2024 (3) TMI 470 - AT - Income Tax

Rectification u/s 154 - adjustment/s made by the AO in disallowing the claim u/s. 11 - assessee being not registered u/s. 12AA, it s claim for exemption u/s. 11 rejected - Alternative claim of exemption u/s. 10(23C)(iiiad) - Determination of threshold of turnover - annual receipts versus gross receipt - voluntary contribution received - as there was no claim u/s. 10 for the AO to have disallowed the claim u/s. 10(23C)(iiiad) per the rectification application, which is in any case not maintainable in view of the assessee s receipt being in excess of the threshold limit of Rs. 100 lakhs HELD THAT - Elemental to a rectification u/s. 154 are the attributes of mistake and apparent from record , excluding debatable issues, i.e., which do not admit of conceivably two views, and limiting the said view as on the basis of the record and the clear law in the matter. Section 2(24)(iia) of the Act, defining income, makes no exception for a voluntary contribution received toward corpus, so that it is income by definition, though exempt u/s. 11(1)(d)). It is for this reason that capital expenditure is equally an application of income, entitling exemption u/s. 11(1) on income derived from property held under trust (Tiruppani Trust v. CIT 1998 (2) TMI 3 - SUPREME COURT ) The assessee being not registered u/s. 12AA, it s claim for exemption u/s. 11, or for it being a capital receipt, not in the nature of income, is misplaced and, accordingly, stands rightly disallowed on processing the return u/s. 143(1)(a). It s plea for extension of subsequent registration, on the ground that rectification proceedings are a continuation of the assessment proceedings, is misconceived. When processing u/s. 143(1) is itself not an assessment, how could rectification thereof possibly be? That apart, rectification u/s. 154 would necessarily restrict the record to that which can be referred to u/s. 143(1)(a). It s final accounts, however, reflect a loss on operations, which stands mistakenly returned as income. The financial statements form part of the return of income (s. 139(9)) and, therefore, could validly be taken into account for processing it. The matter would accordingly have to travel to the AO for taking the audited final accounts, on the basis of which the assessee has returned income, on record and passing an order u/s. 154 of the Act. Alternate claim for exemption u/s. 10(23C) - As regards the assessee s, an accredited institution supported by Government, alternate claim for exemption u/s. 10(23C)(iiiad), the same stands rightly considered by the AO in the rectification proceedings. The same, it may be appreciated, is not a new claim, but incidental to it s activity of running an educational institution, and on which basis it had been claiming exemption in the past. It is true that equitable considerations are out of place in interpreting tax laws. However, as explained in R. B. Jodha Mal Kuthiala vs. CIT 1971 (9) TMI 2 - SUPREME COURT those laws, like all other laws, are to be interpreted reasonably and in consonance with justice. As it famously remarked in CIT vs. J. H. Gotla 1985 (8) TMI 5 - SUPREME COURT that though equity and taxation are often strangers, attempts should be made that these do not remain always so, and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. How does an assessee, one may ask, make an alternate claim? And for which, it therefore employs s. 154, subjecting itself thus to the limitations of the said provision. The premise of the Board Instructions as well as the decisions by the higher courts in this regard is that the assessee should get a fair deal. It is, further, irrelevant for the purpose of rectification whether the genesis or the cause of the mistake (in the order/intimation sought to be rectified) is at the end of the Revenue or the assessee, with, as aforenoted, both making the same mistake in the instant case. True, exemption provisions are to be strictly construed. There are however no procedural requirements in respect of a claim u/s. 10(23C)(iiiad), as was the case for s. 10B, as explained in Pr. CIT v. Wipro Ltd. 2022 (7) TMI 560 - SUPREME COURT ousting a later claim thereunder by the assessee. The assessee s Balance Sheet and Income Expenditure A/c clearly reflect it to be qua an educational institution, an aspect on which there is even otherwise no doubt, being the premise for a claim u/s. 10(23C)(iiiab/iiiad/vi). Non-allowance thereof by the Revenue is, thus, a mistake and, rather, as striking as by assessee in claiming exemption u/s. 11 and, further, not on income but on it s receipt. This is as the provision, in relation to the qualifying quantum of receipt, refers to annual receipts and not gross receipt . Corpus donation, being uncertain as to time and volume, is surely not a part of the regular, annual receipt of an educational institution. There is also no scope, while entertaining the said claim, for extending the purview of processing , or indeed of rectification proceedings in its respect, and probe further in the matter, examining, for instance, it s income profile; charter, etc. That is, the very same reason for which the assessee s claim under proviso to s. 12A(2) did not find favour with either the Revenue or with us. The assessee s alternate claim for exemption of it s income, including capital receipt, u/s. 10(23C)(iiiad), which extends to the entire income received by such person, and not it s annual receipt, is not exigible to being disallowed u/s. 143(1)(a). Its disallowance is, accordingly, directed for deletion. We decide accordingly.

Summary

Issues Involved:
1. Disallowance of exemption claims under Section 11 and Section 10(23C)(iiiad) of the Income Tax Act, 1961.
2. Application of rectification under Section 154 of the Act.
3. Applicability of maximum marginal rate of tax.
4. Extension of benefits of subsequent registration under Section 12AA.

Summary:

1. Disallowance of Exemption Claims:
The assessee, a society running an educational institution, filed its return of income for AY 2013-14, claiming exemptions under Section 11 and Section 10(23C)(iiiad) of the Income Tax Act, 1961. The return was processed under Section 143(1)(a), disallowing the exemptions and raising a demand. The assessee's claim for exemption under Section 11 was rejected as it was not registered under Section 12AA for the relevant year. The claim under Section 10(23C)(iiiad) was also denied as the gross receipts exceeded Rs. 100 lakhs.

2. Application of Rectification under Section 154:
The assessee filed an application under Section 154, arguing that the income for the relevant year was only Rs. 11.19 lakhs, excluding corpus donations. The CIT(A) rejected the rectification application, stating that the assessment proceedings were not pending on the date of grant of registration under Section 12AA. The Tribunal noted that rectification under Section 154 is limited to mistakes apparent from the record and does not extend to debatable issues.

3. Applicability of Maximum Marginal Rate of Tax:
The assessee contended that the tax charged under Section 143(1) was at the maximum marginal rate, which is not applicable to societies or trusts as per CBDT Circular No. 320 dated 11-01-1982. However, the Tribunal found that the tax was charged at the normal rate.

4. Extension of Benefits of Subsequent Registration:
The assessee argued that the benefit of registration under Section 12AA, granted w.e.f. AY 2015-16, should be extended to AY 2013-14 as rectification proceedings were pending. The Tribunal rejected this argument, stating that processing under Section 143(1) is not an assessment and rectification proceedings do not constitute continuation of assessment proceedings.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the deletion of disallowance of exemption under Section 10(23C)(iiiad). The Tribunal held that corpus donations should not be considered as part of "annual receipts" for the purpose of this exemption. The assessee's alternate claim for exemption under Section 10(23C)(iiiad) was found to be valid, and the disallowance was directed for deletion. The appeal was allowed, and the order was pronounced on March 07, 2024.