2020 (12) TMI 550 - AT - Income Tax

Trust's Exemption Restored After Tribunal Decision Overturns Denial

Amateur Riders Club Versus ITO (Exemption) – 1 (1), Mumbai

The Tribunal allowed the appeal, remitting the matter to the A.O. for reassessment. The denial of exemption under Section 11 was overturned as the ... Exemption u/s 11 denied - registration u/s 12A of the Act was revoked w.e.f A.Y 2009-10 - assessment without considering the restoration of registration u/s 12A - HELD THAT:- We considering the factual aspects and restoration of Registration u/sec 12A of the Act by the Hon’ble Tribunal in the year 2016 are of the view that at the time of passing the assessment order for this Assessment year the Assessing officer does not have the knowledge or information that the Hon’ble Tribunal has set aside the order of cancellation in the year 2016 as the Assessment order was passed for the present assessment year under 143(3) of the Act on 21.03.2015. Therefore, we are of the substantial view that the assessment without considering the restoration of registration u/s 12A of the Act is not a valid assessment. AR expressed that no action was initiated on order giving effect (OGE) by the A.O and is in the process. The ld. DR also could not give the correct position of the order giving effect (OGE) of the Hon’ble ITAT order. We considering the provisions of law and the judicial precedence are of the view that the matter has to be remitted to the file of A.O to consider the restoration of registration granted u/s 12A of the Act in the year 2016 and the order giving effect (OGE) for the A.Y 2009-10 and 2011-12 which is pending before the Assessing officer. Accordingly to meet the ends of justice, we restore the disputed issues in assessee’s appeal to the file of the A.O for the limited purpose with the above directions and the A.O has to verify and examine the facts and do the assessment based on the Restoration of registration under 12A of the Act and allow the grounds of appeal of the assessee for statistical purpose. Issues Involved:1. Non-granting of exemption under Section 11 of the Income Tax Act, 1961.2. Computation of income by incorrect application of the principle of mutuality.Issue-wise Detailed Analysis:1. Non-granting of exemption under Section 11:The core issue in this appeal is the denial of exemption under Section 11 of the Income Tax Act, 1961. The assessee, a trust registered with the Charity Commissioner of Mumbai, had its registration under Section 12A canceled by the Director of Income-Tax (Exemptions) [DIT(E)], Mumbai, effective from the Assessment Year (A.Y.) 2009-10. The Assessing Officer (A.O.) determined that the activities of the trust were business activities as per the amended proviso to Section 2(15) read with Section 13(8) of the Income Tax Act, and thus, the trust was not entitled to exemption under Section 11. The A.O. also noted that the trust was running hotels, permit rooms, and receiving hire charges from marriage ceremonies, which were not considered charitable activities.Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, relying on the fact that the registration under Section 12A was canceled and the activities did not qualify as charitable. However, the assessee contended that the cancellation of the registration was set aside by the Hon’ble ITAT for A.Y. 2009-10 and 2011-12, and thus, the exemption under Section 11 should be granted.The Hon’ble ITAT, upon hearing the appeal, noted that the cancellation of registration under Section 12A was indeed set aside by the Tribunal in earlier years. The Tribunal observed that the CIT(A)'s decision to deny the exemption was primarily based on the canceled registration, which had been restored. Therefore, the reasoning of the CIT(A) was no longer valid.The Tribunal referred to its previous orders and judicial precedents, emphasizing that the activities of the trust were not proven to be non-genuine or in violation of its objects. Consequently, the Tribunal set aside the CIT(A)'s order and restored the exemption under Section 11, directing the A.O. to reassess the income considering the restored registration under Section 12A.2. Computation of income by incorrect application of the principle of mutuality:The assessee also contended that the A.O. erred in not computing the income by correctly applying the principle of mutuality. The A.O. had assessed the income based on the mutuality concept, considering the trust's activities as business activities and not charitable.The Tribunal, while addressing the primary issue of exemption under Section 11, did not delve deeply into the principle of mutuality. However, by restoring the exemption under Section 11, the Tribunal implicitly addressed the computation of income, directing the A.O. to reassess the income in light of the restored registration and the applicable provisions of the Income Tax Act.Conclusion:The Tribunal allowed the appeal for statistical purposes, remitting the matter to the A.O. with directions to reassess the income considering the restored registration under Section 12A and the exemption under Section 11. The Tribunal emphasized the need for the A.O. to verify and examine the facts based on the restoration of registration and the judicial precedents set in the assessee's favor for earlier assessment years. The appeal was thus allowed for statistical purposes, ensuring that the assessee's claim for exemption under Section 11 is reconsidered in light of the restored registration.