2016 (6) TMI 1237 - AT - Income Tax

Tribunal grants IT Act exemptions, sets correct tax rate for assessee

Aadiwasi Meen Bhagwan Jan Sewa Sansthan, Alwar Versus DCIT, Circle-1, Alwar And Income Tax Officer (Exemptions) Ward, Alwar Versus Aadiwasi Meen Bhagwan Jan Sewa Sansthan

The Tribunal granted the assessee the benefit of exemption under sections 11 and 12 of the IT Act, 1961, despite delayed registration under section 12AA. ... Benefit of sec. 11 and 12 denied - appellant trust is not registered u/s 12AA - whether the benefit of exemption was available to the assessee in view of the fact that the assessee trust was registered in subsequent year and appeal was pending before the ld. CIT (A) in respect of the earlier assessment? - Held that:- As decided in in the case of Sree Sree Ramkrishna Samity vs. DCIT (2015 (11) TMI 119 - ITAT KOLKATA ) 678 (Kolkata) 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.” In the present case also the assessee was granted registration under section 12AA of the Act and assessment was not pending before the AO but appeal against the order of AO was pending before ld. CIT (A). It is a settled position of law that ld. CIT (A) has coterminous power with the AO. The benefit of exemption has been denied solely on the ground that assessee was not registered u/s 12AA of the Act. Thus we set aside the order of ld. CIT (A) and direct the AO to grant the benefit of exemption under section 11 of the Act. This ground of the assessee is allowed. Issues Involved:1. Eligibility for benefits under sections 11 and 12 of the IT Act, 1961 due to non-registration under section 12AA.2. Taxation at Maximum Marginal Rate (MMR) versus normal rate applicable to Association of Persons (AOP).Detailed Analysis:Issue 1: Eligibility for Benefits under Sections 11 and 12 of the IT Act, 1961The assessee society was created on 03.06.2008 and registered with the Registrar of Societies, Alwar. The AO noted that the assessee received donations totaling Rs. 21,32,650/- during the year but was not registered under section 12AA of the IT Act, thus denying the exemption under sections 11 and 13. Consequently, the AO taxed the entire amount as income.On appeal, the CIT(A) noted that the assessee incurred expenses of Rs. 17,64,451/- for the objects of the trust and was granted registration under section 12AA effective from 01.04.2011. However, the CIT(A) held that the amendments made by the Finance Act, 2014, which allow retrospective benefits, were not applicable as the assessment proceedings were not pending before the AO at the time of registration.The Tribunal examined whether the benefit of exemption was available given that the assessee was granted registration in a subsequent year and the appeal was pending before the CIT(A). The Tribunal referenced the explanatory notes to the Finance Act, 2014, which aimed to remove hardships for genuine charitable trusts by allowing retrospective benefits if the assessment was pending. The Tribunal also cited precedents where similar amendments were interpreted as retrospective to mitigate undue hardship.Conclusion: The Tribunal concluded that the amendment should be given retrospective effect, allowing the assessee the benefit of exemption under sections 11 and 12. The Tribunal set aside the CIT(A)'s order and directed the AO to grant the benefit of exemption.Issue 2: Taxation at Maximum Marginal Rate (MMR) vs. Normal Rate Applicable to AOPThe CIT(A) directed that the net surplus of Rs. 3,64,199/- be taxed at MMR, contrary to the assessee's claim that it should be taxed at the normal rate applicable to an AOP. The assessee argued that under section 164(2), the surplus should be taxed as income of an AOP unless there is a violation of section 13, which was not the case here.The Tribunal acknowledged that any expenditure incurred by a trust, whether capital or revenue, should be allowed as a deduction against receipts. The CIT(A) had rightly held that the trust should be assessed as an AOP but incorrectly taxed the surplus at MMR. The Tribunal referenced section 164(2), which stipulates that the surplus should be taxed as the income of an AOP unless there is a violation of section 13.Conclusion: The Tribunal directed the AO to delete the addition and grant exemption to the assessee as per law, thus rejecting the application of MMR.Appeals by Revenue:The revenue contested the CIT(A)'s decision to allow capital expenditure out of the income by treating the assessee as an AOP in the absence of registration under section 12AA. The Tribunal, having already determined that the assessee was entitled to exemption under section 11, dismissed the revenue's appeals.Final Judgment:- Appeals of the assessee were allowed.- Appeals of the revenue were dismissed.- The Tribunal directed the AO to grant the benefit of exemption under section 11 and to tax the surplus at the normal rate applicable to an AOP, not at MMR.Order Pronounced: The order was pronounced in the open court on 07/06/2016.