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TMI Blog2015 (11) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot change its character merely for want of registration of society u/s 12AA of the Act. It is not the case of the revenue that the donations received are meant for general functioning of the charitable objects of the society, in which event, the donations received thereon would take the character of revenue receipts requiring to be credited in the income and expenditure account for utilization towards charitable objects thereon. Hence we hold that in any case, the donations received by the assessee society cannot be brought to tax in the assessment. We hold that since the only reason for denial of exemption u/s 11 was absence of registration u/s 12AA (which was granted to assessee society on 29.10.2010 with effect from 1.4.2010) for the relevant assessment years and on no other ground, the benefit of change in law as above by Finance Act 2014 should be available and for all the years, the benefit of exemption should be available on the date of registration as all the assessments were pending as shown above. In this connection, it requires mention specifically that all the receipts of the donation were proved on enquiry to have been received from the claimed donors and utilized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lteration of any building necessary by the Governing Body and to engage and assist such other philanthropic activities deemed appropriate by the Governing Body of the Society etc. 3.1. The assessee society took up the construction of an old age home since October 2000 with active financial support of the Siliguri Municipal Corporation for which contributions from the public were forthcoming and the same were duly accounted for in the audited accounts recording receipts and expenditures of the society. The said old age home was subsequently inaugurated by His Excellency the Governor of West Bengal. 3.2. The assessee society was in receipt of the following donations from various parties for the purpose of construction of old age home:- Asst Year Donation recd Invt in old age home construction 2003-04 9,38,000 14,26,692 2004-05 6,26,100 15,16,247 2005-06 3,18,000 13,66,481 2006-07 1,89,000 9,55,158 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Apex Court in the case of CIT vs Indira Balkrishna reported in 39 ITR 546 (SC). He further argued that, even assuming without conceding, that assessee society has to be taxed as an AOP by assessee not given exemption u/s 11 of the Act, it is required on the part of the Learned AO to consider the income of the society in its hands as on AOP and decide the surplus as non-taxable in view of its non - revenue nature, in as much as the donations were meant for utilization for creation of an asset which it was so utilized in the facts and circumstances of the case. He also argued that it is evident from the face of the assessment order, the Learned AO had mentioned the status of the assessee as a trust / society and not as AOP. The Learned AR further relied on the written submissions filed by him in support of his various contentions. 5. In response to this, the Learned DR vehemently supported the orders of the lower authorities and pleaded that the registration u/s 12AA of the Act is a precondition for claiming exemption u/s 11 of the Act. He also argued that in order to claim exemption u/s 11(1)(d) of the Act for donations received, the registration u/s 12AA of the Act is mandato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une 2007, the provisions of section 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: Provided 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 assessement year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence could be that as long as the objects were charitable in nature in the earlier years and in the year in which registration u/s 12AA was granted, the existence of trust for charitable purposes in the earlier years cannot be doubted with. Even otherwise, no adverse findings were given by the revenue with regard to the existence of the assessee society for charitable purposes in the assessment years under appeal. 6.8. It will be relevant to get into the Explanatory Notes to the Provisions of the Finance (No. 2), 2014 as given in CBDT Circular No.01/2015 dated 21.1.2015 in reference F.No. 142/13/2014-TPL which is reproduced hereinbelow for the sake of convenience :- Para 8 - Applicability of the registration granted to a trust or institution to earlier years Para 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available. This clearly goes to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific direction that they will form part of the corpus of the trust for utilization in acquisition / construction of a capital asset. Thus what is not income as per the definition of the word income in the Act cannot be brought to tax under any other provision of the Act. We find that the order of the Learned CITA failed to distinguish between a case where a receipt is not an income at the stage of its receipt and a case where it is not so but is claimed to be exempt because of any exemption provision granting exemption from taxation to receipts which are liable to taxation but for the provision granting exemption. 6.10. We hold that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e operation so that reasonable deduction can be given to the section as well . CIT vs Vatika Township P Ltd reported in (2014) 367 ITR 466 (SC) - Five Judges decision of the Supreme Court We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India vs Indian Tobacco Association reported in (2005) 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay vs State of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought in the statute to confer benefit of exemption u/s 11 of the Act on the genuine trusts which had not changed its objectives and had carried on the same charitable objects in the past as well as in the current year based on which the registration u/s 12AA is granted by the DIT(Exemptions). 6.12. We hold that the arguments of the Learned AR that, even assuming without conceding, in the worst scenario, the assessee society could only be taxed in the status of an AOP does not require any adjudication as we hold that the assessee society to be construed as a public charitable trust and eligible to claim exemption u/s 11 of the Act for the earlier assessment years, more especially, Asst Years 2003-04 to 2008-09, the donations received from various donors for construction of an old age home would take the character of corpus donations as they are meant for specific purposes and accordingly would be exempt u/s 11(1)(d) of the Act. Even otherwise, the said donation receipts are only capital in nature as it is received for construction of an old age home on which fact there is absolutely no dispute. The Learned AO also had duly accepted the nature of donations, genuinity of the don ..... X X X X Extracts X X X X X X X X Extracts X X X X
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