2025 (6) TMI 218 - AT - Income Tax

Denial of exemption u/sec. 11 - assessee society is not registered u/sec.12A - appellant society which changed its name and obtained a new PAN post the bifurcation of Andhra Pradesh into Telangana - HELD THAT - After partition of Andhra Pradesh State the Government of Telangana has approved name change from The Zoo Authority of Andhra Pradesh to The Zoos and Parks Authority of Telangana to continue the conservation of wildlife and environment activities of incumbent Zoo Authority of Andhra Pradesh. There was no change either in objects of the assessee society or activities. Further only there was a change in name. After change in name the assessee society has not applied for registration u/sec. 12A of the Act. In absence of registration u/sec. 12A the assessee society has claimed exemption u/sec. 11 of the Act in respect of it s total income. AO -CPC Bengaluru has processed the return u/sec. 143(1) of the Act and rejected the exemption u/sec. 11 of the Act on the ground that assessee society is not registered u/sec. 12A of the Act. Once the society is not registered u/sec. 12A of the Act then the said society/trust cannot claim the benefit of exemptions u/sec. 11 and 12 of the Act. Therefore we are of the considered view that there is no error in the order of the Assessing Officer/CIT(E) in rejecting the benefit of exemption u/sec. 11 of the Act to the assessee society for all assessment years. Thus we upheld the rejection of exemption u/sec. 11 of the Act. Assessment of income of the assessee society - AO having rejected the exemption u/sec.11 has considered gross receipts of the assessee society for the purpose of taxation - HELD THAT - It is well settled principle of law that once the income of any Trust/Institution or Society is considered as AOP and assessed under normal provisions of the Act then all permissible deductions including expenditure incurred out of said income should be allowed as deduction. This view is supported by the decision of Kingston Educational Trust 2019 (11) TMI 1839 - ITAT CHENNAI wherein held that only net income needs to be taxed. AO and the learned CIT(A) are erred in taxing gross receipts of the assessee society instead of net income as per the financial statements. However fact remains that since the assessment order is u/sec. 143(1) the Assessing Officer does not have an occasion to verify the correctness of various expenditure claimed by the assessee. Therefore in our considered view the matter needs to go back to the file of Assessing Officer for further verification. Thus we set aside the orders of the learned CIT(A) and restore the issue back to the file of Assessing Officer for reconsideration of the issue.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in filing appeals before the First Appellate Authority (CIT(A)) should be condoned, considering the exclusion of the Covid-19 period as per the Hon'ble Supreme Court's Suo Motu Writ Petition (C) No.3 of 2020 order dated 10.01.2022.

- Whether the appellant society, which changed its name and obtained a new PAN post the bifurcation of Andhra Pradesh into Telangana, can claim exemption under Sections 11 and 12A of the Income Tax Act, 1961 without fresh registration under Section 12A.

- Whether the Assessing Officer erred in assessing the gross receipts as income without allowing deductions for expenditure, after rejecting exemption under Section 11.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay in Filing Appeals

Relevant Legal Framework and Precedents: The Hon'ble Supreme Court's order in Suo Motu Writ Petition (C) No.3 of 2020 dated 10.01.2022 excluded the period from 15.03.2020 to 28.02.2022 from limitation calculations, with a further grace period of 90 days till 31.05.2022. The decision of the Hon'ble Madras High Court in Vijayeswari Textiles Ltd. vs. CIT (2002) 256 ITR 560 (Mad.) is also relevant, holding that if an appellate authority dismisses an appeal on delay grounds but proceeds to decide on merits, it is deemed that the delay is condoned.

Court's Interpretation and Reasoning: The Tribunal noted that the CIT(A) dismissed the appeals in limine for delay, citing delays ranging from 269 to 890 days. The appellant contended that after excluding the Covid-19 period as per the Supreme Court's order, the actual delay was only 116 days for most assessment years, and no delay for AY 2021-22. The Tribunal accepted that the delay was due to staff unfamiliarity with Income Tax proceedings rather than any deliberate neglect.

Application of Law to Facts: The Tribunal applied the Supreme Court's exclusion of the Covid period to calculate the effective delay and found it reasonable. Further, since the CIT(A) proceeded to decide the appeals on merits despite dismissing them on delay grounds, the Tribunal held in line with Vijayeswari Textiles Ltd. that the delay is deemed condoned.

Treatment of Competing Arguments: The Revenue argued that the appellant did not bring the Supreme Court order to CIT(A)'s notice and pleaded only ignorance, which was insufficient. The Tribunal rejected this, emphasizing the legal effect of the Supreme Court's order and the CIT(A)'s merit adjudication.

Conclusion: The Tribunal condoned the delay in filing appeals before the CIT(A) for all assessment years.

Issue 2: Entitlement to Exemption under Section 11 without Fresh Registration under Section 12A

Relevant Legal Framework: Section 12A registration is a mandatory condition for claiming exemption under Sections 11 and 12 of the Income Tax Act. The appellant was earlier registered as "Zoo Authority of Andhra Pradesh" under Section 12A and approved under Section 80G. After bifurcation and name change to "Zoos and Parks Authority of Telangana" (ZAPAT), the appellant obtained a new PAN but did not apply for fresh Section 12A registration.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant society had no change in objects or activities but only a change in name and formation as a society registered under the Societies Registration Act in 2014. However, since there was no fresh registration under Section 12A under the new PAN, the appellant could not claim exemption under Section 11.

Key Evidence and Findings: The appellant's reliance on the erstwhile registration was held to be a bonafide but incorrect assumption. The Revenue's stand that no exemption can be granted without fresh registration was upheld.

Application of Law to Facts: The Tribunal applied the statutory requirement that exemption under Section 11 is contingent on valid Section 12A registration, which was absent.

Treatment of Competing Arguments: The appellant argued continuity of activities and bonafide belief that old registration sufficed. The Tribunal rejected this, emphasizing statutory compliance over informal assumptions.

Conclusion: The Tribunal upheld the rejection of exemption under Section 11 for all assessment years.

Issue 3: Assessment of Income-Taxation of Gross Receipts vs. Net Income

Relevant Legal Framework and Precedents: It is a settled legal principle that when exemption under Section 11 is denied and income is assessed under normal provisions, all permissible deductions, including expenditure incurred, must be allowed. The Tribunal relied on the decision in Kingston Educational Trust vs. DCIT and the Madhya Pradesh High Court judgment in Kaluram Ganeshram (HUF) vs. CIT [1988] 172 ITR 154 (MP), which held that only net income should be taxed.

Court's Interpretation and Reasoning: The Assessing Officer taxed the appellant's gross receipts without allowing any expenditure deductions, as exemption was denied. The Tribunal found this to be erroneous and contrary to settled principles.

Key Evidence and Findings: The appellant had maintained books of accounts and financial statements reflecting expenditures. However, since the assessment was under Section 143(1), the Assessing Officer had not examined these in detail.

Application of Law to Facts: The Tribunal held that the Assessing Officer must verify the expenditure claims and assess net income accordingly. The matter was remanded for fresh consideration to allow deductions and tax net income.

Treatment of Competing Arguments: The Revenue contended that in absence of relevant details, expenditure could not be allowed. The Tribunal agreed that verification was necessary and directed reassessment accordingly.

Conclusion: The Tribunal set aside the orders of the CIT(A) and restored the issue to the Assessing Officer for verification and reassessment on net income basis.

3. SIGNIFICANT HOLDINGS

- "Once the appeal is not admitted on account of delay, then, the learned CIT(A) cannot proceed to decide the issue on merit. If at all, the learned CIT(A) decided the issue on merit, then, in our considered view, it is deemed or implied that the learned CIT(A) has condoned the delay in filing the appeal and admit the appeal for adjudication."

- "Once the society is not registered u/sec. 12A of the Act, then, the said society/trust cannot claim the benefit of exemptions u/sec. 11 and 12 of the Act."

- "It is well settled principle of law that, once the income of any Trust/Institution or Society is considered as AOP and assessed under normal provisions of the Act, then, all permissible deductions including expenditure incurred out of said income should be allowed as deduction."

- The Tribunal held that the Assessing Officer erred in taxing gross receipts without allowing deductions and directed reassessment on net income after verification of books of accounts.

- The Tribunal condoned the delay in filing appeals before the CIT(A) for all assessment years by applying the Supreme Court's exclusion of the Covid-19 period and relying on the principle that merit adjudication implies condonation of delay.