2023 (9) TMI 1516 - AT - Income Tax

Trust loses section 11 exemption after registration cancellation despite jurisdictional orders for restoration

Ram Saran Dass Kishorei Lal Charitable Trust Versus Joint Commissioner of Income Tax, Range-1, Amritsar

ITAT Amritsar upheld the denial of exemption under section 11 to a trust. The trust's registration under section 12AA was cancelled by CIT, changing its ... Exemption u/s 11 - Jurisdiction of the ld. CIT-1 about the cancellation of registration of the assessee-trust u/s 12AA (3) - CIT(A) upheld the observation of the ld. AO that the status of the assessee is a AOP due to not registered u/s 12AA - status of the assessee was changed from registered to unregistered trust as per section 12AA(3) of the Act by the order of revenue HELD THAT:- Hon’ble Jurisdictional High Court which is fully related to the jurisdictional of the ld. CIT-1 about the cancellation of registration of the assessee-trust u/s 12AA (3) of the Act. But the assessment u/s 143(3) is related to the claim of exemption u/s 11 which is read with section 12A of the Act. The exemption is allowable for the registered trust not for the unregistered trust. With due respect, the order of the Hon’ble Jurisdictional High Court is binding on section 12AA for restoration of registration. Section 12A provides for the conditions for applicability of sections 11 and 12 of the Act. Section 11 deals with income from property held for charitable or religious purposes, while Section 12 deals with income of trusts or institutions from voluntary contributions1. To be eligible for registration under Section 12A, a trust or institution must meet certain conditions and requirements. The above-mentioned order of Hon’ble jurisdictional High Court is applicable for the ld. CIT-1 and for Section 12AA. The issuance the certificate of registration by the ld. CIT-1 is the proof of acceptance that the assessee had performed the conditions mentioned in statute which forms the eligibility of assessee to get benefit U/s 11 & 12 of the Act. But during the hearing, AR was unable to produce the copy of registration u/s 12AA of the Act which is the pillar for claiming exemption u/s 11 and 12 of the Act. The observation of the ld. CIT(A) is fully acceptable. We do not interfere in the orders passed u/s 143(3) and u/s 250 (6) by the revenue authorities. Decided against assessee. Issues Involved:1. Determination of whether the appellant is carrying on charitable activities.2. Assessment of the appellant in the status of an Association of Persons (AOP).3. Rejection of the appellant's claim of exemption under section 11 of the Income Tax Act, 1961.4. Reliance on the ITAT Amritsar order confirming the cancellation of the appellant's registration under section 12A(a).5. Charging of interest under section 234B of the Income Tax Act, 1961.Detailed Analysis:Issue 1: Determination of Charitable ActivitiesThe appellant contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in holding that the appellant was not carrying on charitable activities during the year under appeal. The CIT(A) upheld the Assessing Officer's (AO) view that the appellant was not engaged in charitable activities, leading to the cancellation of the appellant's registration under section 12A(a) with retrospective effect from April 1, 2002. The appellant's subsequent appeal to the ITAT Amritsar Bench was unsuccessful, and the matter was taken to the Punjab & Haryana High Court, which ruled in favor of the appellant, stating that the CIT-1 had acted beyond jurisdiction.Issue 2: Assessment as an Association of Persons (AOP)The CIT(A) agreed with the AO's assessment of the appellant in the status of an AOP due to the cancellation of its registration under section 12AA(3). The appellant argued that the CIT-1 had no power to cancel the registration before October 1, 2004, as per the provisions of the Act. The High Court's judgment, which restored the registration, was cited by the appellant. However, the ITAT observed that the restoration of registration did not automatically entitle the appellant to exemption under section 11 for the impugned assessment years.Issue 3: Rejection of Exemption under Section 11The appellant's claim for exemption under section 11 was rejected by the AO and upheld by the CIT(A). The ITAT noted that the exemption under section 11 is only applicable to registered trusts. Since the appellant could not produce a copy of the registration under section 12AA during the hearing, the ITAT upheld the CIT(A)'s decision to deny the exemption.Issue 4: Reliance on ITAT Amritsar OrderThe CIT(A) relied on the ITAT Amritsar's order dated June 26, 2009, which confirmed the cancellation of the appellant's registration under section 12A(a). The appellant argued that this order had not attained finality as their appeal was pending before the Punjab & Haryana High Court. The High Court eventually ruled in favor of the appellant, but the ITAT noted that the restoration of registration did not affect the assessment orders for the years in question.Issue 5: Charging of Interest under Section 234BThe appellant challenged the CIT(A)'s confirmation of the AO's action in charging interest under section 234B. The appellant argued that there was no default in payment of advance tax as the cancellation of registration was done retrospectively. The ITAT did not provide a detailed analysis on this issue, noting it as consequential in nature.Conclusion:The ITAT dismissed all the appeals of the appellant, upholding the CIT(A)'s decisions on all grounds. The appellant's arguments regarding the restoration of registration and the claim for exemption under section 11 were not accepted due to the lack of a valid registration certificate under section 12AA for the relevant assessment years. The ITAT's decision was pronounced in the open court on September 20, 2023.