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Income Tax Appellate Tribunal, DELHIBENCH ‘E’, NEW DELHI
Before: Sh. A. D. JainDr. B. R. R. Kumar
Per Dr. B.R.R.Kumar, Accountant Member:
The present appeals have been filed by the assessee against the orders of ld. CIT(A), Ghaziabad dated 31.03.2017.
In following grounds have been raised by the assessee:
“1. That the sole reason that b/s is reflecting opg. Corpus fund Rs. 8,46,100/- against NIL as per return is non-existent/wrong in as much that no enquiry conducted and no addition made on the basis of alleged difference , hence Id. CIT(A) erred in upholding the validity of notice u/s 148 of the Act.
2. That, Id. CIT(A) further erred in upholding the validity of notice u/s 148 without appreciating that the same is without any 'reason to believe' /'application o
mind' of AO who issued the said notice under the mistaken belief that Id. CIT" directed him to do so. 3. That Id. CIT(A) erred in upholding the validity of order passed u/s 143(3) in pursuance of time barred notice u/s 143(2) of the Act even after admitting said defect but holding the same as curable u/s 292B and assessee waived right t object to said defect which is against the law laid down by jurisdictional/other courts.
4. That without prejudice to above and only in alternative, Id. CIT(A) erred i merits is sustaining addition of corpus donation of Rs. 8,46,100/-, being capital Receipt as case is falling u/s 10(23C) (iiiad) and not u/s 11.
5. That Id. CIT(A) erred is sustaining addition of Rs. 2,00,000/- out of building c other repair/maint. is against the facts/material on record only on the basis surrender of said amount which itself is not followed by Id. AO who made additions of Rs. 10,46,100/-.
Therefore, notice u/s 148 and order 143(3) is prayed to be quashed being against the settled law, however only as an alternative it is prayed that t addition of Rs. 10,46,100/- may kindly be quashed.”
In , following grounds have been raised by the assessee:
“1. Because, the order of Id. lower authority is bad in law and against the facts and circumstances of the case and hence is unsustainable.
2. That, the Id. CIT(A) erred in sustaining the addition of Rs. 63,01,179/-, being the corpus donations which are admittedly capital receipts and admitted so by Id. AO or Id. CIT u/s 263, by wrongly presuming that assessee claimed exemption u/s 11(1)(d) and wrongly observing assessee could not establish that capital receipts are not chargeable to tax and also failed to follow the law pronounced by superior authorities.
3. That, the Id. CIT(A) erred in sustaining the addition with the sole basis of no regn. u/s 12AA without appreciating that assessee is covered u/s 10(23C)(iiiad) and not u/s 11 and the fact is not under dispute.
4. That, without prejudice to above, Id. CIT(A) erred in upholding the addition made by Id. AO against the directions of Id. CIT u/s 263 and hence has exceeded his authority in making addition in as much as Id. AO has even not recorded any finding about the verification of corpus donation in terms of directions.
5. That, in addition to above, finding of Id. CIT about the discrepancy in name etc. is wrong on record and authorities below failed to appreciate the same despite assessee explaining the same in appellate proceedings.
Therefore, it is prayed that addition of Rs. 63,01,179/- may kindly be quashed.”
The assessee society is running distant learning Centre under the name as “College of Hotel Management Ghaziabad” duly approved from Sikkim Manipal University. As per the Memorandum dated 03.09.2008 filed, the society has been established to promote education to all the children of the society irrespective of any caste, creed, provide vocational training to poor and weaker children, to provide relief to the victims of natural calamities like earthquake, flood, fire etc., to organize cultural programmes, seminars and other competitions etc., to organize medical camps for eradication of polio, for awareness of public about diseases, give scholarship to good students, establish a library etc.
The society started its first semester in August 2007 and as per the copy of Corpus fund ledger account, the assessee has received donation for its corpus in the A.Y. 2008-09 through 61 entries for Rs.8,46,100/- most of which are cash entries varying from Rs.5000/- to Rs.15,000/-. The assessee society filed its return of income on 29.08.2010 declaring an income of Rs. 16,372/-. The assessment u/s 143(3)/147 was completed on 22.02.2013 at Rs. 10,29,730/-.
For the A.Y. 2009-10, the assessment u/s 143(3) has been completed on 19.06.2012 determining the assessed income at Rs.10,32,829/- against the returned income of Rs.32,829/-.
Subsequently, the ld. CIT, Ghaziabad passed order u/s 263 on 30.03.2014 setting aside the assessment and holding that the appellant failed to provide satisfactory details of the contributors to the corpus funds and AO has not examined the same thus action of AO was prejudicial to the interest of the assessee. The AO initiated the proceedings accordingly. During the course of assessment proceedings, the AO observed that the assessee has received a sum of Rs. 63,01,179/- towards the corpus fund and was claiming it exempt u/s 11(1)(d) and since the assessee was not a registered trust u/s 12AA, the AO held that the assessee was not entitled to the said exemption u/s 11(1)(d). The AO completed assessment by making an addition of Rs. 63,01,179/- to the returned income by disallowing the exemption of above said donation u/s 11(1)(d) to assess the total income at Rs. 63,34,000/-.
8. The ld. CIT(A) dismissed the appeal of the assessee on the grounds that since the assessee society is not registered u/s 12AA, the donations are chargeable to tax.
Aggrieved the assessee filed appeal before us.
Heard the arguments of both the parties and perused the material available on record.
The relevant material facts and provisions of the Income Tax Act for adjudication of the issue of allowability of deduction of the donations received before the registration u/s 12AA are as under: • Assessment Years: 2008-09 & 2009-10 • Assessment proceedings for A.Y. 2008-09 initiated on 14.11.2012 and completed on 22.02.2013 • Assessment proceedings for A.Y. 2009-10 initiated on 15.09.2014 and completed on 31.10.2014 • Registration u/s 12AA has been applied on 28.03.2013 • Date of grant of registration 30.09.2013 • Effective date of granting of registration 28.03.2013
First provision to Section 12A reads as under:
“12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Principal Commissioner or Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA:
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,—
(i) from the date of the creation of the trust or the establishment of the institution if the Principal Commissioner or Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the Principal Commissioner or Commissioner is not so satisfied: Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;
(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA;
25[(ab) the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)], and, subsequently, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification, to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA;]
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;
26[(ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.]
(c) [***]
(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:
Provided that where registration has been granted to the trust or institution under section 12AA, then, 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 or institution remain the same for such preceding assessment year:
Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year:
Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.”
We have also gone through the Finance (No. 2) Act, 2014- Explanatory notes to the provisions of said Act CIRCULAR NO. 01/2015 [F.No.142/13/2014-TPL], DATED 21-1-2015
AMENDMENTS AT A GLANCE Section/Schedule Particulars/Paragraph number Finance (No.2) Act, 2014 First Schedule Rate Structure, 3.1 - 3.4 Income- tax Act, 1961 2 Characterization of Income in case of ForeignInstitutional Investors, 4.1 - 4.3; Long-term Capital Gains on debt oriented Mutual Fund and its qualificationas Short-term capital asset, 5.1 - 5.3. 10 Clarification in respect of section 10(23C), 6.1 - 6.4. 11 Rationalization of taxation regime in the case ofcharitable trusts and institutions, 7.1 - 7.6. 12A Applicability of the registration granted to a trust orinstitution to earlier years, 8.1 - 8.6.
7.3 Several issues had arisen in respect of the application of exemption regime to trusts or institutions in respect of which clarity in law was required.
7.4 The first issue was regarding the interplay of the general provision of exemptions which are contained in section 10 of the Income-tax Act vis-a-vis the specific and special exemption regime provided in sections 11 to 13 of the said Act. As indicated above, the primary objective of providing exemption in case of charitable institution is that income derived from the property held under trust should be applied and utilized for the object or purpose for which the institution or trust has been established. In many cases it had been noted that trusts or institutions which are registered and have been availing benefits of the exemption regime do not apply their income, which is derived from property held under trust, for charitable purposes. In such circumstances, when the income becomes taxable, a claim of exemption under general provisions of section 10 in respect of such income is preferred and tax on such income is avoided. This defeats the very objective and purpose of placing the conditions of application of income etc. in respect of income derived from property held under trust in the first place.
7.4.1 Sections 11, 12 and 13 of the Income-tax Act are special provisions governing institutions which are being given benefit of tax exemption. It is therefore imperative that once a person voluntarily opts for the special dispensation it should be governed by these specific provisions and should not be allowed flexibility of being governed by other general provisions or specific provisions at will. Allowing such flexibility has undesirable effects on the objects of the regulations and leads to litigation.
7.4.2 Similar situation existed in the context of section 10(23C) of the Income-tax Act which provides for exemption to funds, institution, hospitals, etc. which have been granted approval by the prescribed authority. The provision of section 10(23C) also have similar conditions of accumulation and application of income, investment of funds in prescribed modes etc.
7.4.3 Therefore, the Income-tax Act has been amended to provide specifically that where a trust or an institution has been granted registration for purposes of availing exemption under section 11, and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of section 10 [other than that relating to exemption of agricultural income and income exempt under section 10(23C)] of the Income-tax Act. Similarly, entities which have been approved or notified for claiming benefit of exemption under section 10(23C) of the Income-tax Act would not be entitled to claim any benefit of exemption under otherprovisions of section 10 of the said Act (except the exemption in respect of agricultural income).
7.5 The second issue which had arisen was that the existing scheme of section 11 as well as section 10(23C) of the Income- tax Act provided exemption in respect of income when it is applied to acquire a capital asset. Subsequently, while computing the income for purposes of these sections, notional deduction by way of depreciation etc. was being claimed and such amount of notional deduction was not being applied for charitable purpose. As a result, double benefit was being claimed by the trusts and institutions. Therefore, these provisions were required to be rationalized to ensure that double benefit is not claimed and such notional amount does not get excluded from the condition of application of income for charitable purpose.
7.5.1 Accordingly, the Income-tax Act has been amended to provide that under section 11 and section 10(23C), income for the purposes of its application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year.
7.6 Applicability:- These amendments take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years.
Applicability of the registration granted to a trust or institution to earlier years. 8.1 The provisions of section 12A of the Income-tax Act, before amendment by the Act, provided that a trust or an institution can claim exemption under sections 11 and 12 only after registration under section 12AA of the said Act has been granted. In case of trusts or institutions which apply for registration after 1st June, 2007, the registration shall be effective only prospectively.
8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfil other substantive conditions. However, the power of condonation of delay in seeking registration was not available.
8.3 In order to provide relief to such trusts and remove hardship in genuine cases, section 12A of the Income-tax Act has been amended to provide that in a case where a trust or institution has been granted registration under section 12AA of the Income-tax Act, the benefit of sections 11 and 12 of the said Act shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted.
8.4 Further, it has been provided that no action for reopening of an assessment under section 147 of the Income-tax Act shall be taken by the Assessing Officer in the case of such trust or institution for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not obtained the registration under section 12AA for the said assessment year.
8.5 However, the above benefits would not be available in the case of any trust or institution which at any time had applied for registration and the same was refused under section 12AA of the Income-tax Act or a registration once granted was cancelled.
8.6 Applicability: - These amendments take effect from 1st October, 2014.
A concurrent reading of the provisions of the Act, explanatory notes, grant of registration u/s 12AA by the CIT, Ghaziabad, pending assessments reveal that,
the assessment proceedings for the A.Y. 2008-09 stands completed as on 22.02.2013 and the registration u/s 12AA has been granted w.e.f. 28.03.2013 and hence no assessment proceedings were pending as on the date of such registration and hence no benefit can be accredited for A.Y. 2008-09. the assessment proceedings for the A.Y. 2009-10 stands completed as on 30.10.2014 and the registration u/s 12AA has been granted w.e.f. 28.03.2013 and hence assessment proceedings were said to be pending as on the date of granting of registration and also keeping in view the fact that there has been no change in the objects and activities of the trust in the relevant assessment year which are same as those on the basis of which the registration has been granted, we hereby hold that the assessee is eligible to claim deduction u/s 11(1)(d).
In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 12/04/2022.