2025 (11) TMI 326 - AT - Income Tax

Assessee entitled to s.11/12 exemption for AY 2018-19 after obtaining s.12AA registration during assessment under proviso to s.12A(2)

ITAT held that the assessee, having obtained registration under s.12AA during assessment, is entitled to exemption under ss.11/12 for AY 2018-19 by ... Denial of benefit of exemption u/s 11 and 12 - return of income filed to Income-tax Department, the assessee wrongly claimed exemption u/s 10(23C)(iiiad) - appellant has not claimed exemption under section 11 and 12 of the Act by way of filing of revised income-tax return even when the appellant had duly lodged additional claim to allow exemption under section 11 and 12 of the Act as eligible to the appellant during the course of assessment proceedings itself - HELD THAT:- Assessee is holding registration u/s 12AA granted by CIT (Exemption) and consequently eligible for exemption u/s 11/12 in AY 2018-19 given by Proviso to section 12A(2) - As in the return of income the assessee has wrongly claimed exemption u/s 10(23C)(iiiad) of the Act however, during the pendency of the assessment proceedings the assessee was granted registration u/s 12AA of the Act vide letter dated 28.09.2019 and consequently the assessee vide letter dated 29.01.2021 made a claim of exemption u/s 11 & 12 As contemplated by the first proviso to section 12A(2) that the benefit of section 11 & 12 cannot be denied to a genuine charitable trust or society in respect of the income derived from the property held under trust for the preceding assessment year for which assessment proceedings are pending before the AO even if the registration u/s 12A/12AA is granted subsequently and for the subsequent assessment year. Thus, it is clear that provisions of section 12A(2) r.w. proviso provides that registration once granted in subsequent year, the benefit of section 11 & 12 of the Act has to be given in the preceding assessment year for which the assessment proceedings are pending before the AO subject to the conditions that there is no change in the objects and activities of the trust during this period. Date of applicability of Proviso to section 12A(2) - As we find that the Proviso to section 12A(2) was introduced through Finance (No. 2) Act, 2014 w.e.f. 01.10.2014. Subsequently, it was closed from 01.04.2021 due to introduction of new system of registrations u/s 12A/12AB. Therefore, the said Proviso to section 12A(2) was very much available to assessee for AY 2018-19 under consideration in present appeal and the reason assigned by CIT(A) is not valid and fails. Therefore, we hold that the assessee is eligible to exemption u/s 11/12 on the basis of Proviso to section 12A(2) and we direct the AO to allow the same with due verification. However, the claim of exemption u/s 11/12 involves a different type of working based on application and accumulation of income. Therefore, we feel that it would be more appropriate to refer this matter back to Ld. AO who shall give an opportunity to the assessee to provide the necessary information for computation of exemption u/s 11/12. Based on such information, the Ld. AO shall allow exemption to the extent admissible u/s 11/12 to the assessee, after necessary verification. Appeal is allowed for statistical purpose. ISSUES PRESENTED AND CONSIDERED 1. Whether the Appellate Tribunal should condone delay of 368 days in filing the appeal under section 253(5) of the Income-tax Act on the ground of 'sufficient cause'. 2. Whether a trust/society granted registration under section 12AA during pendency of assessment proceedings is entitled, by operation of the proviso to section 12A(2), to claim exemption under sections 11 and 12 for a preceding assessment year for which assessment proceedings were pending on the date of registration (issues grouped below): 2(a). Whether a fresh claim for exemption under sections 11/12 can be entertained before the AO or on appeal without filing a revised return (effect of Goetze and subsequent authorities). 2(b). Whether non-filing or delayed filing of audit report in Form No.10B prior to the original return due date precludes allowance of exemption under sections 11/12 when Form 10B is filed during assessment proceedings or thereafter. 2(c). Whether the proviso to section 12A(2) was operative for the assessment year under consideration (i.e., whether its retrospective operation commenced only from 01.04.2021 or earlier), and whether the proviso is available for AY 2018-19. 3. Whether, if exemption under sections 11/12 is not allowed, an unregistered trust/society is taxable on gross receipts or only on surplus (net income after allowable expenditures). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay (section 253(5)): legal framework Legal framework: Section 253(5) empowers the Tribunal to admit an appeal after expiry of the relevant period if satisfied that there was 'sufficient cause' for delay. The governing tests and guiding principles are those enunciated in Collector v. Katiji and subsequent apex and high-court authorities: 'sufficient cause' is elastic, courts adopt a liberal/justice-oriented approach, each day's delay must be explained but pedantry avoided, and the decision is discretionary. Length of delay, bonafides, negligence, promptitude and prima facie merits may all be relevant. Precedent treatment: The Court reviewed Collector v. Katiji and later Supreme Court decisions (including Inder Singh and others) emphasizing that delay may be condoned where merits warrant and explanation is credible; but inordinate delay, negligence or fabricated explanations justify refusal. Recent High Court and Supreme Court authorities permit considering merits in appropriate cases and favour a justice-oriented approach. Interpretation and reasoning: The Tribunal accepted the Secretary's solemn averments that he retained the CIT(A) order due to a bona fide misunderstanding arising from the operative language of the CIT(A) order which had partly allowed the appeal on one ground; this mis-apprehension, supported by chronology (receipt of penalty notice prompting immediate filing) and active participation in proceedings, constituted a credible explanation. The Tribunal assessed absence of mala fide or ulterior motive, no history of non-compliance, and the substantive merit of the underlying claim (which posed potential substantial injustice if limitation barred review). Ratio vs. Obiter: Ratio - where a corporate/collective assessee's delay is attributable to bona fide misunderstanding by its responsible officer, with no culpable negligence, active participation in proceedings and prima facie meritorious claim, delay may amount to 'sufficient cause'. Obiter - cautionary remarks about future liberalism and references to other fact patterns in cited judgments. Conclusions: Delay of 368 days was condoned. The appeal was admitted for consideration on merits after applying the established tests and following recent authoritative guidance favoring substantial justice in appropriate cases. Issue 2 - Entitlement to exemption under proviso to section 12A(2) (general) Legal framework: Proviso to section 12A(2) provides that where registration under section 12AA is granted, sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the assessment year for which registration is granted, for which assessment proceedings are pending before the Assessing Officer on the date of such registration, provided objects/activities remain the same. The provision was introduced by Finance (No.2) Act, 2014 (effective 01.10.2014) and remained operative for the relevant years; later statutory changes from 01.04.2021 altered registration mechanism (12A/12AB) but do not negate its applicability to earlier years. Precedent treatment: Coordinate Benches of the Tribunal and several High Courts have interpreted the proviso purposively, holding that (i) an assessment year pending on appeal before an appellate authority may be considered as 'assessment proceedings pending before the assessing officer' for purposes of proviso, and (ii) the proviso is retrospective in effect to remove hardship where genuine substantive conditions are met. Decisions rejecting strict insistence on revised return/Form 10B timing in similar fact situations were relied on. Interpretation and reasoning: The Tribunal followed the purposive construction adopted by co-ordinate benches: (a) the proviso was introduced with remedial intent and applies to earlier years where registration is granted during pendency of assessment-related proceedings; (b) the proviso was in force for AY 2018-19 (it was introduced w.e.f. 01.10.2014) and was not confined to operation only from 01.04.2021; (c) where registration under s.12AA was granted and assessment proceedings for the preceding year were pending, and objects/activities remained same (a fact to be verified), the substantive entitlement to exemption under sections 11/12 arises notwithstanding that the original return did not claim sections 11/12. Ratio vs. Obiter: Ratio - Proviso to s.12A(2) is available to trusts granted registration under s.12AA during pendency of assessment proceedings for a preceding year, provided conditions are satisfied; remedial/purposive construction is appropriate. Obiter - observations on misuse leading to later legislative changes and policy remarks by Revenue. Conclusions: The assessee prima facie satisfies conditions of proviso to section 12A(2) for AY 2018-19; the proviso was operative and available. The Tribunal directed remand to AO for verification of objects/activities continuity and for computation/allowance of exemption under sections 11/12 after necessary verification. Issue 2(a) - Fresh claim without revised return (Goetze issue) Legal framework: Goetze (Supreme Court) held that a fresh claim should ordinarily be made by filing a revised return; however subsequent authorities have treated the rule more flexibly when substantive exemptions are at stake and appellate authorities can entertain new legal claims in the interest of preventing unlawful tax collection. Precedent treatment: Co-ordinate Tribunal decisions relied upon held that appellate or AO proceedings may entertain a claim for exemption made for the first time during assessment or on appeal, particularly where refusal would result in illegal collection of tax and where proviso to s.12A(2) applies. Interpretation and reasoning: The Tribunal accepted that though Goetze lays down a general rule, it is not an absolute bar in circumstances where substantive exemption arises by statute during pendency and procedural limitations (revised return deadline) expired prior to registration. The proviso operates to confer substantive entitlement despite the absence of a revised return at the original due date. Ratio vs. Obiter: Ratio - a new claim under sections 11/12 made after registration under s.12AA during pending proceedings is entertainable despite absence of revised return, where the statutory proviso renders the trust substantively eligible. Obiter - caution that facts matter and Goetze may apply differently in other contexts. Conclusions: The absence of a revised return did not preclude consideration of the exemption claim in the facts of this case. Issue 2(b) - Filing of Form No.10B after due date Legal framework: Section 12A(b) and related rules require audit report in Form 10B to be filed; question arises whether delayed filing (during assessment) defeats exemption. Precedent treatment: Tribunal and High Court authorities have held that where Form 10B is filed during assessment proceedings and substantive conditions are fulfilled, delayed filing may not be fatal; requirement is directory in nature in specific contexts and condonation under administrative provisions (e.g., s.119/ CBDT circulars) can be relevant. Interpretation and reasoning: The AO's reliance on non-filing of Form 10B before the return due date as absolute bar was rejected. The Tribunal followed precedent holding that where registration under s.12AA is subsequently granted and Form 10B is filed during assessment, AO must verify and compute the exemption rather than deny on mere technical delay. The Tribunal noted that remedial intent of proviso and principle against collection of tax where substantive exemption exists weigh against a rigid technical denial. Ratio vs. Obiter: Ratio - delayed filing of Form 10B during assessment does not automatically preclude allowance of exemption under sections 11/12 where statutory conditions are met and Form 10B has been filed; AO should verify eligibility and compute exemption. Obiter - administrative condonation mechanisms are available but are not exclusive remedies. Conclusions: The AO's first two reasons (need for revised return and late Form 10B) were held not tenable in the circumstances; the Tribunal directed verification and recomputation by AO allowing exemption to extent admissible. Issue 2(c) - Temporal applicability of proviso to section 12A(2) Legal framework: Proviso introduced by Finance (No.2) Act, 2014 effective 01.10.2014; later registration regime changed from 01.04.2021. Precedent treatment: Co-ordinate benches and High Courts have interpreted the proviso as retrospective/remedial from its effective date and applicable to assessment years preceding registration where proceedings were pending. Interpretation and reasoning: The Tribunal found the CIT(A)'s view (that proviso applied only from 01.04.2021) to be incorrect. The proviso was available for AY 2018-19; its subsequent closure by introduction of new registration scheme does not negate past availability. Ratio vs. Obiter: Ratio - proviso to s.12A(2) (introduced w.e.f. 01.10.2014) applied to AY 2018-19; CIT(A)'s contrary view was erroneous. Obiter - legislative policy to curb misuse later motivated change but does not affect entitlement in the relevant period. Conclusions: Proviso was available for AY 2018-19; third reason given by CIT(A) for denial failed. Issue 3 - Taxation on gross receipts vs. surplus for unregistered trust/society Legal framework: Sections 11/12 provide exemption mechanics; where exemption unavailable, tax liability is to be computed under ordinary heads and generally net income (surplus) after allowable expenses is taxable; settled law that even unregistered trusts are liable to tax on their surplus and not on gross receipts. Precedent treatment and interpretation: The Tribunal relied on settled jurisprudence that an unregistered trust/society is taxable only on net income (surplus) and not on gross receipts. In the present case CIT(A) correctly observed and granted relief by reducing taxable amount to surplus computed from income & expenditure accounts (relief of Rs.1.43 crore approx.). Ratio vs. Obiter: Ratio - taxable income of an unregistered trust/society is the net surplus after allowing necessary expenditures; treating gross receipts as taxable is impermissible. Obiter - none beyond reaffirmation of settled position. Conclusions: Where exemption under sections 11/12 is ultimately not adjudicated in favor, tax must nevertheless be computed on surplus; CIT(A) relief on this ground was proper and relevant to quantification pending final verification of exemption entitlement. Overall Disposition and Directions (as concluded by the Tribunal) 1. Delay in filing the appeal was condoned on the facts: credible explanation, absence of mala fide/negligence, active prosecution of earlier proceedings and prima facie meritorious claim. 2. The Tribunal held that the assessee is prima facie entitled to exemption under sections 11/12 by virtue of proviso to section 12A(2) for AY 2018-19; the AO's two procedural grounds (lack of revised return; late Form 10B) were not sustainable in the circumstances, and CIT(A)'s temporal objection was incorrect because the proviso was effective from 01.10.2014. 3. The matter was remanded to the Assessing Officer to verify continuity of objects/activities, to consider the filed Form 10B and other records, and to compute and allow exemption under sections 11/12 to the extent admissible after necessary verification and opportunity to the assessee. 4. Confirmed principle: if exemption is not allowed, taxable income should be computed on net surplus (not gross receipts); CIT(A) had correctly given partial relief on this point.