2024 (9) TMI 1198 - HC - Income Tax

Trust denied Section 12AA exemptions but entitled to regular assessee deductions for legitimate tax assessment

Sree Venkateswara Educational Trust Versus The Income Tax Officer, Exemptions Ward, Salem

The Madras HC ruled in favor of the assessee regarding tax assessment for AY 2013-14. The trust obtained registration under Section 12AA only in 2016, ... Denial of exemption-cum-payment under the Act without actually filing application under Section 12A(a) - whether the appellant/assessee ought to have filed a revised return to claim deductions as a “Regular Assessee” or as an “Association of Person” - HELD THAT:- The appellant/assessee obtained registration under Section 12AA of the Act only on 02.03.2016. The case pertains to the Assessment Year 2013- 2014. Therefore, in terms of the decision of the Division Bench of this Court in M/s.Soundaram Chokkanathan Educational and Charitable Trust case [2020 (12) TMI 737 - MADRAS HIGH COURT] the benefit of registration would not enure in favour of the appellant/assessee after registration. The appellant/assessee cannot be denied all the legitimate deductions that would have been available, if the returns were filed either as a “Regular Assessee” or as an “Association of Person”. The purpose of assessment is to recover just tax and not subject an assessee to unjust tax by holding that no return was filed either as a “Regular Assessee” or as an “Association of Person” merely because revised return was not filed under Section 139(4) of the Act, within a time specified under Section 134 of the Act. The last date for filing the returns under Section 139(4) of the Act would have expired on 31.03.2015 which was just few days before the return was processed on 12.03.2015 under Section 143(1) of the Act. If assessments are to be completed, deductions and applicable exemptions that are otherwise available to an assessee ought to have been extended by the Assessing Officer to an assessee before finalizing the assessment. Since the appellant/assessee was not entitled to exemption as a Trust under Sections 11, 12 and 12A of the Act in absence of registration under the Act as it stood Section 12AA of the Act, the benefit of other deductions under the Act ought to have been given. The Assessing Officer is not expected to act mechanically to confirm the liability to fasten an unjust tax liability on an assessee. Therefore, we are inclined to set aside the Impugned Common Order and remit the case back to the AO to pass a fresh order under Section 143(3) of the Act. Decided in favour of assessee. Issues Involved:1. Applicability of the 1st proviso to Section 12A(2) of the Income Tax Act.2. Whether an appeal pending before the Commissioner can be deemed as an assessment proceeding pending before the Assessing Officer.3. Levy of tax on the gross income of the Trust due to denial of exemption under Section 11 for want of registration under Section 12AA.4. Whether proceedings under Section 154 should be considered as assessment proceedings pending before the Assessing Officer.5. The necessity of filing a revised return to make a fresh claim for deduction.Issue-wise Detailed Analysis:1. Applicability of the 1st proviso to Section 12A(2) of the Income Tax Act:The Tribunal held that the appellant's case did not fall within the 1st proviso to Section 12A(2) of the Act. The appellant had filed its return of income on 18.01.2014 as a Trust but did not have registration under Section 12AA during the assessment year in question. The application for registration was made on 31.12.2015, relevant to the assessment year 2016-2017. The Tribunal concluded that without the registration under Section 12AA, the appellant could not file its return as a Trust. Furthermore, the Tribunal noted that no material was placed to show scrutiny or genuineness of the appellant's claim for the earlier years.2. Whether an appeal pending before the Commissioner can be deemed as an assessment proceeding pending before the Assessing Officer:The Tribunal determined that an appeal pending before the Commissioner cannot be deemed to be an assessment proceeding pending before the Assessing Officer for the purposes of applying the 1st Proviso to Section 12A(2) of the Act. The appellant's claim that the assessment year 2013-2014 should be considered as pending before the Assessing Officer was rejected.3. Levy of tax on the gross income of the Trust due to denial of exemption under Section 11 for want of registration under Section 12AA:The Tribunal confirmed the levy of tax on the gross income of the Trust, as the exemption claimed under Section 11 was denied due to the absence of registration under Section 12AA. The Tribunal followed the precedent set in the case of Soundaram Chokkanathan Educational and Charitable Trust Vs. ITO, where a similar finding was made.4. Whether proceedings under Section 154 should be considered as assessment proceedings pending before the Assessing Officer:The Tribunal held that proceedings under Section 154 should not be taken as assessment proceedings pending before the Assessing Officer. The appellant had filed an application under Section 154 to rectify the alleged mistake in the assessment order, which was rejected by the Assessing Officer. The Tribunal upheld this rejection.5. The necessity of filing a revised return to make a fresh claim for deduction:The Tribunal referred to the Supreme Court judgment in Goetze (India) Ltd. Vs. CIT, which held that a claim for deduction must be made by filing a revised return and not through other means. The Tribunal noted that the appellant had not filed any revised return to claim deductions. Consequently, the Tribunal dismissed the appeal based on the principle that without a revised return, the appellant could not make a fresh claim for deduction.Conclusion:The High Court, while addressing the issues, observed that the appellant/assessee had not filed a revised return and thus could not make a fresh claim for deductions. However, the Court emphasized that the purpose of assessment is to recover just tax and not to subject an assessee to unjust tax. The Court set aside the Impugned Common Order dated 30.12.2019 and remitted the case back to the Assessing Officer to pass a fresh order under Section 143(3) of the Act, ensuring that legitimate deductions are extended to the appellant/assessee. The appeals were disposed of with the substantial questions of law partly answered in favor of the appellant/assessee.