2022 (2) TMI 641 - AT - Income Tax

Tribunal grants exemption to charity after delay in form filing, emphasizing High Court directive on donation tax treatment.

The Tribunal allowed the appeal filed by the charitable organization, directing the Assessing Officer to grant exemption to the society. This decision was ... Exemption u/s 11 - Donation receipt from foreign donors - belated filing of Form No.10AA - HELD THAT:- As assessee, during the course of assessment proceedings, has filed the requisite details as asked for by the AO and also produced the books of accounts which were gone through by him on test check basis. AO has not pointed out any other defect other than (a) the belated filing of Form No.10AA and (b) the sworn affidavit filed by Mr. Michael Masih, Head of Finance of the assessee Trust stating that foreign donors are not assessee instead of any of the trustees. Other than the above two objections, there is no other objection by the AO regarding any defect or any diversion of funds by the trust for the benefit of the trustees. As mentioned earlier, the trust is functioning in accordance with the aims and objectives as per its Memorandum of Association. There is no allegation of the AO that the assessee has violated in any manner regarding the non-fulfillment of the conditions prescribed u/s 12(3) of the Act after the application was accepted by the competent authority. The submission the assessee society is already registered under FCRA and is entitled to receive the foreign contribution for charitable activities and, therefore, it is out of the purview of section 2(7)/12(3) of the IT Act, 1961 could not be controverted by the ld. DR. Assessee has filed Form No.FC-III-FCRA-2010 which has been duly assessed with the Ministry of Home Affairs, Government of India. Under these circumstances and considering the fact that since the assessee, during the course of assessment proceedings, has produced the relevant details and produced the books of account which have been gone through by the AO and no other defects were pointed out, therefore, considering the totality of the facts of the case and this being a very old matter relating to AY 2004-05, the argument of the ld. DR that the matter should be remanded back to the AO for verification, in our opinion, is not justified. We, therefore, set aside the order of the CIT(A) and direct the AO to allow the exemption. - Decided in favour of assessee. Issues Involved:1. Whether the CIT(A) was justified in upholding the AO's denial of exemption to the assessee society.2. Whether the AO was correct in treating donations from foreign donors as taxable income under section 12(3) of the IT Act.3. Whether the belated filing of Form No.10AA justified the addition made by the AO.4. Whether the CIT(A) erred in not considering the order of the Hon'ble Delhi High Court regarding the directory nature of the time limit for filing Form No.10AA.5. Whether the AO and CIT(A) properly addressed the utilization of donations for the Gujarat Earthquake relief.Detailed Analysis:1. Justification of CIT(A) in Upholding AO's Denial of Exemption:The CIT(A) upheld the AO's decision to deny the exemption claimed by the assessee society, which is a charitable organization registered under section 12A of the IT Act. The primary reason for this denial was the belated filing of Form No.10AA. The CIT(A) agreed with the AO that the failure to file the form by the due date was sufficient grounds to treat the donations as taxable income, despite the charitable nature and activities of the society.2. Treatment of Donations from Foreign Donors as Taxable Income:The AO treated donations from foreign donors as taxable income under section 12(3) of the IT Act, arguing that foreign donors could still be considered assessees under the Act. The CIT(A) supported this view, stating that the term 'assessee' has a broad definition and the affidavit provided by the assessee's finance head was not sufficient evidence to prove that foreign donors were not assessees. This led to the inclusion of Rs. 24,43,41,176 from foreign donors as taxable income.3. Belated Filing of Form No.10AA:The AO and CIT(A) both emphasized the importance of timely filing Form No.10AA, which was submitted by the assessee on 27th March 2006, well past the due date of 30th June 2004. This delay was initially not condoned, leading to the addition of Rs. 24,51,58,191 as taxable income. However, subsequent legal proceedings, including a direction from the Hon'ble Delhi High Court and an order from the CBDT, led to the condonation of this delay. The Tribunal noted that the delay had been condoned and that the AO had already examined the books of account during the assessment proceedings.4. Consideration of the Hon'ble Delhi High Court's Order:The CIT(A) did not fully consider the Hon'ble Delhi High Court's order, which stated that the time limit for filing Form No.10AA is directory and not mandatory. This oversight was significant as it directly impacted the treatment of the donations received for the Gujarat Earthquake relief. The Tribunal highlighted this point, noting that the High Court had remanded the matter back to the competent authority to decide on the merits of the case.5. Utilization of Donations for Gujarat Earthquake Relief:The AO acknowledged that the donations were utilized for the intended purpose of providing relief to the Gujarat Earthquake victims. However, the AO still treated the donations as taxable income due to the belated filing of Form No.10AA. The Tribunal found that the AO had verified the books of account and other details during the assessment proceedings and did not point out any misuse of funds. The Tribunal concluded that since the delay in filing Form No.10AA had been condoned and the donations were used for charitable purposes, the exemption should be allowed.Conclusion:The Tribunal set aside the order of the CIT(A) and directed the AO to allow the exemption, considering the condonation of the delay in filing Form No.10AA and the proper utilization of donations for the Gujarat Earthquake relief. The appeal filed by the assessee was allowed.