2020 (3) TMI 626 - AT - Income Tax

Reopening of assessment u/s 147 - assessee-trust is registered under the provisions of section 12AA and 80G - HELD THAT - First proviso to section 12A(2) was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No.2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015. Statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the Id. A.O., unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s147 could be taken by the AO merely for non-registration of trust for earlier years. Explanatory Memorandum to Finance (No.2) Bill, 2014, which sought to amend section 12A explains the objects and reasons for making such amendments. The explanation makes it clear that it was in order to provide relief to such trusts in respect of which, due to absence of registration u/s 12AA tax liability got attached though otherwise they were eligible for exemption by fulfilling other substantive conditions that the amendment was brought in. That being so, denying such benefit to a trust like the assessee who had obtained registration u/s 12AA during the pendency of the appeals filed against the orders of the assessing authority, by narrowly interpreting the term, 'pending before the assessing officer' so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with. Under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner. Sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s 12AA by itself that offers immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in our view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration. As per second proviso to section 12A(2), no action u/s 147 shall be taken by the Assessing Officer in case of a trust for any assessment year preceding the aforesaid assessment year only for non-registration of such trust for the said assessment year. In the present case, since the assessee has been granted registration u/s 12A of the Act on 05.08.2014 for the assessment year 2015-2016, it is not possible to reopen the assessment earlier to that on non-registration of such trust and bringing the corpus donation into tax, which was received for specific purposes. Since we have allowed the legal issue in favour of the assessee, we are refrained from going into any other grounds raised by the assessee before us in these appeals. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening assessments under section 147.
2. Validity of changing the status from Trust to Association of Persons (AOP).
3. Issuance of notice under section 148 in the incorrect name.
4. Sufficiency of reasons to believe for reopening assessments.
5. Compliance with procedural requirements for reopening assessments.
6. Taxability of corpus donations received by the Trust.
7. Levy of interest under sections 234A and 234B.

Issue-wise Detailed Analysis:

1. Legality of Reopening Assessments under Section 147:
The assessee argued that the reopening of assessments for the years 2008-2009 to 2013-2014 was not permissible under the first and second proviso to section 12A(2) of the Act. The Tribunal noted that the first proviso to section 12A(2) was intended to provide relief to genuine charitable organizations by applying the benefits of sections 11 and 12 retrospectively, provided the trust’s activities and objects remained the same. The Tribunal concluded that no action under section 147 could be taken merely for non-registration of the trust for preceding years if the trust was later granted registration under section 12AA.

2. Validity of Changing the Status from Trust to Association of Persons (AOP):
The assessee contended that the Assessing Officer (AO) erroneously changed the status from Trust to AOP without issuing a fresh notice. The Tribunal referred to judicial precedents, including decisions from the Supreme Court, which held that a change in status without proper notice is invalid. The Tribunal agreed with the assessee that the AO’s action was not permissible under the law and thus invalid.

3. Issuance of Notice under Section 148 in the Incorrect Name:
The assessee pointed out that the notice under section 148 was issued in the name of "M/s. Adi Shakthi Bandanthamma Kalamma Charitable Trust," while the reasons for reopening and the assessment were framed in the name of "M/s. Bhandanthamma Mathu Kalamma Trust." The Tribunal held that a valid notice is a prerequisite for assuming jurisdiction, and any discrepancy in the name renders the proceedings void ab initio.

4. Sufficiency of Reasons to Believe for Reopening Assessments:
The assessee argued that the reasons recorded for reopening amounted to mere suspicion rather than a genuine belief. The Tribunal cited various Supreme Court judgments, emphasizing that "reason to believe" must be based on tangible evidence and not mere suspicion. The Tribunal found that the AO’s reasons lacked the necessary foundation and thus invalidated the reopening.

5. Compliance with Procedural Requirements for Reopening Assessments:
The assessee highlighted that the reasons for reopening were recorded by one officer while the notice under section 148 was issued by another, which is procedurally incorrect. The Tribunal agreed, stating that the officer who records the reasons must also issue the notice. The Tribunal concluded that the procedural lapse rendered the reassessment proceedings void ab initio.

6. Taxability of Corpus Donations Received by the Trust:
The AO added corpus donations to the income of the Trust, arguing that the Trust was not registered under section 12A during the relevant years. The Tribunal noted that corpus donations received for specific purposes are capital receipts and not taxable as income, even if the Trust was not registered under section 12A during those years. The Tribunal relied on judicial precedents and held that the additions made by the AO were incorrect and should be deleted.

7. Levy of Interest under Sections 234A and 234B:
The assessee contested the levy of interest under sections 234A and 234B, arguing that the rate, period, and quantum were not discernible. The Tribunal did not delve deeply into this issue, as the primary grounds for reopening and the taxability of corpus donations were decided in favor of the assessee. Consequently, the levy of interest was also set aside.

Conclusion:
The Tribunal allowed the appeals filed by the assessee, concluding that the reopening of assessments under section 147 was not permissible, the change in status from Trust to AOP was invalid, the notice under section 148 was defective, and the corpus donations were not taxable. The Tribunal set aside the reassessment orders and the additions made by the AO.