2024 (9) TMI 1095 - AT - Income Tax

Exemption u/s 11 - denial of registration u/s 12A/12AB - charitable activity or not? - CIT(E) was of the view that assessee-trust is established for the benefit of a particular community and not for general public and thus, the provisions of u/s 13(1)(b) are applicable HELD THAT - The bar u/s 13(1)(b) has no application to a charitable trust which was created or established prior to commencement of Income-tax Act 1961, as the said trust was found that it existed before coming into force, the bar u/s 13(1)(b) will not apply and entire income would be entitled for exemption u/s 11. Thus, when assessee was in existence much prior to commencement of Income-tax Act, 1961, the embargo of Section 13(1)(b) has no application. We find that CIT(E) before rejecting the application u/s 12A/12AB has not examined the activities of the assessee-trust. Therefore, the matter is restored back to the file of CIT(E) to reconsider the application of assessee on merit and pass order in accordance with law. Needless to direct that before passing the order afresh, CIT(E) shall grant reasonable opportunity of being heard to the assessee. The assessee is also given liberty to file written submission and evidence as and when called for. CIT(E) is directed to consider all such evidences, if so filed by the assessee. The assessee is also further directed to be more vigilant and to make compliance in time as and when called for by CIT(E). In the result, the grounds of appeal raised by the assessee are allowed for statistical purpose.

Summary

Issues:
1. Delay in filing appeal before Tribunal.
2. Rejection of application for registration under section 12A/12AB of Income Tax Act, 1961.
3. Applicability of provisions under Section 13(1)(b) to the assessee-trust.

Analysis:

Issue 1: Delay in filing appeal before Tribunal
The appeal by the assessee in ITA No.443/SRT/2023 was delayed by 146 days. The delay was attributed to the previous Chartered Accountant (CA) firm, "M/s Thacker Butala Desai, CA," who failed to inform the trustee of the rejection of the registration application in a timely manner. The trustee only became aware of the rejection in May 2023 and promptly engaged a new Authorized Representative to file the appeal. The Tribunal considered the circumstances and found no gross negligence or malafide intention in the delay. Citing legal precedents, the Tribunal concluded that the delay should be condoned in the interest of justice.

Issue 2: Rejection of application for registration
The Ld. Commissioner of Income-Tax (Exemption) rejected the application for registration under section 12A/12AB based on the trust's object being restricted to a particular community, Parsi Zoroastrian. The Ld. CIT(E) held that provisions under Section 13(1)(b) were applicable as the trust was deemed to be established for the benefit of a specific community, impacting its eligibility for exemption under Sections 11 and 12. The Tribunal noted that the rejection was based on the trust deed's contents and directed the Ld.CIT(E) to reconsider the application on merit, ensuring a fair opportunity for the assessee to present evidence and submissions.

Issue 3: Applicability of provisions under Section 13(1)(b)
The assessee argued that being established prior to the Income-tax Act, 1961, the provisions of Section 13(1)(b) should not apply to them, and they should qualify for exemption as a charitable trust. Citing legal precedents from the Andhra Pradesh High Court and Madhya Pradesh High Court, the Tribunal agreed that the trust's establishment before the Act's commencement exempts it from the restrictions of Section 13(1)(b). However, the Tribunal noted that the Ld.CIT(E) had not thoroughly examined the activities of the trust before rejecting the application. Therefore, the matter was remanded back to the Ld.CIT(E) for a reevaluation on merit, with directions to afford the assessee a fair hearing and consideration of all evidence.

In conclusion, the Tribunal allowed the appeal for statistical purposes, highlighting the need for a comprehensive review of the trust's application for registration under section 12A/12AB and the applicability of Section 13(1)(b) in light of the trust's establishment before the Income-tax Act, 1961.