was further held at para 8 that the view of the Commissioner that unless the religious aspect of the society is removed from the bye-laws, the application could not be taken for consideration, is clearly erroneous. And finally the Hon’ble High Court at para 9 held as under:

It was submitted that similar contentions may be considered in respect of matter relating to grant of approval u/s 80G wherein also the ld. CIT(E) has granted registration w.e.f from A.Y 2021-22 instead of A.Y 2020-21.

It was submitted that in view of the above, ld. CIT(E) may be directed to grant both the approvals u/s 12AA and 80G(5)(vi) effective from A.Y. 2020-21.

Per contra, in his submission, ld. CIT/DR has relied on the provisions of Section 12AA of the Act. It was submitted that in the &304/JP/2020 6 M/s Ess Kay Foundation vs. CIT(E) instant case, certain clarifications were required from the assessee regarding some of the objects which are in the nature of commercial objects and on receipt of affidavit from the assessee-foundation which was received on 22.09.2020, the ld. CIT(E) has granted approval effective from 22.09.2020. It was submitted that on appreciation of the objects and activities of the assessee-trust once the approval has been granted in such circumstances, there are no restriction which are imposed on the power of ld. CIT(E) to grant approval effective from the assessment year immediately following the financial year in which the application has been filed by the assessee. It was submitted that the ld. CIT(E) has to decide basis examination of facts and the circumstances of the case as to when the approval shall be effective from and in the instance case, once the Ld. CIT(E) was satisfied about the objects of the assessee-trust, not being commercial in nature, he has granted the approval u/s 12AA and 80G(5)(vi) from the said date. He accordingly supported the orders and the findings of the ld. CIT(E).

We have heard the rival contentions and perused the material available on record. Section 12AA provides that the ld. CIT(E) on receipt of an application seeking registration of the trust u/s 12A(1) of the Act shall call for such documents or information from the trust as he thinks necessary in order to satisfy himself about the objects of the trust, the genuineness of the activities of the trust and the compliance of such requirements of any other law for time being in force by the trust as are material for the purposes of achieving its objects, and after satisfying himself about the objects of the trust, the genuineness of the activities and compliance of other law as so specified and material for achievement of its objects, shall pass an order in writing registering the &304/JP/2020 7 M/s Ess Kay Foundation vs. CIT(E) trust or where he is not satisfied passed an order in writing refusing to register the trust. Therefore, we find that as far as section 12AA of the Act is concerned, the ld CIT(E) is basically required to satisfy himself about the objects of the trust, the genuineness of its activities as well as compliance of other law time being in force as applicable to such trust for the purposes of achieving its objects and once he is so satisfied, he is required to pass an order either registering the trust or refusing to register the trust and it nowhere talks about the date from which the registration will be granted or can be made effective.

At the same time, where we look at the provisions of section 12A(1) of the Act, in respect of any application made before the 1st day of June, 2007, it provides that the provisions of sections 11 and 12 shall not apply in relation to the income of any trust unless the person in receipt of the income has made an application for registration of the trust in the prescribed form and in the prescribed manner before the expiry of a period of one year from the date of creation of the trust. It has been further provided where an application for registration of the trust is made after expiry of the aforesaid period, the provisions of sections 11 and 12 shall apply in relation to income of such trust from the date of creation of the trust where the ld. CIT(E) for reasons to be recorded in writing is satisfied that the person in receipt of the income was prevented from making the application before the expiry of aforesaid period for sufficient reasons and where the ld. CIT(E) is not so satisfied, the provisions of sections 11 and 12 shall apply from the first day of the financial year in which application is made. Further, if we looks at the provisions of sub-section (2) to section 12A, as inserted by &304/JP/2020 8 M/s Ess Kay Foundation vs. CIT(E) the Finance Act, 2007, in respect of application moved on or after 1st day of June 2007, it provides that the provisions of sections 11 and 12 shall apply in relation to the income of such trust from the assessment year immediately following the financial year in which such application is made. It has been further provided that where registration has been granted to the trust u/s 12AA than the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust remain the same for such preceding assessment year.

We, therefore, find that under the erstwhile provisions in respect of any application made before the 1st day of June, 2007, where there has been a delay in filing the application seeking registration, the ld. CIT(E) is required to recorded in writing his satisfaction that person seeking registration was prevented from making the application before the expiry of period of one year from the date of creation of the trust for sufficient reasons and only in such a scenario, where such satisfaction has been recorded, the trust was granted registration from the date of creation of the trust. In the alternate scenario where the ld. CIT(E) was not so satisfied about the sufficiency of the reasons for delay in filing the application, registration was effective from 1st day of the financial year in which the application is made. However, under the amended provisions in respect of applications filed on or after 1st day of June, 2007, the ld. CIT(E) is no more required to record any such satisfaction or dissatisfaction regarding the delay in filing the application &304/JP/2020 9 M/s Ess Kay Foundation vs. CIT(E) and by virtue of sub-section (2) to section 12A, it has now been provided in the legislation itself that the provisions of sections 11 and 12 shall apply in all cases from the assessment year immediately following the financial year in which such application is made and enabling provisions in respect of assessment proceedings pending for the previous assessment years before the Assessing Officer has also been provided.

On a harmonious construction of provisions of section 12AA read with section 12A of the Act, we therefore find that under the amended law as are applicable in the instant case, once the ld. CIT(E) is satisfied about the objects and the genuineness of the activities of the trust and the sufficient compliance of other law for time being in force as are material for the purpose of achieving its objects, the provisions of sections 11 and 12 shall apply from the assessment year following the financial year in which such application is made. In the instant case, the assessee has made an application on 04.02.2020 and in light of the aforesaid provisions, we find that where the registration has been granted by the ld CIT(E) after satisfying himself about the objects and genuineness of its activities, the provisions of sections 11 and 12 shall apply in the case of the assessee from 01.04.2020 i.e. from A.Y 2020-21 onwards.

Now, coming specifically to the reasoning adopted by the ld. CIT(E) for directing the registration to be effective from 22.09.2020 and the provisions of section 11 and 12 to apply from A.Y 2021-22. In this regard, we find that the assessee trust has filed an affidavit regarding &304/JP/2020 10 M/s Ess Kay Foundation vs. CIT(E) its objects on 22.09.2020. The said affidavit has been filed in response to the show cause notice dated 11.09.2020 wherein the ld. CIT(E) has stated that on perusal of the MOA of the trust, it is noticed that object stated at point no. III, IV, V, VI, VIII, IX, X, XII are related to commercial activities, and the assessee was asked to clarify how these are charitable objects in light of section 2(15) of the Act and in response, the assessee submitted an affidavit stating that it shall not accept any fees, charges etc for the fulfillment of the aforesaid objects and the assessee foundation has no intention to carry out any such activities which can be termed in the nature of trade commerce or business as per the provisions of section 2(15) of the Act. We therefore find that it is a case where the ld. CIT(E) has sought certain explanation/clarification from the assessee trust regarding its objects vide show cause dated 11.09.2020 which has been suitably explained by the assessee by way of its affidavit dated 22nd September, 2020 and basis such clarification, ld. CIT(E) was satisfied about the charitable nature of the objects of the assessee foundation and therefore, once, the objects have been found to be charitable in nature, there is no discretion left with the ld CIT(E) to restrict the applicability of provisions of section 11 and 12 from date of furnishing of such affidavit and rather, as per the provisions of sub-section 2 to section 12A, the provisions of section 11 and 12 shall apply from 01.04.2020 i.e. from A.Y 2020-21 onwards and the assessee shall be entitled to claim exemption under section 11 and 12 from A.Y 2020-21. In any case, the requirements of proviso to Section 2(15) remain mandatory in nature and the compliance thereof has to be examined by the AO on a yearly basis including that for A.Y 2020-21 while framing the assessment as &304/JP/2020 11 M/s Ess Kay Foundation vs. CIT(E) per law. In the result, the ld. CIT(E) is directed to grant registration u/s 12AA effective from A.Y 2020-21 instead of A.Y 2021-22. Following the aforesaid discussions, the ld. CIT(E) is also directed to grant registration u/s 80G(5)(vi) effective from A.Y 2020-21 instead of A.Y 2021-22.