Trust exemption under sections 11 and 12 allowed despite registration granted during pending assessment proceedings

ITAT Pune allowed the trust's appeal for exemption under sections 11 and 12 of the IT Act. The trust received provisional registration under section 12A during pending assessment proceedings and was subsequently granted five-year registration from AY 2022-23 to 2026-27. The tribunal held that when registration is granted during pending proceedings with unchanged objects and activities, exemption benefits are available for that assessment year. Following the precedent in Shri Krishnabai Ghat Trust, the tribunal directed CPC to amend the intimation under section 143(1) considering the Form 10B audit report and registration certificate.

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Issues Involved:

1. Disallowance of exemption under Section 12A of the IT Act.
2. Eligibility for exemption under Section 10(23C)(iiiab).
3. Computation of taxable income for a charitable institution.
4. Taxation of gross receipts at Maximum Marginal Rate.
5. Additional grounds regarding provisional and permanent 12A registration.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption under Section 12A of the IT Act:

The primary issue revolves around the disallowance of the exemption claimed under Section 12A of the IT Act. The appellant, a society/trust registered under the Societies Act, 1860, and the Bombay Public Trust Act, 1950, has been providing educational facilities for the last 75 years. The trust filed its return of income along with Form 10B on 30.03.2022, claiming exemption under Section 11 of the IT Act. However, the CPC disallowed the claim amounting to Rs. 46,79,75,225, citing two reasons: (i) the detail of registration or approval under Section 12AB was not mentioned, and (ii) the audit report in Form 10B was not e-filed one month prior to the due date for furnishing the return under Section 139 of the Act. The Tribunal found that the provisional registration under Section 12A was granted on 07.04.2022, and the audit report was filed along with the return. The Tribunal held that the CPC was not justified in rejecting the claim merely on the basis of the belated filing of Form 10B, especially considering the delay was due to the COVID-19 pandemic. The Tribunal relied on precedents where similar delays were condoned, and exemptions were allowed.

2. Eligibility for Exemption under Section 10(23C)(iiiab):

The appellant argued that the trust is solely engaged in educational activities and is substantially financed by the government, thereby qualifying for exemption under Section 10(23C)(iiiab). The Tribunal, however, focused on the procedural aspects of the exemption under Section 12A and did not delve deeply into the merits of the claim under Section 10(23C)(iiiab). The Tribunal's decision primarily hinged on the procedural compliance and the provisional registration under Section 12A.

3. Computation of Taxable Income for a Charitable Institution:

The appellant contended that the taxable income of a charitable institution should be computed only after reducing all valid applications and granting the benefit of accumulation of income. The Tribunal, in its analysis, emphasized that the audit report in Form 10B was available with the CPC at the time of processing the return, and the provisional registration under Section 12A was in place. Therefore, the computation of taxable income should consider these factors, and the exemption under Section 11 should be allowed.

4. Taxation of Gross Receipts at Maximum Marginal Rate:

The appellant argued that the gross receipts of the society should not be taxed at the Maximum Marginal Rate without allowing the expenses incurred for meeting its educational objectives. The Tribunal did not specifically address this issue in detail but implied that the proper computation of income, considering the exemption under Section 11, would inherently address the issue of taxation at the Maximum Marginal Rate.

5. Additional Grounds Regarding Provisional and Permanent 12A Registration:

The appellant raised additional grounds stating that the provisional 12A registration dated 07.04.2022 and the permanent 12A registration dated 31.03.2023 entitle the appellant to claim exemption under Section 11 for AY 2021-22. The Tribunal agreed with this contention, noting that the provisional registration was granted during the pendency of the assessment proceedings, and the objects and activities of the trust remained the same. The Tribunal cited precedents where similar circumstances warranted the allowance of exemption under Sections 11 and 12, even if the registration was granted after the filing of the return but before the completion of the assessment.

Conclusion:

The Tribunal concluded that the CPC erred in disallowing the exemption under Section 11 merely due to the belated filing of Form 10B, especially considering the delay was caused by the COVID-19 pandemic. The Tribunal directed the CPC to amend the intimation issued under Section 143(1) in light of the Form 10B Audit Report and the provisional registration certificate under Section 12A. Consequently, the original grounds of appeal became infructuous, and the appeal was partly allowed.

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