2025 (9) TMI 1051 - AT - Income Tax

s.11 exemption set aside where s.12A registration occurred during pending appeals; AO to re-examine identical objects and activities

Dharmbhaskar Rashtrasant Shripachlegavkar Maharj Pratishtan Versus Exemption Ward-1 (2), Pune

ITAT PUNE (AT) set aside the CIT(A)'s orders denying s.11 exemption where s.12A registration had been granted on 02.12.2016 while earlier assessment ... Denial of exemption u/s 11 - registration u/s12AA is granted while assessment proceedings in respect of earlier assessment years are pending in appeal before the first appellate authority - HELD THAT:- The assessment proceedings were pending during appeal when registration u/s 12AA was granted to the assessee on 02.12.2016. We have perused the order in the case of M/s. Shri Vishwakalyan Jivraksha Pratishthan[2016 (8) TMI 1000 - ITAT PUNE] At the time of passing of the impugned orders, the assessee trust was already registered u/s 12A of the Act vide registration certificate dated 02.12.2016. Having said so, we also note that the said proviso further stipulates that the objects and activities of the trust should remain the same for such preceding assessment year (in the present case AY 2011-12 and AY 2013-14). There is nothing on record before us which suggests that such exercise of examining whether objects and activities of the assessee trust were the same for AYs 2011-12 and 2012-13 under consideration or not even post obtaining the registration u/s 12A of the Act subsequently on 02.12.2016, has been done by the lower authorities. In this view of the matter coupled with the facts and legal position set enumerated above, we deem it fit, in the interest of justice, to set aside the impugned order(s) of the Ld. CIT(A) and restore the matter to the file of the Ld. AO with a direction to re-examine the claim of the assessee afresh. ISSUES PRESENTED AND CONSIDERED 1. Whether the proviso to section 12A(2) applies where registration under section 12AA is granted while assessment proceedings in respect of earlier assessment years are pending in appeal before the first appellate authority, i.e., whether 'assessment proceedings pending before the Assessing Officer' includes appellate proceedings pending before the Commissioner (Appeals). 2. Whether subsequent grant of registration under section 12AA (with retrospective effect) entitles a trust to claim exemptions under sections 11 and 12 for earlier assessment years for which assessment proceedings were pending, notwithstanding that earlier assessment order(s) were initially completed without registration. 3. Whether the condition in the proviso that 'the objects and activities of such trust or institution remain the same for such preceding assessment year' must be examined by the assessing authority before allowing exemption on the basis of subsequent registration, and the consequences of failure by lower authorities to undertake that examination. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Meaning of 'assessment proceedings pending before the Assessing Officer' for proviso to section 12A(2) Legal framework: The proviso to section 12A(2) (as inserted by Finance (No.2) Act, 2014 w.e.f. 01.10.2014) provides that where registration under section 12AA is granted, sections 11 and 12 shall apply in respect of income of any preceding assessment year 'for which assessment proceedings are pending before the Assessing Officer as on the date of such registration'. A further proviso bars action under section 147 in such cases for non-registration for that earlier year. Precedent treatment: Coordinate Tribunal decisions have interpreted the proviso as retrospective and purposive, holding that pendency of appellate proceedings should be treated as continuation of assessment proceedings (cited decisions include tribunal orders treating appellate pendency as covered). The Supreme Court authority on computation principles (Programme for Community Organisation) was relied upon for computation approach where exemption denied. Interpretation and reasoning: The Court adopts a purposive construction: appeals filed against assessment orders are continuations of original assessment proceedings and, in substance, are co-terminus with the Assessing Officer's proceedings because the appellate authority exercises powers that derive from and continue the original proceedings. Narrowly construing 'pending before the Assessing Officer' to exclude appellate pendency would frustrate the remedial and retrospective intent of the proviso designed to relieve genuine charitable trusts from hardship caused by delayed registration. Ratio vs. Obiter: Ratio - Appellate proceedings pending before the first appellate authority constitute 'assessment proceedings pending before the Assessing Officer' for the purposes of the proviso to section 12A(2), entitling trusts to benefit of subsequent registration granted during such pendency. Obiter - observations on legislative memorandum and fairness of the proviso as a policy matter. Conclusion: The proviso is to be read to include assessment proceedings pending in appeal before the Commissioner (Appeals); therefore, registration granted during appeal pendency can attract the benefit of sections 11 and 12 for the relevant earlier assessment years, subject to other conditions of the proviso. Issue 2 - Effect of subsequent registration under section 12AA on entitlement to exemptions under sections 11 and 12 Legal framework: Sections 11 and 12 provide substantive exemptions for charitable trusts; sections 12A/12AA regulate procedural grant of registration necessary to claim those exemptions. The proviso to section 12A(2) permits retrospective application of sections 11 and 12 where registration is subsequently granted and assessment proceedings in respect of the earlier year are pending. Precedent treatment: Tribunal decisions (including those relied upon) hold the amendment retrospective in nature and intended to prevent hardship; these decisions apply a liberal and purposive interpretation to allow substantive exemptions where procedural registration is granted subsequently during pendency of proceedings. The Supreme Court principle on manner of computation was applied in the appellate authority's earlier reasoning to compute income commercially when registration absent. Interpretation and reasoning: The Court treats sections 12A and 12AA as procedural in nature; substantive entitlement to exemption is governed by sections 11 and 12. Where registration is subsequently granted while proceedings are pending (including appellate proceedings), the legislative intent favors allowing exemptive treatment for earlier years rather than penalizing for procedural non-registration. However, the proviso conditions must be satisfied. Ratio vs. Obiter: Ratio - Subsequent registration under section 12AA granted during the pendency of assessment proceedings (including appeals) entitles the trust to be considered for exemptions under sections 11 and 12 for the relevant earlier assessment years; Obiter - discussion on computation of income where registration absent and citation of Supreme Court principle on commercial computation. Conclusion: Subsequent registration can give retrospective benefit; lower authorities denying exemption on the ground of non-registration despite registration granted during appeal pendency erred in law, subject to verification of proviso conditions (e.g., sameness of objects and activities). Issue 3 - Requirement to examine 'objects and activities remain the same' and consequential remand Legal framework: The proviso conditions application of sections 11 and 12 to earlier years on two conditions: (i) assessment proceedings were pending as on registration date; and (ii) the objects and activities of the trust remain the same for such preceding assessment year. Precedent treatment: Tribunal authorities have emphasised that applicability of the proviso is conditional and that factual verification of the second limb (sameness of objects/activities) is necessary before extending retrospective exemption. Interpretation and reasoning: Even where appellate pendency is accepted as qualifying, the assessing authority must still examine whether the objects and activities during the earlier years correspond with those after registration; absent such examination, the grant of retrospective exemption is not automatic. The Tribunal therefore set aside the appellate orders and remitted the matter to the assessing officer with directions to re-examine the claim, verify objects/activities for the relevant years on evidence, and afford reasonable opportunity of hearing. Ratio vs. Obiter: Ratio - Factual verification of the proviso's requirement on sameness of objects and activities is mandatory and falls within the assessing authority's duty; failure to undertake that verification requires remand for fresh consideration. Obiter - procedural directions regarding documents to be filed by the trust. Conclusion: The matter must be remitted to the assessing officer to re-examine the entitlement to exemption in light of subsequent registration, specifically to verify and record whether objects and activities were the same for the earlier assessment years, and to complete the exercise after affording the assessee a fair hearing and considering documentary evidence. Disposition and Practical Outcomes 1. The Tribunal accepted that registration under section 12AA granted during pendency of appeals falls within the scope of the proviso to section 12A(2), following a purposive and retrospective interpretation of the amendment. 2. The Tribunal observed that lower authorities failed to verify the proviso condition regarding sameness of objects and activities and therefore set aside the orders under challenge and remitted the matter to the Assessing Officer for fresh adjudication limited to verifying objects/activities and applying law in accordance with the proviso, after affording a reasonable opportunity of hearing. 3. The appeals were allowed for statistical purposes (i.e., remitted for fresh consideration) consistent with the above conclusions.