TaxTMI 
TaxTMI 
2021 (7) TMI 574
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....evidently failed to examine whereas no such direction was given by the Hon'ble ITAT which has set aside the case to AO to examine whether exemption granted under the Repeal Act was saved by section 297 of the Act and whether it was consistent with the corresponding provisions of law under the new Act. 3. The Ld. CIT(E) has erred on facts and in law in making various incorrect observations including the nature and activities of trust in setting aside the order to AO with a direction to specifically examine as to whether the trust was registered under IT Act, 1922 and if not, no benefit of exemption is to be granted since prior to the amendment dt. 03.08.2016 the nature of trust, its objects & activities were not the same making the first proviso to section 12A inapplicable." 2. During the course of hearing, the ld. AR submitted that assessee trust was constituted vide trust deed dated 29.06.1957 by Shri Sawai Brijendra Singh Ji, Maharaja of Bharatpur. The Ministry of Home Affairs, Government of India vide letter dated 12.11.1958 has communicated that the trust and its properties would be exempt from Income Tax, Wealth Tax and Expenditure Tax. The trust is also registered....
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.... 297 of the IT Act, 1961, please explain as to how the same was consistent with the corresponding provisions of the law under IT Act, 1961. Please also furnish documentary evidences in support of your explanation. 6. It was submitted that against the queries raised by AO, the assessee filed a detailed reply dt. 16.10.2017 before the AO wherein it has explained as to how the exemption granted under the Income Tax Act, 1922 is saved by clause (k) of subsection (2) of section 297 of the Act. It further brought to the notice of AO that subsequently, the Ld. CIT(E) vide order dt. 05.09.2016 has also registered the assessee trust under section 12AA of the IT Act, 1961 and such registration in view of proviso to section 12A would apply to all pending assessment proceedings. Thereafter, the AO vide letter dt. 22.12.2017 required the assessee to explain as to when the assessee has amended the objects and also to furnish copy of the amended objects. The same was replied vide letter dt. 26.12.2017 reproduced at Pg 9 & 10 of the order wherein it is clarified that there is no change in the object and status of the trust since its registration and inception as public trust. The amend....
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....ic registration granted to the assessee under old Act by the Competent Authority under IT Act. Further, Member was also not the Competent Authority under IT Act to grant registration/ exemption. Similarly, reference of a letter of Ministry of Home Affairs by the assessee has no relevance as the said Ministry also has no locus-standi in the matter of grant of registration under IT Act. (c) Had the assessee been granted registration under IT Act, 1922, the assessee would have produced such order of registration in the earlier proceedings which it has failed to do. Since there was no specific order of registration by the competent authority under IT Act, 1922, the question of whether such recognition/ approval was saved by section 297(2)(k) of IT Act, 1961 does not arise. In fact the assessee applied for the first time for registration under IT Act, 1961 vide application dt. 30.03.2016 and was granted registration u/s 12AA w.e.f. 03.08.2016. The reason for granting registration was that the assessee has amended its trust deed wherein the nature of trust was changed from private to public trust. (d) The Income & Expenditure A/c shows that prior to registration, trust ....
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....d accordingly informed the Ministry of Home Affairs on 05.11.1958. Considering the same, Ministry of Home Affairs vide letter dt. 12.11.1958 informed the trustees that the income of trust would be exempt from income tax. It may be noted that section 4(3)(i) of 1922 Act was replaced by section 11 of the IT Act, 1961 and therefore, in view of section 297(k), any approval given/ recognition granted under the 1922 Act so far it is not inconsistent with the corresponding provision of this Act, be deemed to have been granted/ given under the corresponding provision of 1961 Act and shall continue in force accordingly. Therefore, it is evident that the approval given/ recognition granted to the assessee trust under 1922 Act shall continue to remain in force under the 1961 Act. Therefore, various observations made by PCIT in Para 8 & 9 of the order are incorrect in as much as (i) Member, Income Tax, Central Board of Revenue vide order sheet dt. 05.11.1958 has categorically stated that assessee is partly religious and partly charitable trust and its income is exempt u/s 4(3)(i); (ii) once an approval has been given/ recognition granted by Department of Revenue, only because the Home Ministry....
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.... proceedings before the AO in terms of first proviso to section 12A(2). Therefore, there is no error in the order passed by AO in granting exemption u/s 11 to the assessee. In view of above, order passed by CIT(E) u/s 263 be directed to be quashed and setaside. 12. Per contra, the ld. CIT/DR submitted that the assessee trust initially filed an appeal before the CIT(A), Alwar against the order passed by the ITO. However, the CIT(A), Alwar dismissed this appeal vide order dated 11.01.2016 after detailed discussion. The assessee trust being aggrieved with this order of CIT(A) filed second appeal before the ITAT Jaipur Bench. The ITAT vide order dated 26/06/2017 set aside the matter to the AO with the directions to decide the issue of availability of exemption to the assessee afresh. The relevant portion of the order of ITAT read as below:- "Para 6.2 In view of the judgment of Hon'ble Supreme Court in the case of UP Forest Corp. & Anr vs. DCIT (supra), there is no infirmity into the order of the AO in declining the claim of exemption of the ground that the trust was not registered u/s 12A of the Act. Para 6.7 The AO was required to examine whether firstly exempt....
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.....1958 by the Member, Income Tax, Central Board of Revenue wherein the Law Commission has stated that it appears from the said note that the Member has agreed to the entire trust being exempted from wealth, expenditure and income taxes. It is evident from the references of Law Commission that the word "appears" used by Law Commission repeatedly makes it abundantly clear that there was no specific registration granted to the assessee under the old Act by the competent authority under the I.T Act. Further, the Member was also not the Competent Authority under I.T. Act to grant registration / exemption. Similarly, the reference of a letter of Ministry of Home Affairs by the assessee has no relevance as the said Ministry also has no locus-standi in the matter of grant of registration under the I.T. Act. 15. It was submitted by the ld CIT/DR that had the assessee been granted registration under the I.T. Act, 1922, the assessee would have produced such order of registration in the earlier proceedings, which it has failed to do. Since there was no specific order of registration by the competent authority under the I.T. Act, 1922, the question of whether such recognition/ approval was....
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....not receiving any public donations, whereas after registration it is receiving donations, which is another indicator that the trust was indeed a private religious trust before the said amendments were carried out in the trust deed. It is, therefore, surprising as to how the Devsthan Vibhaag has registered the said trust before 03.08.2016 as a public trust when the original deed clearly mentions the trust to be a private trust. Be that as it may, the registration by Devsthan Vibhaag is immaterial to the proceedings under the I.T. Act. It was accordingly submitted that the very nature of the trust and consequently its objects and activities were not the same as those post amendment, making the 1st proviso to Section 12A inapplicable. 18. It was submitted that as has been held by the Hon'ble Supreme Court in the case of U.P Forest Corporation (supra), that for claiming benefit u/s 11(1)(a), registration u/s 12A is a condition precedent. The Hon'ble Tribunal vide para 6.2 of order dated 23.06.17 has reiterated the said judgment of the Supreme Court and has held that in view of the judgment of Hon'ble Supreme Court in the case of U.P Forest Corporation (supra), there i....
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.... this issue in his order as under:- "4.3 I have perused the rectification order and submissions made by the appellant and find that issue raised is against the denial of exemption of income u/s 10 & 11 of the IT Act by the AO. The appellant has also stated that AO has wrongly charged interest u/s 234A, 234B, and 234C of the IT Act. 4.4 The appellant has filed detailed submissions. It is stated that vide a certificate no. 4/26/56-Po11.III of Ministry of Home Affairs, Po11 III Section intimated vide letter dated 12th November, 1958, exemption from income tax was given to the trust. The appellant has stated that AO has failed to appreciate that Section 4(3)(i) of the Indian Income-tax Act, 1922 (Corresponding to section 11(1) of the Act) is available to the assessee, as the following incomes are exempted from the application of income tax and no tax is payable on them u/s 11(1)(a) of the IT Act. 4.5 Having considered carefully the submissions made by the appellant including the judicial citations given therein, I find that no prima facie mistake has been brought to the notice of the AO in the application for rectification filed by the appellant. Similar fact....
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....of U.P. Forest Corporation & Anr Vs. DCIT (2008) 297 ITR 001 (SC) held that a conjoint reading of section 11, 12 and 12A makes it clear that registration under section 12A is a condition precedent for availing benefit under section 11 and 12 unless and until an institution is registered u/s 12A it cannot claim the benefit of section 11(1)(a). In view of the judgment of Hon'ble Supreme Court in the case of U.P. Forest Corp. & Anr Vs. DCIT (supra), there is no infirmity into the order of the AO in declining the claim of exemption on the ground that the Trust was not registered u/s 12A of the Act. 6.3 Another argument of the assessee is that since the Trust was granted exemption by the Government of India way back in the year 1958, it was not open to Revenue to tax the receipts of the assessee Trust now under the excuse of not having registered u/s 12A of the Act. We find that the AO has dealt this issue as under:- "Vide letter dated 11.09.2013 the assessee has filed petition u/s 154 that the exemption was given u/s 4(3)(i) of the Income Tax Act 1922 by the then CBR (Central Board of Revenue) on 05.11.1958 by accepting the status of the trust as Charitable I....
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....e to refer to Section 297 of the Act. Section 297 is reproduced herein below:- "297. Repeals and Savings. (1) the Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),- (a) Where a return of income has been filed before the commencement of this At by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed; (b) Where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice u/s 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act; (c) any proceeding pending on the commencement of this Act before any income-tax authority, the Appellate Tribunal or any court, by way of appeal, reference, or revision, shall be continued and disposed of as if this Act had not been passed; ....
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....s and interest payable by the assessee for default shall apply; (j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act; (k) any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Acct, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly; (l) any notification issued under-sub (1) of section 60 [or section 60A] of the repealed Act and in force immediately before the commencement of this Act, to the extent to which provision has not been made under this Act, continue in force [Provided that the Central Government may rescind any such notification or amend it so as to rescind any exemption, reduction in rate or other modification made thereunder;] (m) where the per....
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....gard and accordingly, it was held that there was no infirmity in the order of the AO in declining the claim of exemption on the ground that the Trust was not registered u/s 12AA of the Act. 23. Addressing another argument canvassed on behalf of the assessee wherein it was contended that since the Trust was granted exemption by the Government of India way back in the year 1958, it was not open to Revenue to tax the receipts of the assessee Trust under the excuse of not been registered u/s 12A of the Act, the Coordinate Bench, held in para 6.6 of its order that the Assessing Officer, however committed a mistake by observing that there is no mention of Section 4(3)(i) of the Income Tax Act, 1922 by referring to the report of the Law Commission. In this regard, the Coordinate Bench held that the Assessing Officer has not given a finding as to what was the status of trust which was granted the exemption under the old Act i.e. Income Tax Act, 1922, after repeal of that Act. Whether such Acts (exemption) fall under the saving clause (section 297) or not and if falls under the saving clause, then would it be deemed that the exemption is available to the assessee trust under the Act of 1....
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....the Act, subject to provisions of sections 60 to 63, where the trust having been created before the commencement of this Act, the income derived from property held under trust in part for charitable or religious purposes to the extent to which such income is applied to such purposes in India and to the extent to which income is accumulated or set apart not in excess of 15 percent of income from such property, and the income in form of voluntary contribution with the specific directions that they shall form part of the corpus of the trust or institution in the manner and to the extent specified shall not be included in the total income of the previous year. Sub-section (2) of section 11 deals with the situation where income referred to in clause (a) and (b) of sub-section (1) read with Explanation to the sub-section is not applied or is not deemed to have been applied to the charitable purpose or religious purposes in India during the previous year but is accumulated or set apart either in whole or in part for application to such purposes in India and mandates that such income shall not be included in the total income of the previous year of the person in the receipt of the income o....
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....person in receipt of the income makes an application for registration of the trust or the institution to the Commissioner of Income-tax before 1-7-1973 or before the expiry of a period of one year from the date of creation of the trust or establishment of the institution, whichever is later. The Commissioner of Income-tax was empowered to admit, in his discretion, belated applications for registration where he was satisfied that person in receipt of income was prevented from making application before the expiry of period aforesaid for sufficient reasons. However, such discretionary powers of the CIT were later on taken away by the Finance Act, 2007 and sub-section (2) has been inserted to provide for applicability of exemption for income for the financial year in which application is made and subsequent years. It further provides for the consequential effect of such registration for the past financial years for which the assessment proceedings were pending before the Assessing officer as on the date of such registration provided the objects and activities of such trust or institution remain the same for such preceding year(s). 30. Another condition which has to be satisfied for ....
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....ormed prior to the said Act coming into force or afterwards, is required to move an application for seeking registration before the Commissioner and such trust must be granted registration and duly registered under section 12AA of the Act. It is a settled position that unless and until the trust is registered under section 12A, it cannot claim the benefit of section 11 of the Act and thus, registration under section 12A is a condition precedent as also upheld by the Hon'ble Supreme Court in case of U.P Forest Corporation vs DCIT reported in 297 ITR 1 wherein it was held as under: "11. We are of the considered view that for claiming benefit under s. 11(1)(a), registration under s. 12A is a condition precedent. Sec. 11 provides for exemption of income which is applied for charitable purposes. Sec. 12 is in the nature of an Explanation of s. 11. Sec. 12A provides that provisions of ss. 11 and 12 shall not apply in relation to income of any trust or institution unless certain conditions are satisfied, one of which is cl. (a), the same is reproduced as under: "12A. The provisions of s. 11 and s. 12 shall not apply in relation to the income of any trust or institution u....
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....tantly, registration with the Commissioner under section 12AA. Unless and until the trust is registered under section 12AA, it cannot claim the benefit of section 11 of the Act and thus, the provisions of section 11 have to be read along with section 12A and 12AA of the Act and then, compared with the provisions of section 4(3)(i) of Act of 1922. The principle of consistency has to be seen from the perspective of conditions as so prescribed under the Act of 1961 and the same need to be compared with the conditions prescribed under the Act of 1922 to determine whether the erstwhile provisions are consistent with the current provisions and where the answer to the same is in the affirmative, the assessee having satisfied the conditions as per erstwhile provisions, the same would be considered in due compliance with the current provisions and its claim of exemption is sheltered from any interference by the Revenue. Given the distinguishing features and conditions precedent of registration u/s 12AA under the Act of 1961, it cannot be held that the section 4(3)(i) of the Act of 1922 is consistent with section 11 r/w section 12, 12A, 12AA and 13 of the Act of 1961 and thus saved by sectio....
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.... being inconsistent with corresponding provisions under the Act of 1961. 36. Now, let us examine as to how the AO has dealt with the same in the set-aside proceedings. During the set-aside proceedings, the AO vide letter dated 20.09.2017 has asked the assessee to explain as to how the exemption granted under the Act of 1922 was saved by section 297 of the Act of 1961 and secondly, how the provisions are consistent with the corresponding provisions under the Act of 1961. In response, the assessee furnished its submission dated 16.10.2017 and submitted that it has been granted exemption from Income tax, wealth tax, and expenditure tax vide letter dated 12.11.1958 issued by Ministry of Home Affairs. Further, referring to the provisions of section 11(1)(a) of Act of 1961 and provisions of section 4(3)(i) of the Act of 1922, it was submitted that section 4(3)(i) of the Indian Income Tax Act, 1922 is corresponding to section 11(1) of the Act and thus, the exemption is available to it and it doesn't require registration u/s 12AA in light of section 297(2)(k) of the Act. Though the explanation has been sought and reply received, there is no finding recorded by the AO inspite of specific....
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....ated 31.03.2016, the said fact of subsequent registration has been duly considered by the AO and held applicable for the impugned assessment year for granting exemption u/s 11 and the order so passed by the AO cannot be held as erroneous in view of the proviso to section 12A(2) which provides that the assessee is eligible for exemption u/s 11 in respect of relevant assessment year, the proceedings in respect of which are pending before the Assessing officer. We find that matter relating to applicability of registration for prior assessment years and grant of exemption has already been examined by the Coordinate Bench in assessee's own case for A.Y 2013- 14. In this regard, we refer to the decision of the Co-ordinate Bench in case of ITO (Exemption), Alwar vs. M/s Bharatpur Royal Family Religious & Ceremonial Trust, Bharatpur (in ITA No. 831/JP/2019 dated 13/03/2020) wherein it was held as under:- "4. We have considered the rival submissions as well as the relevant material on record. As per the original Trust deed/Memorandum of Association whereby the assessee trust was created in the year 1957, there is no dispute that the By-laws of the Trust itself says that assessee tr....
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....tal asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) "appropriate fraction" means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious purposes; (ii) "cost of the transferred asset" means the aggregate of the cost of acqu....
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....ithout the previous sanction of the Assistant Commissioner. 2. An application for the sanction of the Assistant Commissioner, under sub-section (1) shall be made in the prescribed manner and form. 3. Where, on the application duly made for sanction in respect Of any transaction specified in sub-section (1), the Assistant Commissioner does not, within two months of the receipt thereof, pass final orders, it shall be presumed that he has accorded sanction in respect of that transaction, provided that the application described the transaction, with sufficient accuracy. 4. The Assistant Commissioner shall not refuse to accord sanction in respect of any transaction specified in sub-section (1) unless such transaction is, in this opinion, likely to be prejudicial to the interests of the public trust, and no order refusing to accord sanction shall be passed unless the working trustee of such public trust has had a reasonable opportunity of being heard." In the case in hand, the trust in question was created by the Settler on 09.06.1959 and entrusted the property in question apart from other properties under the Trust. Therefore, the property in question....
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....ther capital asset being property held under Trust. Once the entire actual consideration is applied in terms of section 11(1A), then the question of computing capital gain does not arise and consequently the provisions of section 50C also becomes irrelevant. Once the capital gain arising from transfer of a capital asset being property held in Trust is not utilized or partly utilized then the capital gain arising from such transfer would be assessed as per the provisions of Chapter IV of the IT Act. Therefore, the applicability of the provisions of section 50C depends whether the real consideration on transfer of the property held in Trust is utilized for acquiring the new capital asset to be held as property held under Trust or not. In the case in hand, the assessee has claimed that the entire consideration has been utilized for acquiring new capital asset. However, this issue of utilization of the sale consideration for acquiring the new asset being the property held under Trust has not been examined by the AO as the dispute before the AO was only regarding the applicability of provisions of sections 11 & 12 as well as section 50C of the IT Act. In any case, in case of Trust, the ....
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....d constitution of the Trust, then the benefit of proviso to section 12A would not be available to the assessee for the assessment year preceding to the year in which such registration is granted. Further, the said proviso to section 12A(2) specifically mentions the proceedings of the assessment are pending before the AO. Though it may be inferred that the proceedings before the Appellate Authority are also considered to be the assessment proceedings pending but the same are not regarded as pending before the AO. Even otherwise, when the registration is granted on the amended constitution of the Trust, then the benefit of this proviso to section 12A(2) is not available. 6.1. Accordingly, in view of the above facts and circumstances of the case, we set aside the impugned order of the ld. CIT (A) and remand the matter to the record of the AO to the extent of computation of the fair market price of the property in question as on the date of sale and the utilization of sale consideration for purchase of new capital asset being property held under Trust, then decide this issue after allowing the benefit of sections 11 & 12 as it was already allowed by this Tribunal for the asses....