Exemption under sections 11 and 12 allowed despite belated return filed within section 139(4) time limit

Rajasthan Nursing Council Versus The Assistant Director of Income Tax, CPC, Bangalore.

Rajasthan Nursing Council Versus The Assistant Director of Income Tax, CPC, Bangalore. - TMI 1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the exemption under section 11(2) of the Income Tax Act, 1961, relating to the amount set apart for specified purposes by a charitable institution registered under section 12AA, can be denied solely on the ground that the return of income was filed belatedly under section 139(4) instead of within the due date prescribed under section 139(1).
• Whether the belated filing of the return of income within the extended time allowed under section 139(4) satisfies the condition of filing "within time allowed under section 139" for claiming exemption under section 11, as clarified by CBDT Circulars No. 6/2020 dated 19.02.2020 and No. 173/193/2019-ITA-1 dated 23.04.2019.
• Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) erred in denying the exemption claim and in interpreting the relevant CBDT Circulars and judicial precedents.
• Whether the principle of natural justice was violated by not allowing the appellant proper opportunity of being heard.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Denial of exemption under section 11(2) due to belated filing of return of income

Relevant legal framework and precedents: Section 11(2) of the Income Tax Act allows charitable institutions to claim exemption on income accumulated or set apart for specified purposes, provided certain conditions are met, including timely filing of return of income. Section 139(1) prescribes the due date for filing returns, whereas section 139(4) allows filing of belated returns within a specified extended period. Section 12AA registration is a prerequisite for claiming exemption under section 11.

CBDT Circular No. 173/193/2019-ITA-1 dated 23.04.2019 and Circular No. 6/2020 dated 19.02.2020 clarify that for trusts registered under section 12AA, the return of income for claiming exemption under section 11 must be filed within the time allowed under section 139, which includes belated returns under section 139(4). The Bombay High Court in Trustees of Tulsidas Gopalji Charitable and Chaleshwar Temple Trust vs. CIT (1994) 207 ITR 368 held that returns filed within the time specified in section 139(4) should be considered as filed within the time prescribed under section 139(1) or (2).

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer denied exemption solely on the ground that the return was filed belatedly, i.e., after the due date under section 139(1). However, the return was filed within the extended time allowed under section 139(4), which the CBDT Circulars explicitly recognize as valid for claiming exemption under section 11. The Tribunal relied on the CBDT Circulars and judicial precedents to hold that the belated return filed within the prescribed extended period is deemed timely for the purpose of claiming exemption.

Key evidence and findings: The assessee filed the return on 24.12.2019 under section 139(4) before 31.03.2020, the last date for belated returns for AY 2019-20. Form 10B (Audit Report) was also filed within the due date. The Assessing Officer's denial was based on an incorrect interpretation of "due date" as only the original due date under section 139(1).

Application of law to facts: The Tribunal applied the CBDT Circulars and the Bombay High Court ruling to conclude that the return filed under section 139(4) within the extended period satisfies the statutory requirement of filing within time allowed under section 139. Therefore, the exemption under section 11(2) should not have been denied on this ground.

Treatment of competing arguments: The Revenue contended that the exemption could not be allowed as the return was not filed within the original due date. The Tribunal rejected this argument, holding that the CBDT Circulars are binding and clarify that belated returns filed within the extended time are valid for claiming exemption.

Conclusions: The Tribunal set aside the Assessing Officer's order denying exemption and held that the assessee was entitled to claim exemption under section 11(2) despite filing a belated return within the time prescribed under section 139(4).

Issue 2: Whether the CIT (Appeals) erred in not giving due regard to CBDT Circulars and judicial precedents

Relevant legal framework and precedents: CBDT Circulars No. 6/2020 and No. 173/193/2019-ITA-1 clarify the interpretation of the amended provisions of section 12A and section 11 regarding timely filing of returns. The Tribunal also referred to decisions of the Delhi Bench and Surat Bench of ITAT and the Bombay High Court supporting the view that belated returns filed within the extended time period are valid for exemption claims.

Court's interpretation and reasoning: The Tribunal observed that the CIT (Appeals) failed to give due consideration to these Circulars and precedents, particularly the binding nature of CBDT Circulars which direct rectification of demands raised on this issue. The CIT (Appeals) had also incorrectly held that it lacked authority to condone delay, ignoring that there was no delay as per the Circulars.

Key evidence and findings: The assessee's written submissions cited multiple judicial decisions and CBDT Circulars which were not adequately considered by the CIT (Appeals).

Application of law to facts: The Tribunal applied the Circulars and judicial rulings to conclude that the CIT (Appeals) erred in law and facts by not allowing exemption and by misinterpreting the Circulars.

Treatment of competing arguments: The Revenue's support for the CIT (Appeals) order was rejected as inconsistent with the authoritative Circulars and judicial pronouncements.

Conclusions: The Tribunal allowed the appeal and set aside the CIT (Appeals) order, holding that the exemption under section 11(2) should be allowed.

Issue 3: Alleged violation of natural justice by not allowing proper hearing

Relevant legal framework: Principles of natural justice require that a party be given a reasonable opportunity to be heard before adverse orders are passed.

Court's interpretation and reasoning: The Tribunal did not find any material on record indicating denial of opportunity to the assessee to present its case before the CIT (Appeals). The grounds raised on this issue were not substantiated.

Conclusions: No violation of natural justice was found.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The aforementioned Circular is very clear and unambiguous in so far as the return of income filed u/s 139 of the Act is concerned. The objection of the Assessing Officer was only on filing return of income after due date of filing return of income prescribed under section 139(1) of the IT Act, 1961. In this regard it is note-worthy that Hon'ble Bombay High Court in the case of Trustees of Tulsidas Gopalji Charitable and Chaleshwar Temple Trust vs. CIT (1994) 207 ITR 368 (Bom.) while adjudicating the issue, has held that 'On a careful reading of section 139 of the Act, we are of the clear opinion that sub-section (1) and (4) of section 139 have to be read together and on such a reading, the inevitable conclusion is that a return made within the time specified in sub-section (4) has to be considered as having been made within the time prescribed in sub-section (1) or sub-section (2) of section 139 of the Act.' We further find that CBDT in its Circular No. 6/2020 dated 19.02.2020 and Circular No. 173/193/2019-ITA-1 dated 23.04.2019 clarified that for availing benefit of Section 11, the registered under section 12AA shall file its return of income within time allowed under section 139. The NFAC/Ld. CIT (A) specifically held that Section 139 includes belated return under section 139(4) and CBDT has directed that demand raised on this issue are to be rectified."

Core principles established include:

• Belated returns filed within the time allowed under section 139(4) are deemed timely for the purpose of claiming exemption under section 11.
• CBDT Circulars clarifying the interpretation of filing time are binding and must be followed by Assessing Officers and Appellate Authorities.
• Denial of exemption solely on the ground of belated filing under section 139(4) is incorrect and contrary to law.

Final determinations on each issue:

• The exemption under section 11(2) claimed by the assessee was wrongly denied by the Assessing Officer and CIT (Appeals) on the ground of belated filing.
• The return filed under section 139(4) within the prescribed extended period satisfies the condition of timely filing under section 139 for claiming exemption.
• The CIT (Appeals) erred in not giving due regard to CBDT Circulars and judicial precedents.
• No violation of natural justice was found.
• The appeal was allowed and the exemption claim was restored.