2017 (10) TMI 1450 - HC - Income Tax

Exemption u/s 11 - trust or institution has been granted registration under section 12AA - Applicability of the registration granted to a trust or institution to earlier years - Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organisations - ITAT applying the Proviso of Section 12A(2), inserted w.e.f. 01.10.2014, with retrospective effect in spite of the facts that the proviso has no indication of being applied for the earlier years retrospectively - HELD THAT - At the time of registration, the authority is required to look whether it is registered under the state Act or under any other Act. There is no distinction between private trust and public trust. The contention which has been raised by counsel for the appellant regarding the expenses, diversion or control by the private people will come only when the assessment has taken place. For the purpose of trust registered and the income used is for the charitable purpose or not and whether income from public trust if it is going for any private use will negative the very object of the Trust Act which is the main intention of the legislation, is not to be considered at this stage. As long as the objects were charitable in nature in the earlier years and in the year in which registration u/s 12AA was granted, the existence of trust for charitable purposes in the earlier years cannot be doubted with. Even otherwise, no adverse findings were given by the revenue with regard to the existence of the assessee society for charitable purposes in the assessment years under appeal. A receipt which is by birth, capital in nature, cannot change its character merely for want of registration of society u/s 12AA of the Act. It is not the case of the revenue that the donations received are meant for general functioning of the charitable objects of the society, in which event, the donations received thereon would take the character of revenue receipts requiring to be credited in the income and expenditure account for utilization towards charitable objects thereon. Hence we hold that in any case, the donations received by the assessee society cannot be brought to tax in the assessment. We hold that since the only reason for denial of exemption u/s 11 was absence of registration u/s 12AA (which was granted to assessee society on 29.10.2010 with effect from 1.4.2010) for the relevant assessment years and on no other ground, the benefit of change in law as above by Finance Act 2014 should be available and for all the years, the benefit of exemption should be available on the date of registration as all the assessments were pending as shown above. In this connection, it requires mention specifically that all the receipts of the donation were proved on enquiry to have been received from the claimed donors and utilized for the specific purpose (construction of old age home) for which they were received. In conclusion, we hold that the insertion of the proviso to section 12A(2) of the Act has to be construed as retrospective in operation - This issue stands answered in favour of the assessee by Shree Bhanushali Mitra Mandal Trust 2016 (4) TMI 578 - ITAT AHMEDABAD , wherein, it was held that appeal is a continuation of the original proceedings and assessment proceedings pending before an appellate authority should be deemed to be assessment proceedings pending before the Assessing Officer within the meaning of Section 12A. - Decided in favour of assessee.

Issues Involved:
1. Application of the Proviso of Section 12A(2) retrospectively.
2. Legality of granting registration to a private trust under Section 12A.
3. Applicability of the Rajasthan Public Trust Act to private trusts.
4. Justification of allowing Gujara Bhatta as an application of income of the trust.

Detailed Analysis:

1. Application of the Proviso of Section 12A(2) Retrospectively:
The primary issue was whether the proviso of Section 12A(2) of the Income Tax Act, inserted with effect from 01.10.2014, should be applied retrospectively. The court referred to the explanatory notes and various judicial precedents, including the decisions in Sree Sree Ramkrishna Samity vs. Deputy Commissioner of Income Tax and SNDP Yogam vs. ADIT (Exemption), which supported the retrospective application of the proviso. The court noted that the amendment aimed to provide relief to charitable organizations by ensuring that the benefits of Sections 11 and 12 would apply to earlier years if the trust's objects and activities remained the same. The court concluded that the proviso should be construed as retrospective to prevent genuine hardship and ensure fairness.

2. Legality of Granting Registration to a Private Trust Under Section 12A:
The appellant argued that granting registration to a private trust under Section 12A was improper, especially given the restrictions under Sections 2(15), 11, 12, and 13 of the Income Tax Act. The court examined the definitions and provisions under these sections and noted that the primary concern was whether the trust's activities were for public benefit. The tribunal had previously determined that the trust's activities were genuine and for public benefit, despite being managed by representatives of three families. The court upheld the tribunal's decision, emphasizing that the control and management of the trust by private individuals did not negate its public charitable nature.

3. Applicability of the Rajasthan Public Trust Act to Private Trusts:
The appellant contended that the Rajasthan Public Trust Act, 1959, should not apply to private trusts governed by the Indian Trust Act, 1882. The court referred to the tribunal's findings and noted that the trust was registered under the Rajasthan Public Trust Act, which indicated its public charitable nature. The court also highlighted that the assessment of whether the trust's income was used for charitable purposes should be done during the assessment stage, not at the registration stage. The court concluded that the tribunal's decision to grant registration under Section 12A was justified.

4. Justification of Allowing Gujara Bhatta as an Application of Income of the Trust:
The appellant argued that the tribunal erred in allowing Gujara Bhatta as an application of the trust's income, as it was not fixed by the State Government as per Section 65 of the Rajasthan Public Trust Act, 1959, read with Rule 38 of the Rajasthan Public Trust Rules, 1962. The court examined the tribunal's reasoning and noted that the tribunal had found the trust's activities to be genuine and for public benefit. The court also referred to the tribunal's observations that the applicability of Section 13 should be examined by the Assessing Officer during the assessment stage. The court upheld the tribunal's decision, stating that the registration under Section 12A should not be denied based on the Gujara Bhatta issue.

Conclusion:
The court found no reason to interfere with the tribunal's findings and upheld the decision to grant registration under Section 12A to the assessee. The appeals were dismissed, and the issues were resolved in favor of the assessee. The court emphasized that the assessment of whether the trust's income was used for charitable purposes should be done during the assessment stage, and the registration should not be denied based on the control and management of the trust by private individuals or the Gujara Bhatta issue.

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