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2021 (11) TMI 403 - AT - Income TaxExemption u/s 11 - registration application u/s 12AA is pending before the Registration Authority - status has been taken as AOP and the entire surplus along with corpus donations have been taxed - HELD THAT - In the present case admittedly, the application of the assessee was pending since 1998, and no order was passed against the assessee for grant of registration, however, the Assessing Officer continues to treat the assessee as a charitable entity for the period ending up to the assessment year 2013-14. In our considered opinion, once the registration application is pending before the Registration Authority under the Income Tax Act, then the assessee has the right to know the reasons within reasonable time for not according to the registration. In the present case as mentioned hereinabove till date, no order had been passed by the lower authorities either accepting or rejecting the application of registration filed by the assessee on 12.05.1998; however it is undeniable that the assessee continues and imparts the education in the field of Homeopathic Medical College and Hospital and running Graduate, under Graduate and post Graduate courses under the name of M/s Mahavira Homeopathic Medical College and Hospital. Though there is a lapses on the part of the assessee for not pursuing the registered application after the insertion of the amendment whereby the record of the registration was transferred from ITO to CIT(E) and thereafter - negligence on the part of the assessee cannot legalize the action on the part of the Assessing Officer/CIT(E) for not passing appropriate order on the application of registration dated 12.05.1998. Admittedly, until the assessment year under consideration, the assessee continued to be treated as a charitable entity without any formal registration order by the lower authorities. Even in the assessment years under review, the Assessing Officer has not denied that the assessee is charitable and imparting education within the four corners of section 2(15) of the Income Tax Act. In any case, the assessee s registration application should have been decided expeditiously and more particularly within the period of 6 months after the insertion of the amendment capping the time limit for grant of registration. Then the authorities are obliged to decide the application within 6 months. Failure on the part of the CIT(E) / ITO to decide the application, gave rise to crystallize right in favour of the assessee for treating the assessee, as deemed charitable society. The registration should have been considered to have deemed to had been granted to the assessee u/s 12AA. As relying on SOCIETY FOR THE PROMN. OF EDN., ALLAHABAD 2016 (2) TMI 672 - SC ORDER assessee is deemed to be registered u/s 12AA for all the assessment years 2014-15 to 2016-17 and till the registration is subsequently granted by the CIT(E) vide order dated 12.11.2020. As in view of the amended provisions inserted to Act u/s 12A by the Explanation, the registration can be granted retrospectively if the activities of the assessee continue that the same activities of the assessee - we held that the assessee is entitled to the registration u/s 12AA on the basis of deeming provision and also on account of Explanation to section 12A.
Issues Involved:
1. Confirmation of excess income over expenditure as taxable. 2. Status of the assessee as an Association of Persons (AOP). 3. Application and registration under Section 12A. 4. Deemed registration under Section 12AA. 5. Opportunity to present the case. 6. Set-off of brought forward losses. Detailed Analysis: 1. Confirmation of Excess Income Over Expenditure as Taxable: The assessee argued that the Ld. CIT(A) erred in confirming the order of the Assessing Officer (AO) by bringing to tax the excess of income over expenditure for the assessment years 2014-15 to 2016-17. The AO had subjected the excess income to tax based on the audited books of accounts. The CIT(A) upheld this decision, which the assessee contended was against the facts and circumstances of the case. 2. Status of the Assessee as an Association of Persons (AOP): The AO framed the assessment of the assessee in the status of an AOP and taxed the excess income over expenditure accordingly. The assessee challenged this status, arguing that it should be considered a charitable society and not an AOP. 3. Application and Registration under Section 12A: The assessee had originally applied for registration under Section 12A on 12.05.1998. The documents and clarifications were submitted to the concerned AO, but the registration was not granted. The assessee contended that the CIT(A) ignored the correspondence and evidence submitted, which proved that the application for registration was made and the necessary documents were provided. 4. Deemed Registration under Section 12AA: The assessee argued that as per judicial pronouncements, if the CIT does not pass an order on the application made under Section 12AA within the prescribed period of six months, the exemption should be deemed to have been granted. The assessee relied on the judgment of the Apex Court in CIT Vs. Society for Promotion of Educational and other similar judgments to support their claim for deemed registration. 5. Opportunity to Present the Case: The assessee contended that no reasonable opportunity was granted by the CIT(A) to present their case. The CIT(A) dismissed the appeal without pronouncing the order on merits, which the assessee argued was against the facts and circumstances of the case. 6. Set-off of Brought Forward Losses: The assessee argued that if the income is charged to tax as per the normal provisions of the Act, ignoring the exemption under Sections 11 and 12, they should be entitled to set off brought forward losses. The assessee relied on the judgment of the Chandigarh Bench of the ITAT in the case of M/s Patiala Urban Planning & Development Authority, which held that the normal provisions of the Act would apply, and the assessee is entitled to set off losses. Findings of the Tribunal: 1. Deemed Registration under Section 12AA: The Tribunal noted that the application for registration under Section 12A was pending since 1998, and no order was passed by the lower authorities either accepting or rejecting the application. The Tribunal held that the assessee should be deemed to have been granted registration under Section 12AA for all the assessment years 2014-15 to 2016-17, as the authorities failed to decide the application within the prescribed period of six months. 2. Status of the Assessee: The Tribunal concluded that the assessee should be treated as a charitable institution for all the assessment years under consideration. The Tribunal directed the AO to treat the assessee as a charitable institution and grant the benefit of Sections 11 and 13 in accordance with the law. 3. Set-off of Brought Forward Losses: The Tribunal agreed with the assessee's contention that if the income is charged to tax as per the normal provisions of the Act, they are entitled to set off brought forward losses. The Tribunal directed the AO to allow the set-off of losses as per the normal provisions of the Act. Conclusion: The Tribunal allowed the assessee's appeals partly, directing the AO to treat the assessee as a charitable institution for the assessment years 2014-15 to 2016-17 and grant the benefit of Sections 11 and 13. The AO was also directed to allow the set-off of brought forward losses as per the normal provisions of the Act. The Tribunal's decision was based on the principle of deemed registration under Section 12AA and the assessee's entitlement to the benefits of a charitable institution.
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