ASSISTANT COMMISSIONER OF INCOME TAX, EXEMPTION CIRCLE, AURANGABAD, NEAR HOLY CROSS ENGLISH SCHOOL vs. THE NANDED SIKHGURUDWARA SACHKHAND HAZUR SAHIB, ABCHALNAGAR

During the course of assessment proceedings, the Assessing Officer upon verification of the assessee's financial statements, Tax Audit Report and other relevant details / information furnished observed that the assessee had claimed exemption u/s 10(23C)(v) of the Act. He noted that during the year under consideration, although the assessee has received total receipt at Rs.69,13,90,763/-, however, the assessee was able to apply an amount of Rs 41,10,97,718/- only. So, the assessee generated surplus of Rs.28,02,93,045/-. From the balance sheet of the assessee, the Assessing Officer observed that the assessee had corpus fund of Rs.1,59,51,94,751/- and FDRs of Rs.1,33,28,20,331/-. He noted that the surplus to net receipt ratio for various years in the case of assessee is as below:-

According to the Assessing Officer, as per the above table, it is clear that the assessee is not able to utilize its fund every year and there is surplus in excess of 15% from AY 2012-13 to 2016-17. The assessee has claimed exemption u/s 10(23C)(v). As per third proviso to sec. 10(23C) read with section 139(4A), assessee trust was required to file audit report in Form 10BB within due date of time. But the assessee trust had filed return of income as well as Form 10BB after due date of time. The Assessing Officer was of the opinion that the funds are not being properly utilised/supervised as is required by provisions of section 10(23C)(v) under which the trust has placed its claim of exemption. He, therefore, rejected the claim of exemption u/s 10(23C)(v). He further noted that the assessee had filed form 10BB on 30/01/2017. It had also filed application for condonation of delay with CIT(E), Pune on 25/07/2018 which was rejected by CIT(E), Pune vide its order dated 26/12/2018. The Assessing Officer, therefore, added the surplus of Rs.28,02,93,045/- to the income of the assessee.”

It is registered under the Charitable and Religious Trusts Act, 1920 (Central Act XIV of 1920) and the Bombay Public Trusts Act, 1950. The respondent-assessee filed the return of income for the assessment year 2014-15 declaring Rs. Nil income after claiming exemption of income under the provisions of section 10(230)(v) of the Income-tax Act, 1961 (the Act) Against the said return of income, the assessment was completed by the Assistant Commissioner of Income Tax. Exemption Circle Aurangabad (the Assessing Officer) vide order dated 30-12-2016 passed us 143(3) of the Act of total income of Rs. 24,33,51,386/- denying the claim for exemption of Income u/s 10(23C) (v) on the ground that the respondent-assessee trust generated surplus of 41% of the gross receipts indicating that the funds were not utilized for which the trust was formed. Secondly, the respondent- assessee trust does not enjoy the registration u/s 12AA of the Act. Also the fact that Form No. 10 was not filed within the due date.

We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the exemption under the provisions of section 10(23C)(v) of the Act. Admittedly, the respondent-assessee trust was granted approval u/s 10(23C)(v) of the Act. However, the Assessing Officer had denied the claim for exemption u/s 10(23C)(v) primarily on the ground that: (i) The funds of the trust were not properly utilized/supervised. (ii) The respondent-assessee trust does no enjoy the registration under the provisions of section 12AA of the Act. (iii) The audit report in the prescribed form was not filed within the stipulated date i.e. along with return of income filed u/s 139(1) of the Act.

We find from maternal on record that the observation made by the Assessing Officer that the funds of the trust were not properly utilized, managed and supervised is mere bald observation as there was no material brought on record in support of the above allegation, Further, we find that the funds of the trust are managed by the member of the trustees headed by the District Collector, no mala fide can be attributable to Government authorities in the absence of any evidence. The Assessing Officer holding the position of quasi judicial authority, should refrain from making bald allegation without bringing on record conclusive evidence in support of such allegation From reading of the assessment order, it appears that the Assessing Officer is carried away by the fact that the respondent-assessee trust generated surplus of funds of 41% of gross receipts and inferred that the funds were not utilized for the object for which the respondent-assessee trust was formed. The Hon'ble Supreme Court in the case of Queen's Educational Society v CIT [2015] 55 taxmann.com 255/231 Taxman 286/372 ITR 699 held that merely because a charitable trust had generated surplus does not lead to conclusion that the appellant trust is not charitable or religious exiting for the purpose of profit. To the similar effect in the decision of the Hon'ble Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT [1997] 90 Taxman 528/224 ITR 310. Therefore, the Assessing Officer cannot jump to the conclusion that the respondent- assessee trust is not religious and charitable trust merely because it generated surplus income.

We have carefully gone through the provisions of section 10(23C)(v) which does not prescribe any stipulation, which makes the registration u/s 12AA as a condition precedent for availing the exemption u/s 10(23C)(v) of the Act. In fact, the provisions of section 11 and section 10/23C)(v) are two parallel regimes and operate independently in their respective realms. This position was clarified by CBDT Circular No. 14 of 2015 dated 17-8-2015. Further, it is well-known canon of construction of the Statute, no words can be added to in Act or a new stipulation which is not prescribed in the statute can be read into the Act as held by the Hon'ble Supreme Court in the case of CIT v. Vadilal Lallubhai [1972] 86 ITR 2 As regards to the delay in filing the audit report in the prescribed form, the Courts have taken a consistent view that filing of audit report in the prescribed form before completion of the assessment proceedings would constitute a sufficient compliance under the provisions of the Act as held by the Hon'ble Supreme Court in the case of Nagpur Hotel Owner's Association (supra), also by the Hon'ble Punjab & Haryana High Court in the case of National Horticulture Board v. Chief CIT (2009) 176 Taxman 167/319 ITR 74 and the Hon'ble Delhi High Court in the case of Association of Corporation & Apex Societies of Handlooms (supra). Even the CBDT Circular No. 19 of 2020 w.e.f. 3-11-2020 as amended by the CBDT Circular No 6 of 2021 dated 26-3-2021 had authorized the Commissioner of Income-tax to entertain the application belatedly up to the assessment year 2018-19. Thus, in the light of the above discussions, we do not find any illegality and unreasonableness in the order of the Id CIT(A) in reversing the findings of the Assessing Officer denying the exemption u/s 10(23C)(v) of the Act. In view of findings given by us supra, none of reasons assigned by Assessing Officer, while denying the claim of exemption u/s 10(23C)(v) can be sustained in the eyes of law. We do not find any merits in the grounds of appeal

He also relied on the following decisions: (i) Little Angels Education Society Vs. Union of India and others in Writ Petition No.1061 of 2020, order dated 25.03.2021 (ii) M/s. Viswanath Traders vs. Union of India & Ors vide Special Leave to Appeal (C) No.15594 of 2023, order dated 04.08.2023 (iii) Basawaraj & Anr. vs. The Spl. Land Acquisition Officer vide Civil Appeal No.6974 of 2023, judgment dated 22.08.2013. iv) Pradeep Kumar Batra vs. DCIT vide vide order dated 23.10.2020

Referring to the decision of the Hon‟ble Gujarat High Court in the case of CIT (Exemptions) vs. Laxmanarayan Dev Shrishan Seva Khendra (2024) 167 taxmann.com 548 (Guj), he submitted that the Hon‟ble High Court, after considering the decision of the Hon'ble Supreme Court in the case of PCIT vs. Wipro Limited (supra) has held that where assessee, a public charitable trust, did not upload audit report in Form 10B along with its return of income and CPC processed return under section 143(1) denying benefit of section 11, since assessee had already filed audit report in Form 10B electronically during pendency of appellate proceedings along with copy of audited financial statements, delay in filing said form was to be condoned.

Referring to the decision of the Hon‟ble Gujarat High Court in the case of CIT (Exemption) vs. Anjana Foundation (2024) 168 taxmann.com 462 (Guj), he submitted that the Hon‟ble High Court in the said decision has held that charitable trust cannot be denied benefit of section 11 solely for not filing audit report in Form No.10B, as it is only a procedural requirement.

Referring to the decision of the Delhi SMC Bench of the Tribunal in the case of B.R. Hospital Research Institute vs. ITO (2024) 167 taxmann.com 389 (Delhi – Trib.), he submitted that the Tribunal, relying on various decisions, has held that conditions of filing Form 10B for availing benefit under section 11 are directory in nature and not mandatory; therefore, where assessee had not filed audit report in Form 10B along with return of income, however filed the same later on before Commissioner (Appeals), claim of assessee for exemption under section 11 was to be allowed.

So far as the decision in the case of Viswanath Traders vs. Union of India (supra) relied on by Ld. DR is concerned, he submitted that the case was relating to Bihar Goods & Services Tax Act, 2017. Further, the Hon'ble Supreme Court has dismissed the SLP filed. Therefore, the same is not applicable.

So far as the decision of the Hon‟ble Bombay High Court in the case of Little Angels Education Society Vs. Union of India (supra) is concerned, he submitted that in that case the delay for assessment year 2017-18 was condoned by the CIT(E). So far as assessment year 2018-19 is concerned, the CIT(E) refused to condone the delay which was more than 365 delays. The Hon‟ble High Court directed the assessee to approach the CBDT. He submitted that as per CBDT Circular No.5, dated 03.01.2020 the CIT can condone the delay in filing Form 10B when the delay is up to 365 days for assessment year 2018-19 and onwards. He accordingly submitted that the above decision is also distinguishable and not applicable to the facts of the present case.

Referring to the decision of the Coordinate Bench of the Tribunal in assessee‟s own case, he submitted that the Tribunal in the said decision has held that where funds of assessee-charitable trust were managed by member of trustees headed by District Collector and audit report was submitted before competent authorities before completion of assessment proceedings, since there was sufficient compliance to claim exemption under section 10(23C)(v), claim could not be denied merely on the ground that assessee generated surplus income. He accordingly submitted that the order of the Ld. CIT(A) / NFAC being in accordance with law should be upheld and the grounds raised by the Revenue be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed by both sides. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case disallowed the claim of exemption u/s 10(23C) of the Act on the ground that the assessee trust has not filed Form No.10BB before the statutory time limit but has filed the return of income as well as Form No.10BB after the due date of time. Further, the application for condonation of delay filed with the CIT(Exemption) was also rejected by the CIT(Exemption). The Assessing Officer further held that the funds of the trust are not being properly utilized / supervised as required by the provisions of section 10(23C) of the Act. We find the Ld. CIT(A) / NFAC allowed the claim of exemption u/s 10(23C) made by the assessee, the reasons of which have already been reproduced in the preceding paragraphs. We do not find any infirmity in the order of the Ld. CIT(A) / NFAC on this issue.

So far as the observations of the Assessing Officer that the funds of the assessee trust are not properly utilized, managed and supervised as required under the provisions of section 10(23C)(v) of the Act is concerned, we find the Ld. CIT(A) / NFAC following the decision of the Coordinate Bench of the Tribunal in assessee‟s own case has given a finding that the observation of the Assessing Officer is a bald observation. We find the Revenue is not in appeal on this issue as per the grounds of appeal and therefore, we are not concerned with the same.

Reliance placed by the learned Senior Standing Counsel Ms.Maithili Mehta for the appellant on the decision of the Hon'ble Supreme Court in case of The Principal Commissioner of Income Tax-III and Others versus M/s. Wipro Limited in Civil Appeal No.1499 of 2022 would not be applicable in the facts of the case, as in the facts of the present case, the assessee has claimed the exemption under Section 11 read with Section 12A(1)(b) of the Act which required the assessee to file Audit Report in Form of 10B of the Act which has nothing to do with claiming 100% exemption of total income in respect of newly established 100% Export Oriented Undertakings under Section 10B of the Act. Section 10B(8) of the Act requires the assessee to file an undertaking before the due date of furnishing of return of income under sub-section (1) of Section 139 of the Act before the Assessing Officer in writing that the provision of Section 10B of the Act may not be made applicable to him, otherwise the provision of this Section shall not apply to him for any of the relevant assessment year.

Considering the language of the provision of Section 10B(8) of the Act, the Hon'ble Supreme Court held that it was mandatory on part of the assessee to file declaration before the due date of filing of return under Sub-section (1) of Section 139 of the Act, whereas, in the facts of the said case the assessee filed such undertaking along with the revised return under Sub-section (5) of Section 139 of the Act and in such facts, the Hon'ble Supreme Court held that the twin conditions prescribed under Section 10B(8) of the Act was mandatory to be fulfilled and it cannot be said that though the declaration is mandatory, the filing of such declaration within the due date of filing of return under Sub-section (1) of Section 139 of the Act would be directory.

Reference to the aforesaid decision has no connection whatsoever remotely to the facts of the present case and therefore, in the facts of the present case, the Tribunal has rightly followed the decision of this Court in case of Sarvodaya Charitable Trust v. Income Tax Officer (Exemption) in Special Civil Application No.6097 of 2020 decided on 09th December, 2020 as well as the decision in case of Social Security Scheme of GICEA (supra) to uphold the decision of the CIT (Appeals), wherein this Court has held that the approach of the authority in such type of cases should be equitable, balancing and judicious. In the facts of the case, when the assessee has already filed the audit report in Form 10B electronically on 27.02.2021 during pendency of appellate proceedings along with copy of audited financial statements, delay in filing the said form is rightly condoned by CIT(A) and the Tribunal.

We find the Hon‟ble Gujarat High Court in the case of CIT (Exemption) vs. Anjana Foundation (supra) has held that a charitable trust cannot be denied benefit of section 11 solely for not filing audit report in Form No.10B, as it is only a procedural requirement.

So far as the decision of the Hon'ble Supreme Court in the case of Commissioner of Customs (Imports), Mumbai v. Dilip Kumar & Company & Ors. (supra) is concerned, we are of considered opinion that the said decision is not applicable to the facts of the present case as that case was under the Customs Act and not under the Income Tax Act. Further, the facts in that case were that the respondents imported a consignment of Vitamin - F50 powder (feed grade) under Bill of Entry No. 8207, dated 19.08.1999. They claimed the benefit of concessional rate of duty at 5%, instead of standard 30%, as per the Customs Notification No. 20/1999 and classified the product under Chapter 2309.90 which admittedly pertains to prawn feed. They relied on the ratio in Sun Export Case and claimed the benefit of exemption. The benefit of Customs Notification No. 20/1999 was, however, denied to the respondents on the plea of the department that the goods under import contained chemical ingredients for animal feed and not animal feed/prawn feed, as such, the concessional rate of duty under the extant notification was not available. The department classified the consignment under Chapter 29 which attracts standard rate of customs duty. The adjudicating authority, namely, the Assistant Commissioner of Customs, distinguished Sun Export Case (supra), while accepting the plea of the department to deny the concessional rate. The Commissioner of Customs (Appeals) reversed the order of the Assistant Commissioner and came to the conclusion that Sun Export Case (supra) was indeed applicable. The department then approached the Customs, Excise and Service Tax Tribunal (CESTAT), which affirmed the order of the Commissioner of Customs (Appeals). Aggrieved the assessee filed appeal before the Hon'ble Supreme Court. Under these circumstances, the Hon'ble Supreme Court has held as under: “52. To sum up, we answer the reference holding as under: (1) Exemption notification should be interpreted strictly, the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export Case (supra) stands overruled.”

However, as mentioned earlier, the Hon‟ble Gujarat High Court after considering the decision of the Hon'ble Supreme Court in the case of PCIT vs. Wipro Limited (supra) has held that where the assessee had already filed audit report in Form 10B electronically during pendency of appellate proceedings along with copy of audited financial statements, it is sufficient compliance for claiming the exemption u/s 11 of the Act. Since in the instant case the assessee has already submitted the audited report in Form No.10BB during assessment proceedings itself, therefore, the assessee in our opinion is in a better position. The various other decisions relied on by the Revenue as per grounds of appeal or during the course of arguments are distinguishable and not applicable to the facts of the present case. In view of the above discussion, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC allowing the claim of exemption u/s 10(23C)(v) of the Act for belated filing of Form No.10BB. We hold and direct accordingly. The grounds raised by the Revenue are accordingly dismissed.

In the result, the appeal filed by the Revenue is dismissed.

The grounds raised

After hearing both sides, we find the above grounds are identical to the grounds raised by the Revenue in ITA No.808/PUN/2024. We have already decided the issue and dismissed the appeal of the Revenue. Following the similar reasonings, we dismiss the grounds raised by the Revenue.

In the result, both the appeals filed by the Revenue are dismissed.