ITAT grants exemption under sections 11 and 12, emphasizing liberal interpretation of tax laws

The ITAT concluded that the assessee was eligible for exemption under sections 11 and 12 for the assessment year as registration under section 12AA was granted during the appeal's pendency. The ITAT upheld the CIT(A)'s order, emphasizing a liberal interpretation of the proviso to section 12A(2) to provide relief and avoid hardship, dismissing the revenue's appeal.

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Issues Involved:
1. Eligibility for exemption under sections 11 and 12 of the Income Tax Act.
2. Applicability of registration under section 12AA for the assessment year in question.
3. Interpretation of the proviso to sub-section 2 of section 12A regarding pending assessment proceedings.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Sections 11 and 12 of the Income Tax Act:
The primary issue in dispute was whether the assessee was eligible for exemption under sections 11 and 12 of the Income Tax Act. The CIT(A) held that the assessee was eligible for the exemption, which was contested by the revenue. The CIT(A) referred to various judicial pronouncements and concluded that the assessee met the conditions for exemption under sections 11 and 12.

2. Applicability of Registration under Section 12AA for the Assessment Year in Question:
The CIT(A) noted that the assessee had applied for registration under section 12AA on 30.03.2016 and was granted registration on 21.09.2016. According to the AO's remand report, the provisions of section 12A(2) state that the benefits of sections 11 and 12 apply from the assessment year immediately following the financial year in which the application for registration is made. Therefore, the AO argued that the assessee could claim the benefit of sections 11 and 12 from the assessment year 2017-18 onwards. However, the CIT(A) and the ITAT considered the proviso to section 12A(2), which allows benefits for earlier years if the registration is granted during the pendency of the appeal.

3. Interpretation of the Proviso to Sub-section 2 of Section 12A Regarding Pending Assessment Proceedings:
The ITAT referred to the judgment of the Hon'ble Rajasthan High Court in the case of CIT(E) Vs. Shree Shyam Mandir Committee, which interpreted the proviso to section 12A(2) liberally. The High Court held that assessment proceedings pending in appeal should be deemed to be 'assessment proceedings pending before the assessing officer' within the meaning of the proviso. This interpretation aligns with the principle of purposive interpretation of statutes, aiming to provide relief to trusts that obtain registration under section 12AA during the pendency of appeal proceedings. The ITAT also cited the Explanatory Memorandum to the Finance (No. 2) Bill, 2014, which clarified that the amendment aimed to provide relief to trusts facing tax liability due to the absence of registration despite fulfilling other substantive conditions.

The ITAT further supported its decision by referencing other judicial precedents, including the Kolkata Bench of ITAT in the case of Sree Sree Ramkrishna Samity v. DCIT, which held that the amendment to section 12A(2) is retrospective. The Tribunal emphasized that the proviso should be treated as retrospective to provide a reasonable interpretation and avoid unintended consequences.

Conclusion:
Based on the above analysis, the ITAT concluded that the assessee was eligible for exemption under sections 11 and 12 for the assessment year in question, as the registration under section 12AA was granted during the pendency of the appeal. The ITAT upheld the order of the CIT(A) and dismissed the revenue's appeal. The judgment emphasized the importance of a liberal and purposive interpretation of the proviso to section 12A(2) to provide relief to genuine cases and avoid hardship.

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