M/S. MAHASAKTI FOUNDATION,KALAHANDI vs. ACIT, SAMBALPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA Nos.134 to 139/CTK/2015 Assessment Years :2007-08 to 2012-13

Vs. ACIT, Circle 2(1), Sambalpur M/s. Mahasakti Foundation, At: Sanchaya Sakti Bhawan, PO: Madanpur, Rampur, Dist: Kalahandi. PAN/GIR No. AABTM 8206 H (Appellant) .. ( Respondent)

Assessee by : Shri P.K.Mishra, AR Revenue by : Shri Kunal Singh, CIT DR

Date of Hearing : 05/06/ 2017 Date of Pronouncement : 06 /06/ 2017

O R D E R Per Bench: These are appeals filed by the assessee against the separate orders

of CIT(A)-2, Bhubaneswar, all dated 28.1.2015, for the assessment years

2007-08 to 2012-2013, respectively.

assessment years under appeal. Ld D.R. had no objection to accepting the

revised grounds of appeal filed by the assessee and adjudicating the same

in place of original grounds of appeal filed alongwith Form No.36. Hence,

2 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 the revised grounds of appeal filed by the assessee were accepted by the

Bench and the parties were allowed to make their submissions thereon.

under appeal except for change in figures reads as under:

“1. For that, the impugned order passed by the Forums below are not just and proper under the facts and in the circumstances of the case and contrary to the facts on record, as such the same is liable to be quashed in the interest of justice.

3.For that, the learned A.O. as well as learned C.I.T(A) are erred in law by distinguishing the Micro Financial activities of the Appellant is to be excluded from charitable activity, merely there is surplus of receipts over expenditure. The Authorities below are also erred in treating the surplus of receipts as income of the Appellant, when the learned C.I.T, himself has granted registration U/S.12AA of the Act.

3 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 7. For that, the Appellant craves leave of this Hon'ble Tribunal to urge other grounds of Appeal, if any, at the time of hearing.”

separate adjudication by us.

appeal where the assessee has challenged the reassessment order passed

u/s.147 of the Act submitted that the registration u/s.12AA of the Act was

granted to the assessee by the Commissioner of Income Tax, Sambalpur

vide his order dated 28.5.2013 w.e.f. 29.11.2012. He submitted that sub-

section (2) of Section 12A of the Act as amended by Finance Act, 2007

w.e.f. 1.6.2007 provides that where an application has been made on or

after the 1st day of June, 2007, the provisions of section 11 and 12 shall

apply in relation to the income of such trust or institution from the

assessment year immediately following the financial year in which such

application is made. He further submitted that first proviso has been

inserted by Finance (No.2) Act, 2014 w.e.f. 1.10.2014, which provides that

where registration has been granted to the trust or institution u/s.12AA,

then the provisions of section 11 and 12 shall apply in respect of any income

derived from the 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.

4 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 6. The second proviso to the said sub-section (2) to Section 12A further

provides 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.

Further the 3rd proviso provides that provisions contained in first and 7.

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 of the Act.

show that if registration was granted to the assessee u/s.12A of the Act,

then no re-opening of assessment u/s.147 of the Act shall be made by the

Assessing Officer for earlier assessment years.

granted to the assessee w.e.f. 29.11.2012 vide order of the CIT dated

28.5.2013. The assessments in the present years of appeal i.e. Assessment

Years 2007-08 to 2012-2013 were reopened by the Assessing Officer

subsequent to passing of order by the CIT, Sambalpur granting registration

u/s.12A of the Act to the assessee w.e.f. 29.11.2012 on the ground that

the assessee did not obtain registration u/s.12A from the appropriate

authority for its charitable activities and, therefore, income chargeable to

tax had escaped assessment and notice u/s.148 of the Act was issued to

the assessee. Hence, it was his submission that reopening of assessment

5 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 for all the years under consideration was bad in law in view of the explicit

provisions of section 12A(2) r.w. proviso thereto of the Income Tax Act.

in the case of Shyam Mandir Committee, Khatushyamji vs ACIT, 179 TTJ

0752 (JP), wherein, it has been held as under:

“ 4 Now, the assessee is before us. The assessee has filed written submissions and has not pressed Ground No.1. On 4.5.2016, assessee has moved an application for admitting the additional ground of appeal. The additional ground of appeal is as under :-

" The very action taken u/s 147 r/w 148 is bad in law without jurisdiction and being void ab-initio, the same kindly be quashed. Consequently the impugned assessment framed u/s 143(3)/148 dated 09.04.2013 also kindly be quashed.

The appellant be held entitled to the benefits of Sec. 11 & 12 and its total income is exempted in view of Sec. 12A(2) of the Act which is having a retrospective benefit."

4.1 The ld. D/R for the revenue has submitted that this ground cannot be taken into consideration at this stage. However, considering the nature of ground, the ground being technical and legal in nature and it goes to the root of the matter, the assessee's additional ground is admitted.

5.1 For the purpose of adjudicating the additional ground, it is necessary to reproduce section 12A of the IT Act, which provides as under :- " 12A. Conditions for applicability of sections 11 &12. (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) The person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later and such trust or institution is registered under section 12AA. Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the

6 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution, - (i) From the date of the creation of the trust or the establishment of the institution if the Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons; (ii) From the 1st day of the financial year in which the application is made, if the Commissioner is not so satisfied. Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007. (aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the Commissioner and such trust or institution is registered under section 12AA. (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. (2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made."

The Finance Act No. 2 of 2014 has inserted the proviso to sub-section (2) of section 12A with effect from 1.10.2014. We are reproducing herein below sub-section (2) of section 12A first proviso, second proviso and third proviso for the sake of clarity. [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. 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

7 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 registration or the registration granted to it was cancelled at any time under section 12AA.]"

A bare reading of the proviso clearly provides that if at the time of grant of registration under section 12A the assessment proceedings are pending before the AO and the object and activities of the Trust remain the same for such preceding assessment years, then the benefit of registration for sections 11 & 12 are required to be given to the Trust on the income derived from the property held under the Trust. In the present case as mentioned herein above, the appellant has filed application for grant of registration 16.03.2009 and the registration was directed to be granted by the order of the Tribunal with effect from 1.4.2008. The return of income was processed under section 143(1) on 13.3.2010 .The assessment order was passed on 26.12.2011 under section 143(3) read with section 147 of the IT Act and. Thus when the order was passed by the Tribunal on 28.01.2010 the assessment proceedings were pending before the AO. Therefore, the benefit of registration is required to be given for the preceding assessment years i.e. 2007-08. The ld. Counsel for the assessee relied upon the judgment of ITAT in ITA No. 503 to 506 & 569/Coch/2014 in the matter of SNDP Yogam vs. The ADIT (Exemption) wherein in para 7, 7.1 and 7.2 it has been held as under :- " 7. We have carefully considered the rival submissions, perused the relevant materials on record and the case law on which the learned AR had placed strong reliance. The primary issue for our consideration is whether the CIT (A) is justified in confirming the AO's action, for all the assessment years under consideration, in assessing the entire incomes of the assessee from all the institutions at the maximum marginal rate. In this context, it is appropriate to refer the amendment to section 12A(2) of the Act and its proviso. For ready reference the same is reproduced below: (Section 12A(2) & its proviso) "[(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:] [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. 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

8 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 registration or the registration granted to it was cancelled at any time under section 12AA.]"

We have gone through the provisions of the Act and have also gone through the record. In our view, the proviso to sub-section (2) of section 12A has retrospective application and has been inserted in the Act to remove the hardship of the charitable trusts/institutions. Admittedly, in the present case when the registration was granted on 05.03.2010 with effect from 01.04.2008, the assessment proceedings for 2007-08 were pending before the AO. Therefore, the assessee cannot be treated as Association of Persons and is required to be treated as Registered Trust under section 12A of the IT Act. We find no reason to disagree with the judgment passed by the coordinate Bench (supra) where the coordinate bench has given the benefit of registration of the trust for the A.Y. 2006-07 though the application for registration was granted on 29.07.2013. Respectfully following the judgment of the coordinate bench, we are of the view that the assessee before us is also required to be treated as Registered Trust for the A.Y. 2007-08 de hors the direction issued by the Tribunal to grant the registration with effect from 1.4.2008, in the light of new amendment referred herein above and also in view of the judgment of coordinate bench. We may like to add that though the Tribunal vide order dated 28.1.2010 has directed to grant the registration from 1.4.2008, in our view when there is a conflict between the order passed by the Tribunal and the subsequent legislature which is beneficial in nature, the subsequent legislature and the benefit flowing from the subsequent legislature should be given to the assessee. It is none of the party's case that the assessment proceedings have reached to the finality and, therefore, in view of the change in law, the beneficial legislation should be applied to the benefit of the assessee. Even otherwise, in the matter of Howrah Municipal Corporation & Ors. v. Ganges Rope Co. Ltd. & Ors., (2004) 1 SCC 663 it has been held by the Hon'ble Supreme Court that if there is a change in law during the pendency of the appeal, the change in law should be made applicable and should be applied to the pending appeals. In the present case the appeal is pending before the Tribunal for the year 2007-08 and there is a change in law with effect from 1.10.2014. Therefore, the benefit which are available to the assessee on account of insertion are required to be extended or passed on to the assessee. We, therefore, hold that the assessee is entitled to benefit under section 11 & 12 for the A.Y. 2007-08 on account of the fact that the assessment proceedings are pending. In view thereof, now we will deal with the reopening under section 147/148 of the IT Act.

5.2 It is the contention of the ld. A/R that sole basis of reopening under section 147 was the levy was not rejected and, therefore, the amount of

9 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 Rs. 2.08 crore is required to be treated as the income instead of being the capital receipt. The ld. Counsel relied upon various judgments as under :-

CIT vs. Bijli Cotton Mills (P) Ltd. 116 ITR 60 (SC) CIT vs. Madurai Mills Co. Ltd. 89 ITR 45 (SC) Mahila Sidh Nirman Yojna vs. IAC 50 TTJ 494 (Del.) Smt. Basanti Devi and Shri Chakhan Lal Garg Education Trust ITA No. 5082/Del/ 2010 ITO vs. Gaudiya Granth Anuved Trust (2013) 28 ITR 0161 (Agra Trib.) Shankar Bhagwan vs. ITO, 61 ITD 196 (Cal.)

5.3 The ld. D/R for the revenue has submitted that provisions of section 147/148 are attracted as the original return of income was only processed and there was no application of mind in scrutiny assessment. It was submitted by the ld. D/R that the assessee has filed the return of income as AOP and not as registered trust. Therefore the amount of Rs. 2.08 crores though has mentioned in the return of income but there was no application of mind and, therefore, has submitted that the income of the assessee has escaped assessment. Therefore, the authorities below were right in reopening the case of the assessee.

5.4 We have heard the rival parties and perused the material available on record. In our view, it is admitted case that the assessee was incorporated in the year 1986 and thereafter has been continued to discharge its function as registered trust and was looking after the affairs of Khatu Shyamji. By virtue of order of the Tribunal dated 28/1/2010 the registration was granted with effect from 1.4.2008, however have held that the assessee, though was not registered and the application was not processed but the benefit of being the registered trust were required to be extended to the assessee u/s 11 & 12 of the IT Act. In view thereof, the assessee is required to be treated as registered trust with effect from 1.4.2007. Since we have already held that the assessee is required to be treated as registered trust w.e.f. 1.4.2007, therefore, in our view, if we read the second proviso to sub- section (2) of section 12A, then it is clear that the reopening u/s 147/148 is not permitted. For ready reference, we are reproducing herein below second proviso to sub-section (2) of section 12A :-

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:

A bare reading of the above said provision though inserted with effect from 1.10.2014, in our view, clearly mandates that no reopening can be made on account of non registration of the trust. In view thereof, we hold that the reopening made by the AO u/s 147/148 of the Act was ill founded and

10 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 was not in accordance with law. In view thereof this ground is decided in favour of the assessee and against the revenue.”

the Tribunal in the case of Sree Sree Ramkrishna Samity(supra), wherein,

it has held as under:

“6.2. We find that the objects of the assessee society are charitable in nature within the meaning of section 2(15) of the Act on which fact there is absolutely no dispute. It is pertinent to note that the registration u/s 12AA of the Act was granted to the assessee on 29.10.2010 with effect from 1.4.2010. Admittedly, the notice u/s 148 of the Act was issued by the DCIT, Circle 2 Siliguri for the Asst Years 2003-04 to 2008- 09 on 30.3.2010. Even for the earlier years , the assessee society was carrying on the same charitable objects as per the trust deed on which fact also there is absolutely no dispute. The receipts were brought to tax only on the pretext that the assessee society is not having registration u/s 12AA of the Act in the Asst Years 2003-04 to 2008-09

6 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 :-

Section 12 A (2)

Where an application has been made on or after the 1st day of June 2007, the provisions of section 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:

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 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.

11 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13

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 7 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 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 ACIT vs Surat City Gymkhana reported in (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

12 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13

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 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. A

pparently 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

13 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 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 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 vs CIT reported in (1997) 224 ITR 677 (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 vs State of Haryana (1991) 188 ITR 402 , this 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 vs 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

14 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 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 vs Vatika Township P Ltd reported in (2014) 367 ITR 466 (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, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India vs 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 vs 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 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 vs J.H.Gotla reported in (1985) 156 ITR 323 (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 sub served 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.

15 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 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).

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 constructed as retrospective in operation.”

16 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 12. Ld D.R. relied on the orders of the lower authorities.

authorities and materials available on record. In the instant case, the

undisputed facts of the case are that the assessee is a charitable society

and registration under section 12AA of the Act was granted to it w.e.f.

29.11.2012. The original return of income showing Nil income filed by the

assessee was accepted by the department u/s.143(1) of the Act. After

grant of registration u/s.12AA of the Act to the assessee, the Assessing

Officer reopened the assessment of all the years under appeal on the

ground that the assessee did not obtain registration u/s.12AA from the

appropriate authority for its charitable activities and, therefore, income

chargeable to tax had escaped assessment and notice u/s.148 of the Act

was issued to the assessee.

when subsequently registration u/s.12AA of the Act is granted to a

charitable institution then assessment of an assessment year earlier to that

assessment year for which registration has been granted shall not be

reopened on the ground that such institution was not granted registration

in an earlier assessment year. The above proviso has been inserted w.e.f.

1.10.2014. The Kolkataba Benches of the Tribunal in the case of Sree Sree

Ramkrishna Samity (supra) has held as under:

“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

17 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 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.”

in the case of Shyam Mandir Committee, Khatushyamji (supra).

and activities of the assessee Trust was same for the years under

consideration which was in the previous year relevant to which registration

u/s.12AA of the Act was granted to the assessee. We, therefore, following

the above quoted decisions of the Tribunal hold that the re-opening of

assessment for all the years under appeal are unsustainable.

Consequently, the impugned order of reassessment are untenable. We,

therefore, quash the impugned orders of reassessment for all the years

under present appeals. Hence, ground of appeal of the assessee is allowed.

years under appeal, other grounds of appeal have become infructuous and

hence not adjudicated upon.

18 ITA Nos. 134 to 139/ CTK/ 2015 Asse ssment Years :2 00 7-0 8 to 2 012 -13 Order pronounced in the open court on 06/06/2017 in the presence of parties. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 06 /06/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : M/s. Mahasakti Foundation, At: Sanchaya Sakti Bhawan, PO: Madanpur, Rampur, Dist: Kalahandi 2. The respondent: ACIT, Circle 2(1), Sambalpur 3. The CIT(A)-2. Bhubaneswar 4. Pr.CIT, Sambalpur 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack