K.T.A & G.R.S EDUCATIONAL TRUST,VELLORE vs. ITO (EXEMPTIONS) WARD 1, CHENNAI

Brief facts of the case are that the assessee is a public charitable trust, registered under Trust Act by deed dated 02.08.2000, with main objects of imparting education and in pursuance to its objects, the trust has been running engineering college in the name & style of Bharathidasan Engineering College at Nattrampalli, Tirupattur Taluk, Vellore District. The assessee had filed its return of income for the assessment years 2007-08 to 2011-12 admitting Nil total income, after claiming exemption u/s.11 of the Income Tax Act, 1961. The assessee trust has filed application in Form No.10A on 30.05.2007 for registration of trust u/s.12A of the Income Tax Act, 1961 and the Director of Income-tax (Exemptions), Chennai, vide his order dated 28.09.2011 rejected application filed by the assessee for technical reasons. The assessee had filed application in Form No.10A once again, on 13.03.2013 and the Director of Income-tax (Exemptions) vide order dated 20.11.2013 granted registration u/s.12AA of the Income Tax Act, 1961 w.e.f. 26.09.2013 relevant to assessment year 2014-15 onwards. The assessee has challenged order of the Director of Income-tax (Exemptions), Chennai, before the Tribunal and the Tribunal vide order dated 19.12.2014 upheld order of the DIT (Exemptions) in granting registration u/s.12AA of the Act with effect from the assessment year 2014-15 onwards.

The assessment for the assessment years 2007-08 to 2009-10 has been subsequently, reopened u/s.147 of the Income Tax Act, 1961 for the reasons recorded, as per which income chargeable to tax had been escaped assessment. The Assessing Officer has formed reasonable belief of escapement of income and reopened the assessment on the ground that the assessee has claimed exemption u/s.11 & 12 of the Act, even though, the assessee does not have any registration u/s.12AA of the Act for the assessment years 2007-08 to 2009-10 and hence, issued noticed u/s.148 of the Income Tax Act, 1961 dated 21.02.2014. In response to notice, the assessee vide letter dated 03.03.2014 stated that return of income filed u/s.139(1) / (4) on 11.11.2011 may be treated as return filed in response to the notice u/s.148 of the Income Tax Act, 1961. The assessment for the assessment year 2011-12 is not a reopened assessment, however, case has been selected for scrutiny and notice u/s. 143(2) dated 06.09.2013 was issued calling for various details. During the course of assessment proceedings, the assessee claimed that exemption claimed u/s.11 & 12 of the Act for assessment years 2007-08 to 2011- 12 is in order, because as per amended provisions of section 12A by the Finance Act, 2014 w.e.f. 01.10.2014, 2nd & 3rd proviso has been inserted to give benefit of exemption to trust/institution u/s.11 & 12 of the Act for preceding financial years where registration has been granted u/s.12AA of the Act. As per third proviso to section 12A, no action u/s.147 of the Act shall be taken by the Assessing Officer in case such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust /institution for the said assessment order. Further, as per 2nd proviso to section 12A of the Act, it has laid down two conditions to be satisfied while claiming exemption u/s.11, as per which assessment proceedings should be pending before the Assessing Officer for any assessment year and that object remain should be unchanged since inception, till the date of registration of the trust. Since, objects of the Trust remains unchanged as on date of registration and earlier period and the assessments are pending by virtue of reopening of assessment u/s.147 of the Act for the assessment years 2007-08 to 2009-10 and by issuance of notice u/s.143(2) of earlier assessment year 2011-12, the Assessing Officer cannot take any action, including reopening of assessment for the reason of non- registration of trust u/s.12AA of the Income Tax Act, 1961.

The Assessing Officer, however, was not convinced with the explanation furnished by the assessee and according to A.O., the assesse is not entitled for exemption u/s.11 & 12 of the Act for the assessment years 2007-08 to 2011-12, because amended 2nd & 3rd proviso to section 12A by the Finance Act, 2014 w.e.f 01.01.2014 is not applicable, because there is substantial change in objects of the trust from the date of inception and as on date of registration of trust and further, assessments were not pending as on date of registration of trust on 30.09.2013. The Assessing Officer further noted that the assessee is also not entitled for exemption u/s.11 & 12 of the Act for the assessment year 2007-08 to 2011-12, because of 3rd proviso as per which, provisions contained in first and 2nd proviso shall not apply in case of any trust or institution which was refused registration or registration granted was cancelled at any time u/s.12AA of the Income Tax Act, 1961. Since, the assessee was refused registration u/s.12AA of the Act on two occasions for various reasons, the assessee cannot claim benefit of 1st and 2nd proviso to section 12A of the Income Tax Act, 1961 and thus, rejected arguments of the assessee and denied benefit of exemption u/s.11 & 12 of the Income Tax Act, 1961, for the assessment years 2007-08 to 2009-10 and 2011-12.

The assessee carried the matter in appeal before the first appellate authority and before the learned CIT(A), the assessee has reiterated its arguments taken before the Assessing Officer in light of newly inserted second & third proviso to section 12A of the Income Tax Act, 1961, and submitted that there is no change in objects of the trust from the date of inception and as on date of registration on 30.09.2013 and thus, the Assessing Officer cannot take any action, including reopening of assessment u/s.147 of the Act for earlier financial years and non-registration of trust u/s.12AA of the Income Tax Act, 1961. The learned CIT(A), after considering relevant submissions of the assessee and also by following various judicial precedents held that objects of the trust did not remain same in the assessment year 2007-08 to 2011-12, because as per directions of Director of Income Tax (Exemptions), the assessee has amended the Trust deed dated 26.09.2013 by deleting object of publication of books, hence, first proviso to section 12A(2) is not applicable to relevant assessment years. The learned CIT(A) further held that as per third proviso to section 12A(2) of the Act, provisions contained in first and second proviso shall not apply in case of any trust / institution which was refused registration or registration granted was cancelled at any time u/s.12AA of the Income Tax Act, 1961 and thus, in the present case application filed by the assessee in Form No.10A for registration of trust u/s.12A of the Act has been rejected twice and thus, in view of the third proviso to section 12A of the Act, the assessee is not entitled for benefit of first and second proviso and hence, opined that the Assessing Officer has rightly rejected exemption claimed u/s.11 & 12 of the Income Tax Act, 1961. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.

The learned A.R for the assessee submitted that the learned CIT(A) erred in upholding denial of exemption u/s.11 of the Act, without appreciating fact that there has been no change in objects/activities of the trust from its inception till date and thus, as per amended provisions of section 12A of the Act, more particularly, first and third proviso, the assessee is entitled for exemption u/s.11 & 12 of the Income Tax Act, 1961, for the impugned assessment years. The learned A.R further referring to application filed by the assessee and order passed by the Director of Income Tax (Exemptions) rejecting application filed by the assessee on two occasions submitted that the first application filed by the has been rejected on technical grounds of non-furnishing of relevant details called for by the Director of Income Tax (Exemptions). The second application filed by the assessee has been suo motu withdrawn by the assessee itself. Therefore, it cannot be said that registration has been rejected on merits as contemplated under third proviso to section 12A of the Income Tax Act, 1961. The learned A.R further submitted that as per first and second proviso to section 12A, the Assessing Officer cannot reopen assessment u/s.147 of the Act for earlier financial years, just because trust was not registered u/s.12A of the Act, when there is no change in objects of the trust from the date of inception and as on date of registration and further, assessments are pending before the Assessing Officer. In this case, the Assessing Officer has reopened assessment u/s.147 of the Act, on the basis of non-registration of trust u/s.12AA of the Act, for the assessment years 2007-08 to 2009-10. For the assessment year 2011-12, the assessment was pending, because the Assessing Officer has issued 143(2) notice, when the assessee has filed its application for registration of trust u/s.12A of the Income Tax Act, 1961 on 13.03.2013. Therefore, the learned A.R submitted that the assessee is entitled for exemption u/s.11 & 12 of the Act, however, the authorities below have failed to appreciate fact in right perspective of law and denied exemption claimed u/s.11 & 12 of the Income Tax Act, 1961.

The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that the assessee is not entitled for exemption u/s.11 & 12 of the Act, because amended provisions of section 12A by the Finance Act, 2014 w.e.f. 01.10.2014 is not applicable for the impugned assessment years, because registration u/s.12A has been granted to the assessee by order dated 30.09.2013 and the assessment has been reopened by issuance of 148 notice on 21.02.2014, when the second and third proviso was not in statute book. Although, there is an amendment by insertion of first, second and third proviso to section 12A by the Finance Act, 2014 w.e.f 01.10.2014 benefit of said amended provisions cannot be given to the assessee for the impugned assessment years, because as on date of registration, assessment for the assessment years 2007-08 to 2009-10 was not pending and further, there is substantial change in objects of the trust, which is evident from the fact that the assessee has amended its trust deed on 26.09.2013 and deleted certain objects and from the above, it is very clear that objects of the trust are not remained same from the date of inception and as on the date of registration of the trust. It was further submitted that as per third proviso to section 12A of the Act, once registration has been rejected to the trust, then benefit of first and second proviso cannot be availed. In this case, application filed by the assessee has been rejected twice and thus, in view of third proviso, the assessee is not entitled to benefit of exemption u/s.11 & 12 of the Act. The learned CIT(A), after considering relevant facts has rightly upheld action of the Assessing Officer in denial of exemption u/s.11 & 12 of the Act and their orders should be upheld.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The factual matrix of the impugned dispute are that the assessee is a public charitable trust, created by deed of trust dated 02.08.2000 with main object of imparting education. The assessee trust is running engineering college by name Bharathidasan Engineering College at Nattrampalli, Tirupattur Taluk. The assessee trust has filed application in form No.10 on 30.07.2017 for registration of trust u/s.12A of the Income Tax Act, 1961 and said application has been lodged for no further action, because of failure of the assessee to furnish details / information called for by the Director of Income Tax (Exemptions). The assessee has filed second application in Form No.10 on 28.09.2011 for registration u/s.12AA of the Income Tax Act, 1961 and said application has been rejected vide order dated 11.03.2011 for technical reasons. The assessee had filed third application in Form No.10A for registration of trust u/s.12A on 18.05.2012 and said application has been suo motu withdrawn by the assessee vide letter dated 26.11.2012. The assessee has further filed fresh application for registration of trust u/s.12A of the Act, again on 13.03.2013 and in pursuant to said application, the Director of Income Tax (Exemptions) granted registration u/s.12AA of the Act vide their order dated 20.11.2013 w.e.f. 26.09.2013 relevant to assessment year 2014-15. The assessee had filed appeal before the Tribunal against order of the DIT (Exemptions) in not granting registration u/s.12AA of the Act from 30.05.2007, when the application was filed for the first time . The ITAT., Chennai vide its order in dated 19.12.2014 dismissed the appeal filed by the assessee and sustained order of the DIT (Exemptions) granting registration u/s.12AA of the Act from the assessment year 2014-15 onwards.

In this factual background, if you examine claim of the assessee for exemption u/s.11 & 12 of the Income Tax Act, 1961, prior to the financial year in which registration u/s.12AA of the Income Tax Act, 1961, was granted, it is relevant to understand dates and events of each assessment years under consideration, relevant provisions of section 12A prior to amendment by Finance Act, 2014 w.e.f 01.10.2014 and after amendment. Admittedly, the Assessing Officer has reopened assessment for the assessment year 2007-08 to 2009-10 by notice u/s.148 dated 21.02.2014, which is after date of registration of trust on 20.11.2013. It is also an admitted fact that assessment for the assessment year 2011-12 is not reopened assessment, however, case has been taken up for scrutiny by issue of 143(2) notice dated 06.09.2013. According to the assessee, proviso to section 12A of the Act is applicable to its case and as per said proviso, once, registration has been granted to trust / institution u/s.12AA / 12AB of the Act, then provisions of section 11 & 12 shall apply in respect of any income derived from property held under the trust of any assessment year preceding aforesaid assessment year for which assessment proceedings are pending before the Assessing Officer as on date of such registration and objects/activities of such trust / institution remain same for such preceding assessment year. According to the assessee, assessments for the assessment year 2007-08 to 2009-10 were pending before the Assessing Officer as on date of such registration and objects & activities of such trust remained same for such preceding assessment year. The assessee further contended that as per second proviso to section 12A of the Act, no action u/s.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. The assessee had also taken support from the third proviso to section 12A and argued that although, its application has been rejected by the DIT(Exemptions) on two occasions on technical grounds, but not on objects/activities of the trust being not genuine and the trust is not entitled for registration u/s.12AA of the Act Income Tax Act, 1961, therefore, contended that third proviso has no application to the facts of the present case.

We have given our thoughtful consideration to arguments advanced by the counsel for the assessee in light of findings given by the Assessing Officer to reject exemption u/s.11 & 12 of the Income Tax Act, 1961, for the assessment years 2007-08 to 2011-12 and we ourselves do not subscribe to the arguments advanced by the learned AR for the assessee for simple reason that first, second and third proviso to section 12A of the Act has been inserted by the Finance Act, 2014 w.e.f. 01.10.2014, curtailing powers of the Assessing Officer to reject exemption claimed u/s.11 & 12 of the Income Tax Act, 1961, for the previous financial years relevant to assessment years prior to the assessment years in which registration was granted to the assessee trust/institution u/s.12AA of the Income Tax Act, 1961. As per the said amendment, the first proviso entitles the assessee trust/institution for benefit of exemption u/s.11 & 12 of the Act, in case assessments for both assessment years are pending before the Assessing Officer as on date of registration of trust and further, objects and activities of such trust are remains same for such preceding assessment year. As per second proviso, 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. The third proviso to section 12A of the Act, also specifies 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/12AB of the Income Tax Act, 1961. In this case, first and foremost amended provisions of section 12A and proviso inserted therein by Finance Act, 2014 w.e.f 01.10.2014 cannot be applied and given benefit to the assessee, because assessment for the assessment years 2007-08 to 2009-10 were not pending before the Assessing Officer as on date of registration of the trust, which is evident from fact that DIT (Exemptions) has granted registration u/s.12AA of the Act w.e.f. 26.09.2013, whereas, the first and second proviso came into statute books w.e.f. 01.10.2014 i.e., after date of registration of the trust u/s.12AA of the Act. Further, assessment for the impugned assessment years has been reopened u/s.147 of the Act on 21.02.2014, much before the date when first and second proviso came into statute book w.e.f. 01.10.2014. Therefore, in our considered view, the assessee cannot claim benefit of amended provisions of section 12A and provisions inserted therein by the Finance Act, 2014 w.e.f. 01.10.2014 for the assessment year 2007-08 to 2009-10.

As regards other arguments of the assessee and findings of the Assessing Officer with regard to objects of the Trust and its activities, although, the Assessing Officer observed that objects & activities of the trust are not remained same from the date of inception of the trust and as on date of registration of the trust, but on perusal of objects of the trust, as per deed of trust dated 02.08.2000 and subsequent amendment, predominant object of the trust is imparting education and in this regard, the assessee is running engineering college from the date of inception and thus, we are of the considered view that although, there is amendment to trust deed, but such amendment is carried out as per directions of the DIT (Exemptions) to delete powers of trustees in carrying out certain activities. However, fact remains that there is no change in main objects of the trust and its activities and thus, observations of the Assessing Officer on this aspect is devoid of merit and thus, question of application of third proviso to section 12A of the Income Tax Act, 1961 does not arise.

Coming back to the assessment year 2011-12. The assessment for the assessment year 2011-12 is not a reopened assessment, but case has been taken up for scrutiny and notice u/s.143(2) has been issued on 06.09.2013. Therefore, assessment for the impugned assessment year was pending as on date of registration of the trust. However, fact remains that as we have already noted in earlier paragraph of this order regarding applicability of amended provisions of section 12A and proviso provided therein by the Finance Act, 2014 w.e.f. 01.10.2014 is not applicable for the impugned assessment years, for this assessment year is also amended provisions cannot be applied, because before amendment came into statute book, registration of trust has been completed and assessment has been pending as on the date of such registration. Therefore, we are of the considered view that for the assessment year 2011-12 also benefit of amended provisions cannot be given to the assessee.

As regards, various case laws relied upon by the assessee, we are of the considered view that all those cases are rendered under different facts and context and thus, cannot be made applicable to the facts of the case of the assessee. Hence, case laws relied upon by the assessee are rejected.