ASSISTANT COMMISSIONER OF INCOME TAX, (EXEMPTIONS)CIRCLE-1, BENGALURU vs. SOCIETY OF FRIARS MINOR (KARNATAKA), BENGALURU

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ITA 536/BANG/2024Status: DisposedITAT Bangalore11 June 2026AY 2016-1712 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that merely entering into a JDA does not amount to engaging in commercial activities, especially when it was mutually cancelled and deposits were returned. The CIT(A)'s decision to consider the ground infructuous after obtaining necessary details was also upheld.

What were the facts?

The assessee trust claimed exemption under Section 11, but filed its return belatedly. The AO denied exemption due to the belated filing and also because the trust entered into a Joint Development Agreement (JDA) for commercial activities. The CIT(A) allowed the appeal, holding that filing within the extended due date under Section 139(4) was sufficient and the JDA did not constitute commercial activity.

What were the issues?

Whether belated filing of return under Section 139(4) disqualifies for exemption under Section 11, and whether a Joint Development Agreement constitutes commercial activity for a trust.

Which sections of the Income-tax Act were involved?

Section 11,Section 12A,Section 139(4),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

Hearing: 17.03.2026Pronounced: 11.06.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the Revenue is directed against the order of ld. CIT(A)/NFAC dated 23/01/2024 vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1060039317(1) passed u/s 250 of the Income Tax Act, 1961 (“The Act”) for the assessment year 2016-17.

2.

The Revenue has raised the following grounds of appeal:-

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3.

The brief facts of the case are that the assessee trust is registered under section 12A of the Act vide certificate issued by the ld. Commissioner of Income Tax, Karnataka-II, Bangalore dated 06/01/1992. Its objectives and activities include religious activities as well as educational, charitable and medical relief activities and also include running of schools, colleges and vocational educational training centers for the orphaned, poor and the needy. The assessee trust filed the return of income and Audit Report in Form No.10B for AY 2016-17 belatedly on 17/01/2017 declaring “Nil” Total Income after claiming the entire gross receipts of Rs.11,04,10,975/- as exempt u/s 11 of the Act. The assessee had also filed Form No.10B on 17/01/2017. Thereafter, the case was selected for scrutiny under CASS and accordingly, notice u/s. 143(2) and 142(1) was issued calling for various details. During the course of assessment proceedings, the assessee was asked to show cause as to why the exemption claimed u/s. 11 of the Act should be allowed since the return filed by the assessee was not in accordance with the provisions of the Income Tax Act. The assessee in response to the show cause submitted that the provision of denial of exemption u/s. 11 of the Act as prescribed in clause (ba) in sub-section(1) of section 12A is applicable only with effect from assessment year 2018-19 and not earlier. However, the AO, observed that the insertion of the amendment is only clarificatory in nature and the interpretation of the same can be applied retrospectively since the provisions of section 139(4A) of the Act already exist in the Act. In the year under consideration, the due date u/s. 139(1) of the Act had been extended for audit cases till 17/10/2016. The assessee had not brought out any cause for failing to adhere to the prescribed due dates. The return of income was filed by the assessee on 17/01/2017 which is beyond the due date prescribed. Thus, the claim of exemption

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 4 of 12 u/s. 11 is not made in accordance with the provisions of the Act and the provisions of section 12A cannot be applied to the return of income filed by the assessee. In view of the above, the AO held that the claim of exemption made by the assessee in the return of income cannot be considered and the surplus of the assessee shall be tax as per the regular provisions of the Act based on material available on record.

3.1 Further, without prejudice to the above, the AO verified the activities of the Trust and found that the Trust had entered into a Joint Development Agreement (JDA) with M/s. Arattukulam Developers on 15/10/2014 to develop and promote commercial activities by exploiting the properties owned by the Trust and thereby violating the provisions of exemption u/s. 11 and 12 of the Act. The AO thereafter analyzed the Joint Development Agreement in detail and found from the JDA that the entire governing body of the Trust resolved to utilize 40,000 sq.ft. of Anthony’s Friary Campus for the purpose of developing and constructing a commercial complex by entering into a JDA with the reputed builder and collecting a non-refundable deposits of Rs.9,20,00,000/- thereby venturing into the commercial activities against the object of the Trust. The Trust had received Rs.2,20,00,000/- on various dates which is also mentioned in JDA. Further, the AO observed that in the JDA itself the Trust acknowledges the fact that the building will be constructed in commercial lines. The Trust authorizes the developer to be build the commercial complex which caters to the needs of modern day amenities like providing servant quarter, conference hall, land scaping etc. The Trust further authorizes in the JDA that the builder will construct a commercial building which will be shared in the ratio of 50-50. The AO held that the above transaction of the Trust has ventured into a non-exempt domain. Further, from the computation of income filed, the AO also

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 5 of 12 observed that during the year, the assessee had also received an amount of Rs.50,00,000/- as non-refundable deposit from M/s. Arattukulam Developers under the Joint Development Agreement. In response to the show cause notice, the assessee submitted that the project was not implemented as the parties had subsequently decided to terminate it. Further, the assessee submitted that the Trust is not carrying on any business by virtue of this JDA and like any other mode of transfer like a deed of sale, JDA is nothing but a transaction of exchange were by the assessee would be transferring its 50% share in land for a consideration of 50% share in constructed area. The society has the obligation of refunding the deposit amount to the developer in the subsequent years. The AO observed that the assessee has not furnished any details or prove like bank statement or confirmation from the builder for returning the amount to the builder. Further, even in the agreement, there is no clause about refunding the deposit amount to the developer in case of any breach of agreement. The assessee has received the amount during the year under consideration and utilized it for benefits. In view of the above discussion, it was quiet clear that assessee has violated the provisions of section 11 & 12 of the Act in as much as the activities of the Trust are wholly contrary to the objectives of the Trust. The AO drawn an inference that the Trust is not in existence for wholly and exclusively for the purpose for which it was created originally and accordingly the claim of exemption u/s. 11 & 12 of the Act was denied to the assessee and the income of the Trust is treated as business income and tax as per the provisions of chapter –IV of the Act. Further, the receipts of non-refundable deposit during the year amounting to Rs. 50,00,000/- from the builder was treated as income from other sources as it is a non-refundable amount. The AO completed the assessment by applying the regular provisions of the Act as envisaged under chapter-IV as under:-

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 6 of 12 COMPUTATION OF TOTAL INCOME Gross receipts as per Income & expenditure 11,04,10,975 statement Add: Non-refundable deposit received during the 50,00,000 year as discussed above Gross receipts 11,54,10,975 Less: Revenue expenditure including description 5,68,68,991 Balance taxable income 5,85,41,984

4.

Aggrieved by the aforesaid Assessment Order dated 30/12/2018, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

5.

The ld. CIT(A)/NFAC allowed the appeal of the assessee by observing that the AO has misinterpreted section 12A(1)(ba) of the Act by ignoring the CBDT clarification instructing CPC to rectify the demands created while processing the return u/s. 143(1)(a) of the Act due to disallowance of exemption u/s. 11 in cases where ITR were filed belatedly u/s. 139(4) of the Act. The ld.CIT(A)/NFAC was of the considered view that if the return is filed within the specified time limit under any of the sub-sections of section 139 of the Act, it would be sufficient compliance to the requirements of section 12A(1)(ba) of the Act to be eligible for the benefit of exemption u/s. 11 of the Act. This interpretation is further strengthen by the subsequent amendments to section 12A(1)(ba) of the Act by Finance Act 2023 w.e.f. 01/04/2023 which specifically mentions filing of return within the time allowed u/s. 139(1) or 139(4) as the condition for claiming exemption u/s. 11 and 12. In the instant case, as the assessee Trust had filed its return of income within the time allowed for filing belated return u/s. 139(4) of the Act i.e. before 31/03/2017, therefore, it fulfills the pre- condition u/s. 12A(1)(ba) of the Act to be eligible for exemption

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 7 of 12 u/s. 11 of the Act and accordingly held that the AO was not justified in disallowing the exemption u/s. 11 of the Act due to belated filing of return and audit report.

5.1 Further, with regard to the assessee Trust entering into a JDA with M/s. Arattukulam Developers on 15/10/2014 and allegedly venturing into the commercial activities, the ld.CIT(A)/NFAC held that as the appeal filed by the assessee has already been decided in favour of the assessee on merits, the grounds related to JDA rendered infructuous and merely academic in nature and therefore same were not adjudicated.

6.

Aggrieved by the order of ld. CIT(A)/NFAC, the Revenue has filed the present appeal before this Tribunal. The assessee has filed a paper book comprising 132 pages containing therein various documents/ records in support of its case. The assessee has also filed a case law compilation comprising 88 pages containing therein the various case laws and CBDT instruction/ circulars relied upon by the assessee.

7.

Before us, the ld. D.R. vehemently submitted that the ld. CIT(A)/NFAC grossly erred in holding that the transaction of the assessee in entering into a JDA was not in violation of the charitable objectives of the Trust since the JDA in question was subsequently cancelled. Further, the ld. D.R. submitted that the assessee had kept the non-refundable deposits received from the builder amounting to Rs.4,70,00,000/- for more than 3 years and no interest was paid at the time of repayment making the transaction nothing but a ruse and hence the activity was not charitable. Lastly, the ld. D.R. submitted that the ld.CIT(A)/NFAC grossly erred in not calling for a remand report from the JAO in respect of fresh documents produced by the assessee during the appellate proceedings.

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 8 of 12

8.

The ld. A.R. on the other hand vehemently submitted that merely by entering into a JDA, the assessee Trust had not venture in to any commercial activity. Further, the ld. A.R. submitted that even before the AO, the assessee had contended that the trust is not carrying out any business activity just by entering into a JDA as the entire development work was the responsibility of the builder/developer and the assessee Trust was transferring its share in the land for consideration in the form of 50% share in the constructed area. The assessee had during the course of assessment proceedings also submitted the copy of JDA as well as copy of cancellation of JDA and vehemently submitted that the project was never implemented as the parties had subsequently decided to terminate it and the trust had the obligation of refunding the deposit amount to the developer in the subsequent years and therefore no new additional evidence were produced before the ld.CIT(A)/NFAC as contended by the ld. D.R.

9.

We have heard the rival submissions and perused the material available on record. Undisputedly, the assessee trust had entered into a JDA with M/s. Arattukulam Developers on 15/10/2014 i.e. during the FY 2014-15 relevant for AY 2015-16 [placed at page no.63-92 of PB]. Further, It is also an undisputed fact that the said Joint Development Agreement(JDA) was subsequently cancelled mutually by the parties vide deed of cancellation of JDA dated 27/08/2018 i.e. during the FY 2018-19 relevant for AY 2019-20. Further, we observed that this fact of cancellation was brought to the notice not only before the AO but also before the ld.CIT(A)/NFAC. On perusal of the assessment order, we also observed that the AO in the paragraph no. 7.2 of the assessment order had categorically mentioned that the assessee in its reply in e-portal had stated that the project was not

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 9 of 12 implemented as the parties have subsequently decided to terminate it and the society has the obligation of refunding the deposit amount to the developer in the subsequent years. Further, on perusal of the paper book pg no. 115- 118, we also take note of the fact that the ld.CIT(A)/NFAC had vide notice u/s. 250 of the Act dated 05/01/2024 had categorically asked the following details as per annexure to the said notice:-

1.

Please furnish ledger A/c of the Joint Developer M/s. Arattukulam Developers in your books starting from signing the Joint Development Agreement dated 15/10/2014 till date.

2.

Please furnish evidence of returning the amount of Rs.6,87,26,220/- to the developer in the form of relevant extract of bank statement highlighting the repayment supported with the ledger a/c of the developer.

3.

Also, regarding your alternative claim of set off of the defects/losses carried forward from past. Please furnish year wise breakup of the amount of Rs.2,29,00,002/- with detailed working thereof along with the justification for the claim of set off citing the relevant provisions of the Act.

9.1 Further, we also take note of the fact that the assessee in its reply dated 12/01/2024 furnished the ledger account of the Joint Developer M/s. Arattukulam Developers starting from signing of the JDA dated 15/10/2014 till date and submitted that the entire deposits amount along with compensation had been repaid in three tranches as under:-

Dates of payment as accounted Amount (in Rs.) 19/07/2017 1,00,00,000/- 05/12/2017 3,00,00,000/- 27/08/2018 3,18,03,000/- Total 7,18,03,000/-

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 10 of 12 The above payment comprises of the following:- Settlement amount for cancellation of Joint 6,87,26,220/- Development Agreement vide final settlement agreement dated 27/08/2018 attached as Enclosure-2

Payment of final bill for construction of college 30,73,780/- building, the receipt of which has been acknowledged by M/s. Arattukulam Developers vide their receipt dated 27/08/2018, which is attached as Enclosure-3 Payment of legal charges 3,000/- Total 7,18,03,000/-

Further, during the course of Appellate proceedings, as directed by the ld. CIT(A)/NFAC, the assessee had also furnished the copy of relevant extract of bank statement highlighting the repayment supported with the ledger account of the developer and accordingly the ld.CIT(A)/NFAC after being satisfied considered this ground as infructuous and merely academic in nature.

9.2 We are of the considered opinion that merely by entering into the Joint Development Agreement (JDA) with M/s. Arattukulam Developers on 15/10/2014, it cannot be said that the assessee had ventured into a commercial activities against the object of the assessee Trust especially when such JDA was subsequently cancelled mutually on 27/08/2018 and assessee was not at all involved in any such activity of commercial in nature. Further, we are also of the considered opinion that by way of entering into JDA, the assessee Trust authorized the builder only to construct a commercial building and the assessee trust was in no way involved in the commercial activity as the construction of commercial building was the responsibility of developer only. The assessee Trust by way of JDA was only transferring its share in the land for a consideration in the form of 50% share in the constructed area.

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 11 of 12 Thus, when the JDA is cancelled by the parties mutually and the deposit amounts were already returned back to the parties as detailed above, we find no merits in the argument of ld. D.R. that the assessee trust is involved in the commercial activities. Further, on perusal of the assessment order, we also observed that the assessing officer had never asked for furnishing the details of bank statements evidencing the re-payment and therefore the ld.CIT(A)/NFAC after calling for such information had rightly not interfered with these grounds. In our opinion, it is well settled law that the powers of the ld. CIT(A)/NFAC are co-terminus and co- extensive with that the AO. The ld. CIT(A)/NFAC is not only an appellate authority but also possesses the power of an adjudicating authority similar to that of an AO. The powers of enquiry thus in a sense runs concurrently. Under the provisions of section 250(4) of the Act, the ld. CIT(A)/NFAC may either himself make such further enquiry as he thinks fit or he may direct the AO to make further enquiry and report the result of the same to him. In our considered opinion, all the details such as JDA, cancellation of JDA and the deposit amount subsequently returned back by the assessee was submitted before the AO and therefore there is no need to call for the remand report from the AO with respect to only bank statement produced by the assessee during the appellate proceeding. Accordingly, we find no merits in the argument of ld. D.R. and thus we are inclined to dismiss all these grounds of the Revenue.

10.

In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 11th June, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 11th June,2026. VG/SPS

ITA No.536/Bang/2024 Society of Friars Minor (Karnataka), Bengaluru Page 12 of 12

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file

By order

Asst. Registrar, ITAT, Bangalore.

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