ONKAR SOCIETY FOR ENGINEERING & TECHNOLOGICAL ,KOLKATA vs. ACIT, CIR. 2, DURGAPUR

This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2018-19 is filed against the order passed u/s 263 of the Income Tax Act, 1961 (in short, the ‘the Act’) by the Ld. Commissioner of Income-tax (Exemption) (in short ‘the Ld. CIT(E)’) Kolkata dated 14.03.2024 arising out of the Assessment Order dated 05.04.2021, passed under section 143(3) read with sections 143(3A) & 143(3B) of the Act.

That on the facts of the case and in law, the learned PCIT erred in setting aside the original assessment order on the ground that the assessee must file its income tax return as per section 139(4A) of the Act within the time allowed u/s 139(1) of the Act when the assessee during the course of revision proceedings duly explained that section 12A(ba) of the Act inserted by Finance Act 2017 w.e.f. 01- 04-2018 was clarified by the CBDT vide Circular F.No. 173/193/2019-ITA-I dated: 23 April, 2019 which clearly says that that return of income filed under Section 139 of the Act also include Section 139(4) of the Act and therefore a registered trust u/s 12A of the Act can claim the benefit of section 11 of the Act even if the return is filed u/s 139(4) of the Act.

The facts of the case in brief are that the assessment was completed under section 143(3) read with Sections 143(3A) and 143(3B) of the Act on 05.04.2021 determining total income at Rs. ‘Nil’. The assessee claimed exemption under section 11 of the Act. Upon reviewing the assessment order, the Ld. CIT(A) found that the income tax return was filed after the due date as per section 139(1) of the Act, which was 31st October, 2018. The return of income was filed on 26.03.2019. As per the Ld. CIT(E), the exemption under section 11/12A of the Act would not be available if the person receiving the income has not filed the return of income within the time limit provided under section 139(4A) of the Act as per the provisions of section 12A(1)(ba) of the Act. As the assessee had not filed the return of income within the time limit specified under section 139(4A) read with section 139(1) of the Act, according to the Ld. CIT(E) the exemption under section 11 of the Act was not available to the assessee. The AO failed to consider this issue in the assessment order and had allowed the exemption under section 11 of the Act. Accordingly, the assessment order passed by the AO was found to be erroneous and prejudicial to the interest of the Revenue and, therefore, it was proposed to review the assessment order under section 263 of the Act and notice under section 263 dated 2 Onkar Society for Engineering & Technological Research & Development 18.10.2023 was issued which was followed by other notices issued. The assessee responded to the said notices and filed submissions which are mentioned in paragraph 2 of the order of the Ld. CIT(E). It was submitted by the assessee that proper inquiries were made by the assessing officer during assessment and the assessing officer accepted the revenue expenses but not convinced with the claim of capital expenditure, disallowed 5% of the capital expenditure claimed. It was stated that the assessee is a society registered under section 12AA of the Act and running an educational institution. The income derived from the trust property had to be computed on commercial principles and the assessee placed reliance on Circular No. 5-P(LXX-6) of 1968. In the case of CIT Vs. Jayshree Charity Trust, the Hon’ble Calcutta High Court had observed that this circular makes it clear that the word income in section 11(1)(a) must be understood in a commercial sense. The entire income of the trust, in the commercial sense, had been spent for the purpose of charity. There is no reason to deny the benefit of section 11 to that portion of the income which has been taken away by deduction at source on the ground and the amount has not been spent or accumulated for the purpose of charity. Similar view was taken in the case of CIT Vs. Birla Janhit Trust, as per the assessee. It was further stated that even if even if the return of income had been filed belatedly under section 139(4) of the Act, the assessment order cannot be said to be erroneous or prejudicial to the interest of the Revenue. It was stated that the return was filed under section 139(4) of the Act on 31.03.2019 which was the last date of filing belated return under section 139(4) of the Act. Reliance was placed on paragraph 3.3.3 of the CBDT Circular issued vide order [F No. 225/358/2018-ITA.III] dated 25.10.2018 wherein it is stated as under. “3.3.3 Relaxation given: The request for grant of further time for filing of ITRs/TARs stands suitably redressed with extension of prescribed due date for filling ITRs/TARs under the Income Tax Act for assessment year 2018-19 from 30.09.2018 to 31.10.2018 vide orders of the CBDT dated 24.09.2018 & 08.10.2018.” 3 Onkar Society for Engineering & Technological Research & Development 4. The submission made by the assessee did not find favour with the Ld. CIT(E). The Ld. CIT(E) further held as under: “5. Further, assessee has relied upon a circular which mentions filling of return u/s 139 of the Act. In this connection, it is stated that the provision of the Act is very clear in this regard. For the sake of clarity the relevant provisions are reproduced below: Conditions for applicability of sections 11 and 12. 12A.(1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled namely:- (a) ------- (aa) ----- [(ab) ……. (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed; [(ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section]. Further section 139(4A) says Every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in sub-clause (iia) of clause (24) of section 2. shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed Onkar Society for Engineering & Technological Research & Development and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1) 6. It is clear that the assessee must file its income tax return as per sub-section (4A) of section 139 within the time allowed under that section to be eligible for exemption benefits. According to section 139(4A), the return must be filed as if it were a return required to be filed under sub-section (1). By reading section 12A(1)(ba) and section 139(4A) together with section 139(1), it can be inferred that in order to claim exemption under section 11/12 of the Income Tax Act, the income tax return must be filed within the due date of filing the income tax return under section 139(1) of the Act. Hence, the assessee's argument that it is eligible for exemption even if it filed a belated return is not valid under the law.

Aggrieved with the order of Ld. CIT(E), the assessee has filed this appeal before the Tribunal.

We have heard the rival contentions and also gone through the record. It was submitted by the Ld. AR that the Ld. CIT(E) had ignored the CBDT Circular [F No. 225/358/2018-ITA.III] dated 23.04.2019 which clearly states that the return of income is to be filed under section 139 of the Act which includes section 139(4) of the Act and therefore, a trust registered under section 12A of the Act can claim the benefit of section 11 of the Act even if the return of income is filed under section 139(4) of the Act while the Ld. CIT(E) was of the belief that the return should be filed under section 139(4) read with section 139(1) of the Act. Paragraph 2 of the circular is reproduced as under: “2. In the matter, the memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under Onkar Society for Engineering & Technological Research & Development “as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income tax shall furnish the return of income within the time allowed under section 139 of the Act These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will. accordingly, apply in relation to assessment year 2018-19 and subsequent years.”

Thus, as per the circular, in respect of the income of a trust chargeable to income tax which furnishes the return of income within the time specified under section 139 of the Act, which inter alia also includes the time as provided under section 139(4) of the Act, the exemption shall be allowed. The Ld. AR relied upon the decision in the case of ITO Vs. Camellia Education Trust, dated 30.05.2023, the relevant extract of which is as under: “5.1 Ld. Counsel placed reliance on the instruction of CBDT vide File no. F. No.173/193/2019-ITA-I dated 23.04.2019, wherein CBDT clarified with regard to the time allowed for filing of return of income subsequent to the insertion of clause (ba) in sub-section (1) of Section 12A of the Act. According to this instruction, returns included returns filed within the time allowed u/s. 139 of the Act. Ld. Counsel submitted that provision contained in Sec. 12(1)(ba) states that "the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of sec. 139, within the time allowed under that section." He, then referred to sec. 139(4A), which provides that every person in receipt of income derived from property held under Trust or other legal obligation wholly for charitable or religious purposes shall furnish a return of such income in the prescribed form and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1). In this respect, Ld. Counsel referred to para 3 of CBDT Instruction (supra), wherein it was clarified 6 Onkar Society for Engineering & Technological Research & Development that for a trust registered u/s. 12AA of the Act, to avail the benefit of exemption u/s. 11 shall, inter alia, file its return of income within the time allowed u/s. 139 of the Act. Accordingly, orders u/s. 143(1)(a) in those cases in which demand has been raised on this issue may please be rectified. Reference is also made to para 2 of the said instruction wherein the memorandum explaining the relevant provision of Finance Bill, 2017 is reproduced. From the perusal of the same, it is pointed that the amendment brought in by insertion of clause (ba) to sub-section (1) of section 12A is clarificatory in nature and will apply in relation to AY 2018-19 and subsequent years. It is categorically stated in the memorandum that "in order to provide clarity ........ furnish the return within the time allowed under section 139 of the Act." Ld. Counsel on the strength of this clarification which is binding on the Department asserted that time allowed u/s. 139 includes time available u/s. 139(4). Assessee has filed its return within the time allowed u/s. 139(4) which has been processed by CPC.”

Thereupon the co-ordinate Bench of the Tribunal held in paragraph 7 as under: “7. We have heard the rival contentions and perused the material available on record and have gone through various references made by both the parties in the course of their arguments. We do find force in the submissions made by the Ld. Counsel for his reliance on the CBDT Instruction extracted above, wherein reference is made to sec. 139 in respect of filing of return for the purpose of claiming benefit of exemption u/s. 11 for trust registered u/s. 12AA of the Act. Clarification given by the CBDT instruction gets verified when we refer to the amendment brought in section 12(1)(ba) which now incorporates the time allowed in sub-section (1) or sub-section (4) of section 139 for the purpose of compliance of sub-section (4A) of the said section in respect of furnishing of return of income.”

Further reliance was placed in the case of Conference of Religious India Vs. CIT (Exemption), paragraph 10 of which is as under: “10. In my considered opinion the language of the aforementioned Circular is very clear and unambiguous in so far as the return of income filed u/s. 139 of the Act is concerned. Section 139 has several sub sections (1), (2), (3), (4), (4a), (5). I am of the considered view that if the return is filed within the specified time limit of sub section of 139 would be eligible for the benefit given by the above mentioned CBDT circular and should avail the benefit of exemption u/s. 11 of the Act. 7 Onkar Society for Engineering & Technological Research & Development In my considered opinion the CIT(A) erred in misinterpreting the aforementioned circular and, therefore, to that extent the order of the CIT(A) is erroneous and deserves to be set aside the grievance of the assessee is allowed.”

It was further stated that the CBDT Circular was brought to the notice of the Ld. CIT(E) who has disregarded the same and therefore, the order of the AO is neither erroneous nor bad in law.

We have heard the rival contentions and also gone through the documents and judicial decisions relied upon. In view of the amendment of section 12A of the Act, which provides that person in respect of the income chargeable to income tax shall furnish the return of income within the time limit under section 139 of the Act as per the circular dated 23.04.2019, which will apply in relation to Assessment Year 2018-19 and subsequent years being clarificatory in nature. In the present case for the assessment year 2018-9, it is squarely applicable to the facts of the case and therefore, the return filed under section 139(1) ought to have been considered as a valid return for the grant of exemption under section 11, which has not been done by the Ld. CIT(E). Hence, since the return was filed under section 139 of the Act and was a valid return, the assessee was eligible for exemption under section 11 of the Act as the conditions specified under section 12AA of the Act were fulfilled. Hence, the order of the AO was neither erroneous nor prejudicial to the interest of the Revenue. In view of the facts of the case, we allow the appeal and quash the order under section 263 of the Act passed by the Ld. CIT(E).

In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 26.08.2024.