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TMI Blog2017 (10) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... estions 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:- "(i) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in allowing Gujara Bhat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 accounts and every single provision contained in the Act is incorporated from that point of view. Ratilal Pannachand Gandhi Vs. State of Bombay, 55 Bom. LR 86= AIT 1953 Bom. 242= ILR 1953 Bom. 1187. The utility of this Act is being realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The second question calls for no discussion. The position is that the muthavalli has in his hands income belonging to a private trust. Income of a private trust is not exempt from taxation and the muthavalli is assessable in respect of it, because he holds it. It follows that the answer to the second question is in the affirmative." 7. He therefore contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever 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 Jan Hitkari Trust Vs. CIT 277 ITR 140 (AT) (Jodh.) after discussing the facts of the case observed that in the case before them, it is not in dispute that application for registration has been made in the prescribed form i.e. Form No. 10A. It is also not the case of the Department that the property held by the trust and income therefrom had not been utilized for the purposes of charity/public utility. The only reason for not granting registration was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Commissioner has not doubted the aims and objects of the society, he cannot throw away the application of registration on this pretext. In case of Dream Land Educational Trust Vs. CIT 109 TTJ (Asr.) 850, it was held that for grant of registration under section 12AA, only relevant consideration is satisfaction of Commissioner regarding objects of trust and genuineness of its activities; in absence of any dissatisfaction of Commissioner with regard to either objects or genuineness of activities of trust, if regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count 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 matter, it will not be out of place to mention here that in all the questions of law, the question which consideration before us is whether taking into account, the observations made in paragraph 10, the view taken by the tribunal is just and proper. At the time of registration, the authority is required to look whether it is registered under the state Act or under any other Act. There is no distinction between private trust and public trust. The contention which has been raised by counsel for the appellant regarding the expenses, diversion or control by the private people will come only when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 12A(2) talks about pendency of assessment proceedings, it is relevant to get into the definition of the term 'assessment' in section 2(8) of the Act, wherein it is defined as "assessment includes reassessment". Hence even reassessment proceedings that were pending would also come under the ambit of the first proviso to section 12A(2) of the Act. 6.5. The second proviso to section 12A(2) also provides that no action u/s 147 of the Act shall be taken merely for nonregistration of trust or institution. Reading this proviso with the first proviso to section 12A(2) and applying the Rule of Harmonious Construction, it could safely be concluded that the legislature in its wisdom had only brought this proviso to prevent genuine hardship that could be caused on the assessee due to non-registrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 strengthened by the Explanatory Notes to Finance (No. 2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015. Apparently the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the Learned AO, unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years. 6.9. With regard to the arguments of the Learned DR that donations received by assessee falls under the definition of income u/s 2(24)(iia) of the Act, we would like to state that income definition is an inclusive definition. An inclusive definition extends the specific meaning given in the stated items by the general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 224 ITR 677 (SC) - Judgement by three judges of the Supreme Court The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B become unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions. In the case of Goodyear India Ltd vs State of Haryana (1991) 188 ITR 402 , 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. As observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. However, we are confronted with any such situation here". In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. CIT vs J.H.Gotla reported in (1985) 156 ITR 323 (SC) If the purpose of a particular provision is easily discernible from the whole of the scheme of the Act which in this case, is to counteract the effect of transfer of assets so far as computation of income of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 6.13. We hold that since the only reason for denial of exemption u/s 11 was absence of registration u/s 12AA (which was granted to assessee society on 29.10.2010 with effect from 1.4.2010) for the relevant assessment years and on no other ground, the benefit of change in law as above by Finance Act 2014 should be available and for all the years, the benefit of exemption should be available on the date of registration as all the assessments were pending as shown above. In this connection, it requires mention specifically that all the receipts of the donation were proved on enquiry to have been received from the claimed donors and utilized for the specific purpose (construction of old age home) for which they were received. In co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Finance (No.,2) Act 2014 as given in CBDT No. 1/15 dated 21.1.2015 "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." 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 strengthened by the Explanatory Notes to Finance (No. 2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 : dated 21.1.2015. Apparently the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered with. Moreover, under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner. Thus, in our view, sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s. 12AA by itself that offers immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in our view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration. 7.4. Taking into account the above facts and circumstances of the issue, we are of the view that the AO was not justified in taking a stand that registration u/s. 12A was not applicable to the assessee for the AYs under dispute and the condonation petition for delay in filing the application for registration u/s. 12A [for the AYs under dispute] has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objectives and had carried 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)." 7.5 In light of the aforesaid reasoning and order of the Tribunal in case of Sree Sree Ramkrishna Samity (supra), we direct the Director of Income-tax (Exemption) to grant registration to the assessee trust for all the assessment years under dispute, subject to the following conditions, namely: "i) The registration U/s. 12AA (1)(b)(i) of the Income Tax Act, 1961 does not automatically exempt the income of the Trust/Institution. The question of taxability of the income of the Trust/Institution shall be examined and decided upon by the Assessing Officer at the time of assessment based on the conduct of the activities, compliance with various statutory and other requirements, etc., as referred to in Sections 2(15), 11, 12 & 13 of the Income Tax Act, 1961, without prejudice to the fact of granting merely in principle registration by DIT(E). ii) With effect from the Assessment Year 2009-10, the advancement of any object of general public utility other than relief of the poor, education and medical relief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st quarter paid before the filing of the return for the assessment year is deductible. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of Commissioner of Income-Tax v. Sri Jagannath Steel Corporation [1991]191ITR676(Cal) , has taken a similar view holding that the statutory liability for sales-tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under Section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the First proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India and Ors. [1991]189ITR70(Patna) . It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore that the first proviso to Section 43B will be available only prospectively does not appear to be correct. As observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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". 16. Thus, as per the provisions of Section 12A, if a Trust or Institution has applied for registration on or after 01- 6-2007 and such registration has been granted to it the provisions of Sections 11 and 12 shall not apply to its income. If the application for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole. It is, thus, trite that if a provision is curative or merely declaratory of the previous law, retrospective operation thereof is generally intended. 21. In CIT (Central) v. Vatika Township (P.) Ltd. [2014] 367 ITR 466/227 Taxman 121/49 taxmann.com 249 (SC), the Constitutional Bench of the Hon'ble Supreme Court held that "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." 22. In Government of India v. Indian Tobacco Association [2005] 7 SCC 396, the doctrine of fairness was held to be a relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. 23. In Vijay v. State of Maharashtra [2006] 6 SCC 286, the Hon'ble Supreme Court went to the extent of holding that "where a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his proviso, even as avowed by the above quoted Memorandum explaining the provisions of the Finance (No. 2) Bill, has sought to remedy the said unintended hardship visiting Trusts and Institutions. It has supplied the aforesaid omission in the section and has thereby made the provision of the section workable, providing a reasonable interpretation to it by providing the benefit mandated by it. It is, thus, a curative proviso, which is but merely declaratory of the previous law. It has, by removal of the hardship, rendered the procedure more relief-oriented. It adequately complies with the natural justice principle of fairness to all. Hence, it has to be presumed and construed as retrospective in nature, in order to give the section a purposive interpretation. 27. In Sree Sree Ramkrishna Samity v. Dy. CIT [2016] 156 ITD 646 : [2015] 64 taxmann.com 330 (Kol.), the above position has elaborately been considered to hold the first proviso to Section 12A(2) to be retrospectively applicable. The said decision has been followed in SNDP Yogam (supra). 28. In view of the above discussion and respectfully following these decisions, in the absence of any decision to the contrary having bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantive conditions. However, the power of condonation of delay in seeking registration was not available. 8.3 In order to provide relief to such trusts and remove hardship in genuine cases, section 12A of the Income-tax Act has been amended to provide that in a case where a trust or institution has been granted registration under section 12AA of the Income-tax Act, the benefit of sections 11 and 12 of the said Act shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted. 8.4 Further, it has been provided that no action for reopening of an assessment under section 147 of the Income-tax Act shall be taken by the Assessing Officer in the case of such trust or institution for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not obtained the ..... 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