2019 (9) TMI 55 - HC - Income Tax

Trust exemption under Section 11 available only from year following registration application, not retrospectively

Allahabad HC allowed revenue's appeal against tribunal's order granting retrospective exemption under Section 11. The assessee trust received registration ... Exemption u/s 11 - admittedly the assessee got registration U/s 12AA from A.Y. 15-16 - Exemption claim from prospective effect that is from assessment year 2011-12 - HELD THAT:- It is in respect of the assessment year prior to the date of application. It is in the circumstances that registration was finally given on 08.06.2015. We are required to consider proviso below sub-Section 2 of Section 12 A. The proviso provides that if registration has been given to the Trust or the Institution under Section 12 AA of the Act, 1961, then provisions of Section 11 & 12 of the Act, 1961 shall apply in respect of any income derived from the property held under the Trust or the institution for any assessment year proceeding, for which assessment is pending before the Assessing Authority as on the date of registration. The Tribunal has given interpretation to the proviso to hold that irrespective of the date of application, the benefit of Section 11 & 12 of the Act, 1961 would be available to the assessee retrospectively, if the assessment proceedings were pending and pendency of such proceedings may be not only before the Assessing Office, but even before the Tribunal. According to us, the interpretation of the proviso has been given in ignorance of the main provision of Section 12A(2) of the Act, 1961. For the purpose of proper interpretation of Section 12A of the Act, 1961, the Tribunal was required to make interpretation after taking into consideration the main provision along with the proviso and not by giving meaning to the proviso in ignorance of substantive provision. Tribunal has even ignored the basic principle of law in giving interpretation in charging provisions, the benefit is to be given to the assessee but same principle is not applicable for an exemption notification or exemption clause, where the benefit of ambiguity must be given to the Revenue/State. It is also that burden to prove applicability of exemption would be on the assessee that it comes squarely within the parameters of the exemption notification or exemption clause. The Tribunal was required to make distinction between charging provision where benefit of ambiguity is given to the assessee and the exemption notification or clause where interpretation is to be given in the form of Revenue. In the instant case the application for registration was given on 15.12.2014 i.e. in the financial year 2014-15. On registration of the Trust, benefit under Section 11 and 12 would be available to the assessee from the assessment year following the financial year in which application was given and not any previous year. The benefit of registration could not have been extended for the assessment year 2011-12, even if the matter was pending before the Tribunal when application for registration was submitted on 15.12.2014. The Tribunal even ignored the fact that proviso not only require registration of the Trust or the Institution while the assessment proceedings are pending, but it refers to assessment proceedings before the assessing authority and not elsewhere. In a common parlance, whenever matter is pending before the Tribunal in appeal, considered to be pendency of the assessment proceedings. The aforesaid principle would be applicable in the instant case is another question because proviso qualifies not only pendency of the assessment proceedings, but should before the Assessing Officer not else where, if in the proviso words “pendency of the assessment proceedings”, would have been used then pendency of the appeal against the assessment could have been considered to be pendency of the assessment proceedings, but in the instant case the words used are “pendency of the assessment proceedings before the Assessing Officer”. The assessment proceedings of the year 2011-12 was not pending before the Assessing Officer, but before the Tribunal. The observation aforesaid is relevant on the facts of this case. This Court has otherwise given proper interpretation to the substantive provision as well as the proviso. We find reasons to allow the appeal preferred by the revenue and the substantial questions of law framed herein above are answered in favour of the Revenue and thereby we set-aside the order passed by the Tribunal. Issues Involved:1. Retrospective coverage under Sections 11 and 12 of the Income Tax Act, 1961.2. Application of the proviso to Section 12A(2) for the assessment year 2011-12.3. Eligibility for exemption under Section 11 without registration under Section 12AA at the time of assessment.Issue-wise Detailed Analysis:1. Retrospective Coverage under Sections 11 and 12:The core issue was whether the Income Tax Appellate Tribunal (the Tribunal) was justified in allowing retrospective benefits under Sections 11 and 12 of the Income Tax Act, 1961, by treating appellate proceedings as assessment proceedings. The Tribunal had extended the benefits to the assessee for the assessment year 2011-12, despite the application for registration under Section 12AA being submitted in the assessment year 2015-16. The High Court noted that Section 12A(2) permits benefits of exemption in the financial year following the date of application for registration, not retrospectively. The Tribunal's interpretation was found to be erroneous as it ignored the main provision of Section 12A(2), thus nullifying the substantive provision by misinterpreting the proviso.2. Application of the Proviso to Section 12A(2) for Assessment Year 2011-12:The High Court examined whether the Tribunal rightly applied the proviso of Section 12A(2) for the assessment year 2011-12 when the assessee got registration under Section 12AA from the assessment year 2015-16. The Tribunal's interpretation that the benefits could be extended retrospectively if assessment proceedings were pending, including before the Tribunal, was found incorrect. The High Court emphasized that the proviso should be read harmoniously with the main provision. The proviso allows benefits for preceding assessment years only if the assessment proceedings are pending before the Assessing Officer, not before the Tribunal. The Tribunal's interpretation was thus flawed as it failed to consider the specific requirement of the proviso.3. Eligibility for Exemption under Section 11 without Registration under Section 12AA:The High Court addressed whether the assessee was eligible for exemption under Section 11 even when not registered under Section 12AA at the time of passing the assessment order. The Court reiterated that Section 12A(2) and its proviso extend benefits only from the assessment year following the financial year in which the application for registration was made. The Tribunal's decision to grant benefits for the assessment year 2011-12, despite the application for registration being submitted in 2015-16, was contrary to the statutory provisions. The High Court clarified that the benefit of Sections 11 and 12 could not be extended to the assessment year 2011-12 as the application for registration was made much later.Conclusion:The High Court allowed the appeal, setting aside the Tribunal's order. It held that the Tribunal had misinterpreted the proviso to Section 12A(2) and extended benefits retrospectively, which was not permissible under the law. The Court emphasized that the benefits of Sections 11 and 12 could only be applied from the assessment year following the financial year in which the application for registration was made, and not retrospectively. The substantial questions of law were answered in favor of the Revenue, underscoring the importance of reading the main provision and the proviso harmoniously to avoid making the substantive provision redundant.