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TMI Blog2024 (3) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... received toward corpus, so that it is income by definition, though exempt u/s. 11(1)(d)). It is for this reason that capital expenditure is equally an application of income, entitling exemption u/s. 11(1) on income derived from property held under trust (Tiruppani Trust v. CIT [ 1998 (2) TMI 3 - SUPREME COURT] ) The assessee being not registered u/s. 12AA, it s claim for exemption u/s. 11, or for it being a capital receipt, not in the nature of income, is misplaced and, accordingly, stands rightly disallowed on processing the return u/s. 143(1)(a). It s plea for extension of subsequent registration, on the ground that rectification proceedings are a continuation of the assessment proceedings, is misconceived. When processing u/s. 143(1) is itself not an assessment, how could rectification thereof possibly be? That apart, rectification u/s. 154 would necessarily restrict the record to that which can be referred to u/s. 143(1)(a). It s final accounts, however, reflect a loss on operations, which stands mistakenly returned as income. The financial statements form part of the return of income (s. 139(9)) and, therefore, could validly be taken into account for processing it. The matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake and, rather, as striking as by assessee in claiming exemption u/s. 11 and, further, not on income but on it s receipt. This is as the provision, in relation to the qualifying quantum of receipt, refers to annual receipts and not gross receipt . Corpus donation, being uncertain as to time and volume, is surely not a part of the regular, annual receipt of an educational institution. There is also no scope, while entertaining the said claim, for extending the purview of processing , or indeed of rectification proceedings in its respect, and probe further in the matter, examining, for instance, it s income profile; charter, etc. That is, the very same reason for which the assessee s claim under proviso to s. 12A(2) did not find favour with either the Revenue or with us. The assessee s alternate claim for exemption of it s income, including capital receipt, u/s. 10(23C)(iiiad), which extends to the entire income received by such person, and not it s annual receipt, is not exigible to being disallowed u/s. 143(1)(a). Its disallowance is, accordingly, directed for deletion. We decide accordingly. - Shri Sanjay Arora, Accountant Member And Dr. S. Seethalakshmi, Judicial Member For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion per a speaking order, it filed an appeal before the ld. CIT(A) on 25.02.2016, raising the following grounds: 1. The order of proceedings u/s. 143(1) and the Order u/s. 154 by the Income Tax officer (exemption) is incorrect and is against the provisions of Income Tax Act. 2. The Appellant has obtained Registration u/s. 12AA for the A.Y. 2015-16 and the benefit of which is applicable to all pending assessments as per the Provisions of Sec. 12A Amendment as per Finance Bill (No.2) 2014. 3. The Assessing Officer should have noted that the order u/s. 143(1) passed for A.Y. 2013-14 is not a final Order of Assessment and it is only an intimation proceedings u/s. 143(1) and hence the benefit of the Amendment to Sec. 12A in the Finance Act 2014 to be made applicable to the case of the Appellant for the A.Y. 2013-14 also. 4. The Tax charged u/s. 143(1) is at the Maximum Marginal Rate. In the case of a Society or a Trust it is chargeable under the rate chargeable to individual assessee as per the Circular of CBDT No. 320[F.No.131(31)/81- TP(Pt.)] dated 11-01-1982. 5. The benefit of sec. 10(23C)(iiiab) is also applicable to the Appellant as the Institution is an educational institution exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; and - wholly or substantially funded by the government, which would in turn require reference to fresh material, not a part of the record. The assessee not claiming charge of tax at a higher rate before him though found by him as charged at normal rate, the assessee s appeal was accordingly dismissed, so that, aggrieved, it is in second appeal before us, raising the following grounds: 1. The Order of the Commissioner of Income Tax (Appeals) is against facts and law 2. The Commissioner of Income Tax (Appeals) failed to appreciate that denying of exemption under section 11 could not be done as a prima facie adjustment while processing of the return u/s 143(1) and hence the demand is not correct. The Commissioner of Income Tax (Appeals) has concluded that no assessment proceedings were pending based on decided cases and hence the issue is debatable and hence could not be done as a prima facie adjustment. 3. The Commissioner of Income Tax (Appeals) erred in not granting exemption under section 11 on the finding that proviso to section 12A(2) extending the benefit of registration for earlier years as no assessment proceedings were pending on the date of granting the registration unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be to see if the adjustment/s made by the AO in disallowing the claim u/s. 11 of the Act, could be in law made. The second aspect would be as to if the assessee s claim u/s. 10(23C)(iiiad) could be admitted in rectification proceedings. 3.2 The assessee being admittedly not registered u/s. 12AA for the relevant year, it s claim/s u/s. 11 could not be admitted, and stands to be rejected at the threshold, i.e., be it u/s. 11(1)(a), (b) or (d) (s. 12A(1)(aa) (also see: U.P. Forest Corporation v. Dy. CIT [2008] 297 ITR 1 (SC)). Further, the application for registration having been made by the assessee-society on 18.02.2015, it s registration on 20.08.2015, w.e.f. AY 2015-16, is opposite [s.12AA(2)]. The question here would be if the contribution by way of corpus donation, a capital receipt, could be regarded as part of the assessee s income. The Hon'ble Apex Court in Punjab Distilling Industries Ltd. v. CIT [1965] 57 ITR 1 (SC) held that there is no conflict between a receipt being capital in nature and, by fiction of law, being an income chargeable to tax under the Act. Income, defined inclusively u/s. 2(24) of the Act, includes voluntary contributions received by a trust or inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings. And which, being pending as on 20.08.2015, i.e., the date of grant of registration, benefit thereof should be available to it for AY 2013- 14. The argument is untenable. There is no reference thereto in the rectification application dated 04.08.2015; nay, could not be inasmuch as the registration was granted subsequent thereto. Nor indeed any reference thereto in the rectification proceedings thereafter, i.e., subsequent to 20.08.2015, till its conclusion on 29.01.2016. How could the AO, oblivious of the developments, take that into consideration, which would, besides, require him taking into consideration material outside the record, impermissible u/s. 143(1) and, thus, u/s. 154. Equally, it would require him to call for and examine the assessee s objects and activities for the relevant year, and compare them with that obtaining as on 20.08.2015. That is, travel outside the ambit of s. 143(1), as indeed s. 154 of the Act. Processing u/s. 143(1), as afore-noted, cannot be regarded as an assessment inasmuch as hearing the assessee is not envisaged thereunder, nor indeed examining the material not referred to therein. 3.4 Next, we consider the assessee s claim u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the law should be sought to be given effect to. The AO, however, went wrong in denying the assessee exemption u/s. 10(23C)(iiiad). This is as the provision does not, as stated in the rectification order dated 29.01.2016, speak of gross receipt , but annual receipt , making the same mistake as the assessee had earlier. The difference in the language is marked, and the latter, clearly, denotes regular, recurring receipts of an educational institution. The same would not include voluntary contribution toward corpus, which is not in the nature of a running, regular income. Excluding the same, the assessee s annual receipt is only Rs. 11.19 lakh, i.e., far below Rs. 100 lakh. We note that the income expenditure a/c does not include tuition fee - the main source of income for a college; salary to staff, etc. The income and expenditure, however, pertains to the college, which is, further, supported by the Government. It is, however, impermissible under the processing provision of sec.143(1) to travel outside the record, i.e., audited financial statements on the basis of which the assessee has returned income, forming part of the return in terms of sec.139(9). We are also conscious that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings, is misconceived. When processing u/s. 143(1) is itself not an assessment, how could rectification thereof possibly be? That apart, rectification u/s. 154 would necessarily restrict the record to that which can be referred to u/s. 143(1)(a). It s final accounts, however, reflect a loss on operations, which stands mistakenly returned as income. The financial statements form part of the return of income (s. 139(9)) and, therefore, could validly be taken into account for processing it. The matter would accordingly have to travel to the AO for taking the audited final accounts, on the basis of which the assessee has returned income, on record and passing an order u/s. 154 of the Act. As regards the assessee s, an accredited institution supported by Government, alternate claim for exemption u/s. 10(23C)(iiiad), the same stands rightly considered by the AO in the rectification proceedings. The same, it may be appreciated, is not a new claim, but incidental to it s activity of running an educational institution, and on which basis it had been claiming exemption in the past. It is true that equitable considerations are out of place in interpreting tax laws. However, as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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