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2016 (12) TMI 46 - AT - Income TaxDenial of exemption u/ss. 11 & 12 as well as u/s. 10(23C) - status of society - Assessment framed in the status of AOP or AJP - aggregate annual receipts - Held that - Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore, all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Thus we hold that the annual receipt of each college which is a separate educational institution, has to be considered for the purpose of section 10(23C) of the Act. The assessee is a trust created vide trust deed dated 2.3.1995. There is no denial that the main object of the assessee trust is to impart education. The assessee is running two colleges in the name & style of M/s. Nargund College of Pharmacy and M/s. Nargund College of Physiotherapy. Besides this, the assessee is also running hostel meant for students. It is pertinent to note that upto FY 2003-04, the department accepted the assessee as charitable trust in terms of section 2(15) as well as for the purpose of sections 11 and 10(23C) of the Act. Benefit of sections 11 and 12 cannot be denied merely on the ground that registration is granted w.e.f. 1.4.2008, though by a subsequent order, but the registration u/s. 12A came into effect prior to the initiation and completion of assessment proceedings of these four years. Accordingly, we hold that assessee is eligible for exemption u/s. 11 of the Act. The status as per section 164(2) is only for the assessment purpose and not to after the real status of the trust. In the case of society, there is no special provision providing the status of the person in terms of section 2(31) of the Act and therefore it was held by the Hon ble High Court in in the case of Children s Education Society 2013 (7) TMI 519 - KARNATAKA HIGH COURT that it would fall in the residual category of Artificial Juridical Person AJP . Whereas in case of income from property held under trust which is not eligible for exemption u/ss. 11 and 12 of the Act, it will be dealt with as per the special provisions of section 164(2) of the Act, which stipulates the status in which the income is assessable. Therefore, this provision is applicable only when the income is found to be not eligible for exemption u/ss. 11 and 12 of the Act. In the case in hand, we have given a finding that assessee is eligible for exemption u/s. 11 of the Act and therefore the status of the assessee would be AJP and not AOP. Reopening of assessment - Held that - It is undisputed fact that at the time of issuing notice u/s. 148, an application for registration was rejected by the DIT (E) and therefore as per the provisions of section 12A as existed at the relevant point of time, the AO has valid reason to believe that the income assessable to tax has escaped assessment. As regards the composite amount of receipts, it is only a matter of interpretation that for the purpose of section 10(23C) of the Act, the receipt of each educational institution has to be considered separately and not by clubbing together of all the institutions of the trust. In the absence of any provision in the statute as well as any binding precedent at the time when the notice was issued by the AO u/s. 148, the AO was justified to believe that consolidated amount of receipts of the assessee trust are to be taken into account for the purpose of exemption u/s. 10(23C) of the Act. Therefore, at the stage of forming the belief, the AO was having tangible material in the shape of rejection of registration as well as consolidated receipt of the assessee trust exceeding the exemption limit provided u/s. 10(23C) and hence initiation of proceedings u/s. 148 are valid. Registration on expiry of six months from the date of application - Held that - We find that the present proceedings are against the assessment order and not against the order of DIT (E) u/s. 12AA of the Act. Further, the issue of registration was earlier brought before the Tribunal and in the set aside proceedings, the DIT (E) granted registration vide order dated 5.3.2010 w.e.f. 1.4.2008. The said order has not been challenged by the assessee, therefore, the issue of registration has attained finality and cannot be agitated in the proceedings arising from the assessment order. Hence this issue cannot be raised in the present proceedings and therefore deserves to be dismissed. Appeal decided partly in favour of assessee
Issues Involved:
1. Assessment of the assessee in the status of Association of Persons (AOP). 2. Eligibility for exemption under sections 11 and 12 of the Income Tax Act. 3. Consideration of gross receipts for exemption under section 10(23C) of the Act. 4. Validity of the order passed under section 143(3) read with section 147 for want of jurisdiction under section 148. 5. Deemed registration under section 12A due to non-disposal of the application within six months. 6. Jurisdiction of the Assessing Officer to pass the assessment order. Detailed Analysis: 1. Assessment of the Assessee in the Status of AOP: The Revenue contended that the assessment framed in the status of AOP was valid as the assessee did not have registration under section 12A, thereby invoking section 164(2). The Tribunal, however, noted that the assessee trust was granted registration under section 12A w.e.f. 1.4.2008, and thus, the benefit of sections 11 and 12 should be available. The Tribunal concluded that the status of the assessee should remain as a trust and not as an AOP, citing the decision of the Hon'ble High Court in the case of Children's Education Society. 2. Eligibility for Exemption under Sections 11 and 12: The Tribunal observed that the assessee was granted registration under section 12A w.e.f. 1.4.2008, which was prior to the initiation of proceedings under section 148. The Tribunal held that the assessee is eligible for exemption under sections 11 and 12 of the Act, despite the registration being granted subsequently. The Tribunal also considered the proviso to section 12A introduced by the Finance Act, 2014, which allows retrospective application of the registration for pending assessments. 3. Consideration of Gross Receipts for Exemption under Section 10(23C): The Tribunal addressed whether the gross receipts of each educational institution should be considered separately or collectively for exemption under section 10(23C). Following the judgment of the Hon'ble jurisdictional High Court in the case of Children's Education Society, the Tribunal held that the annual receipts of each educational institution should be considered separately. Consequently, the Tribunal concluded that the receipts of each college run by the assessee trust should be evaluated independently for the purpose of exemption under section 10(23C). 4. Validity of the Order Passed under Section 143(3) read with Section 147 for Want of Jurisdiction under Section 148: The Tribunal examined the validity of the reassessment proceedings initiated under section 148. It was noted that at the time of issuing the notice under section 148, the application for registration under section 12A was rejected. Therefore, the Assessing Officer (AO) had valid reasons to believe that income chargeable to tax had escaped assessment. The Tribunal upheld the initiation of proceedings under section 148 as valid and proper. 5. Deemed Registration under Section 12A: The assessee's contention that it should be deemed registered under section 12A due to non-disposal of the application within six months was addressed. The Tribunal noted that the issue of registration was already decided by the Tribunal in earlier proceedings, and the DIT(E) granted registration w.e.f. 1.4.2008. Since the order of DIT(E) was not challenged, the issue of deemed registration could not be raised in the present proceedings. 6. Jurisdiction of the Assessing Officer to Pass the Assessment Order: The assessee argued that the AO did not have jurisdiction to pass the assessment order as the AO did not recognize the assessee as a trust and treated it as an AOP. The Tribunal held that the assessee had submitted to the jurisdiction of the AO by filing the return and participating in the proceedings. The Tribunal further noted that the status of the assessee as AOP was only an outcome of the assessment and not at the initiation stage. Therefore, the Tribunal found no merit in the assessee's objection regarding the jurisdiction of the AO. Conclusion: The Tribunal dismissed the appeals of the Revenue and partly allowed the cross objections of the assessee. The Tribunal upheld the eligibility of the assessee for exemption under sections 11 and 12, considered the gross receipts of each educational institution separately for exemption under section 10(23C), and validated the initiation of reassessment proceedings under section 148. The Tribunal also rejected the assessee's contention of deemed registration and the objection regarding the jurisdiction of the AO.
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