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2022 (7) TMI 1004 - AT - Income TaxRevision u/s 263 - Exemption u/s 11 and 12 - entitlement to benefit of section 10(23C)(iv) - CIT(E) held that the assessee is not carrying out any charitable activities and in view of the proviso to section 2(15) the assessee is not entitled to exemption u/s 11 and 12 - HELD THAT - As relying on ANDHRA PRADESH STATE SEED CERTIFICATION AGENCY 2013 (1) TMI 63 - ANDHRA PRADESH HIGH COURT we hold that the CIT(E) is justified in invoking the revisionary powers u/s 263 of the I.T.Act and denying the benefit of exemption u/s 11 and 12 of the I.T.Act. The judgment of the Hon ble Rajasthan High Court 2022 (1) TMI 693 - RAJASTHAN HIGH COURT held that when registration u/s 12AA is still in force and the revenue does not dispute the nature of charitable activities, CIT(E) is not entitled to invoke the revisionary jurisdiction u/s 263 - This judgment of the Hon ble Rajasthan High Court is of no assistance to the assessee. As mentioned earlier, the CIT(E) has not cancelled the registration u/s 12AA but only denied the exemption u/s 11 of the I.T.Act for the reason that the assessee s activities are hit by proviso to section 2(15) since it is charged fees for the services rendered and the receipt of such fee exceeds 20% of the total turnover. As in the case of Karnataka Badminton Association 2015 (1) TMI 1202 - KARNATAKA HIGH COURT had held that cancellation of registration u/s 12AA(3) of the I.T.Act is not warranted for the reason that the assessee is hit by first proviso to section 2(15) of the I.T.Act. It was observed by the Hon ble High Court that the revenue s interest is protected by virtue of section 13(8) introduced by the Finance Act, 2012 with effect from 1st April, 2009. Section 13(8) provides that nothing contained in section 11 or 12 shall operate so as to exclude any income from the total income of the previous year of the person in receipt thereof if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in the said previous year . Thereby meaning irrespective whether the registration u/s 12A is in force when assessee is hit by first proviso to section 2(15) of the I.T.Act, exemption u/s 11 or 12 can be denied by virtue of section 13(8) of the I.T.Act. For the aforesaid reasoning and the judicial pronouncements, cited supra, we hold that the CIT(E) is justified in cancelling the benefit of exemption u/s 11 - Decided against assessee.
Issues Involved:
1. Delay in filing appeals. 2. Denial of exemption under sections 11 and 12 of the Income Tax Act. 3. Applicability of the proviso to section 2(15) of the Income Tax Act. 4. Validity of the CIT(E)'s order under section 263 of the Income Tax Act. 5. Comparison with the Andhra Pradesh High Court judgment. 6. Relevance of the Rajasthan High Court judgment. 7. Jurisdictional High Court's stance on cancellation of registration under section 12AA(3). Issue-wise Detailed Analysis: 1. Delay in Filing Appeals: The appeals were noted to have a delay of 157 days. The CIT(E)'s order was received on 05.03.2021, and the appeals should have been filed by 05.05.2021. However, due to the pandemic, the Hon'ble Apex Court in Cognizance For Extension of Limitation excluded the period from 15.03.2020 to 28.02.2022 from the limitation period. Thus, the appeals filed on 08.10.2021 were within the permissible period, and there was no delay in filing. 2. Denial of Exemption under Sections 11 and 12: The assessee-society, registered under section 12AA and approved under section 10(23C)(iv), claimed exemption under section 11 for the assessment years 2016-2017 and 2017-2018. The CIT(E) issued notices under section 263, stating that the assessee's activities of rendering certification of seeds were in the nature of trade, commerce, or business, thus falling within the proviso to section 2(15). Consequently, the CIT(E) denied the exemption under sections 11 and 12, asserting that the assessee was not engaged in charitable activities. 3. Applicability of the Proviso to Section 2(15): The CIT(E) relied on the Andhra Pradesh High Court's judgment in the case of M/s. Andhra Pradesh State Seed Certification Agency, which held that activities involving trade, commerce, or business, even if for a general public utility, do not qualify as charitable if they involve fees or consideration. The Tribunal noted that the assessee's activities were similar and thus fell under the proviso to section 2(15), disqualifying it from exemptions under sections 11 and 12. 4. Validity of the CIT(E)'s Order under Section 263: The Tribunal upheld the CIT(E)'s invocation of revisionary powers under section 263, affirming that the assessee's activities were not charitable and were hit by the proviso to section 2(15). The CIT(E) did not cancel the registration under section 12AA but only denied the exemption under section 11 for the relevant assessment years. 5. Comparison with the Andhra Pradesh High Court Judgment: The Tribunal referred to the Andhra Pradesh High Court judgment, which found that the certification of seeds facilitated trade and thus did not qualify as a charitable activity. The Tribunal held that this judgment was directly applicable to the present case, reinforcing the CIT(E)'s decision. 6. Relevance of the Rajasthan High Court Judgment: The assessee cited the Rajasthan High Court judgment in CIT v. Manna Trust, which held that the CIT(E) could not invoke section 263 if the registration under section 12AA was still in force and the nature of charitable activities was not disputed. However, the Tribunal found this judgment inapplicable as the CIT(E) had not canceled the registration but denied the exemption due to the proviso to section 2(15). 7. Jurisdictional High Court's Stance on Cancellation of Registration under Section 12AA(3): The Tribunal cited the Karnataka High Court's decision in Director of Income-tax (Exemption) v. Karnataka Badminton Association, which stated that cancellation of registration under section 12AA(3) is not warranted solely because the assessee is hit by the proviso to section 2(15). The revenue's interests are protected by section 13(8), which allows denial of exemptions under sections 11 and 12 if the proviso to section 2(15) applies. Conclusion: The Tribunal dismissed the appeals, affirming the CIT(E)'s denial of exemptions under sections 11 and 12, and upheld the applicability of the proviso to section 2(15) to the assessee's activities. The Tribunal noted that the assessee could seek rectification if the pending SLP against the Andhra Pradesh High Court judgment is decided in its favor.
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