In a recent judgment, Kolkata ITAT has held that that registration u/s 12AA of the Income tax Act, 1961 once granted, 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. No action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years.

Case Details:
ITA No. 1680-1685/2012 ; AY: 2003-04 to 2008-09
Sree Sree Ramkrishna Samity (Appellant) vs DCIT (Respondent)
Date of Order : 09-10-2015

Facts of the Case(s):
The appellant was a society, registered under the West Bengal Society Registration Act, 1961 on 10.8.1986. The predominant object of the society included promotion, development, preservation and rendering of social and cultural services in the matters of advancement of tenets and precepts of Lord Shree Shree Ram Krishna Paramhansa Dev irrespective of caste and creed of the humanity at large. The objects further included promotion of physical and mental development of youths, to make them worthy citizen for the service of the mother land, co-ordination of social, cultural and religious activities of allied organizations, organization of sevadal for rendering services to the suffering humanity, acquiring, establishment, starting, aiding, maintaining and management of schools, colleges, libraries, hospitals for the benefit of the public, helping needy students for prosecution of studies, helping the aged, sick and helpless and indigent persons, construction, maintenance, improvement, development, alteration of any building necessary by the Governing Body and to engage and assist such other philanthropic activities deemed appropriate by the Governing Body of the Society etc.

The assessee society took up the construction of an old age home since October 2000 with active financial support of the Siliguri Municipal Corporation for which contributions from the public were forthcoming and the same were duly accounted for in the audited accounts recording receipts and expenditures of the society. The said old age home was subsequently inaugurated by His Excellency the Governor of West Bengal.

However since the registration u/s 12AA was granted on 29-10-2010 with effect from 01-04-2010, the Assessing Officer held that the assessee society was not registered u/s 12AA and accordingly was not eligible for exemption u/s 11. Accordingly, he taxed the rental income as income from house property, interest income and donations received from various donors under the head income from other sources. The order of assessment was framed by the AO u/s 143(3) read with section 147 of the Income Tax Act. For all the assessment years (2003-04 to 2008-09) reassessment proceedings started pursuant to issuance of notice u/s 148 on 30-03-2010. The assessment orders was also upheld by the CIT(A).

Excerpts from the ITAT Judgment:
It is pertinent to note that the registration u/s 12AA of the Act was granted to the assessee on 29.10.2010 with effect from 1.4.2010. Admittedly, the notice u/s 148 of the Act was issued by the DCIT, Circle 2 Siliguri for the Asst Years 2003-04 to 2008- 09 on 30.3.2010. Even for the earlier years , the assessee society was carrying on the same charitable objects as per the trust deed on which fact also there is absolutely no dispute. The receipts were brought to tax only on the pretext that the assessee society is not having registration u/s 12AA of the Act in the Asst Years 2003-04 to 2008-09.

It is relevant at this juncture to get into the amendment brought in section 12A by Finance Act 2014 with effect from 1.10.2014 by way of insertion of first proviso to section 12A(2) of the Act which is reproduced below for the sake of convenience :-

Section 12A

(2) Where an application has been made on or after the 1st day of June 2007, the provisions of section 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 assessement year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on 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 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.

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 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.

The second proviso to section 12A(2) also provides that no action u/s 147 of the Act shall be taken merely for non-registration 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-registration u/s 12AA of the Act and accordingly in our opinion, the provisos to section 12A(2) of the Act is to be construed as retrospective in operation.

The third proviso to section 12A(2) of the Act also provides that the first and second proviso shall not be applicable if the trust or institution had been refused registration earlier or the registration granted earlier is cancelled by the Commissioner u/s 12AA of the Act. This also goes to prove that the first and second proviso shall be made applicable for the trusts for earlier assessment years also who had not applied for registration u/s 12AA of the Act at all.

We hold that the registration of trust under section 12A of the Act once done is a fait accompli and the AO cannot thereafter make further probe into the objects of the trust. Reliance in this regard is placed on the decision of the Hon’ble Apex Court rendered in the case of ACIT vs Surat City Gymkhana reported in (2008) 300 ITR 214 (SC). Drawing analogy from this judgement, the logical inference could be that 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.

It will be relevant to get into the Explanatory Notes to the Provisions of the Finance (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 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.

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