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TMI Blog2021 (7) TMI 574X X X X Extracts X X X X X X X X Extracts X X X X ..... t claim the benefit of section 11 of the Act and thus, registration under section 12A is a condition precedent. The Registration was granted by the Commissioner (Exemptions) vide order dated 5th September, 2016 with effect from 03.08.2016 after the assessee has amended its By-laws and Memorandum of Association whereby certain terms and conditions have been completely changed. Constitution of the Trust does not remain the same as it was prior to the amendment and hence when the constitution itself is changed and the registration is granted on the new and amended constitution of the Trust, then the benefit of proviso to section 12A would not be available to the assessee for the assessment year preceding to the year in which such registration is granted. The said proviso to section 12A(2) specifically mentions the proceedings of the assessment are pending before the AO. We are therefore unable to accede to the contention advanced by the ld AR that where there was no provision for issuing a separate order of registration by the Commissioner in 1922 Act, it would not mean that exemption granted u/s 4(3)(i) of 1922 Act is not saved by section 297(2)(k) of the IT Act, 1961. Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold the order so passed by AO as erroneous and prejudicial to the interest of Revenue. In the result, we upheld the order of the ld PCIT in exercise of his powers u/s 263 in setting aside the order so passed by the AO and the grounds of appeal taken by the assessee are hereby dismissed. - ITA No. 290/JP/2020 - - - Dated:- 13-7-2021 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Sh. P. C. Parwal (CA) For the Revenue : Sh. Rajendra Singh (CIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order passed by the ld. CIT(Exemption), Jaipur u/s 263 dated 06.03.2020 pertaining to A.Y 2011-12 wherein the grounds of appeal taken by the assessee read as under:- 1. Under the facts and circumstances of the case, order passed by the Ld. CIT(E) u/s 263 is illegal bad in law and the same be quashed. 2. The Ld. CIT(E) has erred on facts and in law in holding that the order passed by AO is erroneous and prejudicial to the interest of Revenue by incorrectly holding that verification of the fact of registration of the trust under I.T. Act, 1922 was the very basic direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of having being registered u/s 12A/12AA of the Act. On reference, being made to the higher authorities, it was directed that the issue be decided in light of the provisions of Income Tax Act, 1961. The Ld. CIT(A) upheld the order of AO by holding that no mistake apparent on record in the tax computation or in charging of interest could be brought to his notice. Further, the other issues raised by the appellant were held as irrelevant and outside the scope of provisions of section 154 of the Act. 5. It was submitted that against the order of Ld. CIT(A), the assessee filed an appeal before the ITAT, Jaipur Benches which vide its order dt. 23.06.2017 after considering the above facts partly allowed the appeal for statistical purpose as per the observation made in para 6.3 to 6.8 of its order. It was submitted that in view of the direction of the ITAT, the AO in the set aside proceedings vide letter dt. 20.09.2017 required the assessee to furnish following explanation/ clarification/ documents:- (i) Please explain as to how exemption granted under the Repeal Act was saved by section 297 of the IT Act, 1961. Please also furnish documentary evidences in support of your exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial relief to assessee without enquiring into the veracity of claim of assessee regarding its registration under IT Act, 1922 despite specific directions given in this regard by ITAT, Jaipur Benches vide its order dt. 23.06.2017. The assessee filed its reply dt. 27.11.2019 in response to the show cause notice. The Ld. CIT(E), however, did not accept the explanation of assessee and held that the order passed by AO is erroneous and prejudicial to the interest of Revenue by giving the following findings:- (a) The Hon ble ITAT at para 6.2, 6.7 6.8 of the order dt. 23.06.2017 has directed the AO to examine whether assessee was registered under IT Act, 1922 and whether such registration, if obtained, was saved by section 297 of IT Act. In set aside proceedings, the AO has asked the assessee to explain as to how exemption granted under repealed Act was saved by section 297 of IT Act, 1961. Thus, the AO has proceeded on the assumption that registration was granted to assessee under repealed Act of 1922 and hence he has not bothered to examine the very core issue of whether the assessee was indeed registered under IT Act, 1922. (b) The Law Commission in its report has repeated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IT Act and whether it was consistent with the corresponding provisions of the law under the new Act. The AO in the set aside proceedings has examined this issue with reference to section 4(3)(i) of IT Act, 1922 vis- -vis section 11 of the Act and thereafter has held that the submission of A/R is found to be in order. Therefore, it is incorrect on part of the PCIT to allege that AO has failed to examine the same so as to hold the order passed by him as erroneous and prejudicial to the interest of Revenue. 9. It was submitted by the ld AR that the issue as to whether the assessee is a private trust or public trust was examined in detail by the Ministry of Law where the Ministry of Finance has raised the issue whether the trust is private trust, who are the beneficiaries of trust and whether the temples whose maintenance is to be managed by the trust is open to public or not. Thereafter the Ministry of Home clarified on 17.01.1958 that beneficiaries of the trust are the members of Bharatpur Royal Family and the public and that the temples are open to the public. Thereafter, the Ministry of Finance on 03.11.1958 held that the trust is partly religious and partly charit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is for the benefit of public at large. Further to put a quietus to this controversy, the assessee has amended this clause but the object remains the same. Hence, the adverse inference drawn by CIT(E) on this issue is incorrect. 11. It was submitted by the ld AR that in order to have a formal order of registration u/s 12AA, the assessee trust has applied for the same on 30.03.2016 and considering the said application, the CIT(E) passed an order of registration u/s 12AA on 05.09.2016. Thus, a formal registration is also granted to the assessee under the 1961 Act. Once such registration is granted, in view of first proviso to section 12A(2), the provision of section 11 and 12 shall apply to the pending assessment proceedings provided the objects and activities remains the same. There is no dispute that the objects and activities of assessee for AY 2011-12 and the date on which registration is granted remains the same. The AO considering this legal provision has also held that the assessee is entitled to exemption u/s 11. Even the Hon ble Rajasthan High Court in case of CIT Vs. Sh. Shyam Mandir Committee in DBIT Appeal No. 234/2016 order dt. 23.10.2017 has held that the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch registration, if obtained under the old Income Tax Act, was saved by Section 297 of the I.T. Act. In the set aside proceedings, the AO has issued a query letter dated 20.09.17 asking the assessee to explain as to how exemption granted under the Repealed Act was saved by Section 297 of the I.T. Act, 1961. It is evident that the AO has proceeded on the assumption that registration was granted to the assessee under the Repealed Act of 1922 and hence he has not bothered to examine the very core issue of whether the assessee was indeed registered under the I.T. Act, 1922. 14. It was submitted by the ld CIT/DR that it is interesting to note that in its response during the set aside proceedings, the assessee has repeated the same facts as were there before all the relevant authorities in the earlier proceedings. In such earlier proceedings as well as the set aside proceedings, the assessee has referred to certain observations of the Law Commission, whereby the Law Commission observed that it appears that part of the income of the trust is applied to religious purpose and another part is applied for charitable purposes which will be exempted from income tax u/s 4(3)(i) in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged from private to a public trust. In this regard, the following paras of the original trust deed dated 29.06.1957 are relevant:- (2) The name of trust will be Bharatpur Royal Family Religious and Ceremonial Trust. (3) This trust will be a private trust. Thus, the amendment carried out on 03.08.16 changed the very nature of the trust from a private trust to a public trust. As per Section 13(1)(a) of I.T. Act, 1961, private religious trusts are not eligible for exemption / registration. Therefore, the above said amendment to the very nature of the trust was done in order to obtain registration under the I.T. Act. 2. The second amendment which was carried out on 03.08.16 was that in the event of dissolution of the trust, provision was made to transfer the assets to a trust of similar objects. Such dissolution clause was also absent from the original trust deed. In fact, the private religious nature of the trust before the said amendments were carried out, is also obvious from the Income and Expenditure accounts of the trust as on 31.03.11 viz., prior to registration and 31.03.19 (after the registration). 17. It was submitted by the ld CIT/DR that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, and in the set aside proceedings, the AO has duly examined this issue with reference to section 4(3)(i) of IT Act, 1922 vis- -vis section 11 of the Act and found to be in order and therefore, it is incorrect on part of the ld PCIT to allege that AO has failed to examine the same so as to hold the order passed by him as erroneous and prejudicial to the interest of Revenue. Further, referring to various observations made by PCIT in Para 8 9 of the impugned order, it has been contended by the ld AR that merely because there was no provision for issuing a separate order of registration in 1922 Act, it would not mean that such recognition/ approval is not saved by section 297(2)(k) of the IT Act, 1961. 21. We will deal with both of these contentions together. In this regard, we firstly refer to the findings and directions of the Coordinate Bench (in ITA No. 254/JP/2016 dated 23.06.2017) for the impugned assessment year, i.e, A.Y 2011-12 wherein the matter was set-aside to the file of the AO with certain specific directions and the said findings and directions read as under: 6. We have heard the rival contentions, perused the material available on record and gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Metal Powder (P) Ltd. Vs. Commissioner, Trade Tax [2008] 2 sec 439 and Commissioner of Central Excise, Calcutta [2003] 151 ECTM 81 held that under the facts of that case it was not open to AO rectifying his own order. In the case of Dena Metal Powder(P) Ltd. Vs. Commissioner of Trade Tax, it was a rectifiable mistake is a mistake which is obvious and the same must be apparent from record. It is must be a patent mistake, which is obvious and whose discovery is not dependent on elaborate arguments. In the case of Commissioner of Central Excise, Calcutta Vs. A.S.C.U. Ltd. (supra) held that a rectifiable mistake is mistake which is obvious and not something which has to be established by a long drawn process of reasoning or where two opinions are possible. The Decision on debatable point of law cannot be treated as mistake apparent from the record 6.2 In the present case, the AO declined the claim of the exemption on the basis that the Trust was no registered u/s 12AA of the Act. Undisputedly, when the assessment order was passed, the trust was not registered u/s 12AA, therefore, it cannot be construed that there was any mistake apparent from record in recording fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses will be exempts from income-tax u/s 4(3)(i) in the hands of the trust. 6.5 From the facts stated above, will be exempt from income u/s 4(3)(i) in the hands of the assessee. Further the Ld. Law Commission has observed as under:- Reference Finance Ministry s note above. In this connection notes from page 9/ante may please be seen. It appears from the note dated 5.11.1958 by the Member, Income-tax, CBR that he has agreed to the entire Trust being exempted from wealth, expenditure and income taxes without the restriction mentioned at B on 14 ante. We may send a reply to HH of Bharatpur as in the draft submitted for approval. 6.6 From the above observation of Ld. Law Commission, it is evident that the Assessing Officer committed mistake by observing that there is no mention of Section 4(3)(i) of the Income Tax Act, 1922. The Assessing Officer has also not given a finding as to what was the status of trust who was granted the exemption under the old Act i.e. Income Tax Act, 1922, after repeal of that Act. Whether such Acts fall under the saving clause or not if falls under the saving clause then it would be deemed that the exemption was available to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment as fully and effectually as if this Act had not been passed; (f) any proceeding for the imposition of a penalty in respect of any assessment complete before the first day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed; (g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act; (h) any election or declaration made or option exercised by an assessee under any provision of the repealed Act and in force immediately before the commencement of this Act shall be deemed to have been an election or declaration made or option exercised under the corresponding provision of this Act; (i) where, in respect of any assessment completed before the commencement of this Act, a refund falls due after such commencement or default is made after such commencement in the payment of any sum due under such completed assessment, the provisions of this Act relating to interest payable by the Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6.8 Under these facts, we are of the considered view that by not adverting these issues. The AO has committed mistake apparent from the record and needs fresh consideration. According the AO is directed to decide the issue of availability of exemption afresh. The Assessee also argued that the rent was accrued when this was ordered by the Hon ble Supreme Court in the year 2002, we find no such issue was raised before the Assessing Officer hence could not be rectified. We find even no such ground was raised before the Ld. CIT(A). Therefore, this issue is not arising out of the order under Section 154 of the Act. Under these facts, this plea of the assessee that the receipts cannot be taxed under the year under appeal is devoid of any merit hence rejected. 22. In the aforesaid decision, the Coordinate Bench, at para 6.2 of its order, has held that there is no dispute that when the assessment order was passed, the trust was not registered u/s 12AA and where the AO declined the claim of the exemption on the basis that the Trust was not registered u/s 12AA of the Act, it cannot be construed that there was any mistake apparent from record in recording a finding of fact in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Section 4(3)(i) of the Act of 1922 which read as under: (3) Any income, profits or gains falling within the following classes shall not be included in the total income of the person receiving them: (i) Subject to the provisions of clause (c) of sub-section (1) of section 16, any income derived from property held under trust or other legal obligation wholly for religious or charitable purposes, in so far as such income is applied or accumulated for application to such religious or charitable purposes as relate to anything done within the taxable territories, and in the case of property so held in part only for such purposes, the income applied or finally set apart for application thereto: 26. Under the Act of 1961, the provisions relating to exemption are contained in section 11, 12, 12A, 12AA and 13 of the Act. What is therefore required to be examined is whether the exemption granted under section 4(3)(i) of the Act of 1922 is consistent with combined reading of section 11, 12, 12A, 12AA and 13 of the Act of 1961 and thus saved by section 297(2)(k) of the Act of 1961. 27. Section 11 of the Act of 1961 has been amended from time to time. As per sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iately following the expiry of the aforesaid period. We therefore find that unlike provisions of section 4(3)(i), provisions of section 11 are elaborately worded and contains detailed conditions in terms of extent of accumulation of income, manner and mode of investment and related consequences of non-compliance of such conditions. 28. Section 12 of the Act talks about the voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. 29. Section 12A was introduced for the first time in the statute books by the Finance Act, 1972 and it provides that exemption from income-tax in respect of income derived from property held under trust u/s 11 or by way of voluntary contributions by charitable or religious trusts or institutions u/s 12 will be avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to register the trust for reasons to be recorded in writing after providing a reasonable opportunity to the trust and prescribes the time limit within which such order is to be passed. Further, powers have been granted to the Commissioner to cancel the registration of the trust where he is satisfied that the activities of such trust are not genuine or are not being carried out in accordance with the objects of the trust or the activities of the trust are being carried out in a manner that the provisions of section 11 and 12 donot apply to exclude either whole or any part of the income of such trust due to operation of section 13(1) of the Act. 33. We find that provisions seeking registration under section 12A and the consequent powers of the Commissioner to grant such registration and subsequently cancel the registration are conspicuously absent in the erstwhile provisions for claiming exemption under the Act of 1922 and it is one of the critical and distinguishing requirements under the Act of 1961 vis- -vis the Act of 1922 besides others elaborate conditions, as we noted above, for seeking exemption u/s 11 under the Act of 1961. Under the Act of 1961, the Trust whether co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that registration under s. 12A is a condition precedent for availing benefit under ss. 11 and 12 of the Act. Unless and until an institution is registered under s. 12A of the Act, it cannot claim the benefit of s. 11(1)(a) of the Act. Keeping in view the fact that the appellant-Corporation has not been granted registration under s. 12A of the Act, we hold that the appellant is not entitled to claim exemption from payment of tax under ss. 11(1)(a) and 12 of the Act. 34. Under the Act of 1922, we find that there were no provisions and condition precedent in terms of seeking registration from the Commissioner at first place and all that was required to seek exemption was that the income should be derived from property held under trust wholly for religious or charitable purposes and such income is applied or accumulated for application to such religious or charitable purposes as so contained in section 4(3)(i) of Act of 1922. Unlike provisions contained in section 4(3)(i) of the Act of 1922, the provisions of section 11(1)(a)/(b) of the Act of 1961 are subject to satisfaction of various conditions relating to application, accumulation, manner of investment, etc, and more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , under the Act of 1961. At the same time, from the stand point of continuity, the principle of consistency has been enshrined under section 297(2)(K) of the Act of 1961 which provides that where the provisions so provided under the Act of 1961 are consistent with the provisions of Act of 1922, the existing assessee claiming exemption under the Act of 1922 can continue to claim such exemption under the Act of 1961. However, where there are changes and/or newer provisions have been introduced under the Act of 1961 which were absent or not provided for in the Act of 1922, the assessee cannot claim immunity but to comply with such fresh provisions to continue to claim exemption and cannot seek the shelter of old regime invoking the saving clause as provided under section 297(2)(k) which in any case doesn t apply being inconsistent with the current regime. The assessee has to keep pace with the evolving law and regulations and cannot be claim immunity and seek shelter under the erstwhile law. In view of the aforesaid discussion, we are of the considered view that the exemption so granted to the assessee trust u/s 4(3)(i) of the Act of 1922 cannot be saved under section 297(2)(k) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore find that the Assessing officer has gone merely by the submissions of the assessee and has completely failed to consider the settled position in law that the provisions of section 11 are to be read along with section 12A of the Act and only where the trust has been registered under section 12AA, the exemption can be availed by the assessee and has thus failed to consider the distinguishing features of the erstwhile provisions section 4(3)(i) of Act of 1922 which are not consistent with the current provisions. Thus, the acceptance of the submissions of the assessee that the provisions of section 4(3)(i) of the Act of 1922 are consistent with section 11 of the Act of 1961 and saved by the provisions of section 297 of the Act and is not required to register u/s 12AA is clearly erroneous in view of non-consideration of the provisions of section 12A of the Act which provides that the provisions of section 11 and 12 shall not apply to the income of the trust unless the trust has applied and duly registered u/s 12AA of the Act. 38. It has also been contended that since the assessee has subsequently applied for registration u/s 12AA and the same has been granted by the ld CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 50C are applicable in respect of the capital gain assessable in the hands of a trust. So far as the exemption available to the Trust in respect of the Capital gain arising from sale of capital asset being property held under Trust, section 11(1A) of the IT Act contemplates the treatment of such income is applicable which reads as under :- [(1A) For the purposes of sub-section (1),- (a) where a capital asset, being property held under trust wholly for charitable or religious purposes50, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (i) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of such capital gain; (ii) where only a part of the net consideration is utilised for acquiring the new capital asset, so much of such capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is to be replaced by a new capital asset and kept as held under Trust. Even otherwise, in case of Public Trust, the immovable property of the Trust cannot be transferred by way of sale, exchange, gift or lease out for a period exceeding 5 years or 3 years in case of agricultural or non-agricultural land or building as the case may be except the previous sanction of the Assistant Commissioner Devasthan, State Government Board created for regulating the Public Trust in the State under Rajasthan Public Trust Act 1959. For ready reference we reproduce section 31 of Rajasthan Public Trust Act as under :- Sec. 31 Previous sanction to be obtained for certain transfers : 1. Subject to the directions in the instrument of trust or any directions given under this Act or any other law by any court : (a) No sale, exchange or gift or any immovable property or of movable property exceeding five thousand rupees in value, and (b) No lease, for a period exceeding five years in the case of agricultural land or for a period exceeding three years in the case of non-agricultural land or a building. belonging to a public trust shall be valid without the previous sanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 11,33,72,000/-. Though there is a decision of the Lucknow Bench of the Tribunal in case of ACIT vs. Upper India Chamber of Commerce (supra) regarding non applicability of provisions of section 50C, however, sections 11 12 of the IT Act provides exemption from Income Tax of the income derived from the property held in Trust to the extent of the same is applied for charitable purposes. Therefore, provisions of sections 11 12 do not disturb the head of the income which are otherwise applicable in respect of a particular income based on its source. The capital gain which is arising from the investment of the Trust which is otherwise permissible as per the provisions of section 11 of the Act would be strictly computed as per the provisions of sections 45 to 55 of the IT Act. Similarly, section 11(1A) of the IT Act provides the exemption and this exemption is only for the purpose of application of the net consideration for acquiring the new capital asset being the property held under Trust. Thus the provisions of section 50C become irrelevant or inapplicable once the actual consideration/net consideration received by the Trust is utilized for acquiring another capital asset being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be verified by conducting proper investigation. Accordingly, this issue of determination of real and actual consideration in terms of the fair market value of the property as on the date of sale requires reconsideration at the level of the AO. Thus, the same is set aside to the record of the AO for conducting a proper enquiry on the issue and then determine the fair market price of the property in question as on the date of sale. Needless to say, the assessee be given an appropriate opportunity of hearing before deciding this issue. 6. As regards the applicability of provisions of section 12AA and particularly proviso to the said section and consequential benefit of sections 11 12 of the Act, we find that the registration was granted by the Commissioner (Exemptions) vide order dated 5th September, 2016 with effect from 03.08.2016 after the assessee has amended its By-laws and Memorandum of Association whereby certain terms and conditions have been completely changed. Therefore, the constitution of the Trust does not remain the same as it was prior to the amendment and hence when the constitution itself is changed and the registration is granted on the new and amended co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same are not regarded as pending before the AO. Even otherwise, when the registration is granted on the amended constitution of the Trust, then the benefit of this proviso to section 12A(2) is not available. The said finding applies equally to the impugned assessment year 2011-12 and we donot find any justifiable reason to deviate from the said finding rendered after detail examination of facts and circumstances of the case which permeates equally through the impugned assessment year. Therefore, even where it is held that the AO has taken a view that the assessee is entitled to exemption u/s 11 in view of the subsequent registration for the impugned assessment year, the said view is clearly erroneous in light of the clear findings of the Tribunal in the assessee s own case that benefit of proviso to section 12A(2) is not available to the assessee and thus, prejudicial to the interest of the Revenue. 40. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are unable to accede to the various contentions advanced by the ld AR that the AO has complied with the directions of the Tribunal and duly examined this issue with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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