2017 (5) TMI 584 - HC - Income Tax

Eligibility to exemption under Section 11 although the Assessee was not registered under Section 12A(a) - Held that - By an amendment with effect from 1st April, 1997 the words whichever is later and such trust or institution is registered under Section 12 AA were inserted at the end of Section 12A (a) of the Act. Therefore the said amendment did not apply to the Assessee during the relevant AY. It will be recalled that the Appellant s application for registration under Section 12A of the Act was made on 23rd June, 1973 i.e. prior to 1st July 1973 and was pending as on the date of the above amendment. The first part of the condition in clause (a) as it read prior to the above amendment stood fulfilled. Section 12 AA was itself inserted by an amendment with effect from 1st April 1997. Therefore, the question of the Assessee having to get itself registered under Section 12 AA did not arise. By the time the ITAT answered the above question, the registration under Section 12 A (a) was granted. The registration related back to the date of the application i.e. 23rd June 1973.Therefore, question (i) framed by the Court is answered in the affirmative i.e. in favour of the Assessee and against the Revenue. Could the Assessee be granted exemption under Section 11 of the Act when there was a failure on its part to comply with the provisions of Section 12A (b) of the Act? - Held that - The assessment order was passed on 29th February 1996 and the Assessee s audit report was ready on 12th March 1996. Had the AO granted the Assessee two weeks time, the Assessee would have filed its audit report and the assessment order passed thereafter would still have been within the deadline of 31st March 1996. It would have caused no prejudice to the Revenue. CIT(A) noted that even if there was a non-compliance with Section 12 A (b) of the Act by the Assessee, thus disentitling it to exemption under Sections 11 and 12 thereof, the AO was still not justified in adding the entire corpus of the Assessee to its taxable income. The corpus fund had been present in the earlier years and was a capital receipt. Even as per the original return, the Assessee did not have any excess over expenditure which could have been taxed. The ITAT committed no error in concurring with the CIT (A). The question framed at (ii) above has to be answered in the negative, viz., in favour of the Assessee and against the Revenue. It is held that the Assessee could not have been denied exemption under Sections 11 and 12 of the Act as there was no failure to comply with Section 12A (b) of the Act.

Summary

Issues Involved:
1. Whether exemption can be allowed under Section 11 of the Income Tax Act, 1961, despite the Assessee not being registered under Section 12A(a) of the Act.
2. Whether exemption under Section 11 of the Act can be granted when there was a failure to comply with the provisions of Section 12A(b) of the Act.

Detailed Analysis:

Issue 1: Exemption under Section 11 without Registration under Section 12A(a)
The Assessee filed an application for registration under Section 12A of the Income Tax Act, 1961 on 23rd June 1973. The registration was granted on 24th February 1999, relating back to the date of the application. For the Assessment Year (AY) 1993-94, the Assessee was not registered under Section 12A(a) at the time of assessment. However, the Income Tax Appellant Tribunal (ITAT) noted that the registration, once granted, related back to the date of the application. The Court observed that the amendment requiring registration under Section 12AA, effective from 1st April 1997, did not apply to the Assessee for AY 1993-94. Therefore, the condition under Section 12A(a) was fulfilled as the application was made before 1st July 1973. The Court answered this issue in the affirmative, in favor of the Assessee, stating that exemption under Section 11 could be allowed even if the registration was granted later, as it related back to the date of the application.

Issue 2: Exemption under Section 11 with Non-Compliance of Section 12A(b)
Section 12A(b) requires the return to be accompanied by an audit report prepared by a qualified Chartered Accountant. The Assessee's accounts were seized following a ban under the Unlawful Activities (Prevention) Act, 1967 (UAPA), and were only partially released on 29th December 1994. The ban was lifted on 28th June 1995. The Assessee sought more time to file the audit report due to the seizure of accounts. The return was filed on 1st November 1995 without the audit report, which was later submitted on 12th March 1996. The Court noted that the Revenue did not raise the issue of non-filing of the audit report in its appeal before the ITAT initially. The ITAT declined to permit the Revenue to raise this issue orally during the hearing. The Court found that the delay in submitting the audit report was due to bona fide reasons beyond the Assessee's control. The CIT(A) accepted the audit report and allowed the appeal, and the ITAT concurred. The Court held that the Assessee could not be denied exemption under Sections 11 and 12 due to the delay in filing the audit report, as the delay was justified and did not cause any prejudice to the Revenue.

Conclusion:
The Court dismissed the appeal, holding that the Assessee was entitled to exemption under Section 11 of the Act despite the delay in registration under Section 12A(a) and the delay in filing the audit report under Section 12A(b), given the bona fide reasons and the peculiar facts of the case for AY 1993-94. The appeal was dismissed with no orders as to costs.