2019 (6) TMI 139 - AT - Income Tax

Exemption claimed u/s 11 and 12 - taxability of unregistered trust - objects activities of the trust in AY 2013-14 to 2016-17 remains the same as in the FY 2018-19 when the registration granted u/s 12AA - Charitable activity or not ? - gross receipt taxable or income - HELD THAT - What can be brought to tax is the net income in the hands of the assessee trust and not the gross receipts. In all these years, we find that while denying the exemption u/s 11 and 12 for want of registration u/s 12AA, AO has brought gross receipts to tax which is against the basic tenets of law where only the real income which is determined after deducting expenses from gross receipts can be brought to tax. We therefore agree with the alternate contention so advanced by the AR and without going into merit of the other contention which is left open, the matter is set-aside to the file of the AO to examine the claim of the expenditure so claimed by the assessee trust against the gross receipts for each of the relevant years and where the AO determines the net receipts as not exceeding the maximum amount not chargeable to tax, allow the necessary relief to the assessee trust. - Appeals filed by assessee trust are allowed for statistical purposes.

Summary

Issues involved:
- Denial of exemption u/s 11 of the IT Act by AO/CPC
- Rejection of registration u/s 12AA by Ld. CIT(E)
- Assessment proceedings for various Assessment Years
- Dispute regarding the objects of the trust
- Assessment of gross receipts as income
- Claim for deduction of expenditure
- Interpretation of proviso to section 12AA(2)

Analysis:
1. The appeals were filed by the assessee trust against orders upholding the denial of exemption u/s 11 of the IT Act by the AO/CPC. The dispute arose due to the AO/CPC's contention that the trust's objects were not the same when claiming exemption and when granted under section 12AA, despite an amendment in the trust deed for clarity.

2. The trust was initially rejected for registration u/s 12AA on the grounds of benefiting only a specific community. However, after directions from the Tribunal, the trust made amendments to the deed, broadening the scope to benefit all religions. Registration was subsequently granted from the date of the amended trust deed.

3. The AO/CPC reopened assessments and processed returns for various years, assessing gross receipts as income due to lack of registration u/s 12AA. The CIT(A) upheld these assessments, stating that the trust's objects had changed post-amendment, leading to the denial of exemption u/s 11.

4. The assessee argued that the trust's objects remained consistent, with only minor modifications for clarity. They contended that the registration granted post-amendment should apply to the relevant assessment years, as per the proviso to section 12AA(2), and sought exemption u/s 11.

5. Additionally, the assessee claimed that gross receipts should not be assessed as income, as the expenditure incurred was directly linked to donations received. They argued that only the net surplus should be taxed, if applicable, and requested the authorities to compute income after allowing expenditure.

6. The Tribunal noted that only the net income should be taxed, not gross receipts, and directed the Assessing Officer to examine expenditure claims against gross receipts for each year. If the net receipts do not exceed the maximum amount not chargeable to tax, relief should be granted to the assessee trust.

7. Ultimately, the appeals filed by the assessee trust were allowed for statistical purposes, with the matter remanded to the Assessing Officer for proper examination of expenditure claims and computation of taxable income based on net receipts.

Judges:
- Shri Vijay Pal Rao, JM
- Shri Vikram Singh Yadav, AM