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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI S.RIFAUR RAHMAN & SHRIPAVAN KUMAR GADALE
Date of hearing 07-10-2021 Date of pronouncement 03-01-2022 O R D E R Per S. Rifaur Rahman (AM) : This is an appeal filed by the assessee against the order of Commissioner of Income-tax (Appeals)-3, Mumbai (in short, Ld.CIT(A) for the assessment year 2012-13.
Brief facts of the case are, assessee filed its return of income on 30/09/2012 alongwith the income nd expenditure account, balance-sheet and audit report in form 10B declaring total income at Rs.89,406/-. The case was selected for scrutiny under CASS and statutory notices under section 143(2) and 2 ITA 2631/Mum/2019 142(1) of the Act were issued and served on the assessee. In response, the AR of the assessee attended and submitted the relevant information as called for.
During assessment proceedings, the assessing officer observed from the trust deed that assessee has made amendment in its object clause by inserting two new objects for which no prior permission was sought from, nor any intimation was given to the Commissioner of Income-tax (Exemption). Further, the assessing officer observed that assessee was formed for benefit of a particular community and thus attracted section 13(1)(d) of the Act. When the assessee was called upon to explain why exemption under section 11 should not be withdrawn, in response, assessee submitted that the new objects were in line with the main objects of the trust, i.e. to carry on activities for the benefit of Daivadnya Community and there was no provision in the Act for seeking prior permission or intimation for changes in the object clause. After considering the submissions of the assessee, assessing officer rejected the contentions of the assessee and he held that in view of the fact that assessee did not seek any fresh registration after insertion of new objects, according to him, which was mandatory, the trust deed was not covered in the ambit of section 11 of the Act. He observed that the registration granted by Commissioner of Income-tax (Exemption) has ceased to be operative in the relevant assessment year. In the absence of registration under section 12A, exemption under sectison 11 of the Act cannot be allowed to the assessee. Accordingly, he proceeded to assess the assessee as ‘AOP’ without granting any exemption under section 11 of the Act. 4. Aggrieved, assessee preferred appeal before CIT(A)-3, Mumbai. Before the CIT(A), assessee filed the following submissions:-
3 ITA 2631/Mum/2019 The Appellant most respectfully submits that the action of the Ld. A.O denying exemption u/s. 11 is not in accordance with the Saw as explained below: a. Registration u/s. 12A of the Act, once granted, remains valid until it is cancelled by the Commissioner by due process of law laid down u/s. 12AA(3) of the Act; it cannot cease to be operative unless order u/ s. 12AA(3) of the Act is passed by the Commissioner in accordance with the law for cancellation of registration. The Ld A.O. has no power, nor any jurisdiction in the matter of cancellation of registration, which vests only in the Commissioner. b. The Ld. A.O. sent a proposal to the jurisdiction a f Commissioner for withdrawal of registration u/s. 12A on 18.2.2015, and the Commissioner of Income-Tax (Exemption), Mumbai (CIT) issued a show cause notice u/s. 12AA(3) of the Act, dated 10.3.2015, asking the Appellant as to why the registration u/s. 12A should not be cancelled on the same grounds as are discussed in the impugned assessment order. If according to the Ld. A.O. registration ceased to be operative in the relevant assessment year 2012-13, then, there was no need for him to send a proposal to the Commissioner as aforesaid and for the Commissioner to issue a show cause notice u/s 12AA(3) of the Act. c. The Ld. CIT dropped proceedings u/ s 12AA(3) of the Act vide his order dated 19.12.2016 after carefully considering the submissions of the Appellant. Copy of the order u/s 12AA(3) was submitted during the appellate proceedings. Thus, it is clear that certificate u/s 12A was valid, subsisting and in force during the assessment year under appeal.
2. Without prejudice to the above, the Appellant further submits that even on merits, reasons recorded by the Ld. A. O. for denial of exemption are not valid. In this regard, the Appellant reiterates its submission made before the CIT in proceedings u/ s 12AA(3) of the Act, as under: Non-intimation of the Amended Objects: a. The amended objects are charitable in nature because the same were inserted in the Trust Deed after the approval was obtained from the Charity Commissioner. The amended objects are within the scope of the general objects of the Trust for which it is formed and therefore, even after the amendment so made, the basic and fundamental character of the Trust was not altered or changed in any manner. b. There is no provision in the Act to obtain any prior permission for any amendment of the objects of the Trust, nor is there any specific provision requiring the assessee to intimate the Department about the amendment in the Objects of the Trust it is important to note that the Finance Act, 2017, has brought an amendment in Section 12A, effective from AY 2018-19, by inserting a new sub-clause (ab) in sub-section (1) of Section 12A, requiring the trust/ institution to file an application to the CIT within 30 days of the adoption/modification of the objects of which do not conform to the conditions of registration. However, this provision was not In force in A Y 2012-13, i.e. the year under appeal. This legislative development also vindicates the appellant's stand that there was no statutory requirement at the relevant time to intimate the 4 ITA 2631/Mum/2019 amendment/modification in the objects of a trust/institution claiming exemption u/s. 11. c. However, the amended Trust Deed incorporating the amended Objects Clause was submitted to the CIT, while seeking renewals for the exemption certificates u/s. 80G(5). The Department has raised pertinent queries vide letter dated 18.01.1990 and reply to it was given by the Appellant vide letter dated 25.05.1991 and thereafter renewal of section 80G exemption was allowed. d. It is not the case that the Department was made aware about the amendment in objects for the first time in the assessment proceedings for the A.Y. 2012-13. The repeated renewals accorded by the Department for exemption u/s. 80G(5) from time to time clearly established that the amended objects also stood the test of charitable nature. e. Registration u/s. 12AA cannot be withdrawn merely because of non- intimation of amendments in trust deed to the Department because statutory requirements contained in section 12AA(3) prescribe that cancellation of registration cannot be made unless a case is made out that new objects do not fit in with the existing objects, i. e. new objects are 'non-charitable' in nature, or that the activities are not genuine. Reliance is placed on the decision in ITO (E) vs. Bhansati Trust [2015] 63 taxmann.com 56 (Mumbai — Trib). Alleged Violation of Section 13(1)(b) a. One of the grounds for proposed cancellation of registration u/s. 12AA(3) was alleged violation of section 13(1)(b) of the Act. Section 13(1)(b) provides that section 11 shall not apply in a case where the charitable trust or institution created or established after the commencement of the 1961-Act is created or established for the benefit of any particular religious community or caste. Since the Appellant Trust was established in 1953, i.e. much before the commencement of the 1961-Act, provisions of section 13(1)(b) are not applicable. b. Without prejudice to the above, it is further submitted that even otherwise, section 13(1)(b) is not applicable to the Trust because it is not established or created for any particular religious community or caste. In this context, it was submitted that "Daiwadnya Samaj" referred to in the Trust Deed is not any religious community or caste; it refers to the people who carry on profession of "Goldsmith" across any religious community or caste. c. This issue was earlier raised during the proceedings u/ s. 80G(5), when detailed submissions were made as per our letter dated 21.3.1990. After considering these submissions and having been satisfied that the Trust was not created for any particular religious community or caste and thus not violating section 80G(5)(iii) of the Act, renewal certificate was granted on 6.12.1994 and thereafter. d. Since then there is no change in the facts and circumstances of the case. Therefore, this fundamental fact accepted by the Department in the past has to prevail as per the principle of law laid down by the Hon'ble Supreme Court in Radhasoami Satsang vs. CIT [1992] 193 !TR 321 (SC).. , 3. It is further submitted that reliance placed by the Ld. A.O. on the judgment in Allahabad Agricultural Institute v. Union of India (291 ITR 116, 119) is misplaced because in that case the objects were altered by the assessee in wholesale manner and some of the new objects were not charitable in nature and that the judgment was passed in a Writ Petition filed by the assessee seeking stay of 5 ITA 2631/Mum/2019 demand while the appeal was pending before the CIT(A); thus, the observations were made by the Court in the limited context of stay and not in any appeal on a substantial question of law. Further, the assessee in that case never intimated the CIT about the amendment made to the Trust Deed that materially altered its objects, while in the Appellant's case, intimation was given to the CIT albeit in the proceedings for renewal of certificate u/s.80-G when the amended Trust Deed was filed, and thus, the Department was made aware of the amended objects and it was within its knowledge.
Reliance placed by the Ld. A.O. on the judgment in Sakti Charities vs. CIT (1984) 149 ITR 624)(Madras) is also misplaced because in that case references to Civil Procedure Code and Court's direction for alteration of objects were made as there was no enabling provision in the Trust Deed for amendment of certain objects that would require court intervention. Further, in that case, certain objects were deleted and it was in that context the Court observed that objects of a trust cannot be deleted even by the founder thereof. In the Appellant's case, new objects were added and nothing was deleted and the new objects were duly approved by the Charity Commissioner.
In view of above, it is submitted that the Ld. A. O. dearly erred in denying exemption u/s. 11 of the Act for A. Y. 2012-13. The Appellant, therefore, prays that exemption claimed u/s. 11 be allowed to the Appellant and the A.O. be directed to re-compute income after giving full effect to section 11 of the Act and to delete the addition of Rs.27,66,16s/-made in the impugned assessment order.”
After considering the detailed submissions by the assessee, Ld.CIT(A) dismissed the ground raised by the assessee by sustaining the findings of the Assessing Officer.
5. Aggrieved by the above order, assessee is in appeal before us raising the following grounds of appeal:- “1. Denial of Exemption u/s 11 of _the Income-tax Act, 1961: (a) On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming I he denial of exemption u/s. 11 of the Act (b) The Ld. CIT(A) failed to appreciate that the registration U/S.12A once granted remains valid and subsisting unless it is cancelled u/s.12AA(3) by the CIT(Exemption) by due process of law, and therefore, the Ld. AO had neither jurisdiction nor power to hold that the registration u/s. 12A ceased to exist.
(c) The Ld. CIT(A) failed to appreciate that the Ld. CIT (Exemption), Mumbai, had dropped the proceedings u/s.12AA(3) of the Act for cancellation of registration U/S.12A, which was initiated on the very same grounds raised by the Ld. AO for denying exemption u/s. 11 in the assessment order.
6 ITA 2631/Mum/2019 (d) The Ld. CIT(A) failed to appreciate that even otherwise registration u/s 12A could not be cancelled for non-intimation to the CIT (Exemption} about amendment in the Objects Clause of the Trust Deed, which was carried out way back in 1986.
(e) The Ld. CIT(A) failed to appreciate that the appellant-trust was not created or established for a particular religious community or caste so as to disqualify u/s,13(1)(b) from claiming exemption u/s.11, and even otherwise, section 13(1)(b) has no application to the appellant-trust since it was established prior to 1.4.1962. Your appellant, therefore, prays that exemption u/s.11 be allowed to the appellant for Rs.27,66,168/-, and the addition be deleted.
2. Denial of exemption u/s.11(lA) for LTCG: Rs.1,72.26,7057- On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in sustaining disallowance of exemption u/s.11(1A) in respect of LTCG computed by the Ld. AO on sate of immovable property. The appellant submits that it invested the sales proceeds in another capital asset, i.e., fixed deposits with scheduled bank, hence, the resultant LTCG was exempt u/s. 11(1A). Your appellant, therefore, prays that exemption u/s.11(1A) be allowed in respect of LTCG of Rs. 1,72,26,705/- and the addition be deleted.
3. Addition made for transfer entry from 'Building..Amenities Fund 2011' to 'Building Fund': Rs.95.00,000/- On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in sustaining addition of Rs.95,00,000/- being the amount transferred from 'Building Amenities Fund 2011' to 'Building Fund' in the books of the appellant- trust in the previous year ended 31.3.2012 on utilization of the ear-marked fund. The Ld. CIT(A) failed to appreciate that passing of this accounting entry in the books of the appellant was not a taxable event, nor did it result in any income to the appellant and therefore, irrespective of whether the appellant is eligible to claim exemption u/s. 11 or not, the addition could not be made in law. Your appellant, therefore, prays that the addition of Rs.95,00,000/- be deleted.”
The learned AR briefly brought to our notice the facts in this case and drew our attention to page 11 of the paper book as per which assessee has got registration on 27/04/1953 and also brought to our notice registration u/s 12A of the Act dt. 25/04/1975. The learned AR submitted that in the year 1986 assessee amended object clause on 19-11-1986 duly registered with the office of the Charity Commissioner, Bombay. The same was approved by the Hon’ble 7 ITA 2631/Mum/2019 Commissioner (Charity). The assessee duly filed copy of the same in the paper book on pages 32 & 33. The learned AR submitted that learned CIT(E) initiated the proceedings to withdraw the registration granted to the assessee on 19/12/2016 by issue of show cause notice vide letter dated 10/03/2016. After considering the submissions of the assessee on various dates, the learned CIT (Exemption) dropped the proceedings initiated for withdrawal of the registration u/s 12AA. The copy of the order of CIT (Exemption) is placed on record at page 61 of the paper book. The learned AR further submitted that the same facts were brought to the notice of the learned CIT(A) during appellate proceedings. Accordingly, he brought to our notice page 4 of the order of Ld. CIT(A) in which Ld.CIT(A) has recorded the same. The Ld.AR submitted that when the CIT (Exemption) has dropped the proceedings based on the information received from the assessing officer and the same assessing officer has no power and jurisdiction to deny the benefits available to the assessee when the registration was deemed to be in force.
With regards to grounds 2 & 3 raised by the assessee, Ld.AR submitted that this issue may be restored to the assessing officer once the Hon’ble Bench decides the issue in favour of the assessee in ground 1. 8. On the other hand, the ld.DR relied on the orders of lower authorities. 9. Considered the rival submissions and material placed on record. We observe from the record that assessee was granted registration u/s 12A on 25/04/1975 and in the year 1986 assessee made certain modifications and amended the objects of the trust. The same were approved by the Commissioner of Charities which were placed on record. During assessment proceedings, assessing officer observed that assessee has amended the object clause without 8 ITA 2631/Mum/2019 intimating the CIT (Exemption). According to the assessing officer, it violates the registration granted u/s 12A of the Act and by relying on the decision of the Hon’ble Allahabad High Court in the case of Allahabad Agricultural Institue vs UOI 291 ITR 116, 119 (All). According to the assessing officer, assessee has violated the terms of approval granted u/s 12A, therefore, exemption u/s 11 of the Act cannot be allowed to the assessee. We observe from the records submitted before us, in fact, it was also submitted before Ld.CIT(A) that CIT (Exemption) has initiated the proceedings for withdrawal of the registration u/s 12A on 10/03/2016 and subsequently on 19/12/2016, the proceedings were dropped. We also observe from record that no doubt assessment order was passed on 28/03/2015 and it is a fact on record that the withdrawal proceedings were initiated by CIT (Exemption) on the basis of information from the assessing officer; however, he has dropped the same subsequently. We observe from the record that this information was brought to the notice of the Ld.CIT(A) and Ld.CIT(A) conveniently omitted to take notice of the same and proceeded to toe the line of assessing officer. In our considered view, the assessing officer has no authority or right to treat the registration granted by the higher authority, i.e. CIT (Exemption) as not valid. We observe from the record that he has rightly brought to the notice of the CIT (Exemption) and it is a fact on record that CIT (Exemption) considered the same facts on record at the time of granting original registration u/s 12A and subsequent withdrawal of the proceedings shows that he is convinced with the submissions of the assessee and the objects were within the charitable activities. Therefore, learned CIT(A) should have taken note of this development and should have cancelled the assessment made by the assessing officer.
9 ITA 2631/Mum/2019 10. Further we observe that assessing officer in his order has observed that this trust was formed for benefit of a particular community and thus attracted section 13(1)(d) of the Act. We observe from the record that the main object for which the trust was registered was for the benefit of the members of the Daivadnya community. The purpose and objects of the trust was never changed or modified. The amended object clause also for the benefit of members of the Daivadnya community. When the CIT (Exemption) approved the objects of the trust for registration us 12A on 25/04/1975 that means, he has satisfied himself that it is not a particular group, rather, it is for the whole members of the Daivadnya community. Even after amendment to the object clause, there is absolutely no change. Accordingly, learned CIT(Exemption) has taken a decision to drop the proceedings initiated for cancellation of the registration granted u/s 12A. Therefore, in our considered view, the assessment order passed is void and accordingly, it is set aside. Accordingly, ground 1 raised by the assessee is allowed and we direct the assessing officer to consider the exemption as per section 11 of the Act.
11. With regard to grounds 2 & 3, since we allowed ground 1, the other grounds are consequential in nature and accordingly, we direct the assessing officer to follow the direction as stated in ground 1 in above paragraphs. These grounds are allowed, for statistical purpose.
In the result, appeal filed by the assessee is allowed. Order pronounced on 03/01/2022. Sd/- sd/- (PAVAN KUMAR GADALE ) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 03/01/2022 10 ITA 2631/Mum/2019 Pavanan Copy to : 1. Appellant 2. Respondent 3. The CIT concerned 4. The CIT(A) 5. The DR, ITAT, Mumbai 6. Guard File /True copy/ By Order