Exemption Under Sections 11 and 12 Granted Despite Delayed Registration from AY 2003-04 to 2008-09

The ITAT Kolkata held that the denial of exemption under sections 11 and 12, based solely on the absence of registration under section 12AA for assessment years 2003-04 to 2008-09, was incorrect. The assessee society, engaged in charitable activities, received genuine donations utilized for a specified charitable purpose. The proviso inserted to section 12A(2) by the Finance Act 2014 was held to operate retrospectively, validating exemption eligibility from the date of registration (1.4.2010). Since the only ground for denial was non-registration, and the donations were capital receipts used for charitable purposes, the exemption was granted for all relevant years. The decision favored the assessee, confirming that such donations cannot be taxed merely due to delayed registration.

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Issues Involved:
1. Jurisdiction and sanction for the issuance of notice under Section 148 of the Income Tax Act.
2. Non-supply of reasons recorded for reopening the assessment.
3. Eligibility for exemption under Section 11 of the Income Tax Act due to non-registration under Section 12AA.
4. Nature of donations received and their taxability.
5. Retrospective application of the first proviso to Section 12A(2) of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction and Sanction for Issuance of Notice under Section 148:
The assessee did not press the grounds related to jurisdiction and sanction for the issuance of notice under Section 148 of the Income Tax Act and non-supply of reasons recorded for reopening the assessment. Consequently, these grounds were dismissed as not pressed.

2. Non-Supply of Reasons Recorded for Reopening the Assessment:
Similar to the first issue, the assessee did not press this ground, leading to its dismissal.

3. Eligibility for Exemption under Section 11 Due to Non-Registration under Section 12AA:
The primary contention was that the assessee society was not registered under Section 12AA of the Income Tax Act during the relevant assessment years, leading to the denial of exemption under Section 11. The assessee argued that the donations received were capital in nature and should not be taxed as revenue receipts. It was further argued that the first proviso to Section 12A(2), introduced by the Finance Act 2014, should be applied retrospectively, thereby deeming the society registered under Section 12AA for the earlier years.

4. Nature of Donations Received and Their Taxability:
The donations received by the assessee society were specifically meant for the construction of an old age home and were treated as capital receipts. The Assessing Officer (AO) initially brought these donations to tax as income from other sources, but the assessee contended that such donations, being capital in nature, should not be taxed as revenue receipts. The AO accepted the genuineness of the donations in the remand proceedings.

5. Retrospective Application of the First Proviso to Section 12A(2):
The Tribunal held that the first proviso to Section 12A(2) should be construed as retrospective in operation. This proviso allows the benefits of Sections 11 and 12 to apply to any income derived from property held under trust for any assessment year preceding the assessment year in which the registration was granted, provided the assessment proceedings were pending before the AO as on the date of such registration. The Tribunal relied on various judicial precedents and the explanatory notes to the Finance Act 2014 to conclude that the proviso was intended to prevent genuine hardship to charitable organizations and should be applied retrospectively.

Conclusion:
The Tribunal concluded that the insertion of the proviso to Section 12A(2) of the Act should be construed as retrospective in operation. Consequently, the assessee society was eligible for exemption under Section 11 for the relevant assessment years, and the donations received for the construction of the old age home were to be treated as capital receipts, not subject to tax. The appeals of the assessee were partly allowed, and the expenditure incurred by the society was treated as application of income for charitable objects. The ground related to the status of the assessee society and its eligibility to claim exemption under Section 11 was allowed, rendering the adjudication of ground no. 9 infructuous. The appeals were partly allowed, and the order was pronounced in open court on 9.10.2015.

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