2020 (6) TMI 506 - AT - Income Tax

Exemption u/s 11 - whether existence of registration u/s.12A will not confer benefit of exemption u/s.11? - HELD THAT - Where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year for which assessment proceedings are pending before the assessing officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year. It has to be held that an assessment proceeding which is pending in appeal before appellate authority should be deemed to be 'assessment proceedings pending before Assessing Officer' within meaning of that term as envisaged under proviso to section 12A(2). Consequently, an Assessee which obtained registration under section 12AA during pendency of appeal was entitled to exemption claimed under section 11. In the present case Assessee did not claim benefit of exemption u/s.11 of the Act before the AO and the AO did not have the benefit of examining such a claim. Mere existence of registration u/s.12A will not confer benefit of exemption u/s.11 and the other conditions for availing benefit of exemption u/s.11 of the Act has to be examined by the AO. It would be just and proper to set aside the order of the CIT(A) and remand to the AO the question of allowing exemption u/s.11 of the Act as by reason of the proviso to Section 12A(2), the Assessee should be deemed to have had registration u/s.12A of the Act. The registration u/s. 12AA(1)(b)(i) of the Income Tax Act, 1961 does not automatically exempt the income of the Trust/Institution. The question of taxability of the income of the Trust/Institution shall be examined and decided upon by the Assessing Officer based on the activities, compliance with various statutory and other requirements, etc., as referred to in Sections 2(15), 11, 12 13 - Appeal of the Assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of exemption under Section 10(23C)(iiiad) of the Income-tax Act.
2. Application of Section 12A(2) proviso regarding registration under Section 12AA.
3. Pending assessment proceedings and applicability of exemptions under Sections 11 and 12.
4. Interpretation of "assessment proceedings pending before the Assessing Officer."

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 10(23C)(iiiad):
The assessee, a society registered under the Karnataka Societies Registration Act, aimed at upgrading Industrial Training Institutes, filed a return of income for AY 2015-16 claiming exemption under Section 10(23C)(iiiad) as an educational institution. The Assessing Officer (AO) denied this exemption and taxed the surplus income of ?29,82,425 by an order dated 29.8.2017.

2. Application of Section 12A(2) Proviso Regarding Registration under Section 12AA:
The assessee applied for registration under Section 12AA on 21.09.2017 and was granted registration on 9.3.2018. The assessee contended before the CIT(A) that the proviso to Section 12A(2) should apply, allowing the provisions of Sections 11 and 12 to be applicable to any income derived from property held under trust for any assessment year preceding the year of registration if the assessment proceedings were pending as on the date of such registration. The CIT(A) rejected this plea, stating that the assessment order was passed on 29.8.2017, and hence, the assessment proceedings were not pending as on 9.3.2018.

3. Pending Assessment Proceedings and Applicability of Exemptions under Sections 11 and 12:
The CIT(A) held that since the assessment was completed before the registration under Section 12AA was granted, the benefit of the proviso to Section 12A(2) could not be extended to the assessee. The CIT(A) confirmed the AO's decision to tax the surplus income as income from other sources.

4. Interpretation of "Assessment Proceedings Pending Before the Assessing Officer":
The assessee appealed to the Tribunal, arguing that assessment proceedings pending in appeal should be considered as "assessment proceedings pending before the Assessing Officer" within the meaning of the proviso to Section 12A(2). The Tribunal referred to the ITAT Cochin Bench decision in SNDP Yogam, which held that an assessment proceeding pending in appeal should be deemed as pending before the AO, thereby allowing the benefit of exemption under Section 11 if the registration under Section 12AA was obtained during the appeal's pendency.

Tribunal's Decision:
The Tribunal agreed with the assessee's contention, stating that the ratio laid down in SNDP Yogam applies to the present case. It held that if the assessee obtained registration under Section 12AA during the pendency of the appeal, the benefit of the proviso to Section 12A(2) should be extended, deeming the assessment proceedings as pending before the AO. However, since the AO did not examine the claim for exemption under Section 11, the Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for examination of the exemption claim under Section 11, considering the registration under Section 12AA.

Conclusion:
The appeal was treated as allowed for statistical purposes, with the AO directed to re-examine the exemption claim under Section 11, providing the assessee an opportunity for a hearing. The decision emphasized the purposive interpretation of statutes to avoid genuine hardship to charitable organizations.