2025 (1) TMI 1391 - AT - Income Tax

Trust Allowed Tax Exemption Despite Late Filing; Tribunal Cites CBDT Circular and Section 139(4A) Compliance

KM Educational & Rural-Development Trust Versus The ITO, Exemptions Ward, Madurai

The Tribunal ruled that the assessee Trust is entitled to claim an exemption under Section 11 of the Income Tax Act, 1961, despite filing its Return of ... Denial of exemption claimed u/s.11- assessee didn’t file the return of income (RoI) within the time limit prescribed u/s.139(1) - HELD THAT:- If the assessee has filed its RoI within the time allowed u/s.139 of the Act, [i.e. even if it is filed belatedly before the time allowed u/s.139(4A) of the Act], then the CBDT circular has directed CPC to rectify its orders passed u/s.143(1)(a) of the Act as well as demands raised be also rectified. Since CBDT Circular is binding on the Income Tax Authority, we find that the CIT(A) erred in not following it, since assessee has filed its ITR/RoI well before time allowed u/s 139(4A) of the Act. Therefore, we set aside the impugned order of the Ld.CIT(A) and restore this issue back to the file of the Ld.CIT(A) with a direction to pass rectification order as per the CBDT Circular No.173/193/2019-ITA–I dated 23.04.2019. Appeal filed by the assessee is allowed for statistical purposes. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the assessee Trust was entitled to claim an exemption under Section 11 of the Income Tax Act, 1961, despite filing its Return of Income (RoI) after the due date prescribed under Section 139(1) of the Act, but within the extended period allowed under Section 139(4A).ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe primary legal framework revolves around Sections 11, 12A, 139(1), and 139(4A) of the Income Tax Act, 1961. Section 11 provides exemptions for income derived from property held under trust for charitable or religious purposes. Section 12A outlines conditions for availing such exemptions, including the requirement to file a return of income. Section 139(1) specifies the due date for filing returns, while Section 139(4A) allows for belated filing under certain circumstances.Court's Interpretation and ReasoningThe Tribunal noted that the Central Board of Direct Taxes (CBDT) issued a circular (Circular No. F.No.173/193/2019-ITA-I dated 23.04.2019) clarifying that trusts registered under Section 12AA, which file their returns within the time allowed under Section 139(4A), should not be denied exemptions under Section 11. The Tribunal emphasized that this circular is binding on the Income Tax Authority.Key Evidence and FindingsThe Tribunal considered the fact that the assessee Trust had filed its return on 30.11.2018, which was after the due date under Section 139(1) but within the time allowed under Section 139(4A). The Audit Report in Form 10B was also filed late but was condoned by the competent authority.Application of Law to FactsThe Tribunal applied the CBDT circular to the facts of the case, concluding that the assessee Trust had complied with the requirements for claiming an exemption under Section 11 by filing its return within the extended period allowed under Section 139(4A).Treatment of Competing ArgumentsThe Tribunal addressed the argument made by the Ld. CIT(A) and CPC that the exemption was denied due to the late filing of the return as per Section 139(1). The Tribunal countered this by emphasizing the binding nature of the CBDT circular, which allowed for the exemption if the return was filed within the period allowed under Section 139(4A).ConclusionsThe Tribunal concluded that the Ld. CIT(A) erred in upholding the denial of the exemption under Section 11. The Tribunal set aside the impugned order and directed the Ld. CIT(A) to rectify the order in accordance with the CBDT circular.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal highlighted the importance of the CBDT circular, stating, 'Since CBDT Circular is binding on the Income Tax Authority, we find that the Ld.CIT(A) erred in not following it, since assessee has filed its ITR/RoI well before time allowed u/s 139(4A) of the Act.'Core Principles EstablishedThe judgment reinforces the principle that CBDT circulars are binding on income tax authorities and should be adhered to when they provide clarity on procedural compliance, such as filing deadlines for claiming exemptions.Final Determinations on Each IssueThe Tribunal allowed the appeal for statistical purposes, directing the Ld. CIT(A) to pass a rectification order in line with the CBDT circular, thereby allowing the assessee Trust to claim the exemption under Section 11.