2016 (8) TMI 1000 - AT - Income Tax

Eligibility of benefits of exemption u/s. 11 and 12 - Held that - The amendment to provisions of sub-section (2) to section 12A to be retrospective in nature, coupled with the fact that the assessee was subsequently granted registration u/s. 12AA of the Act, we are of the considered view that the Commissioner of Income Tax (Appeals) has rightly deleted the addition made by the Assessing Officer. Accordingly, the appeal of the Revenue is dismissed being devoid of any merit.

Issues Involved:
1. Validity of reassessment proceedings.
2. Eligibility for deduction under section 57 of the Income Tax Act.
3. Retrospective applicability of the amendment to section 12A(2) of the Income Tax Act.
4. Computation of income for a charitable trust not registered under section 12AA at the time of filing the return.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings initiated by the Assessing Officer (AO) under section 148 of the Income Tax Act. The AO issued a notice under section 148 on 22-03-2013, and the reasons for reopening were communicated to the assessee on 18-06-2013. The assessee filed objections, which were disposed of by the AO on 23-08-2013. The AO made an addition of ?40,92,239/- on account of disallowance of deduction under section 57 of the Act. The Commissioner of Income Tax (Appeals) upheld the reassessment proceedings but deleted the addition on merits. The Tribunal observed that the reasons recorded for reopening were factually incorrect and the addition made by the AO was incoherent with the reasons recorded for issuing the notice under section 148. The Hon'ble Bombay High Court in Commissioner of Income Tax Vs. Jet Airways (I) Ltd. held that if the AO accepts that the income initially believed to have escaped assessment did not actually escape, he cannot independently assess some other income without issuing a fresh notice under section 148. Therefore, the reassessment proceedings were held to be invalid.

2. Eligibility for Deduction under Section 57:
The AO disallowed the deduction of ?40,92,237/- claimed under section 57 of the Act. The Commissioner of Income Tax (Appeals) deleted this addition, stating that voluntary contributions or donations do not fall under the category of 'Income' unless deemed so by section 12(1) of the Act. Even if exemption is not allowable due to non-registration under section 12AA, the income of the trust should be computed on a commercial basis, not under section 57. The Tribunal upheld this view, affirming the deletion of the addition made by the AO.

3. Retrospective Applicability of the Amendment to Section 12A(2):
The Tribunal considered whether the amendment to section 12A(2) by the Finance (No. 2) Act, 2014, which inserted a proviso effective from 01-10-2014, was retrospective. The Cochin Bench of the Tribunal in SNDP Yogam Vs. Assistant Director of Income Tax (Exemption) held that the amendment was retrospective, providing relief to trusts that fulfilled substantive conditions under sections 11 to 13 but were not registered under section 12AA. The Kolkata Bench in Sree Sree Ramkrishna Samity Vs. Deputy Commissioner of Income Tax also held that the amendment should be construed as retrospective to prevent genuine hardship. The Tribunal agreed with these views, concluding that the amendment was indeed retrospective.

4. Computation of Income for a Charitable Trust Not Registered under Section 12AA:
The Commissioner of Income Tax (Appeals) noted that voluntary contributions or donations are not inherently 'Income' unless deemed so by section 12(1). Even without registration under section 12AA, the income should be computed on a commercial basis. The Tribunal upheld this computation method, affirming that the income of the trust should not be computed under section 57 but on a commercial basis, as per the decision in Commissioner of Income Tax Vs. Programme for Community Organisation.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the deletion of the addition made by the AO. It also allowed the assessee's cross-objection, declaring the reassessment proceedings invalid. The judgment emphasized the retrospective applicability of the amendment to section 12A(2) and the correct method for computing the income of a charitable trust not registered under section 12AA.

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