DCIT, CIR-2, KOLKATA, KOLKATA vs KARMAPA CHARITABLE TRUST,

Income Tax Appellate Tribunal, “D” BENCH: KOLKATA

Before: Shri S.S. Viswanethra Ravi, & Shri Dr. Arjun Lal Saini

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH: KOLKATA

Before: Shri S.S. Viswanethra Ravi, Judicial Member, and Shri Dr. Arjun Lal Saini, Accountant Member

I.T.A No. 953/Kol/2015 A.Y: 2011-12

D.C.I.T (E), Circle-2, Kolkata, 10-B, Middleton Row, Kolkata-700071 … Appellant Revenue

Karmapa Charitable Trust. PAN: AABTK8032B Dharma Chakra Centre Rumtek, East Sikkim … Respondent Assessee

For the Appellant Revenue : Shri Arindam Bhattacharjee, Addl. CIT –DR For the Respondent Assessee : Shri Subash Agarwal, Advocate, ld.AR

Date of hearing : 18-10-2017 Date of pronouncement : 10-01-2018

ORDER ShriS.S.Viswanethra Ravi, JM:

This appeal by the Revenue against the order dt. 30-03-2015 passed by the CIT-(A), Siliguri for the assessment year 2011-12.

At the outset, the ld.DR submits that the appeal of the revenue was filed with a delay of 14 days and the said delay was due to administrative difficulties and referred to petition dt. 29-06-2015 filed to condone the delay, is on record, and argued in view of the above said reasons the delay of 14 days in filing the appeal may be condoned. On the other hand, the ld.AR of the assessee reported no objection in condoning the same. On

1 ITA No 953/Kol/2015 Karmapa Charitable Trust

perusal of the said petition dt. 29-06-2015 filed by the DCIT concerned, we find that the reasons stated therein are bona fide and justified accordingly, the delay of 14 days in filing the appeal before the Tribunal is condoned and we proceed to hear the appeal on merits.

The appellant Revenue has raised the following grounds:- 1. That the ld. CIT(A) has erred in allowing the appeal whereas the assessment proceedings for the assessment year under consideration was not pending on the date on which the first Proviso to Section 12A(2) become effective. 2. That the Ld. CIT(A) has erred in allowing relief whereas it is apparent that the application of total fund during the year under consideration was less than 85%, hence, the assessee was liable to pay tax.”

The AO for non submission of order of registration u/s. 12AA of the Act denied the claim of exemption u/s. 10 (23C) of the Act and disallowed a sum of Rs. 64,49,997/- vide his order dt:240202914 u/section 144 of the Act.

The assessee challenged the same before the CIT-A. The CIT-A after considering the effect of first proviso to section 12A(2) inserted by Finance Act (No.2) 2014 w.e.f 01-10-2014 directed the AO to give benefit of registration u/s. 12AA of the Act for the A.Y under consideration. Relevant portion of which is reproduced herein below:- “3. During course of appellate proceedings, the assessee submitted that the application for registration u/s 12AA was made on 12/02/2012 and the same was granted on 15/05/2014 w.e.f. 01/04/2011. The assessee further submitted that though the CIT granted the registration w.e.f 01/04/2011 i.e. AY 2012-13 onwards, the benefit is available for preceding years as well. The assessee submitted that as per first proviso to Section 12A(2) inserted by Finance Act (No 2) 2014 w.e.f. 01/10/2014, the benefit is available for the assessments which are pending. The assessee further submitted that assessment is not complete if it- is pending before the appellate authorities. The assessee cited the judgement of Hon'ble ITAT, Kolkata in the case of Sonam Top Gay Bhutia in ITA No 331/K/11, it has been held that- "However, in our opinion since the learned Commissioner of Income-tax (Appeals) has co-terminus powers with the Assessing Officer, he should have allowed the benefit of exemption u/s 10 (26AAA) of the Income-tax Act 1961, which was impossible for assessee to claim in return. Further, Hon'ble Gujarat High Court in the case of Mayur Foundation (supra) has held that assessment proceedings do not come to an end with the passing of assessment order. Appellate proceedings are part of assessment proceedings. Determination of correct income is the sole objective of assessment proceedings, and, therefore, a legal claim can always be entertained in appellate proceedings. Pitted against the cause of substantial justice vis-a-vis technical considerations, the cause of substantial justice should prevail. It is true that scope of appellate jurisdiction is confined to the issues arising out of impugned order, but if a legal issue comes into operation at appellate proceedings stage only, for which no fresh scrutiny of facts is

2 ITA No 953/Kol/2015 Karmapa Charitable Trust

required, then the legal claim can be entertained by appellate authority particularly, when he has co-terminus powers with the authority passing the impugned order." Conclusion- It is seen that the Finance Act (No 2) 2014 has inserted first proviso to Section 12A(2) w.e.f. 01/10/2014. This proviso is- "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." It has also been held in the judgement of Hon'ble ITAT cited above that the assessment is not complete as long as it is pending before the appellate authorities. The AO is directed to give the benefit of registration u/s. 12AA to the assessee for this AY. Appeal is allowed. "

The Ld.DR submits that inspite of having availing many opportunities, the assessee did not provide the information as required by the AO to examine the claim. The Ld.DR referred to page no-1 and 2 of AO’s order and argued that the AO rightly denied the exemption of claim made u/section 10(23C) of the Act. The Ld.DR further submits there was no assessment pending as on the date of 1st proviso came into force. The CIT-A without considering the facts of the case properly, directed the AO to give benefit of registration u/section 12AA of the Act is incorrect. The ld. DR relied on the other of the AO. 7. On the other hand, the ld. AR submits that the AO completed the assessment u/s. 144 by denying exemption for non production of copy of registration from the prescribed authority. The ld.AR further submits that application u/s. 12A of the Act seeking registration was made to CIT on 12- 02-2010 and the CIT granted registration on 15-05-2014 w.e.f 1-4-2011 and referred to page 8 of the paper book. He argued that as on date of assessment for the A.Y under consideration the application for seeking registration u/s. 12 A of the Act was pending before the CIT. Though it was not granted as on the date of passing the assessment order the benefit of exemption can be given in view of insertion of 1st proviso to section 12A(2) of the Act. The ld.AR referred to the order of the CIT-A and argued that the CIT-A passed his order basing on the judgment of ITAT, Kolkata in the case of Sonam Top Gay Bhutia in ITA No. 331/K/11, wherein it has been held that

3 ITA No 953/Kol/2015 Karmapa Charitable Trust

the Commissioner of Income-tax (Appeals) has co-terminus powers with that of Assessing Officer, therefore, the benefit of exemption can be given in view of the insertion of 1st proviso in the Act. The ld.AR of the assessee also submits that the Hon’ble High Court of Gujarat in the case of Mayur Foundation held that the assessment proceedings do not come to an end with the passing of assessment order and the appellate proceedings are also part of assessment proceedings and as such assessment comes to an end only when at the completion of proceedings at first appellate proceedings. He also submits that the CIT-A rightly directed the AO to give benefit of exemption u/s. 12AA of the Act and placed his reliance on the order dt. 01- 03-2016 of Cochin Tribunal in the case of SNDP Yogam Vs. ADIT(E), ITA Nos. 503 to 506 & 569/Coch/2014 A.Ys 2006-07 to 2009-10 & 2011-12 and referred to paras 7.2 to 7.5 of the said order and argued that this Tribunal shall have to take judicious and liberal view in view of insertion of 1st proviso to section 12A of the Act, otherwise the purpose on which the amendment was made by the legislature would be defeated. The Cochin Tribunal in the case of supra has placed reliance on the order dt. 09-10- 2015 of the Kolkata Tribunal (ITAT Kolkata) in the case of Sree Sree Ramkrishna Samity Vs. DCIT, ITA No. 1680/2012, wherein it was held that the amendment to section 12A came into force from 01-10-2014 is retrospective. The ld.AR also submits that on the date of application filed seeking registration u/s. 12A of the Act the assessment for the A.Y under consideration is pending before the CIT-A as the CIT-A has co-terminus power. In support of his contention, the ld.AR supported the order of the CIT-A.

Heard rival submissions and perused the material on record. We find that the assessee made an application to CIT on 12-02-2012 seeking registration u/s. 12A of the Act. The assessment was completed by fixing

4 ITA No 953/Kol/2015 Karmapa Charitable Trust

various dates from 22-10-2013 to 17-02-2014 finally on 24-02-2014 u/s.144 of the Act. The CIT-A considered the insertion of 1st proviso to section 12A by taking support from the order dt:09-10-15 of the Kolkata Bench, wherein, the Kolkata Bench by placing reliance on the decision of the Hon’ble High Court of Gujarat which held that a legal claim can always be entertained in first appellate proceedings which is part and parcel of assessment proceedings in determining the correct income. The Cochin Tribunal in the case of supra has placed reliance on the order of Kolkata Bench in the case of Sree Sree Ramkrishna Samity supra, and held that insertion of 1st proviso to section 12A is retrospective in nature and those appeals were the continuation of the original proceedings and that the power of the Commissioner of Income-tax was co-terminus with that of the assessing officer were two well established principles of law. Going by the principle of purposive interpretation of statues, an assessment proceeding which is pending in appeal before the first appellate authority should be deemed to be assessment proceedings pending before the assessing officer within the meaning of that term as envisaged under the proviso. It follows there-from that the assessee which obtained registration u/s 12AA of the Act during the pendency of appeal was entitled for exemption claimed u/s 11of the Act. We further find that the facts in the case of supra of the Cochin Tribunal as relied on by the assessee are similar to the facts of the present case. In this regard, we may refer to the findings of the order dt. 01-03- 2016 of the Cochin Tribunal in the case of supra, which is reproduced herein below for better understanding:- “7.2 When section 12A of the Act was amended by introducing new provisos to sub-section (2) of s. 12A by Finance Act, 2014 with effect from 01.10.2014, the assessment orders passed by he assessing officer in respect of the present assessee were pending in appeal before the first appellate authority. During such pendency, the assessee was granted registration u/s 12AA of the Act on 29.07.2013 w.e.f. the assessment year 2013-14. Those appeals were the continuation of the original proceedings and that the power of the Commissioner of Income-tax was co-terminus with that of the assessing officer [ADIT (Exemption) in the present case] were two well established principles of law. In view of the above and going by the principle of purposive interpretation of statues, an assessment proceeding which is pending in appeal before the appellate authority should be deemed to be ‘assessment proceedings pending before the assessing officer’ 5 ITA No 953/Kol/2015 Karmapa Charitable Trust

within the meaning of that term as envisaged under the proviso. It follows there-from that the assessee which obtained registration u/s 12AA of the Act during the pendency of appeal was entitled for exemption claimed u/s 11of the Act.

7.3. The explanatory Memorandum to Finance (No.2) Bill, 2014 which sought to amend section 12A explains the objects and reasons for making such amendments. The explanation makes it clear that it was in order to provide relief to such trusts in respect of which, due to absence of registration u/s 12AA tax liability got attached though otherwise they were eligible for exemption by fulfilling other substantive conditions that the amendment was brought in. That being so, denying such benefit to a trust like the assessee who had obtained registration u/s 12AA during the pendency of the appeals filed against the orders of the assessing authority, by narrowly interpreting the term, ‘pending before the assessing officer’ so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with. Moreover, under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner. Thus, in our view, sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s 12AA by itself that offers immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in our view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration.

7.4.Taking into account the above facts and circumstances of the issue, we are of the view that the AO was not justified in taking a stand that registration u/s 12A was not applicable to the assessee for the AYs under dispute and the condonation petition for delay in filing the application for registration u/s 12A [for the AYs under dispute] has not yet been decided by the CBDT and, therefore, the total incomes of the assessee were to be assessed as per commercial principles. The CIT (A) was also not justified in taking a similar stand that of the AO, without taking cognizance and intention of the amendment to s. 12A of the Act. If no judicious or a liberal view is not taken either by the assessing authority or the appellate authority as in the case under consideration, the very purpose for which such an amendment to s. 12A of the Act enacted, in our view, would be defeated. We are also supported by the order of Kolkata Bench of ITAT in case of Sree Sree Ramkrishna Samity vs. DCIT (ITA No. 1680/2012, order dated 09.10.2015) where it was held that amendment to Section 12A w.e.f. 01.10.2014 is retrospective. The relevant finding of the Hon’ble Kolkata Bench in case of Sree Sree Ramkrishna Samity vs. DCIT (supra) read as follows:

“6.10. 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.” Further, the Kolkata Tribunal observed as under:

“6.11. 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 magisvaleat quam pereat, 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).”

6 ITA No 953/Kol/2015 Karmapa Charitable Trust

7.5 In light of the aforesaid reasoning and order of the Tribunal in case of Sree Sree Ramkrishna Samity(supra), we direct the Director of Income-tax(Exemption) to grant registration to the assessee trust for all the assessment years under dispute, subject to the following conditions, namely: “i) The registration U/S.12AA (1)(b)(i) of the Income Tax Act, 1961 does not automatically exempt the income of the rust/Institution. The question of taxability of the income of the Trust/Institution shall be examined and decided upon by the Assessing Officer at the time of assessment based on the conduct of the activities, compliance with various statutory and other requirements, etc., as referred to in Sections 2(15), 11, 12 & 13 of the Income Tax Act, 1961, without prejudice to the fact of granting merely in principle registration by DIT(E). ii) With effect from the Assessment Year 2009-10, the advancement of any object of general public utility other than relief of the poor, education and medical relief as defined in section 2(15) of the Income Tax Act shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity. iii) Amendments to the Deed/Memorandum, Rules and Regulations, if any, of the Trust / Institution shall be made only with the prior approval of the Commissioner of Income Tax(Exemptions) or any other prescribed authority under the Income Tax Act,1961. iv) The registration may be withdrawn on violation of any of the stipulations laid down in the Income Tax Act, 1961, v)The SOCIETY/TRUST shall regularly file its Income Tax Return.”

In view of above, we are of the view that the CIT-A was justified in directing the AO to give the benefit of registration u/s. 12AA of the Act to the assessee for the A.Y under consideration. Accordingly, we uphold the impugned order of the CIT-A. However, it is pertinent to note that the assessment was completed u/section 144 of the Act and it is needless to mention that it is open to the AO to make assessment afresh in accordance with law. The grounds raised by the revenue are dismissed.

In the result, the appeal filed by the revenue is dismissed. Order pronounced in the open Court on 10 -01-2018

Sd/- Sd/- Arjun Lal Saini S.S. Viswanethra Ravi Accountant Member Judicial Member

Date: 10-01-2018 7 ITA No 953/Kol/2015 Karmapa Charitable Trust

**PP/SPS

Copies of the order forwarded to:

(1) The appellant/department: The DCIT (E), Circle-2, Kolkata, 10-B, Middleton Row, Kolkata-700071. (2) The respondent/assessee:M/s. Karmapa Charitable Trust Dharma Chakra Centre, Rumtek, East Sikkim (3) Commissioner of Income-tax (Appeals)-, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File True Copy By order Sr.PS/H.O.O ITAT, Kolkata

8 ITA No 953/Kol/2015 Karmapa Charitable Trust

DCIT, CIR-2, KOLKATA, KOLKATA vs. KARMAPA CHARITABLE TRUST,