Relation back for charitable registration upheld, allowing exemption and treating infrastructure spending as application of income.

Final registration granted under section 12AB on the original application related back to the relevant assessment year, so the trust remained eligible for exemption under sections 11 and 12 despite the assessment order being passed earlier; the doctrine of relation back applied and the exemption was allowable. Expenditure on Gyan Kendra infrastructure for classrooms and basic amenities was also allowable as application of income for charitable purposes; once exemption was available, the outlay did not fail merely because it was capital in nature, and its genuineness was not disputed.

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Issues: (i) Whether the assessee was entitled to exemption under sections 11 and 12 for assessment year 2022-23 on the basis of final registration granted under section 12AB. (ii) Whether the expenditure on Gyan Kendra infrastructure was disallowable as capital expenditure or was allowable as application of income while computing income under sections 11 and 12.

Issue (i): Whether the assessee was entitled to exemption under sections 11 and 12 for assessment year 2022-23 on the basis of final registration granted under section 12AB.

Analysis: The assessee had provisional registration for the relevant period and its original application for final registration was ultimately decided in its favour after remand. The final grant of registration related back to the original application, and the later order could not be ignored merely because the assessment order was passed before the grant date. The doctrine of relation back applied to the facts of the case, making the assessee eligible for charitable exemption for the year under consideration.

Conclusion: The issue was decided in favour of the assessee, and exemption under sections 11 and 12 for assessment year 2022-23 was held allowable.

Issue (ii): Whether the expenditure on Gyan Kendra infrastructure was disallowable as capital expenditure or was allowable as application of income while computing income under sections 11 and 12.

Analysis: Once the assessee was held eligible for exemption under sections 11 and 12, the character of the expenditure did not warrant the disallowance sustained below. The expenditure was stated to have been incurred for repair and construction of classrooms and basic amenities for running the school, and the Revenue did not dispute its genuineness. Even if the outlay was capital in nature, it constituted application of income for charitable purposes and was allowable in computing income under the charitable provisions.

Conclusion: The issue was decided in favour of the assessee, and the expenditure was held allowable as application of income.

Final Conclusion: The assessment additions and the appellate denial of charitable exemption were set aside, and the assessee's claim for exemption and related deduction of the impugned expenditure succeeded for the year in question.

Ratio Decidendi: Where final registration for a charitable institution is ultimately granted on the original application after remand, the grant can relate back for the relevant assessment year, and expenditure incurred for charitable objects may qualify as application of income even if it is capital in nature.

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