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Facts
The assessee, a charitable trust, claimed exemption under Section 11/12AA but its registration details were not available, and it failed to re-register under the new provisions of Section 12A(1)(ac) introduced by the Finance Act 2020 and CBDT notification. Consequently, the CPC/AO denied the exemption, leading to a tax liability which was upheld by the CIT(A).
Held
The tribunal, while acknowledging the valid denial of exemption due to non-compliance with re-registration requirements, held that the expenditure incurred by the assessee for earning the income should be allowed as a deduction based on principles of taxation. The matter was remanded to the Assessing Officer for a de novo assessment of income after allowing such expenditure.
Key Issues
Rejection of Section 11/12AA exemption due to non-compliance with new re-registration requirements and the allowability of related expenditure upon such rejection.
Sections Cited
250, 12AA, 12A, 80G, 143(1), 11, 12A(1)(ac), 12AA(1)(b)(i), 12AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
(Assessment Year: 2023-24) Bab-E-Rehmat Educational Society AO Exemption Ward Thane Fakir Shah Baba Hill Road, Near Darul Falah, Near Sahil Hotel, Kausa, Vs. Mumbai – 400612. PAN/GIR No. AABTB7190H (Appellant) : (Respondent) Assessee by : Shri Himanshu Gandhi Respondent by : Shri Leyaqat Ali Aafaqui, SR. AR. Date of Hearing : 23.06.2025 Date of Pronouncement : 24.06.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) ADDL/JCIT (A)-2, Bengaluru (‘ld. CIT(A)’ for short), passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2023-24.
The assessee has raised the following grounds of appeal: 1) Rejection of Approval Claimed U/S 12AA is bad in law Assessee having Exemption certificate U/S 12AA dated
25. April 2016, as per Old Registration Process Once an organization obtains Section 12AA registration, the validity of the Registration is perpetual unless it is cancelled or revoked by the Income Tax Department. Unlike certain registrations requiring periodic renewal, Section 12AA of Income Tax Act has no expiration date or a specific time limit. Which is valid for Life time of Society/Trust that means Appellant is eligible for 12AA registration Till Cancellation or revoked by the Income Tax Department.
As per Amendment Finance Act 2020, which mandates the revalidation of charitable institutions registered under Sections 12A/12AA and/or 80G of the Income Tax Act, 1961.On the 26th of March 2021, the CBDT notified the Income-Tax (6th Amendment) Rules, 2021, which states the procedure for fresh registration and the list of documents required for organizations registered under Section 12A/12AA/80G. Thus, the institutions and trusts with existing registrations under Section 12A/12AA or/and 80G should file the application for revalidation registration within three months from 1 April 2021, l.e. before 30 June 2021, as per the Income-Tax (6th Amendment) Rules, 2021 but Appellant unable to Revalidate. CBDT has issued notification no. 19/2021, dt. 26th March, 2021 which makes it mandatory for all trust, Society registered under 12A, 80 G to obtain fresh registration. Appellant require to obtain a fresh registration as per the notification. Appott is ready to reregister. 2) Retrospective Approval of Section 12AA Appellant is registered for Income Tax exemtption as per old registration process and Appellant agree to revalidate or reregister as per CBDT has notification no. 19/2021, di. 26th March, 2021. Appellant requests you, allow us retrospectively exemption U/S 12AA RD Foundation vs. ITO (Exemption) ITAT Delhi The Tribunal interpreted the proviso retrospective application meaning that if the Trust gains the 12AA registration while an assessment is pending the exemption can be extended to the periods before the registration. Queens Educational Society vs. DCIT A Supreme Court judgement affirming the necessity of uninterrupted Charitable Activity and proper registration for claiming exemption. Sree Sree Ramkrishna Samity vs. DCIT Kolkata branch 2016. Address the retrospective application of exemption upon gaining 12AA registration. 3) The Assessing Officer has erred law while Disallowance of Rs. 10935452/-claimed U/S 11 of Income Tax Act, 1961 is illegal and bad in law. The total income as computed U/S 143 (1) is Rs. 1,09,35,452/-. The exemption claimed by the Assessee is Rs. 1093452/-, however total Receipt of Rs. 1,09,35,452/- and Total Expenditure on Educational Activity is Rs. 1,05,31,358/-Surplus is Rs. 4,04,094/- in our case required to allow all expenses. ITO vs Mehta Charitable Prajanalaya Trust ITA (ITAT Del)
(A.Y. 2023-24) Bad-E-Rehmat Educational Society Revenue authorities have duly allowed the depreciation and other expenses as directed to be considered by the Hon'ble High Court. The revenue authorities have also allowed to set off of the business income with loss computed under the head "income from other sources" which is in tune with the provisions of the Income Tax Act. Since, exemption under section 11 is not to be allowed as per the orders of the Hon'ble High Court, the expenditure on which is unrelated to the earning of the income only has been disallowed. Annadaneshwara Charitable Trust v. Income-lax Officer [2023] (Bangalore - Trib.) It was held that in the absence of the registration under the relevant sections, there cannot be any application of income. However, the gross receipts cannot be taxed in the hands of the assessee trust. The income earned by the assessee and expenditure relatable to the earning of such income is to be allowed as a deduction. The AO was directed to examine the financials of the assessee and allow the expenditure which have been incurred for earning the income of the assessee.”
The learned Authorised Representative ('ld. AR' for short) for the assessee filed submission dated 20.06.2025 withdrawing the ground no. 1 and 2 and leaving only ground no. 3 for adjudication. The ground no. 3 has been raised by the assessee as an additional ground for the first before the Tribunal for which the ld. AR prayed that the same may be admitted and adjudicated in terms of the proposition laid down by the Hon’ble Apex Court in the case of National Thermal Power Corporation vs. CIT (1999) 97 Taxmann.com 358/(1998) 229 ITR 383 (SC). On perusal of the same, we deem it fit to admit and adjudicate the same.
Brief facts of the case are that the assessee is a charitable trust providing educational related charitable activities. The assessee trust had filed its return of income dated 30.10.2023, declaring total income at Rs. 1,09,35,452/- which has been claimed as exempt income and the same was processed u/s. 143(1) of the Act and vide intimation dated 18.11.2024, the ld. CPC/AO rejected the assessee’s claim of exemption of Rs. 1,09,35,452/- as incorrect claim stating that the details of registration of the assessee (A.Y. 2023-24) Bad-E-Rehmat Educational Society trust were not available with the department, thereby determining a tax liability of Rs. 46,05,940/-.
Aggrieved the assessee was in appeal before the first appellate authority, challenging the intimation passed u/s. 143(1) of the Act. 6. The ld. CIT(A) dismissed the assessee’s grounds of appeal
stating that the assessee has not satisfied the conditions of Section 12A(1)(ac) of the Act and further the assessee has failed to furnish any written submission along with supporting documentary evidences before the ld. CIT(A).
7. The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).
8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee trust had claimed exemption u/s. 11 of the Act but had not filed the details of registration at the time of the filing of the return, where the ld. CPC/AO denied the assessee’s claim stating that the no documentary evidences pertaining to the registration were not available with the department. Before the ld. CIT(A), the assessee furnished copy of registration u/s. 12AA(1)(b)(i) of the Act, dated 25.04.2016, issued by the ld. CIT(Exemption). Further, the ld. CIT(A) observed that the assessee has not applied for registration u/s. 12AB within the due date specified i.e., 30.06.2021 in form 10A which is mandatory for trust or institutions which are already registered u/s. 12AA of the Act as per the amendment brought about in the Finance Act, 2020 to Section 12A(1)(ac) of the Act, for the purpose of registration u/s. 12A and 80G of the Act and the same has been made mandatory vide the CBDT notification no.19/2021, dated 26.03.2021. As the assessee has neither registered the same by online (A.Y. 2023-24) Bad-E-Rehmat Educational Society nor has furnished documentary evidences in support of the same, the ld. CIT(A) rejected the assessee’s claim on the ground that the assessee has not applied for the provisional registration/reregistration as per the new provision within the prescribed time and form.
The ld. AR for the assessee has raised ground no. 3, where the assessee has claimed the total income that was computed u/s. 143(1) was Rs. 1,09,35,452/- and the exemption claimed by the assessee was to that extent but the total expenditure incurred for the educational activities carried out by the assessee amounting to Rs. 1,05,31,358/- and the surplus was Rs. 4,04,094/- which the assessee claims to be allowed as expenditure incurred for the object of the trust. The ld. AR further claims that since the exemption claimed by the assessee was not granted then the ld. AO cannot compute the tax on the gross receipts but the expenditure relatable to the earnings of such income has to be allowed as such deduction. The ld. AR prayed that the same may be remanded back to the file of the ld. AO to examine the financials of the assessee and thereby compute the total income after allowing the expenditure incurred for earning of the said income.
The learned Departmental Representative ('ld. DR' for short) for the revenue had nothing to controvert the same.
From the above observation, we are of the considered view that as the ld. AO/CPC has rejected the assessee’s claim of exemption which was upheld by the ld. CIT(A) by holding the same to be a taxable income, in all fairness the expenditure incurred for earning of such income is also to be allowed as per the principles of taxation as equity warrants. We therefore direct the ld. AO to assess the income after duly allowing the expenditure incurred by the assessee for earning of such income on the merits and in (A.Y. 2023-24) Bad-E-Rehmat Educational Society accordance with law. We have not given our view on the merits of the assessee’s claim as the same has to be assessed de novo by the ld. AO. The assessee is also required to furnish all the relevant documentary evidences pertaining to its claim. We hereby allow ground no. 3 raised by the assessee for statistical purpose.