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Facts
The assessee, a trust, filed its Income Tax Return for AY 2014-15 declaring nil income claiming exemption under Section 11, but did not have 12A/12AA registration at the time and used an incorrect ITR Form 7 instead of Form 5. The CPC determined taxable income and rejected the rectification application. The Ld. CIT(A) sustained the CPC's order, leading the assessee to appeal to the ITAT, arguing that its subsequent 12AA registration (on 22.02.2016) and the provisos to Section 12A(2) should grant the exemption.
Held
The Tribunal acknowledged the assessee's subsequent 12AA registration and the pendency of rectification/appeal proceedings, although technically no assessment proceedings were pending before the AO at the time of registration. The Tribunal remitted the issue back to the Jurisdictional Assessing Officer, directing them to reconsider the case, reassess the income as if the return was filed in ITR-5, and allow the assessee to submit financial statements and data in the correct format. The AO is to re-do the assessment de novo, giving proper opportunities to the assessee.
Key Issues
Whether a charitable trust is eligible for exemption under sections 11 and 12 despite belated 12AA registration and filing an incorrect ITR form, considering the provisos to Section 12A(2) and pendency of rectification/appeal. Also, whether the maximum marginal rate of tax was correctly applied under Section 167B.
Sections Cited
Section 11, Section 11(1), Section 11(5), Section 12, Section 12A, Section 12A(1)(ba), Section 12A(2), Section 12AA, Section 13, Section 13(1), Section 13(1)(a), Section 13(1)(b), Section 13(1)(c), Section 13(1)(d), Section 37(i), Section 57(ii), Section 57(iii), Section 115, Section 139, Section 139(4A), Section 143(1), Section 143(2), Section 154, Section 164(2), Section 167B, Article 265 of the Constitution of India
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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’: NEW DELHI
Assessee by Shri S.K. Gupta, CA Department by Shri Om Prakash, Sr. DR Date of Hearing 27/06/2024 Date of Pronouncement 05/07/2024 ORDER
PER S.RIFAUR RAHMAN, AM:
This appeal has been filed by the Assessee against the order of Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short], dated 16/10/2023 for Assessment Year 2014-15.
The brief facts of the case are, the assessee has filed its return of income on 31/03/2015 declaring the total income at Rs. Nil claiming exemption u/s 11 of the Income Tax Act, 1961 (‘the Act’
Care Foundation Village vs. ITO for short) by observing that the 12A/12AA registration is absent at the time of filing return of income and determined the taxable income at Rs.9,41,368/-. Subsequently, the assessee moved an application online for rectification u/s 154 of IT Act praying for rectification of mistake due to the reason of return being filed in ITR Form 7 instead of ITR Form 5. The CPC rejected the same.
Aggrieved, the assessee preferred an appeal before NFAC, Delhi.
3. After considering the grounds of appeal and submissions of the assessee, the Ld. CIT(A) observed that assessee trust had no valid registration u/s 12AA of the Act and also filed the return of income with incorrect Form ITR 7 has been used instead of the correct ITR Form 5 as applicable. However, Ld. CIT(A) rejected the submissions of the assessee and sustained the order of the CPC.
Aggrieved with the above order, the assessee is in appeal before us raising the following grounds of appeal:-
“1. On the facts and circumstances of the case, the ld. CIT(A) has erred in law in not allowing benefit of registration of the trust u/s 12AA of the IT Act which was granted subsequently and such benefit is available to the trust as per third proviso to sec 12A(2) of IT Act. The exemption u/s 11 is required to be allowed subject to provision of sec 11(1) by virtue of above proviso.
Care Foundation Village vs. ITO
2. On facts and circumstances of the case and without prejudice to the Ground No.1, the Ld. CIT(A) was not justified in not allowing deduction u/s 57(ii) of the expense incurred by the appellant trust against the income declared by it.
On facts and circumstances of the case and without prejudice to the Ground No.1, the Ld. CIT(A) was not justified in levying the tax at the maximum marginal rate ignoring the provisions of sec 164(2) of IT Act as per which the appellant trust should have been subjected to tax as AOP. 4. The appellant craves leave to add, delete, modify/amend the above grounds of appeal with the permissions of the Hon’ble appellant authority.”
At the time of hearing, the Ld. AR submitted are as under:-
a) With regard to ground No.1, the appellant challenges the action of the Ld CIT(A)in not allowing the exemption u/s 11(1) of the Act on the ground that the trust in question was not registered u/s 12A/12AA of the Act but ignoring the applicability of the proviso to section 12A(2) of the Act. b) The appellant trust was admittedly not registered u/s 12A/12AA of the Act for AY 2014-15. But by virtue of the subsequent registration granted to the trust u/s 12AA of the Act dt 22.02.2016 (PB 17) and applicability of the proviso to section 12A(2) of the Act (then in force), the appellant was entitled to be treated as a registered trust so as to entitle it to benefit of the exemption u/s 11 of the Act.
Care Foundation Village vs. ITO c) To appreciate the relevance of the above contention and the impact of above proviso, it will be appropriate to look into what the proviso provides. The above proviso reads as under:
“First proviso 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: Third Proviso Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA.] iii. From the above facts, it is evident that the appellant trust was granted registration on 22.02.2016 (PB 17) and on the date of granting of registration u/s 12AA, the assessment proceedings did not conclude as the intimation passed u/s 143(1) was subjected to rectification and subsequent appeal. The objects of the assessee trust remain the same as in the year of registration of the trust u/s 12AA. Further, the other
Care Foundation Village vs. ITO conditions laid down under third proviso is also satisfied as the registration to the trust has neither been refused nor cancelled any time u/s 12AA, the benefit of section 11 for exemption regarding the application of income for charitable purpose therefore need be provided by virtue of applicability of first and third proviso to sec 12A(2) of the Act. iv. In view of the factual situation that there remains no dispute that the rectification/appeal in relation to the AY under the present appeal was pending on the date of grant of registration u/s 12A of the Act to the appellant trust, the benefit of first/ third proviso to section 12A(2) were available to the appellant as there was no denial of registration u/s 12AA. The reliance is placed on the decision of the Raipur Bench of the ITAT in the case of Prem Prakash Mandal Sewa Trust Vs ITO (Exemption) in dt 12.08.2021 where in para 10&11 (pages 7-8) held that benefit of above proviso is available to the assesees who obtained registration under sec 12AA during pendency of appeal. Since the appellate authority i.e. CIT(A) has co-terminus power with that of the assessing officer, the above view of the Raipur Bench finds support on the principle of purposive interpretation of statutes. The Hon'ble Bench followed the decisions of SNDP Yogam Vs ADIT 186 TTJ 227 (Cochin) and Badhte Kadam Vs Dy CIT 203 TTJ 597(Raipur) to draw support to the above legal proposition.
Care Foundation Village vs. ITO v. Exemption by virtue of CBDT Circular dt: 23.04.2019: Without prejudice to above, the claim of exemption u/s 11 of the Act for application of income for charitable purposes is available to the appellant despite the return of income filed belatedly but before expiry of time limit laid down u/s 139 of the Act. In this context, reliance is placed in the circular F No.173/193/2019-ITA-1 dt: 23.04.2019 issued by CBDT, wherein it is provided that the appellant is eligible to claim of exemption u/s 11 of IT Act even if the ITR has been filed belatedly before the expiry of time limit laid down in sec 139 of the Act. It is relevant to note that sec 12A(1) (ba) provides that the assessee's filling return beyond the time limit prescribed under sec 139(4A) will not be eligible for exemption under 11 of the Act but the above circular has mitigated the hardship of assessee's by extending the time for availing exemption when the returns of income filed belatedly before expiry of time limit prescribed under 139. The time limit available under section 139 (as applicable in AY 2014- 15) was till 31.03.2016. The filling of return by the appellant trust before the above date entitles it to claim exemption u/s 11 by virtue of circular which is binding on the departmental authorities. vi. The above view is in consonance with the decision of co- ordinate Bench of ITAT in the case of Conference of religious
Care Foundation Village vs. ITO
India vs. ITO Ward Exemption (1)3, New Delhi in dated 31/10/2022. d) With regard to Ground No.2 the appellant has projected its grievance in not considering the claim of the appellant regarding the application of income as expenditure allowable under section 57 (iii) of the Act.
From the facts of the case there is no dispute that the collection of the appellant society is for the social/ charitable purposes. The Form 108 report of the auditors (PB10) is on records to show that the collection offered for tax have been spent out for the purposes for which collection were made i.e. social and charitable purposes objectives. Your kind attention is invited to the decision of the Hon'ble Delhi Bench of ITAT in case of Sanatam Dharam Sabha vs ITO ITA
No.5791/Del/2019 dated 13.04.2022 where on identical facts, the assessee was denied benefit of exemption of section 11/12 of IT Act but at the same time, the assessee was found eligible for allowance of relevant expenditure on the section 57(ii) of IT
Act. The Hon'ble ITAT in the above judgement relied on the Care Foundation Village vs. ITO decision of jurisdictional Delhi High Court in the case of DDIT
Vs Petroleum Sports Promotion board Delhi High Court 362
ITR 235. The decision of Hon'ble Jurisdictional Delhi High
Court is based on the decision of Hon'ble Supreme Court in CIT vs. Rajendra Prasad Moody, 115 ITR 519 that Section 57
(ii) must be construed broadly and the somewhat wider language of Section 37(i) should not affect the interpretation of Section 57 (iii). e) With regard to Ground No.3 the rectification intimation is challenged on the ground that the maximum marginal rate of tax has been charged on the gross income of the appellant by applying sec 1678B of IT Act. This action of the CPC is contrary to the provisions of sec 167B of the Act. i. It is not a disputed fact that the appellant is a legal entity as a registered Trust. The trusts or institutions or any other legal obligations are liable to assessed as "Association of Person" in view of the exclusions contained in the provisions of section 167B of the Act read with Part I of First schedule to the Annual Finance Act. The above First Schedule of the Finance Act prescribes the rate of taxes at which different persons will be liable to pay taxes and clause (1) of that part prescribes
Care Foundation Village vs. ITO
AOP to be taxed as same as on the basis of individual. It can therefore be understood that if Trust or institutions are liable to be assessed as AOP then obviously section 1678 does not have applicability in case of charitable trust or institutions because of following two reasons; (a) The section 167B of Act, specifically excludes Companies and societies registered under societies registration Act, 1980 or any other similar legislation. (b) The different rates as prescribed in section 1678 are based upon knowledge and determination of share of individual members. But as far as charitable or religious organizations are concerned there is no scope of share of income or surplus among members concerned. ii. Hence it can be said now that charitable or religious trust or institutions (memorandum of A are subject to tax (if income is not exempt) at the rate applicable to individual assessee, However there are certain exceptions in this regard also as contained in section 13(1) of Income Tax Act, 1961 in which case income is subject to maximum marginal rate; (i) Income for private religious purpose(sec-13(1)(a)} (ii) (ii) Income for the benefit of particular religious community(sec-13(1)(b)} (iii) Income for the benefit of persons specified in section 13(3) (sec-13(1)(c))} (iv) Funds not invested in accordance with provisions of sec 11(5) {sec 13(1)(d))
Care Foundation Village vs. ITO
(v) Anonymous donation (sec-115)} III. So, except in the conditions mentioned, the other Charitable Trust or institutions are subject to income tax at the rate applicable to individual assessee provided exemption under section 11 or 12 of 10(23C) is not available. From the facts available in the present case, there is no infringement of sec 13(1)(a) to 13(1)(d) and sec 115 of IT Act for which the sec 1678 authorizing levy of tax at maximum marginal rate could be applied. The fact that the appellant trust has been granted registration u/s 12AA of the Act (PB 17) shows that the character of the appellant trust is a charitable trust. Further, there is no material on record of the CPC or the Department that there was any infringement by the appellant of the above noted excluding provisions of section 13(1)(a) to section 13(1)(d) or section 115 of the Act and therefore, the present appellant is required to be taxed at the rates applicable to the individuals. iv. Without prejudice to above, it is relevant to note that the appellant is a AOP (Trust) and since, there was no registration u/s 12A of IT Act, the correct form for filling the return should have been ITR-5 which was applicable for persons other than- (i) individual, (ii) HUF, (iii) company and (iv) person filing Form ITR-7. In the ITR form-5, the status of the entities to whom this form of return applies is shown as under: 1. Partnership Firm, LLP, local authority-2
Care Foundation Village vs. ITO
2. AOP/BOI 3. other cooperative bank, other cooperative society, society registered under society registration Act, 1860 or any other Law corresponding to that state, Primary agricultural credit society/cooperative bank, Rural development bank, Business trust, investment fund, Trust (other than trust eligible to file Return In ITR 7, any other AOP/BOI,, artificial Juridical person) 4. Estate of the deceased, Estate of the insolvent, Other AJP), V. The wrong selection of form which is a mistake on the part of appellant has resulted into creation of demand. The appellant filed return for subsequent AY 2015-16 which has been accepted and no demand of tax has been raised where there had been similar receipts and similar expenditure booked. The CPC was intimated about the wrong selection of form for filling ITR. The CPC was not entitled to capitalize on the mistake of the assessee leading to undue enrichment. It is a trite law that the revenue should act fairly and judiciously and should collect tax what is due as per law.
To support the above proposition of law, reliance is placed in the decision on the decision of Sanchit Software and Solutions (P.) Ltd. Vs CIT 349 ITR 0404 (Bom) wherein it was held that department
Care Foundation Village vs. ITO must not take advantage of ignorance of an assessee as to his rights. Further, the circular issued by CBDT which is binding on department authorities also supports the above proposition of law.
The relevant extract of circular 11/04/1955 issued by CBDT is reproduced here under:
"3. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department.-" Besides above unauthorized collection of tax vires the Article 265 of the Constitution of India which lays down that no tax shall be levy except when authorized by law.
The Ld. AR relied on the decision of ITAT, Raipur Bench and facts in the above case are slightly different and they have considered that the assessment pending before the Ld. CIT(A). In this case, at the time of grant of registration, there was no appeal pending before the Ld. CIT(A).
Care Foundation Village vs. ITO
On the other hand, the Ld. DR objected to the submissions of the Ld. AR and submitted that in order to claim the benefit u/s 12A of the Act in a situation wherein the registration was granted subsequently, there should be proceedings pending before any authority. In this case, at the time of granting of registration vide order dated 22/02/2016, there was no proceedings pending. The submissions of the assessee may not be entertained.
In the rejoinder, Ld. AR submitted that there is a sufficient time for filing the rectification u/s 154 of the Act and also the assessee has raised the same issue before the CPC and subsequently filed the appeal before the Ld. CIT(A), therefore, the issue under consideration was pending in this regard. He relied on the decision of Prem Prakash Mandal Sewa Trust (supra) and submitted the similar issue was addressed by the Hon’ble ITAT, Raipur Bench.
Considered the rival submissions and material placed on record, we observed that no doubt assessee has filed the return of income in ITR 7 instead of ITR 5. Considering the fact that Care Foundation Village vs. ITO assessee did not have proper registration at the time of filing the return of income. However, we observed that assessee has filed rectification application before the AO requesting for rectification/modification of the Forms filed by the assessee.
However, the Assessing Officer rejected the same and processed the return of income as filed by the assessee under ITR 7. It is fact on record that assessee did not have a proper registration u/s 12AA of the Act at the time of filing the return of income and the mistake was apparent that assessee should have filed the return of income only under ITR Form 5. It is brought to our notice that the assessee was granted registration subsequently on 22/02/2016. As per the first proviso to section 12A(2) of the Act when assessment proceedings pending before the Assessing Officer as on the date of such grant of registration and the objects and activities of such trust remain the same for such preceding assessment year, the provision of section 11 & 12 are applicable in such cases.
Care Foundation Village vs. ITO
In the present case, the issue raised by Counsel are, whether the assessment proceedings are pending in this case when the 12A registration was granted on 22/02/2016. The case of the assessee was not selected for scrutiny for the current assessment year, however, only proceedings u/s 143(1) were initiated and wrong claim of the assessee was rejected and assessee made a rectification application before the CPC, however, the same was rejected. The assessee had filed an appeal before the Ld. CIT(A) as filed by the assessee on 25/02/2020 against the order passed u/s 154 of the Act dated 12/02/2020 by the CPC, Bengaluru. We observed that this issue was raised by the assessee even before Ld. CIT(A) and the relevant registration was granted to the assessee on 22/02/2016. The time period to complete the assessment when not selected for scrutiny shall reach finality when the period to issue the notice u/s 143(2) i.e., no notice u/s 143(2) shall be served on the assessee after expiry ‘6’ months from the ends of the financial year in which such return is furnished. In this case, return was filed on 31/03/2015 and the period of issue of notice ends on 30/09/2015, therefore, at the time of granting
Care Foundation Village vs. ITO registration i.e., 22/02/2016, there was no assessment proceedings pending before the Assessing Officer.
It is fact on record that the issue pending at the time of grant of registration was only relating to rectification of mistake and for not filing the return of income in proper Form i.e., assessee has filed in Form ITR 7 instead of Form 5. Technically, there is no assessment proceeding pending before the any authority at the time of grant of registration as per the fact available on record. We are inclined to remit this issue back to the file of the Jurisdictional Assessing Officer for wrongly rejecting the rectification application filed by the assessee and in our considered view as per the facts available on record, at that point of time, assessee has wrongly filed ITR 7 instead of ITR 5, therefore, I direct the Assessing Officer to consider the case of the assessee and reassess the income of the assessee as per ITR 5. Further, I direct the assessee to file the financial statements and submit the data as per ITR-5 before the Jurisdictional Assessing Officer. We direct the Assessing Officer to re-do the assessment after giving proper opportunities of being heard to the assessee on various grounds raised by the assessee,
Care Foundation Village vs. ITO complete the assessment de novo as per law. Accordingly, all the grounds raised by the assessee are remitted back to the Assessing Officer and direct the Assessing Officer to complete the assessment as per above direction. Accordingly, appeal filed by the assessee is allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 5th July, 2024.