2013 (1) TMI 82 - AT - Income Tax

Tribunal Denies Exemptions: Lack of Registration & Approval Disqualify Assessee

The Tribunal upheld the denial of exemptions under Sections 11 and 10(23C)(iiiad) of the IT Act to the assessee. It ruled that the absence of registration ... Non granting benefit u/s. 11 - assessee contested as the income is exempt u/s. 10(23C)(iiiad) - Held that:- As decided in U.P. Forest Corpn v. Dy. CIT (2007 (11) TMI 303 - SUPREME COURT) that registration u/s. 12A is a condition precedent for availing of benefit of section 11 & 12 of the IT Act. The assessee in this case has admitted before the AO at the assessment stage that the assessee society is not registered u/s. 12AA therefore, the assessee would not be entitled for any deduction u/s. 11. Even during the course of arguments, the assessee admitted that the assessee is not registered u/s. 12AA Since the assessee applied for registration before the CIT on 06.09.2005 he has neither refused to grant registration nor granted registration, therefore, it would amount to deemed registration granting benefit of deduction provided u/s. 11 - Held that: - Whether the CIT has granted registration or did not refuse to grant registration is an independent and distinct matter from the computation of income on the basis of regular assessment passed by the AO. In section 246A several provisions have been mentioned in which if any order is passed by the Assessing Authority, it would be appealable order before the Commissioner (appeals). No remedy is provided if the CIT did not pass any order u/s. 12AA for filing the appeal before the CIT(A). According to section 253(1)(c), the order passed by the Commissioner u/s. 12AA is appealable before the Appellate Tribunal if the assessee was aggrieved against the order of the CIT u/s. 12AA. It would mean that no remedy lies for grant of registration or refusal to grant registration before the CIT(A). As from the 'Smriti Patra' of the assessee that the assessee did not exist solely for educational purpose and it has other objects also. When the annual receipts exceed Rs. one crore, the approval of prescribed authority is required in the above provisions. In the case of assessee, aggregate annual receipts of the assessee were found exceeding Rs.1,00,00,000/-. As noted above, in the case of assessee, there is neither any registration u/s. 12AA nor is there any evidence to support the case of the assessee that the donations were received with specific direction that it will form part of corpus of the assessee Institution. Therefore, such a benefit could also not be given to the assessee. The CIT(A) on proper appreciation of facts and applying correct law rightly held that the donations were part of the annual receipts of the assessee and shall be treated as income of the assessee finding support from the provisions of section 12(1) - CIT(A) rightly declined benefit of exemption u/s. 10(23C)(iiiad) - against assessee. Issues Involved:1. Entitlement to exemption under Section 11 of the IT Act.2. Entitlement to exemption under Section 10(23C)(iiiad) of the IT Act.Issue-wise Detailed Analysis:1. Entitlement to Exemption under Section 11 of the IT Act:The assessee challenged the denial of exemption under Section 11 of the IT Act, arguing that it should be deemed registered under Section 12A due to the CIT's inaction on its application for registration. The assessee had applied for registration under Section 12A on 06.09.2005 but had not received any response from the CIT. The assessee contended that this inaction should be interpreted as a deemed grant of registration.The AO and CIT(A) both found that the assessee was not eligible for exemption under Section 11 because it was not registered under Section 12A. The AO cited the decision of the Supreme Court in U.P. Forest Corpn. v. Dy. CIT, which held that registration under Section 12A is a condition precedent for availing benefits under Sections 11 and 12. The CIT(A) also noted that the issue of deemed registration could not be addressed in the quantum assessment proceedings and that the assessee should have pursued this grievance through appropriate channels, such as an appeal to the ITAT under Section 253(1)(c).The Tribunal upheld the findings of the AO and CIT(A), emphasizing that the absence of registration under Section 12A precluded the assessee from claiming exemption under Section 11. The Tribunal also rejected the assessee's reliance on the ITAT Special Bench decision in Bhagwad Swarup Shri Shri Devraha Baba Memorial Shri Hari Parmarth Dham Trust and the Allahabad High Court decision in Society for the Promotion of Education Adventure Sport & Conservation of Environment, as these cases dealt with the grant of registration and not with the computation of income in regular assessment proceedings.2. Entitlement to Exemption under Section 10(23C)(iiiad) of the IT Act:The assessee alternatively claimed exemption under Section 10(23C)(iiiad), arguing that its aggregate annual receipts did not exceed Rs. 1 crore. The AO found that the assessee's total receipts, including student fees, interest on FDR, and donations, amounted to Rs. 1,34,62,060/-, exceeding the Rs. 1 crore threshold. The AO also noted that the assessee did not have the required approval from the prescribed authority under Section 10(23C)(vi).The CIT(A) upheld the AO's findings, stating that the assessee's receipts from both voluntary contributions and fees should be aggregated. The CIT(A) cited the Madras High Court decision in CIT v. A.M.M. Arunachalam Educational Society, which held that a society running an educational institution could be treated as an educational institution itself. The CIT(A) also noted that the assessee's argument that donations should not be considered part of the total receipts was not supported by the law, as voluntary contributions are deemed income under Section 12(1).The Tribunal agreed with the CIT(A), stating that the assessee's total receipts exceeded Rs. 1 crore and that the donations were part of the annual receipts. The Tribunal noted that the assessee did not have evidence to show that the donations were received with a specific direction to form part of the corpus of the trust, which would have been necessary for exclusion from the total receipts. The Tribunal concluded that the assessee was not entitled to exemption under Section 10(23C)(iiiad) due to the excess receipts and lack of approval from the prescribed authority.Conclusion:The Tribunal dismissed the appeal, affirming the findings of the AO and CIT(A) that the assessee was not entitled to exemptions under Sections 11 and 10(23C)(iiiad) due to the lack of registration under Section 12A and the aggregate annual receipts exceeding Rs. 1 crore, respectively.