2025 (5) TMI 1070 - AT - Income Tax

Denial of grant of exemption claimed by the assessee u/s. 11 - assessee trust was not registered as a charitable society u/s. 12AA - HELD THAT - DR was unable to controvert the contention of the ld. Counsel for the assessee in support of the proposition that the assessee was entitled to the benefit of second proviso to section 12A(2) of the Act on account of which since the appeal proceedings in the present cases were pending on the date of grant of registration u/s. 12A of the Act for subsequent assessment years the benefit of section 11 12 of the Act would apply to the assessment years pending on the date of granting registration also. DR could also not bring to our notice any contrary decision of High Court and Supreme Court in this regard. In the light of the same we have no hesitation in holding that in the facts and circumstances of the present cases which clearly demonstrate that on the date of grant of registration u/s. 12A of the Act to the assessee w.e.f. 01.04.2013 vide order of CIT(Exemption) dated 15.12.2018 the appeal proceedings for all the impugned years before us were pending before the CIT(Appeals) who in turn had passed order in 2024, the assessee was entitled to claim exemption of its income u/s. 11 of the Act in view of second proviso to section 12A(2) of the Act as per the various judicial decisions cited by assessee before us. Appeals of the assessee stand allowed.

Summary

The core legal questions considered in these appeals revolve around the applicability and interpretation of sections 11, 12, 12A, and 12AA of the Income-tax Act, 1961, particularly concerning the grant of exemption to a trust for assessment years preceding the date of registration under section 12AA. The principal issues are:

1. Whether exemption under section 11 of the Act can be allowed for assessment years prior to the date of registration granted under section 12AA, especially when the registration is granted with retrospective effect.

2. The scope and applicability of the second proviso to section 12A(2) of the Act (now omitted w.e.f. 01.04.2023), which provides that where registration under section 12AA or 12AB is granted, the provisions of sections 11 and 12 shall apply to preceding assessment years for which assessment proceedings were pending before the Assessing Officer as on the date of such registration, provided the objects and activities remain unchanged.

3. Whether proceedings before the Commissioner of Income-tax (Appeals) (CIT(A)) constitute an extension or continuation of assessment proceedings such that the proviso to section 12A(2) applies during the pendency of appeals.

4. The interpretation and effect of section 119(2)(b) of the Act concerning the power of the CIT(A) to admit claims or applications for exemption or deduction beyond prescribed periods.

Issue-wise Detailed Analysis:

1. Applicability of Exemption under Section 11 for Pre-Registration Assessment Years

Legal Framework and Precedents: Section 11 provides exemption for income derived from property held for charitable or religious purposes. Section 12AA mandates registration of trusts or institutions to claim such exemption. Section 12A(2) originally stipulated that exemption applies from the assessment year following the year of application for registration. However, the second proviso to section 12A(2), introduced by amendments effective from 01.10.2014 and later, allowed the provisions of sections 11 and 12 to apply retrospectively to preceding assessment years for which assessment proceedings were pending on the date of registration, if the objects remained unchanged.

Several judicial decisions have interpreted this proviso as retrospective and beneficial, including:

• CIT vs. M/s Shree Shyam Mandir (Raj): Held that the proviso to section 12A(2) is retrospective and applies to pending assessment years, allowing exemption for earlier years if registration is granted during pendency.
• Shri Krishnabai Ghat Trust vs. ITO (Exemptions) (ITAT Pune): Held that appeal proceedings before CIT(A) are continuation of assessment proceedings and thus the proviso applies during pendency of appeal.
• Lady Kikabai Premchand Iyambail Trust vs. ITO (ITAT Pune): Affirmed that CIT(A) has powers similar to AO and benefit of proviso applies during appeal proceedings.
• St. Jude's Convent School and Others vs. ACIT (ITAT Amritsar): Confirmed retrospective application of proviso and clarified application of income to charitable institutions.
• M/S Punjab Educational Society vs. ITO (ITAT Amritsar): Held the proviso to section 12A(2) as beneficial and retrospective.

Court's Interpretation and Reasoning: The Tribunal emphasized that the proviso to section 12A(2) was intended to mitigate hardships faced by genuine charitable trusts that obtained registration belatedly. The proviso's retrospective effect ensures that trusts are not penalized for non-registration during pendency of assessment or appeal proceedings. The Tribunal noted that the registration in question was granted with effect from 01.04.2013, and on that date, appeals for the relevant assessment years were pending before the CIT(A). Since appeals are continuations of assessment proceedings, the proviso applies, entitling the assessee to exemption under section 11 for those years.

Key Evidence and Findings: The assessee was granted registration under section 12AA on 15.10.2018, effective from 01.04.2013. The appeals for assessment years 2006-07, 2007-08, 2008-09, 2009-10, and 2012-13 were pending before the CIT(A) at that time. The CIT(A) had denied exemption on the ground that registration was effective only from 01.04.2013 and thus could not be applied retrospectively. The Tribunal disagreed with this approach, relying on the proviso and judicial precedents.

Application of Law to Facts: The Tribunal applied the proviso to section 12A(2) to the facts, holding that the exemption under section 11 should be allowed for the assessment years pending on the date of registration, as the objects of the trust remained unchanged and the appeals were pending before the CIT(A).

Treatment of Competing Arguments: The CIT(A) had relied on section 119(2)(b) of the Act, arguing that it could not admit claims for exemption beyond prescribed periods. The Tribunal distinguished this by noting that the proviso to section 12A(2) specifically contemplates application of exemption to pending assessment years and appeals, which is a different context than the limitation under section 119(2)(b). The Revenue could not point to any binding contrary High Court or Supreme Court decision.

Conclusion: The Tribunal allowed the grounds related to retrospective applicability of exemption under section 11 for pre-registration years where assessment or appeal proceedings were pending.

2. Interpretation of the Second Proviso to Section 12A(2) and Its Retrospective Effect

Legal Framework: The second proviso to section 12A(2) provided that where registration is granted under section 12AA or 12AB, the provisions of sections 11 and 12 apply to preceding assessment years for which assessment proceedings are pending before the AO, if the objects and activities remain the same. This proviso was omitted w.e.f. 01.04.2023 but was in force for the relevant years.

Court's Reasoning: The Tribunal reiterated the view taken in various decisions that the proviso is remedial and intended to avoid hardship to charitable trusts. It supplies an obvious omission and thus must be read retrospectively. The Tribunal cited multiple decisions holding that assessment proceedings pending before appellate authorities should be deemed to be assessment proceedings pending before the AO within the meaning of the proviso.

Key Findings: The Tribunal found that the proviso applies not only to assessment proceedings before the AO but also to appeal proceedings before the CIT(A), which are continuations of the original proceedings. Therefore, registration granted during pendency of appeals entitles the trust to claim exemption for those years.

Application of Law to Facts: Since the assessee's appeals were pending before the CIT(A) on the date of registration, the proviso applies, and exemption under sections 11 and 12 is available for the preceding years.

Competing Arguments: The Revenue argued that registration effective date limits exemption to subsequent years only and that CIT(A) lacks authority to admit claims beyond prescribed periods. The Tribunal rejected these arguments based on the express language of the proviso and judicial precedents.

Conclusion: The proviso to section 12A(2) applies retrospectively and to pending appeals, entitling the assessee to exemption for prior years.

3. Whether Proceedings Before CIT(A) Constitute Extension of Assessment Proceedings

Legal Framework and Precedents: The Tribunal relied on decisions such as Shri Krishnabai Ghat Trust vs. ITO (Exemptions) and Lady Kikabai Premchand Iyambail Trust vs. ITO, which established that appellate proceedings before CIT(A) are continuations of assessment proceedings before the AO. Consequently, the proviso to section 12A(2) applies during the pendency of appeals.

Court's Interpretation: The Tribunal accepted the proposition that the CIT(A) has powers similar to the AO and can admit claims and grant relief as per law during appeal proceedings. Therefore, registration granted during appeal pendency triggers the benefit of the proviso.

Application of Law to Facts: The assessee's appeals were pending before the CIT(A) on the date of registration under section 12AA. Hence, the exemption under sections 11 and 12 applies to the assessment years under appeal.

Competing Arguments: The CIT(A) had denied exemption on the ground that registration was effective only from 01.04.2013 and that claims could not be admitted beyond prescribed periods under section 119(2)(b). The Tribunal rejected this, holding that the proviso to section 12A(2) overrides such limitations in the context of pending appeals.

Conclusion: Proceedings before the CIT(A) are deemed to be extensions of assessment proceedings, and the proviso to section 12A(2) applies accordingly.

4. Interpretation of Section 119(2)(b) in Context of Claims for Exemption

Legal Framework: Section 119(2)(b) empowers the Board to authorize income-tax authorities, other than CIT(A), to admit claims for exemption or deduction after prescribed periods to avoid genuine hardship.

Court's Reasoning: The CIT(A) relied on this provision to deny admission of exemption claims beyond prescribed periods. However, the Tribunal observed that section 119(2)(b) does not empower the CIT(A) to admit belated claims and that the proviso to section 12A(2) specifically addresses the issue of exemption for preceding years during pending proceedings.

Conclusion: Section 119(2)(b) does not restrict the application of the proviso to section 12A(2), and the CIT(A) cannot deny exemption claims on this ground if the proviso applies.

Significant Holdings:

"The insertion of the proviso to section 12A(2) of the Act has to be construed as retrospective in operation."

"Appeal proceedings before the appellate authorities are deemed to be assessment proceedings pending before the Assessing Officer within the meaning of Section 12A."

"Where registration under section 12AA is granted during the pendency of assessment or appeal proceedings, the provisions of sections 11 and 12 shall apply to preceding assessment years for which proceedings are pending, provided the objects and activities remain the same."

"Section 119(2)(b) does not empower CIT(A) to admit claims for exemption beyond prescribed periods, but the proviso to section 12A(2) specifically contemplates application of exemption during pendency of proceedings."

"The Tribunal holds that the assessee was entitled to exemption under section 11 of the Act for the assessment years in question on account of retrospective registration under section 12AA and pendency of appeal proceedings before CIT(A)."