9911796707
TMI Blog2016 (12) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 2.3.1995. There is no denial that the main object of the assessee trust is to impart education. The assessee is running two colleges in the name & style of M/s. Nargund College of Pharmacy and M/s. Nargund College of Physiotherapy. Besides this, the assessee is also running hostel meant for students. It is pertinent to note that upto FY 2003-04, the department accepted the assessee as charitable trust in terms of section 2(15) as well as for the purpose of sections 11 and 10(23C) of the Act. Benefit of sections 11 and 12 cannot be denied merely on the ground that registration is granted w.e.f. 1.4.2008, though by a subsequent order, but the registration u/s. 12A came into effect prior to the initiation and completion of assessment proceedings of these four years. Accordingly, we hold that assessee is eligible for exemption u/s. 11 of the Act. The status as per section 164(2) is only for the assessment purpose and not to after the real status of the trust. In the case of society, there is no special provision providing the status of the person in terms of section 2(31) of the Act and therefore it was held by the Hon'ble High Court in in the case of Children's Education Soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of registration has attained finality and cannot be agitated in the proceedings arising from the assessment order. Hence this issue cannot be raised in the present proceedings and therefore deserves to be dismissed. Appeal decided partly in favour of assessee - IT APPEAL NOS.418 TO 421(BANG.) OF 2012, AND CO. NOS. 80 TO 83 (BANG.) OF 2012 - - - Dated:- 30-9-2016 - VIJAY PAL RAO, JUDICIAL MEMBER, AND S. JAYARAMAN, ACCOUNTANT MEMBER C. Eranna, Jt. CIT (DR) for the Appellant. V. Chandrashekar, Adv. for the Respondent. ORDER 1. These appeals by the revenue and COs by the assessee are directed against the composite order of the CIT (Appeals) dated 12.1.2012 for the AYs 2004-05 to 2007-08. This is second round of hearing of the appeals and CO. The appeals and COs were disposed of by this Tribunal vide composite order dated 28.6.2013. However, both revenue and assessee carried the matter to the Hon'ble High Court of Karnataka and vide judgment dated 18.12.2014, these matters were remanded back to the Tribunal for fresh decision on merits with the observations made in paras 4 to 7 of the decision as under: - 4. We have heard the learned counsel for the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 5.3.2010 granted registration u/s. 12A to the assessee trust w.e.f. 1.4.2008. 4. In the meantime, the AO issued a notice u/s. 148 on 30.12.2008 to reopen the assessment of four years under consideration. The AO completed assessments u/s. 143(3) r.w.s. 147 of the Act whereby it was held that in the absence of registration u/s. 12A, the assessee is treated in the status of AOP. Accordingly, the AO disallowed the claim of application of income u/s. 11 of the Act and the entire receipt was assessed to tax for want of registration u/s. 12A or exemption u/s. 10(23C) of the Act. 5. On appeal, the assessee raised various grounds and contentions. The CIT (A) rejected some of the contention, but allowed the plea that the assessment order passed on AOP is bad in law and therefore allowed the appeals in part. Thus, both the revenue as well as the assessee are aggrieved by the impugned order of CIT (A) and filed their respective appeals and COs. 6. The Revenue has raised the following grounds:- (1) The order of the learned CIT (A) is opposed to the law and facts of the case. (2) The learned CIT (A) erred in holding that the assessments made on the assessee trust in the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 12A of the Act under the facts and circumstances of the case. 5. Without Prejudice the learned Commissioner of Income- tax [Appeals] failed to appreciate that under section 10(23c)(iiiad) of the Act the gross receipts of each institution to be considered separately for the purpose of allowing the claim of exemption under section 10(23c)(iiiad) of the Act under the facts and circumstances of the case. 6. The Respondent/Cross Objector craves leave to add, alter, delete or substitute any of the grounds urged above. 7. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent/Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice. 8. The first issue involved in the Revenue's appeal is regarding the assessment framed in the status of AOP. The ld. DR has submitted that there was neither return of income nor registration u/s. 12A as the application for grant of registration u/s. 12A filed on 26.8.2004 was rejected vide order dated 8.2.2005. Again, the assessee filed application on 23.10.08 which was rejected vide order dated 27.4.2009. Therefore, as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgund College of Physiotherapy, but the receipts of each college has to be considered separately for the purpose of exemption u/s. 10(23C) of the Act. Thus, the ld. AR has submitted that as per details of receipt of each college for the AY 2004-05, none of the college is having the receipts exceeding ₹ 1 crore. For the rest of the assessment years, the receipt of Physiotherapy college was less than ₹ 1 crore and therefore the same cannot be charged to tax or added to the total income of the assessee trust. In support of his contention, he has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Children's Education Society [2013] 358 ITR 373 (Kar.). Thus, it was contended that the AO was not justified in assessing the entire receipt of tax and changing the status of assessee from trust to AOP. He has forcefully contended that even non-grant of registration u/s. 12A of the Act would not alter the status of assessee being charitable trust. 11. In the rejoinder, the ld. DR has submitted that the first proviso to section 12A(2) of the Act has been introduced vide Finance Act, 2014 w.e.f. 1.10.2014. Therefore, the said amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, the assessee has applied for grant of Registration U/S. 12A of the Income Tax Act, 1961 on 26.08.2004. The Trust was established on 02.03.1995. On processing the application, deficiency letter was issued on 2.11.2004 calling for details of books of account for the year ending 31.3.2004. The case was posted for hearing on 24.11.2004. Sri S.M. Mattikalli, Chartered Accountant, Authorised Representative of the assessee appeared and discussed the case. On perusing the details, he was asked to file additional information such as details with respect to tuition fee, basis for recessional fees and miscellaneous fee, rental agreement for the hostel and details of accounts of hostel and hand loan particulars, documents related to purchase of immovable property. The representative requested time till 15.12.2004 to furnish details which was granted. The trust failed to respond within the time permitted. There has been no response to the letter seeking clarification on maintenance of accounts and application of funds. 2. In the interest of natural justice, final opportunity was given vide show cause notice dtd. 13.1.2005 posting the case for bearing on 21.1.2005. None appeared for hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2 crores. It is pertinent to note that assessment was framed on 24.12.2009 based on the orders of DIT (E) dated 27.4.2009 which was set aside by the Tribunal vide order dated 13.11.09. Therefore, during the pendency of the assessment proceedings, the Tribunal set aside the order dated 27.4.2009 of DIT (E). The assessee was granted registration w.e.f. 1.4.2008 which means registration came into effect much prior to initiation of proceedings u/s. 148 of the Act. Therefore, the entire basis of the assessment order was no more in existence, after the grant of registration u/s. 12A. 19. At this stage, we quote the proviso to section 12A as under:- Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the Chief Commissioner or Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year are the same as those on the basis of which such registration has been granted. 8.4 Further, it has been provided that no action for reopening of an assessment under section 147 of the Income-tax Act shall be taken by the Assessing Officer in the case of such trust or institution for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not obtained the registration under section 12AA for the said assessment year. 8.5 However, the above benefits would not be available in the case of any trust or institution which at any time had applied for registration and the same was refused under section 12AA of the Income-tax Act or a registration once granted was cancelled. 8.6 Applicability: - These amendments take effect from 1st October, 2014. 21. This object of amendment to insert the proviso to section 12A is to remove the genuine hardship caused by the earlier amendment whereby the powers of the competent authority to condone the delay in applying the registration was taken away and consequently due to time gap in registration, tax liability is fastened. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 20. Now, we are concerned with the meaning to be attached to the word aggregate annual receipt . The argument is, other educational institution referred to in the said sub-clause refers to all educational institutions run by the assessee and aggregate annual receipts of such other educational institutions means the aggregate of annual receipts of all such educational institutions put together. Otherwise, the use of the word aggregate loses its meaning. We find it difficult to accept the said argument. 21. Firstly, if the word aggregate annual receipts of other educational institution is to be understood as clubbing of annual receipts of all educational institutions run by an assessee-society, then it will also include the annual receipts of an educational institution which is wholly or substantially financed by the Government. If that was intention of the Legislature, they would not have introduced separate sub-clauses as (iiiab) and (iiiad). If such interpretation is placed, sub-clause (iiiab) becomes otiose. Therefore, it is not possible to place such an interpretation. If an assessee society is running several educational institutions, if some of them are wholly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived by the assessee is excluded from his total income. In an educational institution the amount are calculated periodically. It may be calculated under different heads. All such amounts received constituted receipts and those receipts may be received throughout the year. Therefore, the word annual has been inserted. But to be eligible for exemption, aggregate of annual receipts should not exceed ₹ 1 crore, i.e., the total annual receipts of a year if it does not exceed ₹ 1 crore, then the income derived from such educational institution in the hands of the assessee cannot be taken into consideration to compute the income of the assessee. 23. No doubt, education has become a business, a very profitable business also. But it requires huge investment. It is the duty of the Government to provide education to all its citizens, as the Government is not able to shoulder the responsibility completely. Therefore, the field of education is now thrown open to private organizations. But for throwing open the field to the private operators, probably, the country would not have achieved in the field of education what it has achieved. Therefore, lot of funds are invested in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cational institution received by the assessee is not included while computing his total income. Similarly, income from each educational institution if they are not receiving any aid from the Government wholly or substantially in respect of which the aggregate annual receipt do not exceed ₹ 1 crore received by the assessee, is also not included while computing annual total income of the assessee. 25. Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore, all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Therefore, the substantial questions of law Nos. 2 and 3 is answered in favour of the assessee and against the Revenue.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overning body. The society so registered, may sue or be sued in the name of the president, chairman or principal secretary or the trustees as shall be determined by the rules and regulations of the society and in default of such determination, in the name of such persons as shall be appointed by the governing body for the occasion. Therefore, the society would be an artificial juridical person other than the association of persons or body of individuals. Therefore, the society while filing return is described the status as artificial juridical person. The assessing authority could not accept the said status and treated the assessee as an association of persons and has passed the order. Now, the Tribunal has held that the assessee is to be treated as artificial juridical person. When the return is filed as artificial juridical person, the question of treating the assessee as an association of persons would not arise. Therefore, the substantial question of law No. 1 is answered in favour of the assessee and against the Revenue. 26. In the case in hand, the assessee is a trust and therefore so far as the income not eligible for exemption u/ss. 11 and 12 of the Act is concerned, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee has submitted that non-filing of return would not give jurisdiction to the AO automatically to initiate proceedings u/s. 148, when the assessee was not having any taxable income and therefore as per provisions of section 139(4A), it was not required to file a return of income. Further, all receipts are not income and the AO cannot presume that the receipts are income assessable to tax without any material on the basis of which the AO could have formed a belief that income assessable to tax has escaped assessment. He has retied upon the 2nd proviso to section 12A and submitted that no action u/s. 147 shall be taken by the AO in the case of trust merely because of non-registration of such trust for the said assessment year. He has further contended that the AO proceeded on wrong presumption of facts and took the consolidated receipts of both the educational institutions instead of receipts of each college separately for the purpose of exemption u/s. 10(23C) of the Act. Therefore, there is no material or new information available with the AO to form a belief that income assessable to tax has escaped assessment. 31. On the other hand, the ld. DR has submitted that at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in view of our finding on the issue of eligibility of exemption u/s. 11. 35. Ground No. 4 is regarding deemed registration on expiry of six months from the date of application. Having considered the rival submissions as well as relevant material on record, we find that the present proceedings are against the assessment order and not against the order of DIT (E) u/s. 12AA of the Act. Further, the issue of registration was earlier brought before the Tribunal and in the set aside proceedings, the DIT (E) granted registration vide order dated 5.3.2010 w.e.f. 1.4.2008. The said order has not been challenged by the assessee, therefore, the issue of registration has attained finality and cannot be agitated in the proceedings arising from the assessment order. Hence this issue cannot be raised in the present proceedings and therefore deserves to be dismissed. 36. Ground No. 5 is regarding gross receipts/separate receipts of each institution. This issue has already been considered while deciding the issue in the revenue's appeal and stands allowed. 37. The assessee has raised another additional ground as under:- 1. The. order of the authorities below in so far as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot raise this ground of jurisdiction of the AO at this stage. 41. We have considered the rival submissions as well as relevant material on record. The assessee filed return of income with the AO who has framed the assessment. Once the assessee itself has submitted to the jurisdiction of the AO and did not raise any objection of jurisdiction of the AO to frame the assessment, then it is not open to the assessee to raise this objection on the basis of outcome of the assessment order. It is not the case of the assessee that the AO was not having jurisdiction right from the beginning of initiating the proceedings of assessment on the return filed by the assessee, but this objection of the assessee is based on the fact that the AO assessed the income of the assessee in the status of AOP. It is pertinent to note that it is only an outcome of the assessment proceedings and not at the time of initiation of proceedings that the status of assessee trust is as AOP. Section 164(2) clearly provides that assessment of income of the trust so far as it is not eligible for exemption u/ss. 11 and 12 of the Act as income of the AOP. Therefore, we do not find any merits or substance in the add ..... X X X X Extracts X X X X X X X X Extracts X X X X
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