WEST BENGAL TRADE PROMOTION ORGANISATION LIMITED ,KOLKATA vs. ITO (EXEMPTION), WARD - 1(3), KOLKATA , KOLKATA

The grounds of appeal raised by the assessee reads as follows: 1. That the learned Commissioner of Income Tax (Appeals) [here-in-after referred to as CIT(A)] has erred in law and facts in confirming the reopening of the assessment for the assessment year 2009-10.

That the learned CIT (A) has erred in holding that the claim of the assessee for exemption under the provisions of section 11 of the Act is not tenable and allowable under the provisions of the Act.

That the learned CIT (A) should have passed a speaking order in relation to the appellant's submission that the appeal filed on 23 April 2015 against the order dated 31 March 2015 passed under the provisions of section 144 of the Act should be merged with the Appeal No. ITA No.122/CIT(A)- 25/Kol./2015-16.

That the CIT (A) has failed to realise that the appellant has been granted registration under section 12AA of the Income Tax Act, 1961 on 03.05.2013 whereas the notice for reopening the assessment was issued on 27.03.2014 and as such the reopening is barred by limitation as per the amended provision of section 12A of the said Act.

That, Without prejudice to Ground Nos. 1, 2 and 3, the CIT (A) has erred in law and on facts of the case in not allowing Rs.2,35,00,000/- being the compensation paid to the encroachers to the Land of WBTPO during the year ended 31st March, 2009.

That the CIT (A) has erred in law and on facts of the case in confirming the disallowance of the amortisation of the lease rent paid in advance spreading over the period of five years.

That the appellant craves leave to add, alter, amend, amplify or modify any or all of the above grounds of appeal on or before the time of hearing of appeal.

When this appeal was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 05.07.2018, passed by the Tribunal in assessee’s owncasein I.T.A. No. 156/Kol/2017, for assessment year 2011-12. The ld. Counsel for the assessee submitted that the present issue is squarely covered by the above said order of the Tribunal, a copy of which is also placed before the Bench.

The ld. DR relied upon the orders of the authorities below.

We see no reason to take any other view of the matter then the view so taken by the division bench of this Tribunal in assessee’s own case vide order dated 05.07.2018. In this order, the Tribunal has inter alia observed as under: “3. Brief facts of the case are that the assessee company is a consortium of the Central Government [Ministry of Commerce & Industry - through the Indian Trade Promotion Organisation], the State Government [through the West Bengal Industrial Development Corporation, Department of Commerce & Industries], and the Kolkata Municipal Corporation - the objects being to foster the promotion of trade and 'Commerce. For implementation purpose - it is incorporated as a company under section 25 of the Companies Act, 1956, i.e., the objects of the company are to promote the objects of the nature specified in the Section 25 sub-section (1), clause (a) of the said Act, and that it will apply its profits, if any, or other income in promoting its objects and to prohibit the payment of any dividend to its members. In the assessment, the AO assessed the assessee as a company under Chapter IV of the Act - i.e., as a company with profit motive/business income. Though not mentioned in the assessment order, it is obvious that this was because of absence of registration u/s 12AA [for this AY 2011-12]. Thus, while being assessed vis-à-vis computation under chapter IV, some disallowances were made and thereafter the AO assessed the total income of assessee at Rs.2,12,13,110/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition. Aggrieved, revenue is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Ld. CIT(A) has held that the 1st proviso to sec. 12A(2) is retrospective in operation by relying on the coordinate bench decision of this Tribunal in SreeSreeRamkrishna Samity Vs. DCIT (2015) 44 ITR (Trib) 678 (ITAT, Kol). Since the Ld. CIT(A) has relied on this Tribunal’s decision we would reproduce the operative portion of the order which is as under:

Admittedly, the reassessment proceedings were pending before the Learned AO for the Asst Years 2003-04 to 2008-09 as on the date of granting registration u/s 12AA of the Act on 29.10.2010 with effect from 1.4.2010 as reassessment proceedings got commenced pursuant to issuance of notice u/s 148 on 30.3.2010 as stated supra. Admittedly, the objects and activities of the trust had remained the same in preceding assessment years also i.e Asst Years 2003-04 to 2008-09. Though this first proviso to section 12A(2) talks about pendency of assessment proceedings, it is relevant to get into the definition of the term ‘assessment’ in section 2(8) of the Act, wherein it is defined as “assessment includes reassessment”. Hence even reassessment proceedings that were pending would also come under the ambit of the first proviso to section 12A(2) of the Act.

The second proviso to section 12A(2) also provides that no action u/s 147 of the Act shall be taken merely for non-registration of trust or institution. Reading this proviso with the first proviso to section 12A(2) and applying the Rule of Harmonious Construction, it could safely be concluded that the legislature in its wisdom had only brought this proviso to prevent genuine hardship that could be caused on the assessee due to non-registration u/s 12AA of the Act and accordingly in our opinion, the provisos to section 12A(2) of the Act is to be construed as retrospective in operation.

The third proviso to section 12A(2) of the Act also provides that the first and second proviso shall not be applicable if the trust or institution had been refused registration earlier or the registration granted earlier is cancelled by the Commissioner u/s 12AA of the Act. This also goes to prove that the first and second proviso shall be made applicable for the trusts for earlier assessment years also who had not applied for registration u/s 12AA of the Act at all.

We hold that the registration of trust under section 12A of the Act once done is a fait accompli and the AO cannot thereafter make further probe into the objects of the trust. Reliance in this regard is placed on the decision of the Hon’ble Apex Court rendered in the case of ACIT vs Surat City Gymkhana reported in (2008) 300 ITR 214 (SC). Drawing analogy from this judgement, the logical inference could be that as long as the objects were charitable in nature in the earlier years and in the year in which registration u/s 12AA was granted, the existence of trust for charitable purposes in the earlier years cannot be doubted with. Even otherwise, no adverse findings were given by the revenue with regard to the existence of the assessee society for charitable purposes in the assessment years under appeal.

It will be relevant to get into the Explanatory Notes to the Provisions of the Finance (No. 2), 2014 as given in CBDT Circular No. 01 / 2015 dated 21.1.2015 in reference F.No. 142 / 13 /2014-TPL which is reproduced hereinbelow for the sake of convenience (Page 38) :- “Para 8 – Applicability of the registration granted to a trust or institution to earlier years

This clearly goes to prove that the first proviso to section 12A(2) was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No. 2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01 / 2015 dated 21.1.2015.

Apparently the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the Learned AO, unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years.

With regard to the arguments of the Learned DR that donations received by assessee falls under the definition of income u/s 2(24)(iia) of the Act, we would like to state that income definition is an inclusive definition. An inclusive definition extends the specific meaning given in the stated items by the general meaning as commonly understood by the said expression which is defined in a statute. The word income as is commonly understood does not include any donation specifically meant for utilization for acquiring, constructing a capital asset, as is the case here. Further section 2(24) had undergone amendment by way of insertion of clause (iia) by Finance Act, 1972 with effect from 1.4.1973. In this connection, it will be relevant to get into the Memorandum explaining the provisions in Finance Act 1972 reported in 83 ITR (St.) 173, wherein Paragraphs 24 and 25 clearly define the scope of the amendment wherein in paragraph 25(i) , the concluding sentence is as under:- “contributions received with a specific direction that they will form part of the corpus of the trust or distribution will, however, not be regarded as income.”

Thus the relevant clause defining income in section 2(24)(iia) as introduced with effect from 1.4.1973 was clearly not intended to cover contributions / donations received with a specific direction that they will form part of the corpus of the trust for utilization in acquisition / construction of a capital asset. Thus what is not income as per the definition of the word income in the Act cannot be Page | 5

We hold that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under section 11 & 12 as mentioned in section 12A provided for registration u/s 12AA as a pre-condition for applicability of section 12A. Reliance in this regard is placed on the following decisions :- Allied Motors P ltd vs CIT reported in (1997) 224 ITR 677 (SC) – Judgement by three judges of the Supreme Court (Page 686). The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B.

In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. CIT vs J.H.Gotla reported in (1985) 156 ITR 323 (SC) If the purpose of a particular provision is easily discernible from the whole of the scheme of the Act which in this case, is to counteract the effect of transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., result not intended to be subserved by the object of the legislation found in the manner indicated before, then another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction.”

We also hold that though equity and taxation are often strangers , attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quampereat, i.e to make it workable rather than redundant. Applying this legal maxim, it would be just and fair to hold that the amendment in section 12A is brought in the statute to confer benefit of exemption u/s 11 of the Act on the genuine trusts which had not changed its objectives and had carried on the same charitable objects in the past as well as in the current year based on which the registration u/s 12AA is granted by the DIT(Exemptions).

We hold that the arguments of the Learned AR that, even assuming without conceding, in the worst scenario, the assessee society could only be taxed in the status of an AOP does not require any adjudication as we hold that the assessee society to be construed as a public charitable trust and eligible to claim Page | 7

We hold that since the only reason for denial of exemption u/s 11 was absence of registration u/s 12AA (which was granted to assessee society on 29.10.2010 with effect from 1.4.2010) for the relevant assessment years and on no other ground, the benefit of change in law as above by Finance Act 2014 should be available and for all the years, the benefit of exemption should be available on the date of registration as all the assessments were pending as shown above. In this connection, it requires mention specifically that all the receipts of the donation were proved on enquiry to have been received from the claimed donors and utilized for the specific purpose (construction of old age home) for which they were received.

In conclusion, we hold that the insertion of the proviso to section 12A(2) of the Act has to be construed as retrospective in operation.”

We note that the assessee before us has got registration from Ld. CIT(E) u/s. 12AA of the Act vide order dated 03.05.2013 w.e.f. 01.04.2012. The question of retrospective operation of 1st proviso to sub-section (2) of section 12A of the Act has been answered as “retrospective in operation” by the Ld. CIT(A) after taking note of the order of coordinate bench’s decision of this Tribunal in SreeSreeRamkrishna Samity (supra) wherein the Tribunal had held at para 27 that the “insertion of the proviso to sec. 12A(2) of the Act has to be construed retrospective in operation”. We also note that the assessee has also been accorded approval u/s. 10(23)(c)(iv) by order of Ld. CCIT-3, Kolkata dated 09.01.2014. It is well settled that the Ld. CIT(A) has co-terminus power as enjoyed by the AO while deciding the appeal against an assessment order. Therefore, even though the assessment order has been passed on 28.03.2014, for the ends of justice and fair play and taking into consideration the fact that the assessee is basically a consortium of State Govt., Central Govt and Municipal Corporation which was incorporated as a company u/s. 25 of the Companies Act, 1956 with the purpose to promote the objectives of the nature specified in section 25(1), clause (a) of the State Act and it is pertinent to note that that it will apply its profit if any or other income in promoting its objects and it prohibits the payment of any dividend to its members. Thus, the Ld. CIT(A) has rightly noted Page | 8

Since we have allowed the appeal of the assessee on merits therefore technical ground raised by the assessee challenging the reopening of the assessment U/s 147 Page | 9

Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Co- ordinate Bench of the Mumbai Tribunal in the case of DCIT vs JCB Limited in ITA No 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020.

In the result, the appeal of the assessee is partly allowed.