SRI GURU SINGH SABHA,NEW DELHI vs. DCIT, CPC,, BANAGLORE

Assessee by Sh. V.K. Bindal & Ms. Sweety Kothari, CAs Department by Shri B.S. Anant, Sr. DR. ORDER

These appeals are filed by the Assessee against the separate orders passed by the Ld. CIT(A)-20, New Delhi relevant to assessment years 2014-15 & 2015-16. Since the issues involved in these appeals are common and identical, except the difference in figure, hence, the appeals were heard together and are being disposed of by this common order for the sake of convenience, by dealing with (AY 2014-15) wherein, the following common grounds have been raised:-

1. The CIT(A) erred in law and on facts in confirming various

disallowances and application of maximum marginal rate while passing the order u/s 143(1) of the Act which is not permissible under the Act. Thus the order so passed should be cancelled. 1

of the assessing officer in not allowing exemption u/s 11 and 12 of the Act for the year under consideration ignoring the first proviso to section 12A(2) of the Act providing for deemed registration of the society u/s 12A and thus making it eligible to claim the said exemption for the year under consideration.

Thus the exemption claimed u/s 11 and 12 should be allowed

marginal rate instead of slab rates by incorrectly applying provisions of section 167B(1) of the Act though the same are not applicable on societies registered under the Societies

Registration Act, 1860 . Thus necessary directions should be given to compute tax by applying slab rates on the assessee.

4. The CIT(A) erred in law and on facts in including the amount

of Rs. 94,323/- being interest earned on FDRs made out of corpus fund in taxable income ignoring the fact that interest earned on corpus fund has to be treated at par with the corpus fund. Thus the said amount should be excluded from taxable receipts.

5. The CIT(A) erred in law and on facts in holding the gross

receipts as taxable income without allowing the expenses of Rs. 3,22,837/- incurred towards the said receipts and ignoring that only surplus is taxable as income and not the gross receipts. Thus the expenses should be allowed as deduction against the gross receipts.

6. The appellant craves the leave to add, substitute, modify,

delete or amend all or any of the grounds of appeal either before or at the time of hearing.

2. The brief facts of the case are that assessee filed its return of income for the AY 2014-15 at an income of Rs.2,39,350/- which was increased to Rs. 13,41,461/- u/s. 143(1)(a) while processing the return by CPC, Bangalore. As per the claim of the assessee, the assessee is entitled for the deduction of Rs. 5,69,100/- i.e. corpus fund of building account received for meeting capital expenditure as well as deduction of Rs. 3,22,837/- i.e. expenses incurred towards the activities as per its objectives. Further, as per the assessee the interest earned on building fund of Rs. 94,323/- cannot be taxed which was appropriated for the specific purpose. Further, the assessee has also challenged maximum marginal rate taken for taxation purpose and disallowance of the exemption u/s. 11 & 12 of the Act disregarding the provisions of section 12A(2) first proviso for deemed registration. However, Ld. CIT(A) observed that that CPC, Bangalore while processing the Return of income has computed the total income of Rs. 13,41,461/- against the income shown by the assessee of Rs. 2,39,350/- and not allowed above deduction and taxed the case of the assessee at maximum marginal rate. Aggrieved with the Ld. CIT(A) order, the assessee is in appeal before the Tribunal.

3. Ld. Counsel for the assessee submitted that Ld. CIT(A) erred in law and on facts in confirming various disallowances and application of maximum marginal rate while passing the order u/s 143(1) of the Act which is not permissible under the Act. Thus the order so passed should be cancelled. He further submitted that Ld. CIT(A) wrongly confirmed the action of the Assessing Officer in not allowing exemption u/s 11 and 12 of the Act for the year under consideration ignoring the first proviso to section 12A(2) of the Act providing for deemed registration of the society u/s 12A and thus making it eligible to claim the said exemption for the year under consideration. Thus the exemption claimed u/s 11 and 12 should be allowed to the society. It was the further submission that Ld. CIT(A) wrongly held that the income of the assessee society is chargeable at maximum marginal rate instead of slab rates by incorrectly applying provisions of section 167B(1) of the Act though the same are not applicable on societies registered under the Societies Registration Act, 1860. Thus necessary directions should be given to compute tax by applying slab rates on the assessee. It was further submitted that lower authorities have erred in including the amount of Rs. 94,323/- being interest earned on FDRs made out of corpus fund in taxable income ignoring the fact that interest earned on corpus fund has to be treated at par with the corpus fund. Thus the said amount should be excluded from taxable receipts. Lastly he submitted that lower authorities have wrongly 4 held that the gross receipts as taxable income without allowing the expenses of Rs. 3,22,837/- incurred towards the said receipts and ignoring that only surplus is taxable as income and not the gross receipts.

Thus the expenses should be allowed as deduction against the gross receipts. In view of above, he requested that the appeal of the assessee may be allowed.

i) An application in Form No. 10 A seeking Registration us. 12AA was filed by the assessee on 27.11.2015. ii) The trust / society / non profit company was constituted by deed of trust, memorandum of association/ instrument dated

10.2.1978 indicating its objet. iii) After considering the material available on record the applicant trust / society / company is granted registration as General Public Utility. Trust/Society/ company and the provisions of sections 11 and 12 shall apply in the case from AY 2016-17. The trust / society / NPO is registered as S.No.

DEL-SR24975-15032016 of the register maintained in this office. The registration was granted to the following conditions.

Conditions:

any right exemption upon the applicant u/s. 11, 12, and 13 of the Income tax Act, 1961. Such exemption from taxation will be available only after the AO is satisfied about the genuineness of 6 the activities promised or claimed to be carried on each financial year relevant to assessment year and all the provision of law acted upon. This will be further subject to provisions of section 2(15) of the Income tax Act, 1961.”

5.1 I further find that on perusal of the aforesaid conditions and as per the provision of section 12AA, the Ld. CIT(A) has rightly held that assessee’s claim was not found acceptable due the fact that the assessee has applied for registration under setion 12AA of the Act on 27.11.2015 i.e. during AY 2016-17 whereas the present case of the assessee relates to AY 2014-15. For the sake of convenience, the relevant conditions for applicability of section 11 and 12 are reproduced as under:-

Conditions for applicability of sections 11 and 12.

12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—

(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form26 and manner to the27[Principal Commissioner or] Commissioner and such trust or institution is registered under section 12AA;]

(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions 7 of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the pres-cribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:

Provided 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:

5.2 On perusal of the above provisions, it is clear that the provisions at 8 section 12A(2) will apply from the assessment year immediately following the financial year in which such application is made. In this case, the application of registration is made on 27.11.2015, hence the exemption under section 11 & 12 will be applicable not before A.Y. 2016-17. Further, the proviso section 12 A(2) will also not apply in the case of the assessee as the assessee has not shown any income derived from the property under trust. Beside this, the registration granted by CIT does not grant exemption u/s 11,12 &13 automatic and it is conditional after the Assessing Officer satisfies himself about the genuineness of the activities claimed.

5.3 I further note that the claim of the assessee that it should not be taxed at maximum marginal rate is also not tenable as the PAN of the assessee suggests that the assessee is a Body of Individuals and not 'Trust' as the fifth character of PAN is 'B' and not 'T' which should be the case of Trust. As the Return of Income was filed by the assessee in capacity of Body of Individuals and automatically the provisions of section 11, 12 &13 will not apply in the case of the appellant unless the registration is granted by CIT which was granted later. Hence, the provisions of section 167B (1) of the Act clearly suggests that under this situation the appellant has to be taxed at maximum marginal rates. The provisions of section 167B(1) is as under: -

"Charge of tax where shares of members in association of persons or body of individuals unknown, etc.

167B. (1) Where the individual shares of the members of an association of persons or body of individuals other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of I860] or under any law corresponding to that Act in force in any part of India in the whole or any part qf the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate 5.4 In view of above, I do not find any infirmity in the order of Ld. CIT(A) in upholding the action of the CPC Bangalore in taxing the assessee at maximum marginal rate.

5.5 Further, I note that Ld. CIT(A) has relied upon the order dated 16.5.2017 of ITAT, Delhi Bench in the case of Divine Educational Institute & Social Development Society vs. ITO passed in wherein, it has been held that corpus fund which is meant for specific purpose to meet out capital expenditure could not be part of annual receipts, even if the trust is not registered under section 12AA of the Income Tax Act. However, in the present case the assessee has shown the receipt of Rs. 5,69,100/- towards corpus fund of building account which is a capital receipt which has been invested in FDR. Therefore, Ld. CIT(A) correctly followed the aforesaid decision of ITAT and held that this receipt of Rs. 5,69,100/- and treated as capital receipt to meet the capital expenditure and not chargeable to tax.

However, no relief can be given on account of interest on FDR of Building Fund also which is a revenue receipt and income during the year. Further, other deductions claimed by the assessee were not allowed u/s 11 & 12 of the Act and there is no infirmity in the intimation u/s 143(1) of CPC Bangalore. In view of above, I am of the considered view that Ld. CIT(A) has passed well reasoned order which does not need any interference, on my part, therefore, I uphold the same and reject the grounds raised by the Assessee.