No re-opening notice could be issued to society after registration u/s 12A for earlier assessment years in terms of 3rd Proviso of section 12A(2) – SLP dismissed by Supreme Court
ABCAUS Case Law Citation:
ABCAUS 3824 (2023) (12) SC
Important Case Laws relied upon by parties:
Commissioner of Income-Tax (Exemptions) vs. Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan, (2020) 422 ITR 468 (All)
Gian Castings Private Limited vs. Central Board of Direct Taxes and others
Phool Chand Bajrang Lal vs. ITO 2003 ITR 456 (SC)
Raymond Woolen Mills Ltd. vs. ITO, 236 ITR 34 (SC)
Commissioner of Income Tax (Exemptions) & another vs. Karnataka State Students
Welfare Fund, (2022) 444 ITR 436 (Kar)
Shri Krishna Pvt. Ltd. vs. ITO, 221 ITR 538 (SC)
In the instant case the Department had filed a SLP before the Supreme Court, against the judgment of the High Court in holding that no re-opening notice could be issued to the society after registration u/s 12A for earlier assessment years in terms of 3rd Proviso of section 12A(2).
The respondent assessee was a society registered under the Registrar of Societies, and was running a college exclusively for girls in the past 50 years and also running two schools for girls students separate from college, which was an integral part of the college.
The assessee was getting substantial aid from the State Government in the shape of reimbursement of staff salary and therefore, prior to assessment year 2016-17, it was entitled to blanket exemption from income tax in terms of clause (iiiab) of section 10(23C) of the Act.
The Rule 2BBB was amended by the Income Tax 13th amendment Rules 2014 w.e.f. 12.12.2014, which prescribed the percentage of Government Grant for considering an institution as substantially financed to be not less than 50% of its total receipts. The respondent apprehending that it may not invariably fulfill this condition, applied for the registration under Section 12AA of the Act.
The assessee was granted registration u/s 12AA from the assessment year 2016-17 onwards. As per new section 12AB of the Act, the assessee again applied for fresh registration and was again registered for a period of five years from assessment year 2022-23 to 2023-27.
Later, the assessee received a notice under Section 148(b) of the Act, for the assessment year 2015-16 alleging escapement of income on account of bank interest and cash deposits in two of its bank accounts.
The assessee took a plea that as per 3rd proviso to Section 12A(2) of the Act ( as it stood before omission by Finance Act 2023 w.e.f. 01.04.2023) there was a bar to take any action under Section 147 or any preceding year, in which the registration was granted.
However, the objections given by the assessee were dismissed and notice was issued u/s 148 of the Act.
The assessee approached to Hon’ble High Court by way of filing a writ petition.
The Revenue relied upon the judgments passed by the Hon’ble High Courts and Hon’ble Supreme Court whereby consistently, it has been held that re-assessment can be carried out or initiated where the assessee had failed to disclose the material facts, which were necessary for assessment. The taxpayer cannot be permitted to abandon the machinery and invoke the jurisdiction of the High Court under Article 226 of the Constitution when adequate remedy open to him is by way of appeal to the Commissioner (Appeals).
The Hon’ble High Court noted that Hon’ble Allahabad High Court had held that the provision is candid to govern only those cases where the application for registration is submitted followed by registration, to extend the benefit to the assessee from the following financial year of the date of application. However, the 3rd proviso was never examined by the Allahabad High Court.
The Question for consideration therefore was whether 3rd proviso to Section 12A(2) of the Act (as it stood before omission by Finance Act 2023 w.e.f. 01.04.2023) can be ignored by the authorities by issuing a notice under Section 147.
The Hon’ble High Court observed that CBDT circular No. 01/2015 clearly provides that non application of registration for the period prior to the year of registration can genuinely cost hardship to the charitable organizations. Further the third proviso of section 12A clearly says 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.
Further, the Hon’ble High Court observed that while dismissing the objections of the assessee to the reopening, the Department dismissed the same and issued a notice under Section 148 of the Act. While doing, no reference was made to the 3rd proviso to Section 12A of the Act.
The Hon’ble High Court opined that once the reply filed by the assessee pursuant to the notice had been rejected without examining the 3rd proviso to Section 12A(2), relegating the petitioner to take alternative remedy would not be appropriate.
In view of the above, as per the ratio of the judgment passed by the Karnataka High Court, the Hon’ble High Court held that no proceedings under Section 147 could be initiated for the assessment year 2015-16.
Hence, the impugned notices and the consequent order passed under Section 148A(d) of the Act being contrary to the 3rd proviso to Section 12A(2) of the Act, were set aside.
Not satisfied with the order of the Hon’ble High Court, the Revenue filed a Special Leave Petition before the Hon’ble Supreme Court.
However, after hearing the Department on the merits of the case, the Hon’ble Supreme Court declined to interfere and SLP was dismissed.
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