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TMI Blog2024 (11) TMI 238X X X X Extracts X X X X X X X X Extracts X X X X ..... ot fall under the 3rd proviso to section 12A of the Act where it is not the case of the Revenue that the registration of the assessee Trust was refused or granted and cancelled at any point in time, the assessee ought to get the benefit of the 2nd proviso to section 12A of the Act where reopening merely for non registration is not warranted as per the Act. The ld. AR has also relied on the first proviso to section 12A of the Act where the registration has been granted u/s. 12AA of the Act then the provision of section 11 and 12 of the Act shall apply to the assessment year preceding the assessment year for which the assessment proceedings are pending before the ld. A.O. as on the date of registration along with the cumulative condition that the objects and activities of the Trust remains the same for such preceding assessment year. Here in this case, the assessment proceeding commenced on issuance of the notice u/s. 148 of the Act dated 28.09.2018 and the date of registration was the next day, i.e., 29.09.2018, which implies that the assessment proceeding for earlier years were pending before the ld. A.O. as on the date of such registration, thereby concluding that the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to appreciate that as per section 12A(2) read with the provisos thereto he ought to have granted the Appellants claim for exemption of its income under section 11 of the Act, as, on the date of grant of registration under section 12A i.e., on 29.09.2018, the present assessment proceeding which was initiated on 28.09.2018 was pending. 6. The CIT(A) ought to have held that the AO erred in law and facts of the case by erring in denying the Appellants claim for grant of exemption in respect of amounts accumulated for future application under section 11(2) of the Act. 7. The CIT(A) ought to have held that the AO erred in law and facts of the case by failing to appreciate that interest earned on deposits placed out of specific funds like gratuity, pension, provident fund etc. ought to be treated as diverted by overriding title and hence, such interest could not be brought to tax in the Appellants hands. 8. The CIT(A) ought to have held that the AO erred in law and facts of the case and he ought to have held that the Appellant is a mutual organization and hence, any income received by it from the nurses and training institutes (who were the contributors as well as participators in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the assessee s contention that notices were issued on 28.09.2018, whereas the Registration u/s. 12A of the Act was granted on 29.09.2018. The assessee s contention that the assessee Trust was unable to spend the money accumulated for purchase of its own premises due to the restraint order passed by the Hon'ble High Court and that if the ld. A.O. fails to grant benefit of section 11 of the Act, then the alternate plea was to treat the assessee as a mutual organization and income received from the Nurses and Nurses Institution ought to be covered under the concept of mutuality which is not liable to be taxed, except the interest earned from the banks. The ld. A.O. then passed the assessment order u/s. 143(3) r.w.s. 147 of the Act dated 26.12.2019 denying the benefit of section 11(1)(a) of the Act and section 11(2) of the Act on 15% accumulation and taxed the entire surplus held by the assessee as income chargeable to tax. The ld. A.O. rejected the concept of mutuality on the ground that the assessee was not eligible for the same. 6. Aggrieved the assessee was in appeal before the first appellate authority who vide order dated 01.02.2024, upheld the order of the ld. A.O. for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1(2) of the Act, was due to the restriction placed by the Hon'ble Jurisdictional High Court, which was later on relaxed by the subsequent order. 9. The learned Departmental Representative ('ld. DR' for short), on the other hand, controverted the said fact and contended that the assessee Trust was registered u/s. 12A/12AA of the Act only on 29.09.2018 and notice for reassessment was issued prior to the registration and the ld. DR further stated that the assessee has not satisfied the condition for grant of exemptions u/s. 11/10(23C)(iv) of the Act. The ld. DR relied on the order of the lower authorities which implies that the reopening was valid and with due application of mind. 10. On the above factual matrix, we find merit in the submission of the ld. AR in contending that the ld. A.O. has erred in reopening the assessment for the reason that the assessee was not registered u/s. 12A/12AA of the Act, thereby denying the exemption u/s. 11 of the Act on the surplus accumulated by the assessee, which is contrary to the 2nd proviso to section 12A of the Act and the said provision is cited herein under for ease of reference: Section 12A(2) in The Income Tax Act, 1961 (2) Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Tribunal, quashing the reassessment order for the reason that it is violative of the second and third proviso to section 12A(2) of the Act. The ld. AR has also placed reliance on Circular No.1/2015, which has reiterated that no reassessment can be initiated merely for the reason of non registration. The above mentioned decision has also relied on the said Circular and upheld this issue in favour of the assessee. The relevant extract of the said decision is cited herein under for ready reference: 7. It is not in dispute that the registration under section 12A of the Act was granted to the assessee on 23-9-2014. In terms of the first proviso, where the registration has been granted to the Trust 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 assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration. The objects and activities of such Trust remain the same for such preceding assessment year. As per the second proviso, it is clear that no action under section 147 shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r registration and the same was refused under section 12AA of the Income-tax Act or a registration once granted was cancelled. 9. On combined reading of the aforesaid provisions with the Circular vis-d-vis the material facts of the case, it cannot be gainsaid that the case on hand would not fall under any of the exceptions carved out in the provisos as contemplated under section 12A(2) of the Act. Moreover, the interpretation given by the authorities to the Circular issued by the CBDT not being justifiable, the Tribunal has rightly held that the provisos to section 12A(2) of the Act are applicable to the case on hand. 10. As could be seen from the material on record, the reasons assigned by the Assessing Officer for reopening the assessment is as under: REASONS FOR ISSUE OF NOTICE u/s. 148 The Fund was established by vitue of a proceedings of the Government of Karnataka (the then Mysore Govt.). The said fund, was granted registration u/s 12A w.e.f. financial year 2013-14. Information was gathered revealed that the said fund is having taxable surplus/income since quite a number of years. It is also verified from the AST that the said fund had not filed return of income except for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding for earlier years were pending before the ld. A.O. as on the date of such registration, thereby concluding that the provisions of section 11 and 12 of the Act shall apply to income held by the assessee Trust of any assessment year, preceding the assessment year in which the registration was granted. The ld. AR has also placed reliance on the decision of the Hon ble Rajasthan High Court, Jaipur Bench in the case of CIT vs. Shree Shyam Mandir Committee [2018] 400 ITR 466 (Raj) which held that the proviso to section 12A(2) of the Act inserted from 01.10.2014 has retrospective effect. 13. On a conjoint reading of the provisions, the CBDT Circular No.1/2015 and the decisions relied upon the assessee, we deem it fit to hold that the reassessment proceeding is bad in law as it is contrary to the proviso to section 12A(2) of the Act and, therefore, liable to be quashed. Ground no. 3 raised by the assessee is hereby allowed. 14. As we have quashed the reassessment order, the other grounds of appeal raised by the assessee becomes academic in nature for which no adjudication is required. ITA No. 1475 to 1479/Mum/2024 15. The findings applied in ITA No. 1474/Mum/2024 will apply mutatis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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