2023 (8) TMI 1574 - AT - Income Tax

Trust entitled to Section 11 benefits despite missing Section 12AA registration certificate copy during assessment proceedings

Shri Parnami Panchayat Versus ITO, (Exemptions), Ward-1, Jaipur

ITAT Jaipur allowed the appeal of a trust that was denied Section 11 benefits by CIT(A) for failing to produce a copy of its Section 12AA registration ... Denial of benefit of Section 11 assessee had failed to produce copy of registration certificate u/s 12AA already granted - HELD THAT:- Bench feels that the ld. CIT(A) should have allowed the benefit of Section 11 as the assessee trust has already been granted registration u/s 12AA by the CIT(E). This view is also taken in the case of CIT vs Shree Shyam Mandir Committee [2017 (10) TMI 1450 - RAJASTHAN HIGH COURT] We do not concur with the findings of the CIT(A) denying the benefit of Section 11 to the assessee trust as it has already been granted registration u/s 12AA of the Act and the same should be considered for the year under consideration. Thus the ground of appeal allowed. Issues Involved:1. Eligibility for Section 12AA registration and its retrospective application.2. Addition of surplus income and taxation at Maximum Marginal Rate.3. Consideration of precedents and jurisdictional High Court rulings.4. Charging of interest under Section 234B.Issue-wise Detailed Analysis:1. Eligibility for Section 12AA Registration and Its Retrospective Application:The primary issue was whether the assessee trust was entitled to the benefits of Sections 11 and 12 of the Income Tax Act for the assessment year 2010-11, despite being granted registration under Section 12AA only in 2018. The assessee argued that the registration should apply retrospectively, as the appeal was pending when the registration was granted. The Tribunal noted that the registration under Section 12AA was granted before the order was passed by the National Faceless Appeal Centre (NFAC), and as per the proviso to Section 12A(2), the benefits should apply retrospectively to pending cases. The Tribunal cited the Rajasthan High Court's decision in Shree Shyam Mandir Committee, which held that subsequent registration operates retrospectively for relevant years. Consequently, the Tribunal allowed the benefit of Section 11 to the assessee trust.2. Addition of Surplus Income and Taxation at Maximum Marginal Rate:The Assessing Officer (AO) had treated the surplus income of Rs. 22,97,578 as income of the assessee trust and denied the benefit of Section 11 due to the absence of the registration certificate during the reassessment proceedings. The AO assessed this surplus as income in the status of an Association of Persons (AOP) and taxed it at the Maximum Marginal Rate. The Tribunal found that the AO's action was not sustainable, given that the trust was subsequently granted registration under Section 12AA, which should have been considered by the NFAC. The Tribunal disagreed with the AO's decision to treat the surplus as taxable income without granting the benefits of Section 11.3. Consideration of Precedents and Jurisdictional High Court Rulings:The Tribunal emphasized the binding nature of jurisdictional High Court decisions, specifically the Rajasthan High Court's ruling in Shree Shyam Mandir Committee, which supported the retrospective application of Section 12AA registration. The Tribunal also considered other ITAT decisions that aligned with this view, reinforcing that appellate proceedings are an extension of the assessment proceedings. The Tribunal distinguished the case from contrary rulings cited by the Revenue, noting differences in procedural context and the relevance of subsequent registration.4. Charging of Interest Under Section 234B:The Tribunal addressed the issue of interest charged under Section 234B, noting that it is mandatory and consequential in nature. However, since the primary grounds of appeal regarding the denial of Section 11 benefits were allowed, the issue of interest became moot in light of the Tribunal's decision to grant the exemption benefits.Conclusion:The Tribunal ruled in favor of the assessee, allowing the appeal and granting the benefits of Section 11 for the assessment year 2010-11, based on the retrospective effect of the Section 12AA registration. The Tribunal's decision was guided by the jurisdictional High Court's precedent and the interpretation of Section 12A(2), which supports the application of exemption benefits to pending cases upon the grant of registration. The appeal was allowed, and the addition of surplus income and the application of the Maximum Marginal Rate were overturned.