TMI Blog2017 (10) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... s going for any private use will negative the very object of the Trust Act which is the main intention of the legislation, is not to be considered at this stage. As long as the objects were charitable in nature in the earlier years and in the year in which registration u/s 12AA was granted, the existence of trust for charitable purposes in the earlier years cannot be doubted with. Even otherwise, no adverse findings were given by the revenue with regard to the existence of the assessee society for charitable purposes in the assessment years under appeal. A receipt which is by birth, capital in nature, cannot change its character merely for want of registration of society u/s 12AA of the Act. It is not the case of the revenue that the donations received are meant for general functioning of the charitable objects of the society, in which event, the donations received thereon would take the character of revenue receipts requiring to be credited in the income and expenditure account for utilization towards charitable objects thereon. Hence we hold that in any case, the donations received by the assessee society cannot be brought to tax in the assessment. We hold that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals, common questions of law and facts are involved, they are decided by this common judgment. 2. By way of these appeals, the appellants have challenged the judgment and order passed by the tribunal whereby the tribunal has allowed the appeals of the assessee, reversing the view taken by the Commissioner of Income Tax Jaipur-III, Jaipur vide judgment and order dated 30.09.2009 whereby the registration under Section 12A was rejected. 3. This court while admitting the appeal has framed the following substantial questions of law:- D.B. Income Tax Appeal No.224/2010 admitted on 13.12.2010:- (i) Whether granting registration to a private trust u/s. 12A was legal and proper especially when Sections 2(15),11,12 Section 13 specifically restricts use and application of voluntarily contribution/income for the benefit of private person u/s.13(3)? (ii) Whether applications of Rajasthan Public Trust Act, 1959 can be applied to the private trust especially when they are covered by the Indian Trust Act, 1882? D.B. Income Tax Appeal No.273/2016 admitted on 17.01.2017:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngth to perjure themselves, if they could not establish their ownership over the endowment and its property, and derive the material benefit of getting its income. Such instances are not few. The richer the endowment, the greater the temptation to swallow the same. To such impious Pujaris, Managers and Mahants, nothing matters, consideration neither of this world nor the next, if they could only serve their selfish end. Such instances, justify the passing of and the utility of this Act. These days the Trusts and Temples have assumed great importance. This is because the State has thought it advisable to introduce legislation for the governance for safeguarding the interest of the beneficiaries and for avoiding the cases of magnificence and to check mis-appropriation and criminal breach of trust. As expressed by the late Hon ble Justice Chagle C.J. of Bombay, in his judgment that The whole attempt and the whole object is to see that the properties settled on public and charitable trusts are properly managed and are properly administered, that the trustees keep proper accounts that the trustees render those accounts, answer questions put to them arising out of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .C. 7. The learned Advocate for the assessee (muthavalli) has suggested that the decision of the Judicial Committee in The Trustees of Tribune Press, Lahore v. The Commissioner of Income-tax, Punjab, Lahore (1939) 2 M.L.J. 444 : L.R. 66 I.A. 241 : I.L.R. (1939) Lah. 475 (P.C.), has negatived this opinion, but we cannot read the judgment in that sense. The passage which has just been quoted from the judgment of the Privy Council speaks of the test of general public utility. As this is the test so far as the Indian Income-tax Act is concerned it is not necessary to consider whether the trust here would be deemed to be charitable in England. Even assuming that the Court may have regard to Muslim ideas in deciding whether a Muslim trust fulfils the test of general public utility, it cannot be said that that part of the trust deed which relates to the setting aside of income for the descendants of the donor constitutes a trust for general public utility. The beneficiaries are to be members of the donor's own family. The utility is not of a public, but clearly of a private nature. For these reasons we would answer the first question in the negative. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference of the same in it. The implication, therefor, is that the matter of management of the fund is not an essential matter for the purpose of defining charitable purposes so far as the Income-tax Act is concerned; it may be essential for other purposes as, for example, for the purpose of section 92 of the Code of Civil Procedure. What is eseential for the Income-tax Act is whether it enures to the benefit to the public or not, whoever may control the fund. Therefore, even if the funds are controlled by a body of persons which is not a public body in any sense, but if the fund enures to the benefit of the public , it wold still be charitable purpose within the meaning of the Income-tax Act. Therefore, it did not agree with the contention that because the control of the fund is not left to the public, it must be concluded that it is not a public charitable trust. The court held that it is not a condition essential for determining a charitable trust for the purposed of the Indian Income-tax Act. All that is required is that the fund is spent or accumulated for religious and charitable purposes. The Jodhpur Bench of ITAT in case of Smt. Mansukhi Devi Bihani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a private trust. 9. However, Mr. Gagria, counsel for the respondent has taken us to paragraph 10 of the order to the tribunal which reads as under:- 10. We also note that at the time of grant of registration u/s 12AA the ld. CIT is to satisfy himself about the genuineness of the activity of the trust and about the object of the trust. At this stage he is not required to ponder into the provisions of section 13. The applicability of section 13 is to be looked by the AO at the time of assessment. The ld.CIT has not brought on record any positive evidence that the activities of the trust are not genuine or the funds of the trust are not applied for its object. He only assumed that since the trusties are getting benefit by way of gujara bhatta and other facilities perpetually, the activities of the trust are not genuine. This can not be a reason for refusing the registration u/s 12AA. In case of Modern Defence Shishkan Sansthan Vs. CIT 108 TTJ 732 (Jodh.) it was held that at the stage of consideration of the issue of registration under section 12AA, it is not a sine qua non to examine the aspect of the application of income. When the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the judgment rendered by the Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Surya Educational Charitable Trust reported in (2013) 355 ITR (P H) and the judgment rendered by the Allahabad High Court in the case of Commissioner of Income Tax Vs. Red Rose School reported in (2007) 212 CTR 394 (All HC). He has also relied upon para 5.2 of the Circular No.14/2015 (F.No.197/38/2015-ITA.I) dated 17.08.2005 which reads as under:- There is no provision under the Act which calls for denial of exemption merely on account of appointment or removal of trustees. Although answer to sucha situation would normally depend on the factual implication of such arrangement, the samej should generally not be a ground for denying exemption unless the nature of activities of the trust or institution get changed or modified or no longer remain to exist solely for educational purpose and not for purposes of profit . Hence denial of exemption would not be justifiable only on the ground of induction of new trustees or removal of existing ones. 12. We have heard counsel for the parties. 13. Before proceeding with the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under section 12AA. 6.4. Admittedly, the reassessment proceedings were pending before the Learned AO for the Asst Years 2003-04 to 2008-09 as on the date of granting registration u/s 12AA of the Act on 29.10.2010 with effect from 1.4.2010 as reassessment proceedings got commenced pursuant to issuance of notice u/s 148 on 30.3.2010 as stated supra. Admittedly, the objects and activities of the trust had remained the same in preceding assessment years also i.e Asst Years 2003-04 to 2008-09. Though this first proviso to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2), 2014 as given in CBDT Circular No. 01 / 2015 dated 21.1.2015 in reference F.No. 142/13 /2014-TPL which is reproduced hereinbelow for the sake of convenience :- Para 8 Applicability of the registration granted to a trust or institution to earlier years Para 8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available. This clearly goes to prove that the first proviso to section 12A(2) was brought in the statute only as a retrospective effect with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stage of its receipt and a case where it is not so but is claimed to be exempt because of any exemption provision granting exemption from taxation to receipts which are liable to taxation but for the provision granting exemption. 6.10. We hold that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.20 14 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under section 11 12 as mentioned in section 12A provided for registration u/s 12AA as a pre-condition for applicability of section 12A. Reliance in this regard is placed on the following decisions :- Allied Motors P ltd vs CIT reported in (1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India vs Indian Tobacco Association reported in (2005) 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay vs State of Maharashtra reported in (2006) 6 SCC 289. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on the same charitable objects in the past as well as in the current year based on which the registration u/s 12AA is granted by the DIT(Exemptions). 6.12. We hold that the arguments of the Learned AR that, even assuming without conceding, in the worst scenario, the assessee society could only be taxed in the status of an AOP does not require any adjudication as we hold that the assessee society to be construed as a public charitable trust and eligible to claim exemption u/s 11 of the Act for the earlier assessment years, more especially, Asst Years 2003-04 to 2008-09 , the donations received from various donors for construction of an old age home would take the character of corpus donations as they are meant for specific purposes and accordingly would be exempt u/s 11(1)(d) of the Act. Even otherwise, the said donation receipts are only capital in nature as it is received for construction of an old age home on which fact there is absolutely no dispute. The Learned AO also had duly accepted the nature of donations, genuinity of the donors and its utilization in the remand proceedings. Hence in any case, a receipt which is by birth, capital in nature, cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made:] [Provided that where registration has been granted to the trust or institution 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 and the objects and activities of such trust or institution remain the same for such preceding assessment year: Provided further that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-terminus with that of the assessing officer [ADIT (Exemption) in the present case] were two well established principles of law. In view of the above and going by the principle of purposive interpretation of statues, an assessment proceeding which is pending in appeal before the appellate authority should be deemed to be 'assessment proceedings pending before the assessing officer' within the meaning of that term as envisaged under the proviso. It follows there-from that the assessee which obtained registration u/s. 12AA of the Act during the pendency of appeal was entitled for exemption claimed u/s. 11of the Act. 7.3. The explanatory Memorandum to Finance (No. 2) Bill, 2014 which sought to amend section 12A explains the objects and reasons for making such amendments. The explanation makes it clear that it was in order to provide relief to such trusts in respect of which, due to absence of registration u/s. 12AA tax liability got attached though otherwise they were eligible for exemption by fulfilling other substantive conditions that the amendment was brought in. That being so, denying such benefit to a trust like the assessee who had obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch in case of Sree Sree Ramkrishna Samity v. DCIT (supra) read as follows: 6.10. We hold that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under section 11 12 as mentioned in section 12A provided for registration u/s. 12AA as a pre-condition for applicability of section 12A. Further, the Kolkata Tribunal observed as under: 6.11. We also hold that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn on violation of any of the stipulations laid down in the Income Tax Act, 1961, v) The SOCIETY/TRUST shall regularly file its Income Tax Return. 3. Allied Motors (P) Ltd. ETC. vs. Commissioner of Income Tax, (1997) 224 ITR 0677, wherein it has been observed as under:- 8. In the case of Goodyear India Ltd. v. State of Haryana and Anr. [1991] 188 ITR 402 (SC) this Court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act. Therefore, in the well known words of Judge Learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B Jodha Mai Kuthiala v. Commissioner of Income-Tax, [1971] 82 ITR 570 (SC) , TC 40R.279, this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. St. Jude s Convent School vs. Assistent Commissioner of Incoem-tax, [2017] 77 taxmann.com 173 (Amritsar Trib.), wherein it has been observed as under:- 12. In response to this, the ld. Counsel for the assessee has contended that the assessment proceedings pending in appeal are deemed to be assessment proceedings pending before the Assessing Officer. For this proposition, the ld. Counsel has placed reliance on the decisions in the cases of SNDP Yogam v. Asstt. DIT (Exemption) [2016] 161 ITD 1/68 taxmarm.com 152 (Coch. - Trib.) and Shree Bhanushali Mitra Mandal Trust v. ITO [2016] 68 taxmann.com 250 (Ahd. Trib.). 13. The ld. DR has further submitted that in any case, the said first proviso has been inserted by Finance (No. 2) Act, 2014 w.e.f. 01-4-2014 and as such, it is not applicable retrospectively. 14. For this, the ld. Counsel for the assessee has, again, cited the decision in the case of SNDP Yogam (supra). 15. We have heard the rival contentions of both the parties with reference to the merits of the additional ground. The relevant portion of Section 12A of the Act is as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same as those on the basis of which the registration was granted, According to the second proviso to Section 12A(2), where for the assessment year immediately following the financial year. In which the application for registration was made, the Trust or Institution is not registered, no action u/s. 147 shall be taken for any assessment year preceding the said assessment year. 17. The first issue before us is as to whether the two provisos to Section 12A(2) are applicable to all the appeals before us, respectively, as contended by the ld. Counsel for the assessee, or whether, since the provisos have been brought in w.e.f. 01-10-2014 and they have not been made applicable, retrospectively, the same are not applicable for earlier periods, as submitted by the department. 18. Now, a bare reading of the first proviso to Section 12A(2) shows that it has not been made applicable retrospectively. It has been inserted in the Act w.e.f. 01- 10-2014, by virtue of the Finance (No. 2) Act, 2014. Thus, ordinarily, it ought to be taken as applicable only prospectively, and not retrospectively. However, the law is well settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als with assessment itself is PROCEDURE FOR ASSESSMENT . Likewise, grant of registration is also a procedural aspect since registration is but a step-in- aid for exemption u/s. 11. As such, the provisos to Section 12A(2) are also procedural. 25. So far as regards the bringing in of the first proviso to Section 12A(2), the Memorandum explaining the provisions of the Finance (No. 2) Bill, 365 ITR (Statute) 175 itself elaborates the intention of the Legislature behind insertion thereof in the statute book. It states, inter alia, that non-application of registration for the period prior to the year of registration causes genuine hardship to charitable organizations. Due to absence of registration, tax liability gets attached even though they may otherwise be eligible for exemption and fulfil the other substantive conditions. The power of condonation of delay is not available under the section. In order to provide relief to such Trusts and remove hardship in genuine cases, it is proposed to amend Section 12A of the Act to provide that in a case where a Trust or Institution has been granted registration u/s. 12AA of the Act, the benefit of Sections 11 and 12 shall be av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... batch of appeals, that even the second proviso to Section 12A(2) is retrospective in nature and the completed assessments in these cases ought not to have been reopened only for non-registration for the relevant assessment years. 30. This brings us to the next question, i.e., whether the assessment proceeding pending before the Assessing Officer , as stated in the first proviso to Section 12A(2) can be taken as pending in appeal , or, in other words, whether proceedings pending in appeal can be taken to be proceedings pending before the Assessing Officer. This issue also stands answered in favour of the assessee by Shree Bhanushali Mitra Mandal Trust (supra), wherein, it was held that appeal is a continuation of the original proceedings and assessment proceedings pending before an appellate authority should be deemed to be assessment proceedings pending before the Assessing Officer within the meaning of Section 12A. SNDP Yogam {supra), is to the same effect. Again, no contrary decision has been brought to our notice. Accordingly, it is held that the appellate proceedings before the appellate authorities are deemed to be assessment proceedings p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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