CARE FOUNDATION VILLAGE,DELHI vs. INCOME TAX OFFICER WARD EXEMPTION 1(3), DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘SMC’: NEW DELHI BEFORE, SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.3746/Del/2023 (ASSESSMENT YEAR 2014-15) Care Foundation Village Income Tax Officer J1/40B, Budh Vihar Ward Exemption 1(3) Phase-1 Vs. Delhi New Delhi-110086 PAN-AABTC387IG (Appellant) (Respondent)

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: 1. 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.

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’

2 ITA No.3746/Del/2023 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.

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.

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.

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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.

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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

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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 ITA No 2628263/RPR/2016 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.

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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

7 ITA No.3746/Del/2023 Care Foundation Village vs. ITO

India vs. ITO Ward Exemption (1)3, New Delhi in ITA No.2161/Del/2022 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

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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

9 ITA No.3746/Del/2023 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))

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(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

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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

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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).

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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.

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.

record, we observed that no doubt assessee has filed the return of

income in ITR 7 instead of ITR 5. Considering the fact that

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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.

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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

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registration i.e., 22/02/2016, there was no assessment

proceedings pending before the Assessing Officer.

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,

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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.

statistical purposes.

Order pronounced on 5th July, 2024.

Sd/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER Dated: 05/07/2024 Pk/sps Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT

ASSISTANT REGISTRAR ITAT, NEW DELHI

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