2022 (1) TMI 1446 - AT - Income Tax

Exemption u/s 11 - assessee made certain modifications and amended the objects of the trust - AO observed assessee has amended the object clause without intimating the CIT (Exemption) - According to the assessing officer, it violates the registration granted u/s 12A HELD THAT - CIT (Exemption) has initiated the proceedings for withdrawal of the registration u/s 12A on 10/03/2016 and subsequently on 19/12/2016, the proceedings were dropped. We also observe from record that no doubt assessment order was passed on 28/03/2015 and it is a fact on record that the withdrawal proceedings were initiated by CIT (Exemption) on the basis of information from the assessing officer; however, he has dropped the same subsequently. This information was brought to the notice of the CIT(A) and CIT(A) conveniently omitted to take notice of the same and proceeded to toe the line of assessing officer. In our considered view, the assessing officer has no authority or right to treat the registration granted by the higher authority, i.e. CIT (Exemption) as not valid. We observe from the record that he has rightly brought to the notice of the CIT (Exemption) and it is a fact on record that CIT (Exemption) considered the same facts on record at the time of granting original registration u/s 12A and subsequent withdrawal of the proceedings shows that he is convinced with the submissions of the assessee and the objects were within the charitable activities. Therefore, learned CIT(A) should have taken note of this development and should have cancelled the assessment made by the AO. AO in his order has observed that this trust was formed for benefit of a particular community and thus attracted section 13(1)(d) of the Act. Main object for which the trust was registered was for the benefit of the members of the Daivadnya community. The purpose and objects of the trust was never changed or modified. The amended object clause also for the benefit of members of the Daivadnya community. When the CIT (Exemption) approved the objects of the trust for registration us 12A on 25/04/1975 that means, he has satisfied himself that it is not a particular group, rather, it is for the whole members of the Daivadnya community. Even after amendment to the object clause, there is absolutely no change. Accordingly, CIT(Exemption) has taken a decision to drop the proceedings initiated for cancellation of the registration granted u/s 12A. Therefore, assessment order passed is void and accordingly, it is set aside. Assessee appeal allowed.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income-tax Act, 1961.
2. Denial of exemption under Section 11(1A) for Long-Term Capital Gains (LTCG).
3. Addition made for transfer entry from 'Building Amenities Fund 2011' to 'Building Fund'.

Detailed Analysis:

1. Denial of Exemption under Section 11:

The assessee filed its return of income and was selected for scrutiny. During the assessment proceedings, the assessing officer observed that the assessee had amended its object clause without prior permission or intimation to the Commissioner of Income-tax (Exemption). The officer held that the trust deed was not covered under Section 11 due to the lack of fresh registration after the insertion of new objects. Consequently, the exemption under Section 11 was denied, and the assessee was assessed as an 'AOP'.

The assessee argued that the registration under Section 12A remains valid until canceled by the Commissioner through due process under Section 12AA(3). The Commissioner had initiated but eventually dropped proceedings for cancellation of the registration. The assessee contended that the amended objects were charitable and within the scope of the trust's general objectives. The trust deed had been submitted to the Commissioner during renewal applications for exemption certificates under Section 80G(5), indicating no statutory requirement at the relevant time to intimate amendments.

The CIT(A) upheld the assessing officer's decision, but the appellate tribunal noted that the CIT (Exemption) had dropped the proceedings for withdrawal of registration, indicating the objects were within charitable activities. The tribunal observed that the assessing officer had no authority to invalidate the registration granted by the CIT (Exemption). Consequently, the assessment order was deemed void, and the exemption under Section 11 was allowed.

2. Denial of Exemption under Section 11(1A) for LTCG:

The assessee claimed exemption under Section 11(1A) for LTCG, asserting that the sales proceeds were invested in another capital asset, i.e., fixed deposits with a scheduled bank. The CIT(A) sustained the disallowance, but the tribunal directed the assessing officer to reconsider the exemption following the decision in favor of the assessee on the first issue.

3. Addition Made for Transfer Entry from 'Building Amenities Fund 2011' to 'Building Fund':

The CIT(A) sustained an addition of Rs. 95,00,000, being the amount transferred from 'Building Amenities Fund 2011' to 'Building Fund'. The assessee argued that this accounting entry did not result in taxable income. The tribunal, considering the favorable decision on the first issue, directed the assessing officer to follow the directions and delete the addition accordingly.

Conclusion:

The tribunal allowed the appeal, directing the assessing officer to grant the exemption under Section 11 and reconsider the related grounds in light of this decision. The order emphasized the validity of the registration under Section 12A and the charitable nature of the trust's amended objects.