2020 (12) TMI 76 - AT - Income Tax

Validity of reopening of assessment - non-registration of trust - HELD THAT - In the instant case, the registration u/s 12A of the Act was granted to the assessee on 23-09-2014. As per the first proviso, where the registration has been granted to the trust u/s 12AA, then the provisions of sec.11 and 12 shall apply in respect of any income derived from properly held under trust of any assessment year preceding year of granting registration and which are pending before the AO as on the date of such registration and the objects and activities of such trust remain the same for such preceding assessment year. As per the second proviso, no action u/s 147 shall be taken by the AO for any assessment year preceding the aforesaid assessment year only for non-registration of such trust. It can be noticed that the second proviso to sec.12A(2) specifically bars the AO from taking action u/s 147 of the Act only for the reason of non-registration of such trust or institution for the said assessment year. However, in the instant case, the AO has reopened the assessment only for the reason of non-registration the assessee u/s 12A of the Act and consequently to tax the surplus earned by the assessee during the years under consideration. AO has not properly understood the binding circular issued by CBDT, which clearly explains the meaning of provisos inserted in sec.12A(2) of the Act. Accordingly these provisos shall have retrospective operation. Thus reasons recorded by the AO that the assessing officer has reopened the assessments of the years under consideration only for the reason that the assessee does not have registration for the years under consideration, even though the assessee had been granted registration from AY 2014-15 and further the registration certificate was in operation at the time the notices u/s 148 were issued. Accordingly, we are of the view that the action of the AO is in violation of the second proviso to sec.12A(2) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 148 of the Income Tax Act.
2. Application of the second proviso to Section 12A(2) of the Income Tax Act.
3. Taxability of surplus income in the absence of registration under Section 12AA for prior years.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 148 of the Income Tax Act:

The assessee challenged the reopening of assessments for the years 2009-10 to 2013-14. The Assessing Officer (AO) issued notices under Section 148 on 30-09-2015, citing that the assessee had accumulated taxable surplus without filing returns or having registration under Section 12AA for those years. The AO argued that the second proviso to Section 12A(2) did not apply as it was effective from 01-10-2014, after the assessee had been granted registration on 23-09-2014. The Tribunal disagreed, stating that the law applicable at the time of issuing the notice should be considered, and the Rajasthan High Court had held that the provisos to Section 12A(2) were declaratory and retrospective. Thus, the reopening of assessments was deemed invalid.

2. Application of the Second Proviso to Section 12A(2) of the Income Tax Act:

The second proviso to Section 12A(2) bars the AO from taking action under Section 147 solely due to non-registration of the trust for prior years. The Tribunal noted that the AO reopened the assessments only because the assessee lacked registration under Section 12AA for the years in question. The Tribunal emphasized that the provisos inserted by the Finance Act 2014 were intended to provide relief to charitable organizations and should be applied retrospectively. The Tribunal referenced multiple cases, including CIT vs. Shree Shyam Mandir Committee, where the courts held that these provisos should be applied retrospectively to prevent hardship to charitable organizations.

3. Taxability of Surplus Income in the Absence of Registration under Section 12AA for Prior Years:

The AO aimed to tax the surplus income of the assessee for the years 2009-10 to 2013-14 as an Association of Persons (AOP) due to the absence of registration under Section 12AA. The Tribunal found this approach contrary to the second proviso to Section 12A(2), which prevents reopening assessments solely based on non-registration. The Tribunal highlighted that the assessee's registration was effective from AY 2014-15, and the surplus income for prior years should not be taxed merely due to non-registration. The Tribunal quashed the orders of the tax authorities for all the years under consideration, deeming the reopening of assessments as bad in law.

Conclusion:

The Tribunal concluded that the reopening of assessments for the years 2009-10 to 2013-14 was invalid as it violated the second proviso to Section 12A(2) of the Income Tax Act. The Tribunal quashed the orders of the tax authorities and allowed the appeals of the assessee, rendering the issues urged on merits unnecessary for adjudication. The judgment emphasized the retrospective application of the provisos to Section 12A(2) to prevent undue hardship to charitable organizations.