MAHARASHTRA NURSING COUNCIL,MUMBAI vs. DEPTY COMMISSIONER OF INCOME TAX (EXEMPTION)-2(1), MUMBAI

Brief facts of the case are that the assessee Trust was established by Maharashtra Nurses Act, 1966 for accomplishing the purpose of providing registration and maintaining the register of Nurses in Maharasthra, prescribe the code of ethics, to hold examinations, to grant certificates, diplomas, prepare textbooks, course materials, etc.

The ld. learned Assessing Officer ('ld. A.O.' for short) reopened the assessee’s case vide notice u/s. 148 of the Act dated 28.09.2018 for A.Ys. 2012-13 to 2017-18 and in response to the same, the assessee filed its return of income for the impugned assessment years. The assessee contended that as 12A registration was granted to the assessee, reopening of the earlier years was objected by the assessee. The ld. A.O. rejected the assessee’s contention that notices were issued on 28.09.2018, whereas the Registration u/s. 12A of the Act was granted on 29.09.2018. The assessee’s contention that the assessee Trust was unable to spend the money accumulated for purchase of its own premises due to the restraint order passed by the Hon'ble High Court and that if the ld. A.O. fails to grant benefit of section 11 of the Act, then the alternate plea was to treat the assessee as a mutual organization and income received from the Nurses and Nurses taxed, except the interest earned from the banks. The ld. A.O. then passed the assessment order u/s. 143(3) r.w.s. 147 of the Act dated 26.12.2019 denying the benefit of section 11(1)(a) of the Act and section 11(2) of the Act on 15% accumulation and taxed the entire surplus held by the assessee as income chargeable to tax. The ld. A.O. rejected the concept of mutuality on the ground that the assessee was not eligible for the same.

Aggrieved the assessee was in appeal before the first appellate authority who vide order dated 01.02.2024, upheld the order of the ld. A.O. for the reason that the assessee had failed to file the audit report in Form No. 10B and that no accumulation has been made u/s. 11(2) of the Act by filing Form 10 and also held that the assessee did not have a valid registration u/s. 10(23C)(iv) of the Act. The ld. CIT(A) upheld the addition made by the ld. A.O. that the assessee has failed to utilize the fund for objective of the assessee trust.

We have heard the rival submissions and perused the materials available on record. The learned Authorised Representative ('ld. AR' for short) for the assessee made a submission on ground no. 3 raised by the assessee, challenging the jurisdiction of the ld. A.O. in reopening the assessment u/s. 147 of the Act on the ground that as the assessee was not registered u/s. 12A/12AA of the Act, the assessee was not entitled to exemption u/s. 11 of the Act and due to large surplus, the assessee has not applied the same u/s. 11(2) of the Act which was an allowable accumulation. The ld. AR contended that the ld. A.O. has assumed jurisdiction to reopen the assessee’s case merely for the reason that the not be exempted u/s. 11 & 12 of the Act. Further, the ld. AR brought to our attention that notice u/s. 148 of the Act was issued on 28.09.2018 which was one day prior to the grant of registration which was on 29.09.2018 and notice was also issued by the same authority which had granted registration. The ld. AR iterated that the reason for reopening was contrary to the second proviso to section 12A(2) of the Act. The ld. AR relied on the decision of the Hon'ble High Court of Karnataka in the case of CIT(E) vs. Karnataka State Welfare Fund [2022] 141 taxmann.com 419 (Kar) and Circular No. 1 of 2015 which supported the contention of the ld. AR. The ld. AR also relied on the decision of the Hon’ble Rajasthan High Court in the case of CIT(E) vs. Shri Shyam Mandir Committee [2018] 400 ITR 466 (Raj.) which held that the proviso to section 12A(2) of the Act inserted w.e.f 01.10.2014 was held to be applicable retrospectively and that no action u/s. 147 of the Act shall be taken merely for non registration of the Trust. The ld. AR also contended that the only reason why the surplus was not applied as per section 11(2) of the Act, was due to the restriction placed by the Hon'ble Jurisdictional High Court, which was later on relaxed by the subsequent order.

It is not in dispute that the registration under section 12A of the Act was granted to the assessee on 23-9-2014. In terms of the first proviso, where the registration has been granted to the Trust 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. The objects and activities of such Trust remain the same for such preceding assessment year. As per the second proviso, it is clear that no action under section 147 shall be initiated by the Assessing Officer in case of such Trust for any assessment year preceding such assessment year, only for non-registration of such Trust for the said assessment year. However, these two provisos would not be applicable where Trust was refused registration or the registration granted to it was cancelled at any time under section 12AA of the Act.

On combined reading of the aforesaid provisions with the Circular vis-d-vis the material facts of the case, it cannot be gainsaid that the case on hand would not fall under any of the exceptions carved out in the provisos as contemplated under section 12A(2) of the Act. Moreover, the interpretation given by the authorities to the Circular issued by the CBDT not being justifiable, the Tribunal has rightly held that the provisos to section 12A(2) of the Act are applicable to the case on hand.

As could be seen from the material on record, the reasons assigned by the Assessing Officer for reopening the assessment is as under: REASONS FOR ISSUE OF NOTICE U/S. 148 "The Fund was established by vitue of a proceedings of the Government of Karnataka (the then Mysore Govt.). The said fund, was granted registration u/s 12A w.e.f. financial year 2013-14. Information was gathered revealed that the said fund is having taxable surplus/income since quite a number of years. It is also verified from the AST that the said fund had not filed return of income except for the financial years 2008-09 to 2013-14. As the registration was granted only from the assessment year 2014-15 i.e., for the financial year 2013-14, the surplus of earlier years are to be taxed as AOP without extending the benefits of secs. 11 and 12. The present jurisdiction over the case vests within the Charge of CIT(E), Bengaluru since fund has been granted section 12A registration. As the fund do not have registration u/s 12A, the taxable surplus for the financial years 2008-09 to 2013-14 the taxable surplus needs to be assessed to tax."

The aforesaid reasons would indicate that the only reason for reopening of assessment is the absence of registration under section 12A of the Act. Further, the assessee has not filed return of income for the assessment year in question. A finding has been recorded on the facts of the case by the Tribunal on this aspect and the Act is held to be against the facts available on record. Having regard to these factual aspects and the provisos to section 12A(2) of the Act, we are of the considered view that the findings claiming deductions under recorded by the Tribunal under sections 11 and 12 of the find no substantial questions for our consideration. For the reasons aforesaid, the appeal stands dismissed.

From the above finding, it is evident that the assessee’s case would not fall under the 3rd proviso to section 12A of the Act where it is not the case of the Revenue that the to 1479/Mum/2024 (A.Ys.2012-13 to 2017-18) Maharashtra Nursing Council vs. Dy. CIT (Exemption) registration of the assessee Trust was refused or granted and cancelled at any point in time, the assessee ought to get the benefit of the 2nd proviso to section 12A of the Act where reopening merely for non registration is not warranted as per the Act. The ld. AR has also relied on the first proviso to section 12A of the Act where the registration has been granted u/s.12AA of the Act then the provision of section 11 and 12 of the Act shall apply to the assessment year preceding the assessment year for which the assessment proceedings are pending before the ld. A.O. as on the date of registration along with the cumulative condition that the objects and activities of the Trust remains the same for such preceding assessment year. Here in this case, the assessment proceeding commenced on issuance of the notice u/s. 148 of the Act dated 28.09.2018 and the date of registration was the next day, i.e., 29.09.2018, which implies that the assessment proceeding for earlier years were pending before the ld. A.O. as on the date of such registration, thereby concluding that the provisions of section 11 and 12 of the Act shall apply to income held by the assessee Trust of any assessment year, preceding the assessment year in which the registration was granted. The ld. AR has also placed reliance on the decision of the Hon’ble Rajasthan High Court, Jaipur Bench in the case of CIT vs. Shree Shyam Mandir Committee [2018] 400 ITR 466 (Raj) which held that the proviso to section 12A(2) of the Act inserted from 01.10.2014 has retrospective effect.

On a conjoint reading of the provisions, the CBDT Circular No.1/2015 and the decisions relied upon the assessee, we deem it fit to hold that the reassessment proceeding is bad in law as it is contrary to the proviso to section 12A(2) of the Act and, therefore, liable to be quashed. Ground no. 3 raised by the assessee is hereby allowed. the assessee becomes academic in nature for which no adjudication is required.

The findings applied in will apply mutatis mutandis to these appeals also.

In the result, all the appeals filed by the assessee are allowed.