2023 (1) TMI 491 - HC - Income Tax

Registration u/s 12A - whether such registration allows the Assessee automatic exemption from income tax on all types of income? - HELD THAT - There was no claim for automatic exemption from income tax on the basis of the registration u/s 12A. Consequently, the Court declines to frame such a question for consideration. Whether there ought to have been a valid resolution of the Assessee Trust in terms of Rule 17 of the Income Tax Rules, 1962 (Rules) read with Section 11 (2) of the Act? - A perusal of Form No.10 reveals that the requirement of the resolution, referred to in the statement therein, having to be enclosed with the said Form, has not been indicated. In other words, there is nothing in either Section 11(2) of the Act or Rule 17(2) of the Rules that mandates the furnishing of such resolution by the Assessee in order for the statement in Form No.10 to be acted upon by the AO. Consequently, the Revenue cannot insist on a copy of the resolution being furnished. The Court therefore concurs with the view expressed by the ITAT in the impugned order and declines to frame the question in this regard. Whether the declaration filed by the Assessee regarding correctness of its accounts for the purposes of claiming exemption under Section 11 ought not to have been accepted in view of the accounting irregularities pointed out by the CAG? - HELD THAT - The Court is unable to agree. The very text of the Finance Act, 2008 and in particular Section 3 thereof which inserts the amended Section 2(15) clearly states that the following clause shall be substituted with effect from the 1st day of April, 2009. Clearly, therefore, the amendment is prospective. Consequently, the Court declines to frame this question either. On the issue whether the Assessee ought to have resorted to the cash system of accounting and not the accrual basis, it has been pointed out on behalf of the Assessee that it is bound by the guidance note of the Ministry of Shipping and Transport, Government of India and the requirement under the Companies Act as regards maintaining its accounts on accrual basis. Consequently, this Court finds no reason to take a view different from what the ITAT has taken in the matter. Whether absolutely similar activities carried on by the Assessee from 1963 considered as charitable till AY 2008-09 can cease to be charitable from AY 2009-10 onwards? - As pointed out by the Assessee, the change occurred as a result of the prospective amendment to Section 2(15) validity of which obviously cannot be questioned by the Revenue. Consequently, this question also does not arise for consideration.

Summary

Issues:
1. Registration under Section 12A of the Income Tax Act, 1961
2. Valid resolution of the Assessee Trust under Rule 17 of the Income Tax Rules, 1962
3. Acceptance of declaration filed by the Assessee regarding correctness of its accounts for claiming exemption under Section 11 of the Act
4. Retrospective application of the amendment to Section 2(15) of the Act by the Finance Act, 2008
5. Accounting basis - cash system vs. accrual basis
6. Taxability of interest on two Funds
7. Charitable activities ceasing to be charitable due to prospective amendment to Section 2(15) of the Act

Analysis:

1. Registration under Section 12A: The Court found that the Assessee did not claim automatic exemption based on the registration under Section 12A for the relevant assessment years. The Assessee filed returns and justified exemptions on a case-to-case basis, leading the Court to dismiss the question of automatic exemption.

2. Valid resolution of Assessee Trust: The issue raised was whether a valid resolution of the Assessee Trust was necessary for accumulating funds for charitable activities. The Court noted that while Rule 17 required a statement in Form No.10, it did not mandate the submission of the resolution. Consequently, the Court agreed with the ITAT's decision and rejected the need for the resolution.

3. Acceptance of declaration regarding correctness of accounts: The Court declined to question the acceptance of the Assessee's declaration despite accounting irregularities highlighted by the CAG, as it did not result in unfair advantage or prejudice to the Revenue.

4. Retrospective application of amendment to Section 2(15): The Court determined that the amendment introduced by the Finance Act, 2008 was prospective from April 1, 2009, and hence declined to consider it retrospective, dismissing the question raised by the Revenue.

5. Accounting basis: The Assessee's adherence to the accrual basis of accounting, guided by Ministry notes and Companies Act requirements, was upheld by the Court, concurring with the ITAT's decision.

6. Taxability of interest on two Funds: The Court clarified that the Assessee did not withdraw the ground regarding the taxability of interest, as contended by the Revenue, and declined to frame the question raised.

7. Charitable activities ceasing to be charitable: The change in the classification of activities as charitable due to a prospective amendment was upheld by the Court, rejecting the Revenue's challenge on the validity of the amendment.

In conclusion, the Court dismissed all questions raised by the Revenue in the appeals, emphasizing the specific circumstances and legal provisions governing each issue.