2017 (11) TMI 499 - AT - Income Tax

Entitlement for exemption u/s 11 and 12 - claim for the Asst Year 2006-07 in view of amendment brought in by Finance (No.2) Act , 2014 w.e.f. 1.10.14 by construing the same as retrospective in operation - Held that - The amendment brought in Finance (No.2) Act, 2014 w.e.f. 1.10.2014 in section 12A(2) of the Act should have to be construed as retrospective in operation and accordingly the assessee would be entitled for exemption u/s 11 and 12 of the Act for the Asst Years 2006-07 and 2007-08 also. Hence we allow the additional ground raised by the assessee for both the years under appeal before us. Since the preliminary ground of claim of exemption u/s 11 and 12 for the Asst Years Kolkata Metropolitan Development Authority 2006-07 and 2007-08 is allowed , the regular grounds raised by the assessee on the validity of proceedings and the merits thereon are not required to be adjudicated herein. Hence we direct the ld AO to grant exemption u/s 11 and 12 of the Act for the Asst Years 2006-07 and 2007-08 and adjudicate the merits of the addition afresh in accordance with law. We make it clear that our opinion on the merits of the addition are left open and direct the ld AO to adjudicate the same afresh in accordance with law, after grant of exemption u/s 11 and 12 of the Act for the Asst Years 2006-07 and 2007- 08 .

Issues Involved:
1. Jurisdiction of the JCIT to pass the assessment order.
2. Inclusion of interest on loans to statutory and local bodies in the total income.
3. Realization and recovery of principal and interest amounts.
4. Observations and directions of the ITAT in previous orders.
5. Charge of interest under section 234B.
6. Entitlement to exemption under sections 11 and 12 of the Act.

Detailed Analysis:

1. Jurisdiction of the JCIT:
The assessee argued that the JCIT lacked jurisdiction to make the assessment as the jurisdiction had been transferred to the Assistant Director of Income Tax (Exemptions)-II, Kolkata, effective from 9th July 2012. The Tribunal noted that the jurisdiction issue was raised on the grounds that the order dated 9.7.2012 indicated the assessee would be assessable by the Assistant Director of Income Tax (Exemptions)-II, Kolkata. However, the Tribunal did not explicitly rule on this jurisdiction issue as it found the appeals against the section 263 order had become infructuous.

2. Inclusion of Interest on Loans:
The assessee contested the inclusion of ?17,35,46,848 as interest on loans to statutory and local bodies in its total income. The Tribunal considered whether the interest income had accrued to the assessee under the real income theory. The Commissioner of Income Tax (Appeals) upheld the assessment order, which included this interest income. The Tribunal directed the AO to reconsider the merits of the addition afresh in accordance with the law after granting exemption under sections 11 and 12.

3. Realization and Recovery of Principal and Interest:
The assessee argued that it had not realized any portion of the principal or interest on loans granted to statutory and local bodies for over two decades, making the entire amount doubtful of recovery and irrecoverable. The Tribunal did not make a specific ruling on this issue but directed the AO to adjudicate the merits of the addition afresh.

4. Observations and Directions of the ITAT in Previous Orders:
The assessee claimed that the CIT(A) ignored the directions given by the ITAT in its order dated 29th November 2012 for the assessment year 2008-09 on the same issue. The Tribunal did not explicitly address this claim but directed the AO to reconsider the merits of the addition afresh.

5. Charge of Interest under Section 234B:
The assessee argued that the charge of interest under section 234B was erroneous. The Tribunal did not specifically address this issue but directed the AO to reconsider the merits of the addition afresh.

6. Entitlement to Exemption under Sections 11 and 12:
The Tribunal considered whether the assessee was entitled to exemption under sections 11 and 12 for the assessment year 2006-07 in light of the amendment to section 12A(2) by the Finance (No.2) Act, 2014, effective from 1.10.2014. The Tribunal held that the amendment should be construed as retrospective in operation. The Tribunal noted that the assessee had been granted registration under section 12A with effect from 1.4.2011, the objects and activities of the assessee remained the same from inception, and the assessment proceedings were pending as of the date of registration. Hence, the Tribunal directed the AO to grant exemption under sections 11 and 12 for the assessment years 2006-07 and 2007-08.

Conclusion:
The Tribunal dismissed the appeals against the section 263 order as withdrawn. It allowed the appeals for the assessment years 2006-07 and 2007-08 for statistical purposes, directing the AO to grant exemption under sections 11 and 12 and reconsider the merits of the addition afresh in accordance with the law. The Tribunal emphasized that the amendment to section 12A(2) should be applied retrospectively to benefit genuine charitable trusts.

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