2016 (12) TMI 46 - AT - Income Tax

Tribunal validates exemption eligibility, reassessment proceedings, rejects deemed registration claim, and jurisdiction objection.

The Tribunal upheld the eligibility of the assessee for exemption under sections 11 and 12, considered the gross receipts of each educational institution ... Eligibility for exemption under sections 11 and 12 - retrospective application of remedial amendment to the proviso to section 12A - assessment of income of a trust as an Association of Persons under section 164(2) - aggregate annual receipts for exemption under section 10(23C) to be computed institution-wise - jurisdiction to reopen assessment under section 148 - formation of reason to believe - deemed registration on expiry of six months - submission to jurisdiction and estoppel against raising jurisdictional objection post-assessmentEligibility for exemption under sections 11 and 12 - retrospective application of remedial amendment to the proviso to section 12A - Assessee entitled to exemption under sections 11 and 12 for the years under appeal in view of registration under section 12A effective 1.4.2008 and purposive construction of the proviso to section 12A. - HELD THAT: - The Tribunal found that registration under section 12A was granted w.e.f. 1.4.2008 before initiation and completion of the assessment proceedings and that the proviso to section 12A (inserted by Finance Act, 2014) is remedial in nature. Applying a purposive construction, the Tribunal held that the proviso supplies an obvious omission and is intended to relieve genuine charitable trusts from hardship; accordingly, the benefit of sections 11 and 12 cannot be denied merely because registration was granted by a subsequent order effective prior to initiation/completion of assessment. There was no allegation of change in objects or activities compared to the years under consideration; hence the receipts qualified for exemption under section 11. The Tribunal therefore allowed the assessee the benefit of exemption under sections 11 and 12. [Paras 22]Assessee held eligible for exemption under sections 11 and 12; benefit of registration applied.Aggregate annual receipts for exemption under section 10(23C) to be computed institution-wise - For the purpose of section 10(23C), the annual receipts of each educational institution must be considered separately and not by clubbing receipts of distinct institutions run by the trust. - HELD THAT: - Following and respectfully applying the jurisdictional High Court's reasoning in Children's Education Society, the Tribunal held that each educational institution is a separate entity and the term 'aggregate annual receipts' in section 10(23C) must be read in context to mean the aggregate annual receipts of that individual institution. Clubbing receipts of separate colleges run by the trust would defeat the legislative purpose and render the exemption meaningless for genuine institutions. On that basis, the Tribunal held that the receipts of each college must be considered separately for the exemption test under section 10(23C). [Paras 24]Annual receipts to be computed institution-wise for section 10(23C); benefit allowed accordingly.Jurisdiction to reopen assessment under section 148 - formation of reason to believe - Issuance of notice under section 148 was valid at the time it was issued because the AO had tangible material to form a reason to believe. - HELD THAT: - The Tribunal observed that at the time the AO issued the notice under section 148 the DIT(E) had rejected earlier applications for registration and there was no binding precedent or statutory clarity obliging the AO to treat institutional receipts separately under section 10(23C). The AO therefore had tangible material - rejection of registration and apparent consolidated receipts exceeding prescribed limits - to form a prima facie reason to believe that income had escaped assessment. Consequently the initiation of reassessment proceedings under section 148 was valid, even though on later adjudication the additions were not sustained. [Paras 32]Notice under section 148 held validly issued; initiation of reassessment sustained.Assessment of income of a trust as an Association of Persons under section 164(2) - Assessment of income as if it were income of an Association of Persons under section 164(2) became academic once exemption under section 11 was allowed; section 164(2) does not alter real status of the trust. - HELD THAT: - The Tribunal noted that section 164(2) prescribes the fiscal treatment (assessment as AOP) only for relevant income of property held under trust which is not exempt under sections 11 or 12. Since the Tribunal concluded that the assessee was eligible for exemption under section 11, the question of assessing the income as AOP under section 164(2) did not survive. Further, section 164(2) affects assessment treatment and does not change the substantive character of the trust. [Paras 27]Assessment as AOP under section 164(2) rendered academic; real status of trust remains AJP for other purposes.Deemed registration on expiry of six months - The claim of deemed registration on expiry of six months from the 14.3.2005 application cannot be agitated in proceedings arising from the assessment order because registration was subsequently granted and that order attained finality. - HELD THAT: - The Tribunal observed that registration under section 12AA was ultimately granted by the DIT(E) w.e.f. 1.4.2008 in set-aside proceedings and that order was not challenged by the assessee. Consequently the question of whether earlier unacted application gave rise to deemed registration became otiose in the assessment proceedings; the registration issue had attained finality and could not be reopened in the assessment appeal. [Paras 35]Claim of deemed registration dismissed as not maintainable in present assessment proceedings; registration deemed final.Submission to jurisdiction and estoppel against raising jurisdictional objection post-assessment - Assessee cannot challenge the jurisdiction of the Assessing Officer after having submitted to his jurisdiction by filing return and participating in proceedings; the additional ground that AO lacked jurisdiction was rejected. - HELD THAT: - Relying on the principle that a person who files a return and submits to the AO's jurisdiction cannot, after conclusion of proceedings, raise an objection to jurisdiction which was not taken earlier, the Tribunal held that the assessee had participated before the AO and had not raised jurisdictional objection at the relevant time. The objection raised only after assessment on account of treatment as AOP is an outcome-based challenge and not a valid ground to vitiate the assessment. [Paras 41]Additional ground alleging lack of jurisdiction of the AO rejected; assessee estopped from raising it.Final Conclusion: Revenue's appeals dismissed and assessee's cross-objections partly allowed: assessee held entitled to exemption under sections 11 and 12 in view of registration effective 1.4.2008 and purposive reading of the proviso to section 12A; annual receipts to be tested institution-wise under section 10(23C); initiation of reassessment under section 148 was valid at the time it was taken; assessment additions overturned in part on exemption findings; claims of deemed registration and post-hoc jurisdictional challenge were rejected. Issues Involved:1. Assessment of the assessee in the status of Association of Persons (AOP).2. Eligibility for exemption under sections 11 and 12 of the Income Tax Act.3. Consideration of gross receipts for exemption under section 10(23C) of the Act.4. Validity of the order passed under section 143(3) read with section 147 for want of jurisdiction under section 148.5. Deemed registration under section 12A due to non-disposal of the application within six months.6. Jurisdiction of the Assessing Officer to pass the assessment order.Detailed Analysis:1. Assessment of the Assessee in the Status of AOP:The Revenue contended that the assessment framed in the status of AOP was valid as the assessee did not have registration under section 12A, thereby invoking section 164(2). The Tribunal, however, noted that the assessee trust was granted registration under section 12A w.e.f. 1.4.2008, and thus, the benefit of sections 11 and 12 should be available. The Tribunal concluded that the status of the assessee should remain as a trust and not as an AOP, citing the decision of the Hon'ble High Court in the case of Children's Education Society.2. Eligibility for Exemption under Sections 11 and 12:The Tribunal observed that the assessee was granted registration under section 12A w.e.f. 1.4.2008, which was prior to the initiation of proceedings under section 148. The Tribunal held that the assessee is eligible for exemption under sections 11 and 12 of the Act, despite the registration being granted subsequently. The Tribunal also considered the proviso to section 12A introduced by the Finance Act, 2014, which allows retrospective application of the registration for pending assessments.3. Consideration of Gross Receipts for Exemption under Section 10(23C):The Tribunal addressed whether the gross receipts of each educational institution should be considered separately or collectively for exemption under section 10(23C). Following the judgment of the Hon'ble jurisdictional High Court in the case of Children's Education Society, the Tribunal held that the annual receipts of each educational institution should be considered separately. Consequently, the Tribunal concluded that the receipts of each college run by the assessee trust should be evaluated independently for the purpose of exemption under section 10(23C).4. Validity of the Order Passed under Section 143(3) read with Section 147 for Want of Jurisdiction under Section 148:The Tribunal examined the validity of the reassessment proceedings initiated under section 148. It was noted that at the time of issuing the notice under section 148, the application for registration under section 12A was rejected. Therefore, the Assessing Officer (AO) had valid reasons to believe that income chargeable to tax had escaped assessment. The Tribunal upheld the initiation of proceedings under section 148 as valid and proper.5. Deemed Registration under Section 12A:The assessee's contention that it should be deemed registered under section 12A due to non-disposal of the application within six months was addressed. The Tribunal noted that the issue of registration was already decided by the Tribunal in earlier proceedings, and the DIT(E) granted registration w.e.f. 1.4.2008. Since the order of DIT(E) was not challenged, the issue of deemed registration could not be raised in the present proceedings.6. Jurisdiction of the Assessing Officer to Pass the Assessment Order:The assessee argued that the AO did not have jurisdiction to pass the assessment order as the AO did not recognize the assessee as a trust and treated it as an AOP. The Tribunal held that the assessee had submitted to the jurisdiction of the AO by filing the return and participating in the proceedings. The Tribunal further noted that the status of the assessee as AOP was only an outcome of the assessment and not at the initiation stage. Therefore, the Tribunal found no merit in the assessee's objection regarding the jurisdiction of the AO.Conclusion:The Tribunal dismissed the appeals of the Revenue and partly allowed the cross objections of the assessee. The Tribunal upheld the eligibility of the assessee for exemption under sections 11 and 12, considered the gross receipts of each educational institution separately for exemption under section 10(23C), and validated the initiation of reassessment proceedings under section 148. The Tribunal also rejected the assessee's contention of deemed registration and the objection regarding the jurisdiction of the AO.