KOLKATA METROPOLITAN DEVELOPMENT AUTHORITY,KOLKATA vs. J.C.I.T RANGE - 50,KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : KOLKATA [Before Hon’ble Shri A.T. Varkey, JM & Shri M.Balaganesh, AM ] I.T.A Nos. 723 & 724/Kol/2013 Assessment Years : 2006-07 & 2007-08 Kolkata Metropolitan Development Authority -vs- C.I.T.-XVII, Kolkata [PAN: AAALK 0714 F] (Appellant) (Respondent) I.T.A Nos. 523 & 524/Kol/2013 Assessment Years : 2006-07 & 2007-08 Kolkata Metropolitan Development Authority -vs- J.C.I.T., Kolkata [PAN: AAALK 0714 F] (Appellant) (Respondent) For the Appellant : Shri J.P. Khaitan, Sr. Counsel of Assessee For the Respondent : Shri Anand R. Baiwar, CIT Date of Hearing : 09.08.2017 Date of Pronouncement : 18.08.2017

ORDER Per M.Balaganesh, AM

2 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08

1.1. As identical facts are involved in both the years, they are taken up together and disposed off by this common order for the sake of convenience. The facts of Asst Year 2006-07 are taken up for adjudication and the decision rendered thereon would apply with equal force for the Asst Year 2007-08 also except with variance in figures.

(ii) Subsequently the assessee preferred an application in Form No. 10A seeking registration u/s 12AA of the Act and accordingly the order u/s 12AA was passed by the learned Director of Income Tax (Exemptions) , Kolkata on 9.7.2012 granting registration initially from 1.4.2012 later modified vide corrigendum dated 13.12.2012 stating that the same is effective from 1.4.2011. In effect, the assessee is registered u/s 12AA of the Act with effect from 1.4.2011.

(iii) On 12.2.2013, the ld CIT issued a purported show cause notice u/s 263 of the Act alleging that the assessment framed u/s 143(3) / 147 of the Act dated 8.12.2010 was erroneous and prejudicial to the interest of the revenue, since the assessee had earned interest on loans to statutory and local bodies in the sum of Rs 17,35,46,848/- which was claimed as not assessable to income tax through its letter dated 17.8.2010 and

3 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 which claim was accepted by the ld AO while passing the order dated 8.12.2010 for the Asst Year 2006-07.

(iv) The assessee objected to the initiation of the said revision proceeding u/s 263 of the Act on various grounds both on merits and on legal grounds, including inter alia, on the question of lack of jurisdiction on the part of the ld CIT. The jurisdiction issue was raised on the ground that in the order dated 9.7.2012 passed by the learned Director of Income Tax (Exemptions), it was clearly indicated that, henceforth , the assessee would be ‘assessable by the Assistant Director of Income Tax (Exemptions) – II, Kolkata’, meaning thereby, the jurisdiction of the lies with the Exemptions wing of the income tax department and the jurisdictional CIT would be DIT(Exemptions) and not the regular CIT from the field.

(v) The ld CIT, Kolkata –XVII, Kolkata, however, vide her impugned order dated 22.3.2013 passed an order u/s 263 of the Act setting aside the order of assessment framed for the Asst Year 2006-07 by the ld AO as erroneous and prejudicial to the interest of the revenue to reframe the assessment afresh.

(vi) Being aggrieved by the order u/s 263 of the Act, the assessee had preferred an appeal before this tribunal which is numbered as ITA No. 723/Kol/2013 for the Asst Year 2006-07 .

(vii) The ld AO framed the fresh assessment order on 25.2.2014 u/s 263/147/143(3) of the Act for the Asst Year 2006-07 determining total income of the assessee at Rs 15,93,21,508/- as against the loss returned in the sum of Rs 1,42,25,340/-. In the said assessment, the interest on loan to statutory and local bodies amounting to Rs 17,35,46,848/- which was claimed as not assessable to tax by the assessee was added

4 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 back on the ground that the same is taxable in accordance with the mercantile system of accounting followed by the assessee.

(viii) Against this giving effect order, the assessee preferred an appeal before the ld CITA who in turn upheld the order of the ld AO in Appeal No. 39/CIT(A)-15/14- 15/JCIT Rane -50/Kol dated 4.2.2015. Aggrieved, the assessee is in appeal before this tribunal which is numbered as ITA No. 523/Kol/2015 for the Asst Year 2006-07.

5 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 3. That the learned Commissioner of Income Tax (Appeals)-15, Kolkata should have held that the facts and documents on record clearly and conclusively proved that the Appellant Authority did not realize any portion of either the principal amount of loans granted to the Statutory and Local Bodies and/or any portion of interests thereon at any time during the last two decades or so; and that the entire loans including the interest thereon were not only doubtful of recovery, but in fact oily irrecoverable; and that no portion thereof could be lawfully brought to tax on the alleged ground of deemed accrual and/or on the alleged ground of real income theory. 4.That the learned Commissioner of Income Tax (Appeals)-15, Kolkata erred in arbitrarily and wrongly ignoring the observations and directions given by the earned Income Tax Appellate Tribunal in paragraph 12 of its Order dated 29th November, 2012 passed in its own case in ITA No.945 & 986 / Kol / 2011 in respect of the assessment year 2008-09 for the very same issue covered by Ground Nos.2 & 3 hereinabove. 5.That the Learned Commissioner of Income Tax (Appeals)-15, Kolkata erred in arbitrarily and wrongly confirming the charge of interest u/s 234B of the said Act in the instant case of the Appellant Authority for the year under appeal, even when no such interest was chargeable in law. 6. That the impugned Appellant Order dated 4th February, 2015 passed by the learned Commissioner of Income Tax (Appeals)-15, Kolkata is wholly against the facts and evidences on record, arbitrary, illegal, invalid, unreasonable and/or otherwise perverse.

5.1. We find that the assessee in the prayer for admission of additional ground had stated that the assessee was granted registration u/s 12AA of the Act vide order dated 9.7.2012 with effect from 1.4.2011. The provisions of section 12A(2) of the Act was amended by the Finance (No.2) Act, 2014 , with effect from 1.10.2014 , wherein it was stated that exemption under section 11 and 12 is to be granted not only for the 5

6 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 assessment year following the financial year in which the application for registration was made but also for earlier assessment years if the objects and activities of the assessee remained the same from the time of its inception including for the assessment year 2012-13 for which registration under section 12AA was granted and the assessment year 2006-07 involved therein. Accordingly it was pleaded in the additional ground that the assessee was entitled for exemption u/s 11 and 12 for the Asst Year 2006-07 also. We find that this issue goes into the root of the matter for determination of total income of the assessee and does not involve any fresh investigation of facts, we deem it fit and appropriate to admit the additional ground raised by the assessee. However, since the appeals of the assessee preferred against the section 263 order of the ld CIT has been stated to be withdrawn by the assessee, we do not deem it fit and appropriate to adjudicate the second portion of the additional ground with regard to validity of section 263 proceedings. Hence we dismiss the second part of the additional ground with regard to validity of section 263 proceedings raised by the assessee.

7 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 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: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: 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.]See More

a) The assessee has been granted registration u/s 12A of the Act with effect from 1.4.2011. b) The objects and activities of the assessee are remaining the same from inception till the time of granting registration u/s 12A of the Act. c) The assessment proceedings before the ld AO were pending and ultimately the assessment order was framed for the Asst Year 2006-07 on 25.2.2014 on which date, the assessee was granted registration u/s 12A of the Act. d) The assessee was not denied / refused any registration u/s 12A of the Act earlier. e) We find that the ld AO himself had accepted that assessee is a statutory authority functioning under the administrative control of Urban Development , Government of West Bengal in the latest assessment order framed u/s 143(3) of the Act dated 23.12.2016 for the Asst Year 2014-15.

8 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 a) Decision of this tribunal in the case of Sree Sree Ramakrishna Samity vs DCIT reported in (2016) 156 ITD 646 (Kolkata –Trib.) dated 9.10.2015.

b) Decision of Ahmedabad Tribunal in the case of Shree Bhanushali Mitra Mandal Trust vs ITO reported in (2016) 68 taxmann.com 250 (Ahmedabad-Trib.) dated 22.2.2016.

c) Decision of Cochin Tribunal in the case of SNDP Yogam vs Asst DIT (Exemption) reported in ( 2016) 161 ITD 1 (Coch-Trib.) dated 1.3.2016.

d) Decision of Amritsar Tribunal in the case of St.Jude’s Convent School vs ACIT reported in (2017) 164 ITD 594 (Amritsar-Trib.) dated 26.9.2016.

6.3 It is relevant at this juncture to get into the amendment brought in section 12A by Finance Act 2014 with effect from 1.10.2014 by way of insertion of first proviso to section 12A(2) of the Act which is reproduced below for the sake of convenience :— …………………… 6.4 Admittedly, the reassessment proceedings were pending before the Learned AO for the Asst Years 2003-04 to 2008-09 as on the date of granting registration u/s 12AA of the Act on 29.10.2010 with effect from 1.4.2010 as reassessment proceedings got commenced pursuant to issuance of notice u/s 148 on 30.3.2010 as stated supra. Admittedly, the objects and activities of the trust had remained the same in preceding assessment years also i.e Asst Years 2003-04 to 2008-09. Though this first proviso to section 12A(2) talks about pendency of assessment proceedings, it is relevant to get into the definition of the term 'assessment' in section 2(8) of the Act, wherein it is defined as "assessment includes reassessment". Hence even reassessment proceedings that were 8

9 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 pending would also come under the ambit of the first proviso to section 12A(2) of the Act. 6.5 The second proviso to section 12A(2) also provides that no action u/s 147 of the Act shall be taken merely for non-registration of trust or institution. Reading this proviso with the first proviso to section 12A(2) and applying the Rule of Harmonious Construction, it could safely be concluded that the legislature in its wisdom had only brought this proviso to prevent genuine hardship that could be caused on the assessee due to non-registration u/s 12AA of the Act and accordingly in our opinion, the provisos to section 12A(2) of the Act is to be construed as retrospective in operation. 6.6 The third proviso to section 12A(2) of the Act also provides that the first and second proviso shall not be applicable if the trust or institution had been refused registration earlier or the registration granted earlier is cancelled by the Commissioner u/s 12AA of the Act. This also goes to prove that the first and second proviso shall be made applicable for the trusts for earlier assessment years also who had not applied for registration u/s 12AA of the Act at all. 6.7 We hold that the registration of trust under section 12A of the Act once done is a fait accompli and the AO cannot thereafter make further probe into the objects of the trust. Reliance in this regard is placed on the decision of the Hon'ble Apex Court rendered in the case of Asstt. CIT v.Surat City Gymkhana (2008) 300 ITR 214 (SC). Drawing analogy from this judgement, the logical inference could be that as long as the objects were charitable in nature in the earlier years and in the year in which registration u/s 12AA was granted, the existence of trust for charitable purposes in the earlier years cannot be doubted with. Even otherwise, no adverse findings were given by the revenue with regard to the existence of the assessee society for charitable purposes in the assessment years under appeal. 6.8 It will be relevant to get into the Explanatory Notes to the Provisions of the Finance (No. 2), 2014 as given in CBDT Circular No. 01/2015 dated 21.1.2015 in reference F.No. 142/13/2014-TPL which is reproduced hereinbelow for the sake of convenience :— Para 8 - Applicability of the registration granted to a trust or institution to earlier years Para 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available. This clearly goes to prove that the first proviso to section 12A(2) was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The 9

10 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No. 2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015. Apparently the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the Learned AO, unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years. 6.9 With regard to the arguments of the Learned DR that donations received by assessee falls under the definition of income u/s 2(24)(iia) of the Act, we would like to state that income definition is an inclusive definition. An inclusive definition extends the specific meaning given in the stated items by the general meaning as commonly understood by the said expression which is defined in a statute. The word income as is commonly understood does not include any donation specifically meant for utilization for acquiring, constructing a capital asset, as is the case here. Further section 2(24) had undergone amendment by way of insertion of clause (iia) by Finance Act, 1972 with effect from 1.4.1973. In this connection, it will be relevant to get into the Memorandum explaining the provisions in Finance Act 1972 reported in 83 ITR (St.) 173, wherein Paragraphs 24 and 25 clearly define the scope of the amendment wherein in paragraph 25(i) , the concluding sentence is as under:— "contributions received with a specific direction that they will form part of the corpus of the trust or distribution will, however, not be regarded as income." Thus the relevant clause defining income in section 2(24)(iia) as introduced with effect from 1.4.1973 was clearly not intended to cover contributions/donations received with a specific direction that they will form part of the corpus of the trust for utilization in acquisition/construction of a capital asset. Thus what is not income as per the definition of the word income in the Act cannot be brought to tax under any other provision of the Act. We find that the order of the Learned CITA failed to distinguish between a case where a receipt is not an income at the stage of its receipt and a case where it is not so but is claimed to be exempt because of any exemption provision granting exemption from taxation to receipts which are liable to taxation but for the provision granting exemption. 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 10

11 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 in section 12A provided for registration u/s 12AA as a pre-condition for applicability of section 12A. Reliance in this regard is placed on the following decisions :— Allied Motors (P.) Ltd. v. CIT [1997] 224 ITR 677/91 Taxman 205 (SC) - Judgement by three judges of the Supreme Court "The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B become unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions. In the case of Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402, Supreme Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. As observed by G.P. Singh in his Principles of Statutory Interpretation, 4th Edn., Page 291, "It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended". In fact the amendment would not serve its object in such a situation, unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained." CIT v. Virgin Creations in ITAT No. 302 of 2011 in GA 3200/2011 dated 23.11.2011, the Hon'ble Calcutta High Court in the context of retrospective applicability of amendment to section 40(a)(ia) of the Act held as below:— "The supreme court in the case of Allied Motors P ltd and also in the case of Alom Extrusions Ltd has already decided that the aforesaid provision has retrospective application. Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well". CIT v. Vatika Township (P.) Ltd. [2014] 367 ITR 466/227 Taxman 121/49 taxmann.com 249 (SC) - Five Judges decision of the Supreme Court :— "We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, 11

12 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobacco Association reported in (2005) 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra reported in (2006) 6 SCC 289. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors." CIT v. J.H. Gotla [1985] 156 ITR 323/23 Taxman 14j (SC) "If the purpose of a particular provision is easily discernible from the whole of the scheme of the Act which in this case, is to counteract the effect of transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., result not intended to be subserved by the object of the legislation found in the manner indicated before, then another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction." 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 magis valeat 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).

13 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 6.12 We hold that the arguments of the Learned AR that, even assuming without conceding, in the worst scenario, the assessee society could only be taxed in the status of an AOP does not require any adjudication as we hold that the assessee society to be construed as a public charitable trust and eligible to claim exemption u/s 11 of the Act for the earlier assessment years, more especially, Asst Years 2003-04 to 2008-09 , the donations received from various donors for construction of an old age home would take the character of corpus donations as they are meant for specific purposes and accordingly would be exempt u/s 11(1)(d) of the Act. Even otherwise, the said donation receipts are only capital in nature as it is received for construction of an old age home on which fact there is absolutely no dispute. The Learned AO also had duly accepted the nature of donations, genuinity of the donors and its utilization in the remand proceedings. Hence in any case, a receipt which is by birth, capital in nature, cannot change its character merely for want of registration of society u/s 12AA of the Act. It is not the case of the revenue that the donations received are meant for general functioning of the charitable objects of the society, in which event, the donations received thereon would take the character of revenue receipts requiring to be credited in the income and expenditure account for utilization towards charitable objects thereon. Hence we hold that in any case, the donations received by the assessee society cannot be brought to tax in the assessment. 6.13 We hold that since the only reason for denial of exemption u/s 11 was absence of registration u/s 12AA (which was granted to assessee society on 29.10.2010 with effect from 1.4.2010) for the relevant assessment years and on no other ground, the benefit of change in law as above by Finance Act 2014 should be available and for all the years, the benefit of exemption should be available on the date of registration as all the assessments were pending as shown above. In this connection, it requires mention specifically that all the receipts of the donation were proved on enquiry to have been received from the claimed donors and utilized for the specific purpose (construction of old age home) for which they were received. In conclusion, we hold that the insertion of the proviso to section 12A(2) of the Act has to be construed as retrospective in operation.

14 ITA Nos.723 & 724/Kol/2013 ITA Nos.523 & 524/Kol/2015 Kolkata Metropolitan Development Authority A.Yrs.2006-07 & 2007-08 2006-07 and 2007-08 is allowed , the regular grounds raised by the assessee on the validity of proceedings and the merits thereon are not required to be adjudicated herein. Hence we direct the ld AO to grant exemption u/s 11 and 12 of the Act for the Asst Years 2006-07 and 2007-08 and adjudicate the merits of the addition afresh in accordance with law. We make it clear that our opinion on the merits of the addition are left open and direct the ld AO to adjudicate the same afresh in accordance with law, after grant of exemption u/s 11 and 12 of the Act for the Asst Years 2006-07 and 2007- 08 .

Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 18.08.2017 SB, Sr. PS Copy of the order forwarded to: 1. Kolkata Metropolitan Development Authority, Prashasan Bhavan, DD-1, Sector-I, Bidhannagar, Kolkata-700064 2. The Commissioner of Income Tax-XVII, Kolkata, Uttarapan Complex, Ultadanga, Kolkata- 700014 3..C.I.T.- XVII, Kolkata 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.