2018 (5) TMI 257 - AT - Income Tax

Assessee wins appeal for trust status and capital expenditure claim.

The Tribunal allowed the appeals filed by the assessee for both assessment years, holding that the assessee was entitled to be treated as a registered ... Denying exemption claimed u/s 11 - trust was not registered u/s 12 AA - application for registration was not disposed off by the CIT-I - Deemed registration - Held that:- CIT neither rejected the application nor did he grant registration. It is also a fact that the assessee had filed reminders with the office of the CIT, Thane to issue the registration certificate. In our opinon, an assessee cannot and should not be penalised for inaction of an officer representing the Sovereign. The Act provides that if the CIT does not reject the application or does not grant registration, it would be deemed that the assessee was entitled to registration. The assessee cannot be penalised for the delay in disposing of the application filed by the assessee for registration, that the AO and the FAA were not justified in holding that in absence of the registration certificate the assessee could not claim the exemption u/s. 11 of the Act. The assessee was to be treated to be deemed to be registered trust from the sixth month of the lodging the registration application with the CIT-1 Thane. Case of Promotion of Education Adventure Sport and Conservation of Environment (2008 (4) TMI 700 - ALLAHABAD HIGH COURT) has to be given preference over the judgment of Muzaffarnagar Development Authority(2015 (3) TMI 99 - ALLAHABAD HIGH COURT (LB) ), relied upon by the FAA, as the first judgment has been approved but the Hon’ble Supreme Court [2016 (2) TMI 672 - SUPREME COURT]- Decided in favour of the assessee. Not considering the capital expenditure for acquisition of fixed assets as application of income - Held that:- As we have held that the assessee was entitled to registration from the sixth month of making the application, so, in our opinion there was no justification in denying it the claim made about acquisition of fixed assets. Second ground is decided in favour of the assessee. Issues Involved:1. Denial of exemption under section 11 of the Act due to lack of registration under section 12AA.2. Non-consideration of capital expenditure for acquisition of fixed assets as application of income.Issue-Wise Detailed Analysis:1. Denial of Exemption under Section 11 of the Act:The primary issue in this case was the denial of exemption under section 11 of the Income Tax Act to the assessee, a public charitable trust running a school, due to the lack of registration under section 12AA. The Assessing Officer (AO) had disallowed the exemption claim because the trust was not registered under section 12AA, resulting in the addition of Rs. 1.73 crores (later revised to Rs. 1.58 crores) to the income of the assessee. The AO also rejected the revised computation of income submitted by the assessee during the assessment proceedings due to the absence of the audited report filed within the due date.Upon appeal, the First Appellate Authority (FAA) upheld the AO's decision, stating that the trust did not have the requisite registration under section 12A(1)(a) of the Act. The FAA noted that although the assessee had applied for registration in June 2009 and had sent reminders in 2013 and 2014, the Commissioner of Income Tax (CIT) had neither granted nor rejected the application. The FAA referred to the judgment in the case of Muzaffarnagar Development Authority (275 CTR 233) to support the decision.During the hearing before the Tribunal, the Authorized Representative (AR) argued that the assessee should not be penalized for the CIT's inaction and cited the cases of Society for the Promotion of Education Adventure Sport and Conservation of Environment (372 ITR 222) and Society For The Promotion Of Education (382 ITR 6) to support the claim of deemed registration due to the CIT's failure to dispose of the application within six months.The Tribunal agreed with the AR, stating that the assessee could not be penalized for the inaction of the CIT. The Tribunal referred to the judgment of the Allahabad High Court in the case of Society for the Promotion of Education Adventure Sport and Conservation of Environment, which held that if the CIT does not dispose of the application within six months, the registration should be deemed to have been granted. The Tribunal concluded that the assessee was entitled to be treated as a registered trust from the sixth month of lodging the application and decided the issue in favor of the assessee.2. Non-Consideration of Capital Expenditure for Acquisition of Fixed Assets as Application of Income:The second issue was the non-consideration of capital expenditure for the acquisition of fixed assets amounting to Rs. 45.61 lakhs as an application of income. The FAA had held that the issue was academic since the assessee was denied exemption under section 11.During the hearing, the AR argued that the assessee was entitled to claim the capital expenditure as an application of income. The Departmental Representative (DR) left the issue to the discretion of the Bench.The Tribunal, having decided that the assessee was entitled to registration from the sixth month of making the application, found no justification in denying the claim regarding the acquisition of fixed assets. The Tribunal decided this issue in favor of the assessee.Appeal for AY 2012-13:The solitary ground of appeal for the assessment year 2012-13 was the denial of exemption under section 11 due to the lack of a registration certificate from the CIT. Following the decision for the earlier year, the Tribunal decided this issue in favor of the assessee.Conclusion:The appeals filed by the assessee for both assessment years were allowed. The Tribunal held that the assessee was entitled to be treated as a registered trust from the sixth month of lodging the registration application and was also entitled to claim the capital expenditure for the acquisition of fixed assets as an application of income. The order was pronounced in the open court on 2nd May 2018.