2025 (3) TMI 1040 - AT - Income Tax

Trust denied exemption under sections 11 and 10(23C)(iiiad) for delayed Form 10B filing gets remand for proper verification

ITAT Pune remanded the case to AO after assessee trust was denied exemption under sections 11 and 10(23C)(iiiad) due to delayed filing of Form 10B. ... Denial of exemption u/s 11 and/or section 10(23C)(iiiad) - delayed filing of Form 10B - HELD THAT:- We note that this ground was not pressed by the assessee before the Ld. Addl./JCIT(A). The impugned issue is covered by the favourable order of the Co-ordinate Bench of Pune Tribunal in the case of Dr. Sukumar J. Magdum Foundation [2023 (8) TMI 1627 - ITAT PUNE] wherein the Tribunal under the similar set of facts had set aside the matter to the file of the Ld. AO holding that the total income needs to be computed in accordance with the regular provisions of the Act in case the benefit of exemption u/s 11 is not available. We set aside the impugned order of the Ld. Addl./JCIT(A) and restore the matter back to the file of the Ld. jurisdictional AO with a direction to verify whether the assessee is eligible for claim of exemption u/s 10/23(C)(iiiad)/11 of the Act and grant relief to the assessee as per the provisions of law as a result of such verification thereof. In case the assessee is found to be not eligible for claim of exemption u/s 10/23(C)(iiiad) jurisdictional AO is hereby directed to examine/verify the claim of expenditure made by the assessee trust against the gross receipts for the relevant AY and modify the assessment accordingly as a result of such examination/verification as per the fact and law after giving adequate opportunity of hearing to the assessee. Appeal of the assessee is treated as allowed for statistical purposes. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are as follows:Whether the assessee trust is entitled to exemption under Section 11 of the Income Tax Act, 1961, despite the delayed filing of Form 10B.Whether the assessee trust can claim exemption under Section 10(23C)(iiiad) of the Act, given that the gross receipts of each unit are less than Rs. 1 Crore.Whether the taxability of the assessee's income should be based on net commercial income rather than gross receipts.ISSUE-WISE DETAILED ANALYSIS1. Exemption under Section 11Legal Framework and Precedents: Section 11 of the Income Tax Act provides exemption to income derived from property held under trust for charitable or religious purposes, subject to certain conditions, including the filing of Form 10B.Court's Interpretation and Reasoning: The Tribunal noted that the assessee failed to file Form 10B within the stipulated time, which is a prerequisite for claiming exemption under Section 11.Key Evidence and Findings: The assessee trust was registered under Section 12A on 27.05.2021, after the relevant assessment year (AY 2020-21), and thus was not eligible for exemption under Section 11 for that year.Application of Law to Facts: The Tribunal upheld the decision of the Additional/Joint Commissioner of Income Tax (Appeals) in denying exemption under Section 11 due to non-compliance with procedural requirements.Treatment of Competing Arguments: The Tribunal acknowledged the assessee's argument for exemption but emphasized the necessity of adhering to statutory requirements.Conclusions: The Tribunal found no error in the denial of exemption under Section 11 due to the failure to file Form 10B.2. Exemption under Section 10(23C)(iiiad)Legal Framework and Precedents: Section 10(23C)(iiiad) provides exemption for educational institutions with gross receipts not exceeding Rs. 1 Crore.Court's Interpretation and Reasoning: The Tribunal considered whether the assessee could claim this exemption despite not raising it before the Assessing Officer (AO).Key Evidence and Findings: The assessee argued that each educational institution's receipts were below the Rs. 1 Crore threshold, qualifying them for exemption.Application of Law to Facts: The Tribunal noted that the claim for exemption under Section 10(23C)(iiiad) was not initially made in the return of income and thus was not considered by the AO.Treatment of Competing Arguments: The Tribunal acknowledged the assessee's eligibility under Section 10(23C)(iiiad) but highlighted procedural lapses in raising the claim.Conclusions: The Tribunal remanded the matter to the AO for verification of the assessee's eligibility under Section 10(23C)(iiiad).3. Taxability Based on Net Commercial IncomeLegal Framework and Precedents: The principle that income tax is levied on net income, not gross receipts, is well-established.Court's Interpretation and Reasoning: The Tribunal considered whether the AO erred in taxing the gross receipts without allowing for expenses.Key Evidence and Findings: The assessee provided a breakdown of income and expenses, arguing that only net income should be taxed.Application of Law to Facts: The Tribunal agreed that income should be computed on a net basis, deducting allowable expenses from gross receipts.Treatment of Competing Arguments: The Tribunal accepted the assessee's argument for taxing net income, citing relevant precedents.Conclusions: The Tribunal directed the AO to reassess the income based on net commercial income, considering allowable expenses.SIGNIFICANT HOLDINGSThe Tribunal emphasized the necessity of procedural compliance for claiming exemptions under the Income Tax Act.It reiterated that income tax is to be levied on net income, not gross receipts, aligning with established legal principles.The Tribunal remanded the case to the AO for further verification and reassessment of the assessee's eligibility for exemptions and the correct computation of taxable income.In conclusion, the Tribunal's decision underscores the importance of procedural compliance in tax matters while also ensuring that taxation is based on net income principles. The case was remanded to the AO for further verification and reassessment, providing the assessee an opportunity to substantiate its claims for exemption and correct income computation.