2023 (9) TMI 434 - AT - Income Tax

Tribunal denies tax exemption for educational society, rules against government financing & profit motive.

Chhattisgarh Rajya Open School Madhyamik Siksha Mandal Versus The Deputy Commissioner of Income Tax, Exemption Circle, Raipur (C.G.)

The Tribunal upheld the denial of exemption under Section 10(23C)(iiiab) of the Income-tax Act, 1961 for the assessee society, as it did not meet the ... Exemption u/s. 10(23C)(iiiab) - Claim of exemption with retrospective effect - Applicability of CBDT circular issued by CBDT for the purpose of exemption u/s 11 - assessee society was not in receipt of any government grants during the year under consideration - triggering the “2nd proviso” to Section 12A - AR submitted that the assessee society had before the framing of assessment in its case for the year under consideration, applied for registration u/s. 12AA of the Act in “Form 10A” on 31.10.2018 - CIT-DR submitted that the “2nd proviso” to Section 12A(2) of the Act could not be pressed into service by the assessee society in the course of hearing of the present appeal wherein the issue involved was confined to declining of its claim of exemption u/s. 10(23C)(iiiab) - HELD THAT:- Admittedly, the “2nd proviso” to sub-section (2) of Section 12A of the Act contemplates that where registration had been granted to the trust or institution u/s.12AA of the Act, then the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the A.O as on the date of such registration, though subject to the condition that the objects and activities of such trust or institution remain the same for such preceding assessment year. CBDT Circular No.01/2015 dated 21.05.2015 (applicable w.e.f. 01.10.2014) in order to remove hardships to charitable organizations due to non-application for registration for the period prior to the year of registration had come to the rescue of such assessee’s for the years preceding the year of registration. As per the aforesaid CBDT Circular No.01/2015 (supra), the benefit of Sections 11/12 of the Act would be available to an assessee for a period prior to the year of registration despite the fact that no application for registration for the said period had been filed. The only rider/pre-condition that is required to be satisfied for bringing a case within the realm of the CBDT Circular No.01/2015 (supra) is that the assessment proceedings for the said preceding assessment year is pending before the A.O on the date of registration u/s. 12AA of the Act. Claim of the Ld. AR that the A.O be directed as per the provisions of sub section (2) to Section 12A of the Act to allow exemption u/s. 11 & 12 of the Act and exclude the income of the assessee society from the scope of its total taxable income for the year under consideration does not merit acceptance. In our considered view, the Ld. AR has on the basis of premature observations misconceived and wrongly construed the concession contemplated in the “1st proviso” to Section 12A(2) of the Act, and sought a direction to the said effect in the present appeal which challenges the declining of its claim of exemption u/s. 10(23C)(iiiab) of the Act. Although the claim raised on the basis of “additional ground of appeal” by the assessee society for relief/concession contemplated in the “2nd proviso” to Section 12A(2) of the Act does not emanate from the orders of the lower authorities, but as the same involves purely a question of law based on the facts available on record, therefore, the same is admitted. As the assessee society had been granted registration u/s. 12AA of the Act by the CIT(Exemption), Bhopal vide his order dated 14.07.2023, on which date its assessment for the year under consideration, i.e. A.Y.2016-17 was not pending before the A.O, as the same had culminated vide an order passed by him u/s. 143(3) of the Act, dated 12.12.2018, therefore the sine-qua-non for triggering the “2nd proviso” to Section 12A of the Act, i.e. “assessment proceedings are pending before the Assessing Officer as on the date of such registration” is not found to be satisfied. Accordingly, in absence of satisfaction of the pre-condition contemplated in the “2nd proviso” to Section 12A(2) of the Act and CBDT Circular No.01/2015, the assessee society is not found to be entitled to avail the concession/relief therein provided. As the assessee in the aforesaid case, had assailed the declining of the benefits under Sections 11/12 of the Act before the Tribunal, therefore, the facts therein involved are distinguishable as against those of the present assessee trust, wherein the declining of its claim for exemption u/s 10(23C)(iiiab) has been assailed before us. Apropos the claim of the AR that the AO/CIT(Exemption) remained under a statutory obligation to have guided the assessee society, which admittedly not being wholly and substantially financed by the government, was disentitled from raising a claim for exemption u/s. 10(23C)(iiiab) of the Act, to have applied for registration and raised a claim of exemption u/s. 10(23C)(vi) we are of the considered view that as the said issue does not emanate from the orders of the lower authorities, therefore, we refrain from dealing with the same. Thus, the additional ground of appeal raised by the assessee society being devoid and bereft of any merit is dismissed in terms of our observations above. Issues Involved:1. Denial of exemption claimed under Section 10(23C)(iiiab) of the Income-tax Act, 1961.2. Non-consideration of alternate submission for exemption under Section 10(23C)(vi) of the Income-tax Act, 1961.3. Additional ground for exemption under Sections 11 and 12 of the Income-tax Act, 1961 based on Section 12A(2).Summary:Issue 1: Denial of Exemption under Section 10(23C)(iiiab)The assessee society claimed an exemption of Rs. 5,24,17,851/- under Section 10(23C)(iiiab) of the Income-tax Act, 1961. The Assessing Officer (A.O.) observed that the society did not receive any government grants during the year under consideration and, therefore, did not meet the conditions for exemption under this section. The A.O. noted that the society must be 'wholly or substantially financed by the government' and exist 'solely for the purpose of education and without any profit motive.' The CIT(Appeals) upheld the A.O.'s decision, and the Tribunal dismissed the appeal, agreeing that the society did not fulfill the necessary conditions.Issue 2: Non-Consideration of Alternate SubmissionThe assessee argued that the A.O. should have advised them to seek exemption under Section 10(23C)(vi) as per CBDT's Circular No.14/XL/35 dated 11/04/1955. However, the Tribunal noted that this issue did not emanate from the orders of the lower authorities and refrained from addressing it.Issue 3: Additional Ground for Exemption under Sections 11 and 12The assessee raised an additional ground, arguing that they should be allowed exemption under Sections 11 and 12 based on the provisions of Section 12A(2) since they had applied for registration under Section 12AA. The Tribunal noted that although the registration was granted on 14.07.2023, the assessment for the year under consideration (A.Y. 2016-17) was not pending before the A.O. on the date of such registration. Therefore, the pre-condition for triggering the '2nd proviso' to Section 12A(2) was not satisfied. Consequently, the Tribunal dismissed the additional ground of appeal.Conclusion:The Tribunal dismissed the appeal, upholding the denial of exemption under Section 10(23C)(iiiab) and rejecting the additional ground for exemption under Sections 11 and 12. The Tribunal also did not address the alternate submission for exemption under Section 10(23C)(vi) as it was not part of the lower authorities' orders.