TaxTMI 
TaxTMI 
2021 (7) TMI 574
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.... 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 with the Devsthan Vibhag under Rajasthan Public Trust Act, 1959 v....
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....esponding 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 amendment was only with reference to the nature of trust in as much as in Rule 3 of the trust deed, it....
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....s 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 was not receiving any public donations whereas after registration, it is receiving donations which is another indicator that th....
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.... 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 has informed the assessee trust about such exemption would not mean that Home Ministry has granted the exemption which has no locus-standi ....
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....on 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 exemption granted under the repealed Act was saved by Section 297 of the Act and secondly, whether it was consistent with the corresponding provisions of Law under the ne....
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....st 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 consistent with and saved by Section 297(2)(k) of the I.T. Act, 1961 does not arise. It was also submitted that the consistency has to be seen from the perspective of I.T Act, 19....
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.... 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 is no infirmity in the order of the AO in declining of claim of exemption on the ground that the trust was not registered u/s 12A of the Act. Thus, verification of the fact of registration of the trust under the I....
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....ppellant 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 facts have been raised in the course of present proceedings and no mistake apparent from record in the tax computation or in the charging of interest could be brought to the notice of the undersigned. 4.6 The other issues raised by the appellant are irrelev....
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....ered 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 Institution. The asseessee has further contended that the provisions of earlier Indian Income Tax Act 1922 u/s 4(3)(i) are corresponding to the provisions of section 11(1) of the Income Tax Act 1961. The assessee has also re-produced language of section 4(3)(i) of Income Tax Act 1922. I have gone thr....
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....d 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; (d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,- (i) a notice under section 34 of the repealed Act had been issued before the commencement of this Acct, the proceedings in pursuance of such notice may be continued and disposed of as if this Acct had not been passed; (ii) any income chargeable to tax had escaped assessment within the meaning of t....
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....ssued 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 period prescribed for any application, appeal, reference or revision under the repealed Act had expired on or before the commencement of this Act, nothing in this Acct shall be constructed as enabling any such application, appeal, reference or revision to be made under this Act by reason only of the fact that a longer period therefore is prescribed or provision is made for extension of time in suitable cases by the appropriate authority." From a bare reading of Section 297(2)....
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....he 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 1961 and thereafter, in para 6.7 of its order, the Coordinate Bench has held that the AO was required to examine whether firstly exemption granted under the repealed Act of 1922 was saved by Section 297 of the Act of 1961 and secondly, whether it was consistent with the corresponding provisions of law under the Act of 1961 and accordingly held that under these facts, it is of the considered view that by not adverting to these issues, the AO has committed a mistake apparent from the record which needs....
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....rpus 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 on the compliance of the conditions specified in sub-clauses (a) and (b). Subsection (3) of section 11, provides that any income referred to in sub-section (2) which is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or ceases to remain invested for deposited in any of forms or modes specified in sub-section (5) or is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause....
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....resaid 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 claiming exemption under section 11 and 12 is that where the total income of the trust or institution (without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount not chargeable to tax in any previous year, the accounts of the trust or institution for that year have to be audited by an accountant as defined in section 288 and the report of audit is required to be furnished along with the return of income for relevant assessment year and such return of income has to be furnished in accordance with ....
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....orted 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 unless the following conditions are fulfilled, namely : (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Chief CIT or CIT before 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, whichever is later: Provided that the Chief CIT or CIT may, in his discretion, admit an application for the registration of any trust or institution ....
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....rovisions 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 section 297(2)(K) of the Act. 35. In the instant case, we are therefore unable to accede to the contention advanced by the ld AR that where there was no provision for issuing a separate order of registration by the Commissioner in 1922 Act, it would not mean that exemption granted u/s 4(3)(i) of 1922 Act is not saved by section 297(2)(k) of the IT Act, 1961. Under the Act of 1961, the Trust whether constituted and/or formed 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 gran....
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....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 direction given to this effect by the Coordinate Bench to examine whether exemption granted under section 4(3)(i) of the repealed Act of 1922 was saved by section 297(2)(K) of the Act of 1961 and secondly, the provisions of the repealed Act are consistent with corresponding provisions under the Act of 1961. 37. Even where it is held that the Assessing officer having satisfied himself with the explanation of the assessee is not required to record a specific finding unless there is any contrary finding to be recorded, we find that in the instant case, the Assessing officer has failed to c....
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....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 trust is a private trust. However, when the assessee trust applied for exemption under section 4(3)(i) of the IT Act, 1922, the Government accepted the status of the assessee trust as Charitable Institution and there is a communication in this regard dated 05.11.1958 as well as 12.11.1958 by the Ministry of Home Affairs. The said communication was based upon the report of the Law Commission which says that the Trust is partly religious and party charitable and as such part of the income of the Trust as applied to religious purposes and also that part which is applied for charitable purposes will be exem....
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....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 acquisition (as ascertained for the purposes of sections 48 and 49) of the capital asset which is the subject of the transfer and the cost of any improvement thereto within the meaning assigned to that expression in *sub-clause (b) of †clause (1) of section 55; (iii) "net consideration" means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.]" It is pertinent to note that so far as the income of the trust from sale of any asset other than the asset being property held under trust, the treatment of the said income has to ....
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.... 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 was a property held under Trust and, therefore, the provisions of section 11(1A) are strictly applicable in this case. It is pertinent to note that even as per section 11(1A), the provisions of section 48 & 49 are applicable so far as the computation of capital gain is concerned. Even the provisions of section 55 are also applicable for assigning the meaning of cost of any improvement. This land in question was a contribution by the Settler for creating the Trust in question and thus it is part of the corpus of the Trust and a property held under Trust. Therefore, being a Public trust, the transfer/sale of the property held under trust is a matter of serious concern and it is otherwise not permissible except to the satisfaction of the authorities that....
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...., 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 sale consideration of the property held under Trust has to be verified to avoid any misuse and in the case in hand it is apparent that a huge difference between the sale consideration declared by the assessee at Rs. 60,00,000/- and the valuation determined by the Stamp Duty Authority at Rs. 11,33,72,000/-. There may be a reason for fair market value of a property would be less than the DLC value but the difference must be reasonable having regard to the factors adversely affecting the value of the property. In the case in hand, the assessee declared the sale consideration at Rs. 60,00,000/ in comparison to the Stamp Duty Authority has valued the property at Rs. 11,33,72,000/- on which a stamp duty of Rs. 79,36,040/- was paid. Even the assessee has dete....
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....ugned 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 assessment year 2011-12 in terms of the Ministry of Home Affairs D.O. No. 4/26/56 dated 12th November, 1958 as well as the Ministry of Finance Department communication dated 12.12.1958." 39. We therefore find that the Coordinate Bench has recorded a clear finding that the registration was granted by the Commissioner (Exemptions) vide order dated 5th September, 2016 with effect from 03.08.2016 after the assessee has amended its By-laws and Memorandum of Association whereby certain terms and conditions have been completely changed. Therefore, the constitution of the Trust does not remain the same as it was prior to the amendment and hence when the constitution itself is changed and the registration is granted on the new and amended constitution of the Trust, then the benefit of ....