TaxTMI 
TaxTMI 
2026 (6) TMI 410
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....sessee has raised the following grounds of appeal: "1) The order of the learned CIT(A) is erroneous to the extent it is prejudicial to the appellant. 2) The Assessing Officer and the learned CIT(A) are not justified in holding that an amount of Rs. 4,02,74,950/- utilized for construction of school building cannot be considered as utilization for the purposes of claiming deduction u/s 11(2) of the I.T. Act. 3) The learned CIT(A) ought to have seen that the amount was spent for the objects of the appellant society and, therefore, has to be considered as a part of utilization. 4) The learned CIT(A) erred in confirming the action of the Assessing Officer in disallowing Rs. 7,34,673/- representing the expenses on distribution of auto rikshaws as an expenditure not allowable for the purpose of Sec. 11 of the I.T.Act. 5) The Assessing Officer ought to have considered the fact that the amount was utilized for the objects of the appellant society and cannot be treated as the income of the appellant and has to be treated as an expenditure which is utilized from out of the funds of the society. 6) Any other ground/ grounds that may be urge....
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....he Ld. CIT(A), after considering the submissions of the assessee and examining the material available on record, granted partial relief to the assessee by deleting the additions relating to swing machine distribution expenses of Rs. 3,54,239/- and depreciation on computer of Rs. 62,705/-. However, the Ld. CIT(A) sustained the additions made by the Ld. AO in respect of construction of school building amounting to Rs. 4,02,74,950/- and auto distribution expenses amounting to Rs. 7,34,673/-. 5. Aggrieved with the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. Before us, the Learned Authorized Representative ("Ld. AR") submitted that out of the various grounds raised by the assessee, only two issues survive for adjudication, namely, addition of Rs. 4,02,74,950/- on account of construction of school building and addition of Rs. 7,34,673/- on account of auto distribution expenses, which have been sustained by invoking the provisions of section 13(1)(b) of the Act. In this regard, the Ld. AR invited our attention to para no. 2.2 of the assessment order wherein the Ld. AO has reproduced the aims and objects of the society. He submitted that a perusal of the obj....
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....that construction of church has been held to be an activity for general public utility. The Ld. AR also placed reliance upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Dawoodi Bohra Jamat reported in 364 ITR 31 and submitted that merely because the beneficiaries belong to a particular religious community, it cannot be inferred that the trust itself has been created for the benefit of such religious community. Accordingly, the Ld. AR prayed before the Bench for deletion of addition of Rs. 4,02,74,950/- on account of construction of school building 6. With regard to addition on account of auto distribution expenses of Rs. 7,34,673/-, the Ld. AR submitted that the assessee has distributed autos to economically weaker sections of the society in furtherance of its object of providing relief to the poor. He submitted that such expenditure squarely falls within the ambit of charitable purpose. He further submitted that merely because some beneficiaries belong to a particular religious community, it cannot be inferred that the expenditure has been incurred for the benefit of such religious community. Accordingly, the Ld. AR prayed before the Bench for deletion ....
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.... Ld. AO and confirmed by the Ld. CIT(A). 8. We have heard the rival submissions and perused the material available on record including the case laws relied upon. The issue arising for our consideration is whether the additions of Rs. 4,02,74,950/- on account of construction of school building and Rs. 7,34,673/- on account of auto distribution expenses can be sustained by invoking the provisions of section 13(1)(b) of the Act. In this regard, we have gone through para nos. 7 to 7.3 of the order of the Ld. CIT(A), which is to the following effect: 7. DECISION: I have carefully perused the facts of the case, observations made by the AO in the assessment order and remand report as well as submissions filed by the appellant in support of its appeal and deliberations on the remand report. As per the assessment order and submissions on record, the Society is registered with Government of Telangana, Registrar of Societies vide Reg. No 912/2002 C.C. 578/2015. The objects of the society as per the contents of Memorandum of Association are stated to be wholly "charitable" in nature. As per the renewal of registration under Foreign Contribution (Regulation) Act, 2010 issued by the ....
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.... work only for a group of people belonging to a particular faith.' Further, it is seen that statement was also recorded on oath u/s 131(1) of I.T. Act, of the President of the society which is reproduced in para 8 of the assessment order. In this regard, it was alleged that the statements recorded under commission were not put to the appellant for rebuttal. Hence, remand report was solicited and the allegation found to be incorrect as per para 9 of the remand report as under : '9. Assessee's sworn statement: The assessee gave a sworn statement to the Assessing Officer on 18.12.2019, at the fag end of the assessment proceedings. By the time the Managing Trustee of the assessee society is aware of the inquiries made by the assessing officer through the jurisdictional ITOs. As already aware of the inquiries, the Managing Trustee of the assessee society did not question about the inquiries made with the donee entities. In his sworn statement dated 18.12.2019, he has clearly agreed to the purpose for which the donations were received and the utilization vide Questions No. 14 to 18 of his statement.' 7.2 Accordingly, in the facts and circumstanc....
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....on record and do not find them tenable. As the society's funds were not utilized for the stated objects mentioned in the objectives of the society or as per the purpose detailed in Form FC 3 filed under FCRA Act and the same are diverted to benefit a particular religious community, either directly or indirectly, the action of the AO is upheld. Accordingly, considering violation of provisions u/s 13(1)(b) of the I. T. Act, the addition of Rs. 7,34,673/- is confirmed. 9. On a perusal of the above, we find that both the additions of Rs. 4,02,74,950/- and Rs. 7,34,673/- have been sustained in the case of the assessee by invoking section 13(1)(b) of the Act alleging that the said amounts have been applied by the assessee for the benefit of a particular religious community. Therefore, it is not the case of the Revenue that the application of these expenses is not towards the objects of the society. The only contention of the Revenue is that these expenses have been incurred for the purpose of a particular religious community in violation of section 13(1)(b) of the Act. Accordingly, the submission made by the Ld. AR and Ld. DR on the issue whether the application of income of the T....
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....ions of Section 13(1)(b) of the Act. 44. In the instant case, the Tribunal has found on facts after analysing the objects of the trust that the respondent- trust is a public religious trust and its objects are solely religious in nature and being of the opinion that Section 13(1)(b) is solely meant for charitable trust for particular community, negated the possibility of applicability of Section 13(1)(b) of the Act at the outset. The High Court has also confirmed the aforesaid view in appeal and observed that Section 13(1)(b) would only be applicable in case of income of the trust for charitable purpose established for benefit of a particular religious community. In our considered view, the said view may not be the correct interpretation of the provision. 45. From the phraseology in clause (b) of section 13(1), it could be inferred that the Legislature intended to include only the trusts established for charitable purposes. That however does not mean that if a trust is a composite one, that is one for both religious and charitable purposes, then it would not be covered by clause (b). What is intended to be excluded from being eligible for exemption under Section 1....
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....f Jain Dharma. The objects of the Trust clearly show that the Trust is meant for propagation of Jain religion and rendering help to the followers of Jain religion. Even medical aid and similar facilities are to be rendered to persons devoted to Jain religion and to non- Jains if suffering from ailments, but the medical aid could be given to them only if any member of the families managing the Trust, shows sympathy and is interested in their treatment. The Tribunal, in our opinion, was right in its conclusion that the dominant purpose of the Trust in the present case was propagation of Jain religion and to serve its followers and any part of agricultural income of the Trust spent in the State of Kerala also could not be treated as allowable item of the expenses." 49. In the present case, the objects of the respondent-trust are based on religious tenets under Quran according to religious faith of Islam. We have already noticed that the perusal of the objects and purposes of the respondent- trust would clearly demonstrate that the activities of the trust though both charitable and religious are not exclusively meant for a particular religious community. The objects, as explai....
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..... Therefore, on the backdrop of the fact that substantial expenditure amounting to Rs. 2,50,02,763/- has been accepted by the Ld. AO himself towards charitable activities, we hold that the provisions of section 13(1)(b) of the Act are not applicable in the case of the assessee. Consequently, the additions of Rs. 4,02,74,950/- on account of construction of school building and Rs. 7,34,673/- on account of auto distribution expenses are unsustainable. Accordingly, we direct the Ld. AO to delete both the additions. 13. In the result, the appeal of the assessee in ITA No. 477/Hyd/2024 is allowed. ITA No. 631/Hyd/2024: 14. The assessee has raised the following grounds of appeal: 1) The order of the learned CIT (Exemptions) passed u/s 12AB(4) of the I.T. Act is erroneous both on facts and in law. 2) The learned CIT (Exemptions) erred in holding that the appellant did not utilize its funds for the purpose of the objects of the trust; 3) The learned CIT (Exemptions) erred in holding that the appellant deviated from its objects and utilized the funds for any religious purposes; 4) The learned CIT (Exemptions) ought to have seen that the entire act....
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....tities engaged in the carrying out charitable activities. These trusts are not registered u/s 12A of the I.T. Act. They are religious entities and their activities does not fit into any of the objectives of the assessee-society. Further, all the second recipients are non-filers. Therefore, the genuineness of the application of income by assessee- society towards charitable activities were not proved. The payments made to these entities with a religious tag would not be charitable acts, and hence it violates the objects of the society. The society has got registered itself as "Charitable Society" under Income Tax Act and violated its objects by extending financial grants to institutions/entities which are purely religious in nature and work only for a group of people belonging to a particular faith. 13.2 Further, on perusal of information with regards to application of income, assessee trust distributed autorickshaws to the tune of Rs. 7,34,673/- only to persons belonging to one religious community. The society got, itself registered as a "Charitable Society" and had violated its objects by extending financial grants for a group of people belonging to a particular faith whi....
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....CRA Act. As per FCRA registration the objects of the society are "Educational and Social" but substantial portion of the receipts were diverted for the benefit of a particular religious community. 17. On perusal of the above, we find that the principal basis for cancellation of registration granted to the assessee under section 12A/12AB of the Act is the assessment order passed by the Ld. AO for Assessment Year 2017-18 dated 30.12.2019 and the findings recorded therein invoking the provisions of section 13(1)(b) of the Act in the case of the assessee. However, while adjudicating the quantum appeal of the assessee for Assessment Year 2017-18 in ITA No.477/Hyd/2024 we have set aside the additions made by the Ld. AO and has categorically held that the provisions of section 13(1)(b) of the Act are not applicable in the case of the assessee. We have also specifically recorded a finding that since substantial charitable activities of the assessee have been accepted by the Revenue itself, the provisions of section 13(1)(b) of the Act cannot be invoked merely because certain expenditures are alleged to have benefited a particular religious community. Therefore, the very foundation on th....
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....ses, which does not ensure for the benefit of the public; or (d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) Any activity being carried out by the trust or institution- (i) is not genuine, or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non- compliance has occurred, has either not been disputed or has attained finality. 6.1. Thus, the contention of the Id. A.R. is that these provisions have been inserted by Finance Act, 2022 w.e.f. 1-4-2022 and if there is a violation in previous year 2020-21 relevant to assessment year 2021-22, these provisions cannot be applied to the assessee's case. For clarity, we will go through the relevan....
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....ses of this sub-section, the following shall mean "specified violation",-- (a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) The trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or (d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) Any activ....
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....472/426 ITR 289 wherein held as under: 17.4. It needs hardly any detailed discussion that in income-tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per section 4 of the Act of 1961, the charge of income-tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression "previous year" is defined in section 3 of the Act to mean "the financial year immediately preceding the assessment year"; and the expression "assessment year" is defined in clause (9) of section 2 of the Act to mean "the period of twelve months commencing on the 1st day of April every year". 17.5. In the case of CIT v. Isthmian Steamship Lines (1951) 20 ITR 572 (SC), a 3- judge Bench of this court exposited on the fundamental principle that "in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied." This decision and various other decisions were considered by the Constitution Bench of....
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....lause (ia) of section 40(a) of the Act effective from April 1, 20056, meaning thereby that the same was to be applicable from and for the assessment year 2005-06; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-06. 6.7. Being so, we find force in the argument of Id. A.R. that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, Id. PCIT is cancelling the registration granted u/s 12AA/ 12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23. 6.8. Thus, we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. In this regard, it is appropriate to place reliance ....
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....n of India v. CIT [IT Appeal No. 1524 (Mum.) o 2023, of vide order dated 27-7-2023], wherein held that registration granted u/s 12A of the Act dated 21-7-1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6-3-2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act. Accordingly, we allow the primary ground nos.2, 3, 5 & 12 and order of Id. PCIT passed u/s 12AB(4)(ii) of the Act is quashed. 7. In view of our findings in ground Nos.2, 3, 5 & 12, the grounds of appeal in Ground Nos. 4,6,7,8,9,10,11,13 & 14 have become infructuous as the order of Id. PCIT itself has been quashed. 8. In the result, appeals of the assessee are allowed." 6.4. Thus, the Tribunal has held that no retrospective cancellation could be made u/sec. 12AB(4) of the Act as it has not been provided in the said provision or intended by the legislature in the absence of any specific mention of retrospective application of the said provision. The Tribunal has relied upon various decisions including the Judgment of Hon'ble Madras High Court in the case of Auro Lab vs. ITO 411 ITR 308 (Mad.) wherein the Hon'ble Madras High Court has ....
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....ITA No. 610/Bang/2023/[2024] 160 taxmann.com 217 (Bangalore-Trib.) for Assessment Year 2021-22, a copy whereof has also been annexed to the paper book filed before us by the appellant. While dealing with this particular aspect of the matter the Bench has been pleased to observe as follows: "8.1.9. Registration Before the amendment by the Finance Act, 2022, Section 12AB(4) provided for cancellation of registration in case of any violation under Section 13. The amended Section 12AB(4) does not consider a violation of Section 13(1)(c) and Section 13(1)(d) as specified violations. Consequently, the registration cannot be cancelled on the ground that the assessee has violated Section 13(1)(c) or Section 13(1)(d). 8.1.10. The Finance Act 2023 has inserted clause (g) in Explanation to Section 12AB(4) to provide that giving incomplete, false, or inaccurate information in a registration application under Section 12A(1)(ac) will be deemed as a "specified violation" that can lead to the cancellation of registration. 8.2. Thus, it means that the following registration could be cancelled: 8.2.1. The PCIT/CIT can cancel the following registrations granted to a....
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....egistration for specified violation is also not permissible at the same has not seen the light of day prior to 01.04.2022; the same is therefore, not applicable to Assessment Years 2015-16 to 2021-22 as wrongly has been applied in the case in hand. 22. Thus, having regard to these particular facts and circumstances of the case the issuance of show cause notices proposing cancellation of registration alleging specified violation occurred prior to 01.04.2022 i.e. for Assessment Year 2015-16 to 2021-22 and the final order passed by the Ld. PCIT cancelling registration of the appellant society for Assessment Year 2015-16 to 2021- 22 by wrongly invoking the provision of Section 12A r.w.s. 12AA and 12AB(4) of the Act is found to be erroneous, bad in law, whimsical, in non-application of mind and thus, unsustainable." 6.5. Thus, it is held in the above cited Judgment of Hon'ble High Court and Orders of the Tribunal that the provision of sec. 12AB(4) for specific violation do not permit the cancellation of registration with retrospective effect but ITA.No.1128/Hyd./2024 the said provision is only prospective operation and application for cancellation with effect from ....
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....assessee. A new issue which has been raised by the Id CIT(E) in the show cause notice dated 6.10.2022 is the details of the corpus donation. Admittedly, this was the subject matter of 263 proceedings and that the issue had been considered by the Hon'ble Jurisdictional High Court and the Hon'ble High Court had found the orders of Id CIT to be un- sustainable and also quashed the same. Thus, all the issues on which the Id CIT(E) has raised the show cause notice for the purpose of cancellation of registration u/s. 12A have already been decided by the Appellate Authority and same has also reached finality. The Id CIT(E) by his order dated 20.6.2023 being the impugned order has tried to unsettle issues which are already settled in the case of the assessee. This is not permissible. This being so, as it is noticed that all the issues on the basis of which, ld CIT(E) has cancelled the registration u/s. 12A granted to the assessee has already been settled by various appellate authorities on earlier occasion and the issue had reached finality, same cannot be used for cancelling the registration of the assessee. This being so, on merits also, the order passed u/s. 12AB(4) by the Id IT....
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....s, the exemption cannot be denied to the petitioner for and up to the assessment year 2010- 11 on the sole ground of cancellation of the certificate of registration. " 6.9. In this case, the Id. PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the Id. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2018-19, which is bad in law. 6.10. It is noted that coordinate bench of this Tribunal in both assessee's case for AY 2021-22 has taken similar view and as quashed the retrospective applicability of the new amended provision u/s 12AB(4)(ii) of the Act. We also note that same view ITA.No.1128/Hyd./2024 has been taken by ....