M/S INSTITUTE MANAGEMENT COMMITTEE(IMC) ,BAGALKOT vs. INCOME TAX OFFICER WARD-1 , BAGALKOT

The assessee is a society registered under the Karnataka Societies Registration Act with specific aim of upgradation of Industrial Training Institute into a centre of excellence in such a way that the training provided in ITI is improved and becomes demand driven leading to better employability of passing out ITI graduates.

For the AY 2015-16, the assessee filed a return of income on 23.11.2015 claiming exemption u/s. 10(23C)(iiiad) of the Income-tax Act, 1961 [the Act] as an educational institution. The denied the benefit of exemption u/s. 10(23C) of the Act and taxed the surplus income of Rs.29,82,425 by an order u/s. 143(3) dated 29.8.2017.

Aggrieved by the assessment order, the assessee preferred appeal before the CIT(Appeals). Pending proceedings before the CIT(Appeals), the assessee has applied for registration u/s. 12AA on 21.09.2017 in Form No.10. By an order dated 9.3.2018, the CIT(Exemptions), Bangalore [CIT(E)] granted registration u/s. 12AA of the Act to the assessee. The assessee contended before the CIT(Appeals) that proviso to section 12A(2) states that, “where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year”. The said proviso is squarely applicable to the assessee’s case. The assessee contended that proceedings pending before the CIT(Appeals) is to be considered as assessment proceedings pending before the Assessing Officer as the power/jurisdiction of the CIT(Appeals) are co-extensive with the powers of the Assessing Officer and therefore the CIT(Appeals) should allow the benefit of registration to the assessee. It was contended that since the assessee society obtained registration u/s. 12AA, hence the exemption u/s. 11 is applicable to assessee society for all the preceding assessment years of the previous year in which registration u/s. 12AA is granted.

The CIT(A), however, rejected the plea of the Assessee observing that the registration was granted to the Assessee only on 9.3.2018 but the order of AO was passed on 29.8.2017. Therefore the assessment proceedings were not pending as on 9.3.2018 and therefore the benefit of proviso to Sec.12A(2) of the Act cannot be extended to the Assessee. The following were his observations in this regard:- “5. In the written submissions AR of the appellant stated that the assessee proviso to section 12A(2) states that, where registration has been granted to the trust or institution under section 12AA, then the provisions of section 11 and 12 shall apply in respect of any income derived from property held under trust of any Asst. year preceding the aforesaid Asst. year for which Asst. proceedings are pending before the A.0 as on the date of such registration and the object and activities of such trust or institution remain the same for such preceding Asst. year. 6. I have carefully considered the facts of the case, the submissions made by the appellant and also perused the Assessment order. 7. Application for 12AA registration was made by the appellant on 21/09/2017. Assessment under consideration was passed on 29/08/2017. Here Assessment was not pending during the pending of registration process of 12AA. Hence provision to 12A is not applicable to the assesses present case. Hence exemption under section 11 is not admissible to the assessee. The A.O has correctly taxed the surplus as income from other sources. The order of the A.O is correct and in accordance with law and appellant having no case, I therefore have no reason to interfere with the order of the A.O. The addition made by the A.O is confirmed. 8. In the result, the appeal of the appellant is dismissed.”

Aggrieved by the order of the CIT(A), the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee submitted that Section 12[(2) reads as follows:

He also drew our attention to the explanatory note to the provisions of the Finance (No.,2) Act 2014 as given in CBDT No.1/15 dated 21.1.2015:- "Para 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available." 9. It was contended by him that assessment proceeding which is pending in appeal before appellate authority should be deemed to be 'assessment proceedings pending before Assessing Officer' within the meaning of that term as envisaged under proviso to section 12A(2) and therefore an Assessee which obtained registration under section 12AA

The learned counsel for the Assessee in this regard placed reliance on a decision of the ITAT Cochin Bench in SNDP Yogam v. Assistant Director of Income-tax (Exemption) [2016] 68 taxmann.com 152 (Cochin - Trib.). The facts of the case were that the Assessee which was a charitable institution had not obtained the benefit of registration u/s.12A of the Act for AY. 2006-07 to 2009-10 & 2011-12. On 29.7.2013, the Assessee was granted registration u/s.12A of the Act. Prior to 29.7.2013, the assessment for AY 2006-07 to 2009-10 & 2011-12 were concluded by the AO and the benefit of Sec.11 & 12 was denied to the Assessee because the Assessee did not have registration u/s.12A of the Act. Against the orders of assessment for the aforesaid AYs, the Assessee filed appeal before the first appellate authority. During pendency of appeal before first appellate authority, assessee obtained registration under section 12AA i.e., on 29.7.2013 and claimed exemption under section 11. It was contended that assessment proceeding which is pending in appeal before appellate authority should be deemed to be 'assessment proceedings pending before Assessing Officer' within meaning of that term as envisaged under proviso to section 12A(2) and therefore an Assessee which obtained registration under section 12AA during pendency of appeal was entitled to exemption claimed under section 11. The Tribunal held as follows:- “7.2 When section 12A of the Act was amended by introducing new provisos to sub-section (2) of s. 12A by Finance Act, 2014 with effect from 01.10.2014, the assessment orders passed by the assessing officer in respect of the present assessee were pending in appeal before the first appellate authority. During such pendency, the assessee was granted registration u/s 12AA of the Act on 29.07.2013 w.e.f. the assessment year 2013-14. Those appeals were the continuation of the original proceedings and that the power of the Commissioner of Income-tax was co-terminus

The learned DR relied on the order of the CIT(A) and submitted that the registration was granted to the Assessee only on 9.3.2018 but the order of AO was passed on 29.8.2017. Therefore the assessment proceedings were not pending as on 9.3.2018 and therefore the benefit of proviso to Sec.12A(2) of the Act cannot be extended to the Assessee.

We have carefully considered the rival submissions. The decision of the ITAT Cochin Bench in the case of SNDP Yogam (supra) is on identical facts of the case of the Assessee in this appeal and therefore the ratio laid down therein will apply to the present case also. As laid down therein, if during pendency of appeal before first appellate authority, assessee obtained registration under section 12AA and claimed exemption under section 11, the Assessee should be allowed the benefit of the proviso to Sec.12A(2) which provides that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment

In the present case, however, we find that the Assessee did not claim benefit of exemption u/s.11 of the Act before the AO and the AO did not have the benefit of examining such a claim. Mere existence of registration u/s.12A will not confer benefit of exemption u/s.11 of the Act and the other conditions for availing benefit of exemption u/s.11 of the Act has to be examined by the AO. In the given facts and circumstances of the case, we are of the view that it would be just and proper to set aside the order of the CIT(A) and remand to the AO the question of allowing exemption u/s.11 of the Act as by reason of the proviso to Section 12A(2), the Assessee should be deemed to have had registration u/s.12A of the Act. The registration u/s. 12AA(1)(b)(i) of the Income Tax Act, 1961 does not automatically exempt the income of the Trust/Institution. The question of taxability of the income of the Trust/Institution shall be examined and decided upon by the Assessing Officer based on the activities, compliance with various statutory and other requirements, etc., as referred to in Sections 2(15), 11, 12 & 13 of the Income Tax Act, 1961. The AO will afford opportunity of being heard to the Assessee in the set aside proceedings.

In the result, appeal of the Assessee is treated as allowed for statistical purposes.

Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.