2024 (6) TMI 1292 - AT - Income Tax

Charitable trust granted section 11 exemption after obtaining section 12AA registration before assessment order completion

ITAT Pune allowed the appeal, granting section 11 exemption to a charitable trust for AY 2016-17. The trust had received section 12AA registration on ... Denial of exemption u/s 11 - assessee being registered u/s 12A - HELD THAT:- The proviso to section 12A(2) was introduced to remove hardship caused to the genuine trust. In this case, assessee is a Charitable Trust. It has not been alleged by Revenue that assessee’s activities/objects are not charitable in nature, rather it is an admitted fact that assessee’s objects and activities are charitable in nature. CIT(E) after examining the objects and activities of the Trust, granted registration u/sec. 12AA of the Act to the assessee trust. The impugned order u/sec. 143(1) was issued on 02.01.2018 and registration u/s. 12AA of the Act was granted 20.10.2016, means at the time of issue of order u/s. 143(1), assessee was already having registration u/s. 12AA of the Act. We have already mentioned that proviso to section 12A(2) was introduced to remove hardship to the genuine trust. Therefore, as per proviso to section 12A(2) of the Act, assessee was eligible for deduction u/sec. 11 of the Act for A.Y. 2016-17. As relying on Shree Shyam Mandir Committee [2017 (10) TMI 1450 - RAJASTHAN HIGH COURT] Assessee is eligible for deduction u/sec. 11 of the Act for A.Y. 2016-17 as assessee had received registration u/sec. 12AA of the Act before the order u/sec. 143(1) for A.Y. 2016-17 was passed by Income Tax Central Processing Centre, Bangalore. Accordingly, grounds of appeal raised by the assessee are allowed. Issues Involved:1. Exemption under Section 11 of the Income Tax Act.2. Consideration of genuine expenses of the Trust.3. Applicability of Section 12AA registration to pending assessment proceedings.Issue-wise Detailed Analysis:1. Exemption under Section 11:The primary issue revolves around the denial of exemption claimed under Section 11 by the Assessing Officer (A.O.). The A.O. confirmed the total income of the assessee at Rs. 33,84,440/- against the returned income of Rs. 31,040/-. The assessee, a registered trust under Section 12A, claimed exemption under Section 11 for the Assessment Year (A.Y.) 2016-17. The A.O. denied this exemption, arguing that the registration granted under Section 12A was prospective and not applicable for A.Y. 2016-17. The Tribunal observed that the assessee had applied for registration under Section 12AA on 15.07.2016 and received it on 20.10.2016. As per Section 12A(2), the provisions of Sections 11 and 12 apply retrospectively if the assessment proceedings are pending at the time of registration. The Tribunal cited the proviso to Section 12A(2) and relevant case laws, including CIT(Exemptions) Vs. Shree Shyam Mandir Committee and Sree Sree Ramkrishna Samity Vs. DCIT, to support the retrospective applicability of Section 12AA registration. Consequently, the Tribunal held that the assessee was eligible for deduction under Section 11 for A.Y. 2016-17.2. Consideration of Genuine Expenses of the Trust:The Tribunal addressed the issue of whether the A.O. erred in not allowing genuine expenses of the Trust and instead considering the gross receipts as taxable income. Since the Tribunal allowed the benefit of exemption under Section 11, this issue became academic. However, the Tribunal agreed in principle that only the profit should be taxed and not the entire receipt if the benefit of Section 11 is denied.3. Applicability of Section 12AA Registration to Pending Assessment Proceedings:The Tribunal examined the applicability of Section 12AA registration to pending assessment proceedings. It referred to the proviso to Section 12A(2), which states that if registration is granted under Section 12AA, the provisions of Sections 11 and 12 apply to any income derived from property held under trust for any assessment year preceding the registration year, provided the assessment proceedings are pending. The Tribunal cited various judicial precedents, including decisions from the Rajasthan High Court and the ITAT Pune, which supported the retrospective applicability of Section 12AA registration. The Tribunal concluded that since the assessee received registration under Section 12AA before the order under Section 143(1) was passed, the assessee was eligible for deduction under Section 11 for A.Y. 2016-17.Ground Number 5:This ground pertained to 12AA proceedings, which were not related to the present appeal and did not arise from the impugned order under Section 250 of the Act. Hence, this ground was dismissed.Ground Number 6:Given that the Tribunal allowed the benefit of exemption under Section 11, this ground became academic. However, the Tribunal noted that if the benefit of Section 11 were to be denied, only the profit should be taxed and not the entire receipt.Ground Number 7:This ground was general in nature, and no additional or altered grounds were raised. Hence, it was dismissed.Conclusion:The appeal of the assessee was partly allowed, with the Tribunal granting the benefit of exemption under Section 11 for A.Y. 2016-17 and addressing other issues as academic or unrelated to the present appeal. The order was pronounced in the open Court on 26th June, 2024.