2018 (10) TMI 1176 - AT - Income Tax

Exemption u/s 11 - assessee is engaged in charitable activity or not - Registration granted u/s. 12A/12AA denied - AO jurisdiction to deny the renewal of registration - Held that - AO has no jurisdiction to question the continuation of registration u/s. 12A of the Act and thereby deny the claim of the assessee u/s. 11 of the I.T. Act and tax the amount set apart in earlier years on the reason that the assessee is not eligible for continuation of registration u/s. 12A of the Act. To that extent the CIT(A) is justified in his finding that the Assessing Officer has no jurisdiction to question the same in view of the decision of this Tribunal in the case of Kuttukaran Foundation 2012 (4) TMI 78 - ITAT COCHIN . CIT(A) could have directed the Assessing Officer to examine whether the activities carried on by the assessee is in accordance with the object clause of the Trust. Neither the CIT(A) nor the Assessing Officer have examined this issue. AO in this case at the threshold rejected the claim of the assessee under section 11 of the Act by observing that since the Trust has not obtained the approval of the Commissioner of Income-tax for amendments made by it in the memorandum and rules and regulations and also not obtained prior approval for expanding its operations beyond the limits of the country the Trust is not eligible for continuation of the registration granted u/s. 12A of the Act. Being so the assessee was treated as having no registration u/s. 12A of the Act. Hence The Assessing Officer has not examined and satisfied himself whether the asessee-Trust has carried on the operations in accordance with provisions of section 11 of the Act so as to grant exemption u/s. 11 of the Act. Since we have observed that the assessee-Trust is entitled for continuation of registration u/s. 12A of the Act and it cannot be questioned by the Assessing Officer unless it is cancelled by the CIT(Exemptions) the Assessing Officer has to examine whether the assessee is carrying on its activities in accordance with the object clause of the Trust and whether there is any violation u/s. 13 of the Act and thereafter he has to decide granting of exemption u/s. 11 of the Act. Hence we remit this issue to the file of the Assessing Officer to examine the issue - Appeal of revenue partly allowed.

Summary

Issues:
1. Whether the Assessing Officer had the jurisdiction to deny the benefit of section 11 and 12 of the Income Tax Act to the assessee based on the registration status under section 12A.
2. Whether the CIT(A) was justified in deleting the additions made by the Assessing Officer.

Analysis:

Issue 1:
The primary issue in this case revolved around the jurisdiction of the Assessing Officer to deny the benefits under sections 11 and 12 of the Income Tax Act to the assessee based on the registration status under section 12A. The Assessing Officer contended that the registration under section 12A needed to be periodically renewed and that failure to meet the conditions would render the Trust ineligible for registration. Consequently, the Assessing Officer taxed the income of the Trust at the maximum marginal rate of 30% and disallowed set apart income for future utilization. However, the CIT(A) held that without canceling the registration under section 12A, the Assessing Officer could not deny the benefits under sections 11 and 12 of the Act. The CIT(A) emphasized that the Trust had utilized a significant portion of its receipts for its objectives, leading to the deletion of the additions made by the Assessing Officer.

Issue 2:
Regarding the second issue, the CIT(A) further deleted the addition of set apart amount based on the grounds that the Trust was duly registered under section 12A. The CIT(A) maintained that the Assessing Officer lacked jurisdiction to question the eligibility of the Trust for registration under section 11 of the Act and to treat the Trust as an Association of Persons (AOP) for taxation purposes. The Tribunal concurred with the CIT(A) and cited a previous decision to support the finding that the Assessing Officer had exceeded his jurisdiction in rejecting the registration and assessing the Trust as an AOP. However, the Tribunal noted that neither the CIT(A) nor the Assessing Officer had examined whether the Trust's activities aligned with the object clause of the Trust. Consequently, the Tribunal remitted the issue back to the Assessing Officer for further examination and assessment in accordance with the provisions of the Act.

In conclusion, the Tribunal partially allowed the appeal of the Revenue for statistical purposes, emphasizing the importance of proper examination of the Trust's activities in accordance with the provisions of the Income Tax Act before denying exemptions under section 11.