2018 (7) TMI 2125 - AT - Income Tax

Exemption u/s 11 - benefit of grant of registration u/s. 12AA - whether insertion of 1st proviso to sub-section (2) of section 12A which was inserted by Finance Act, 2014 w.e.f. 01.10.2014 is retrospective or not, when the fact remains that the assessment order was passed on 28.03.2014? - HELD THAT - Assessee has also been accorded approval u/s. 10(23)(c)(iv) by order of Ld. CCIT-3, Kolkata dated 09.01.2014. It is well settled that the CIT(A) has co-terminus power as enjoyed by the AO while deciding the appeal against an assessment order. Even though the assessment order has been passed on 28.03.2014, for the ends of justice and fair play and taking into consideration the fact that the assessee is basically a consortium of State Govt., Central Govt and Municipal Corporation which was incorporated as a company u/s. 25 of the Companies Act, 1956 with the purpose to promote the objectives of the nature specified in section 25(1), clause (a) of the State Act and it is pertinent to note that that it will apply its profit if any or other income in promoting its objects and it prohibits the payment of any dividend to its members. CIT(A) has rightly noted that the assessee s activities are for charitable purposes. Therefore, we do not find any infirmity in the order of the CIT(A) in this regard and we dismiss the appeal of the revenue. We find that the CIT(A) has rightly held that the benefit of grant of registration u/s. 12AA of the Act also need to be extended to AY 2011-12 and, therefore, we confirm the order of Ld. CIT(A) on this issue. Disallowance of expenditure made on account of amortized lease rent payment and disallowance made on account of depreciation on leasehold land - HELD THAT - Since we upheld the direction of the Ld. CIT(A) to extent the benefit of grant of registration u/s 12AA of the Act to this AY 2011-12 and, therefore, the assessee is eligible to claim exemption of its income u/s. 11 of the Act. The expenditure incurred by the assessee would be treated as application of income for charitable objects, as the incurrence of expenditure for charitable objects has not been disputed by the revenue. Therefore, we do not find any merit in these grounds of appeal and so stand dismissed. Appeal of revenue is dismissed.

Summary

Issues Involved:
1. Retrospective application of the first proviso to sub-section (2) of section 12A of the Income-tax Act, 1961.
2. Eligibility of the assessee for exemption under section 11 of the Income-tax Act.
3. Deletion of additions made on account of amortized lease rent payment and depreciation on leasehold land.

Issue-wise Detailed Analysis:

1. Retrospective Application of the First Proviso to Sub-section (2) of Section 12A:

The primary issue raised by the revenue was whether the insertion of the first proviso to sub-section (2) of section 12A of the Income-tax Act, 1961, by the Finance Act, 2014, effective from 01.10.2014, is retrospective. The assessment order was passed on 28.03.2014, and the assessee was assessed as a company with a profit motive due to the absence of registration under section 12AA for the assessment year 2011-12.

The Tribunal noted that the CIT(A) held the proviso to be retrospective, relying on the Tribunal's decision in Sree Sree Ramkrishna Samity Vs. DCIT (2015) 44 ITR (Trib) 678 (ITAT, Kol). The Tribunal reproduced the relevant portions of the order, emphasizing that the proviso to section 12A(2) should be construed as retrospective to prevent genuine hardship to charitable organizations. The Tribunal cited various judgments, including Allied Motors P Ltd vs CIT and CIT vs Vatika Township P Ltd, supporting the retrospective application of beneficial provisions.

The Tribunal concluded that the insertion of the proviso to section 12A(2) is retrospective in operation, aligning with the CIT(A)'s decision.

2. Eligibility for Exemption Under Section 11:

The assessee, a consortium of the Central Government, State Government, and Kolkata Municipal Corporation, was incorporated as a company under section 25 of the Companies Act, 1956, with charitable objectives. The CIT(A) noted that the assessee's activities were for charitable purposes and granted the benefit of registration under section 12AA retrospectively for the assessment year 2011-12.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee was granted registration under section 12AA on 03.05.2013, effective from 01.04.2012. The Tribunal emphasized that the CIT(A) has co-terminus power with the AO and that the assessee's activities were charitable. Therefore, the benefit of registration under section 12AA should be extended to the assessment year 2011-12.

3. Deletion of Additions on Account of Amortized Lease Rent Payment and Depreciation on Leasehold Land:

The revenue challenged the deletion of additions of ?4 lakhs for amortized lease rent payment and ?19,40,000 for depreciation on leasehold land. Since the Tribunal upheld the CIT(A)'s direction to extend the benefit of registration under section 12AA to the assessment year 2011-12, the assessee was eligible to claim exemption under section 11 of the Act.

The Tribunal noted that the expenditure incurred by the assessee would be treated as an application of income for charitable objects, as the revenue did not dispute the incurrence of expenditure for charitable purposes. Therefore, the Tribunal found no merit in the revenue's grounds of appeal regarding these additions and dismissed them.

Conclusion:

The Tribunal dismissed the revenue's appeal, confirming the CIT(A)'s order. The Tribunal held that the insertion of the proviso to section 12A(2) is retrospective in operation, and the assessee is eligible for exemption under section 11 for the assessment year 2011-12. The Tribunal also upheld the deletion of additions made on account of amortized lease rent payment and depreciation on leasehold land. The order was pronounced in the open court on 5th July, 2018.