2017 (8) TMI 316 - AT - Income Tax

Tribunal clarifies requirements for tax exemptions under Income-tax Act

The Tribunal partly allowed the appeals for statistical purposes, instructing the Assessing Officer to reassess the application of section 10(23C) for ... Non grant of the registration under section 12AA - whether section 10(23C) of the Act has been correctly applied in the case of the assessee? - Held that:- Admittedly, the prescribed limit was ₹ 1 crore for the impugned assessment year. If we take each of the educational institution separately, only in the case of PKD Matric Higher Secondary School, the receipt has exceeded ₹ 1 crore. The annual receipts of all other institutions were less than the threshold amount of ₹ 1 crore. In our opinion, the lower authorities had not applied section 10(23C) of the Act in respect of these educational institutions, which has gross receipts less than ₹ 1 crore. The question whether each educational institution could be considered separately for applying the threshold annual receipt of ₹ 1 crore, which was applicable for the impugned assessment year, has not been considered by any of the lower authorities in the proper perspective. The matter therefore, requires a fresh look by the Assessing Officer. Though the assessee is not eligible for exemption under section 11 of the Act, the question whether it could claim exemption under section 10(23C) of the Act in the case of these institutions which had gross receipts below the threshold limit requires a fresh look. Therefore, we set aside the orders of the lower authorities and remit the issue regarding application of section 10(23C) of the Act back to the Assessing Officer for consideration afresh, in accordance with law. Rectification of mistake - application for sec 10(23C)(vi) being rejected for non-mentioning of non-profit nature of the institutions run by the assessee in its trust deed - Held that:- Even if we presume that this is only an application for rectification of mistake, such mistake which can be rectified under section 154 of the Act, is one which is glaring and apparent. The order dated June 24, 2013 passed under section 10(23C)(vi) of the Act, on which the review petition was filed, had specifically stated that the application was being rejected for non-mentioning of non-profit nature of the institutions run by the assessee in its trust deed. We cannot say that no reason was cited by the learned Chief Commissioner of Income-tax or the reason cited was perverse. Thus the order was not, in our opinion, amenable to a rectification proceeding under section 154 of the Act. There was no mistake which was glaring enough, which could have been rectified under section 154 of the Act. Viewed in any manner, we are of the opinion that the appeal of the assessee has no merits. Issues Involved:1. Validity of the assessment status as an association of persons.2. Eligibility for exemption under section 10(23C) of the Income-tax Act, 1961.3. Denial of exemption under sections 11 and 12 of the Income-tax Act, 1961.4. Alleged violation of principles of natural justice.5. Rejection of the review petition against the denial of approval under section 10(23C)(vi).Detailed Analysis:1. Validity of the Assessment Status as an Association of Persons:The assessee contested the assessment status as an association of persons, arguing that the Commissioner of Income-tax (Appeals) overlooked proceedings under section 12A(1)(a) and pending proceedings under section 10(23C). The Tribunal noted that the assessee, a trust running educational institutions, had applied for exemption under section 10(23C) but failed to obtain the necessary approval from the Chief Commissioner of Income-tax. The Commissioner of Income-tax (Appeals) upheld the assessment status, emphasizing that the application for approval was rejected by the Chief Commissioner.2. Eligibility for Exemption under Section 10(23C):The assessee argued that it had filed applications for approval under section 10(23C)(vi) for the assessment years 2005-06 and 2006-07, which were still pending. The Tribunal observed that mere filing of an application does not entitle the assessee to exemption. The assessee did not follow up on the application, and the Chief Commissioner eventually rejected it. The Tribunal held that without valid approval, the assessee was not eligible for exemption under section 10(23C) for the impugned assessment year.3. Denial of Exemption under Sections 11 and 12:The assessee claimed that it obtained registration under section 12AA on July 28, 2015, which should apply to all pending proceedings. The Tribunal clarified that the first proviso to section 12A(2) applies only to assessment years for which proceedings are pending before the Assessing Officer as of the date of registration. Since no proceedings were pending before the Assessing Officer for the impugned year when the registration was granted, the assessee could not claim exemption under sections 11 and 12.4. Alleged Violation of Principles of Natural Justice:The assessee contended that it was not given a proper opportunity before the passing of the impugned order, violating the principles of natural justice. The Tribunal did not find merit in this argument, as the assessee had ample opportunity to present its case before the lower authorities.5. Rejection of the Review Petition Against the Denial of Approval under Section 10(23C)(vi):The assessee filed a review petition against the rejection of its application for approval under section 10(23C)(vi), which was dismissed by the Chief Commissioner on the grounds that there is no provision for review under the Act. The assessee argued that the review petition should be considered as a rectification application under section 154. The Tribunal held that the rejection of the application was based on a valid reason (absence of a non-profit clause in the trust deed) and was not amenable to rectification under section 154, as there was no apparent mistake in the order.Conclusion:The Tribunal partly allowed the appeals for statistical purposes, directing the Assessing Officer to reconsider the application of section 10(23C) for institutions with receipts below the threshold limit. The appeal against the rejection of the review petition was dismissed, upholding the Chief Commissioner's decision. The Tribunal emphasized the need for valid approvals and adherence to statutory provisions for claiming exemptions.