Case Law Details
Calvary Mennonite Brethren Chruch Vs ITO (ITAT Hyderabad)
Hyderabad ITAT: Even Without Section 11 Exemption, Only Net Income of a Trust Can Be Taxed-Not Gross Receipts
The Hyderabad ITAT held that where a charitable or religious trust is not entitled to exemption under sections 11 and 12, the Revenue cannot assess the entire gross receipts as taxable income. Even in the absence of registration under section 12A/12AB, the income of the trust must be computed on commercial principles, allowing deduction of all legitimate expenditure incurred for carrying out its objects, and only the real or net income can be brought to tax.
For AYs 2019-20 and 2020-21, the Tribunal rejected the assessee’s claim for retrospective benefit under the second proviso to section 12A(2) since no assessment proceedings were pending before the Assessing Officer on the date provisional registration was granted. However, it accepted the alternative plea that the CPC erred in taxing the gross receipts without allowing expenditure. Relying on the Delhi High Court decision in DIT v. Vishwa Jagriti Mission, the Tribunal directed the Assessing Officer to verify and allow all admissible expenses before computing the taxable income.
For AY 2021-22, the Tribunal found that the provisional registration under section 12AB had been granted during the pendency of the assessment proceedings before the Assessing Officer. Accordingly, the assessee became eligible for the benefit of the second proviso to section 12A(2) (as it existed prior to its omission by the Finance Act, 2023), and the Assessing Officer was directed to grant exemption under sections 11 and 12, subject to verification. All three appeals were allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
These three appeals by the Assessee are directed against the separate Orders of the learned Addl./JCIT(A)-5, Kolkata, all dated 25.09.2025, for the assessment years 2019-2020 to 2021-2022.
2. For the A.Y. 2019-2020 the assessee has raised the following grounds of appeal:
1) The order of the learned CIT (A) is erroneous both on facts and in law.
2) The learned CIT (A) erred in confirming the action of the Assessing Officer in making various adjustments while processing the return of income u/s 143(1) of the I.T.Act. The learned CIT(A) ought to have observed the facts that no opportunity was provided before making adjustment
3) The learned CIT (A) erred in not directing the Assessing Officer to allow exemption u/s 11 of the I.T. Act.
4) The learned CIT (A) erred in confirming the action of the Assessing Officer in not allowing expenditure of Rs.1,29,35,611/ – without considering the fact that the expenditure is relatable to the receipts.
5) The learned CIT (A) erred in confirming the intimation u/ s 143(1) of the I.T. Act without considering the fact that the adjustments should not have been made.
6) Any other ground/ grounds that may be urged at the time of hearing.
3. For the assessment year 2019-2020 the assessee filed its return of income on 28.09.2020 declaring Rs.NIL income after claiming deduction u/sec.11 of the Income Tax Act [in short “the Act], 1961. The said return was found to be defective, and fresh return was filed on 28.11.2020. The CPC, Bangalore processed the return u/sec.143(1) of the Act on 05.02.2021 thereby, the claim of the assessee u/sec.11 was denied, and the entire gross receipts of the assessee were assessed to tax. The assessee challenged the action of the Assessing Officer before the learned CIT(A) and claimed the exemption u/sec.11 of the Act and alternatively also claimed the deduction of the expenditure from the gross receipts. Thus, the assessee pleaded as an alternative plea only the net income of the assessee be assessed to tax. However, the learned CIT(A) has not accepted the contention of the assessee and dismissed the appeal filed by the assessee whereby the additions made by the CPC were confirmed.
4. Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the assessee is a society registered under Societies Registration Act and carrying out the religious activities which are charitable in nature. The assessee filed an application for registration u/sec.10A on 31.03.2022 and provisional registration was granted while issuing Form-10AC dated 07.04.2022. Thereafter, regular registration was granted by issuing Form-10AD dated 13.01.2026. Thus, the learned Authorised Representative of the Assessee has submitted that in view of second proviso to sec.12A(2) as exist prior to its omission by Finance Act, 2023 the benefit of sec.11 and 12 shall apply in respect of any income derived from the property held under the Trust of any assessment year for which assessment proceedings are pending before the Assessing Officer as on the date of such registration. He has further submitted that though the return was processed by the CPC prior to the provisional registration dated 07.04.2022 however, the appeal pending before the learned CIT(A) would also be considered as pending assessment proceedings as on the date of registration and therefore, the benefit of secs.11 and 12 shall be given to the assessee for the assessment year 2019-2020. Alternatively, the learned Authorised Representative of the Assessee has submitted that the CPC has assessed the gross receipt to tax instead of the net receipt and therefore, he has pleaded that the expenditure incurred by the assessee shall be allowed as deduction. In support of his contention, he has relied upon the Judgment of Hon’ble Delhi High Court in the case of Director of Income Tax vs. Vishwa Jagriti Mission [2014] 47 taxmann.com 56 (Del.).
5. On the other hand, the learned DR has submitted that the benefit of second proviso to sec.12A(2) is not available for the assessment year 2019-2020 as the assessment was not pending on the date of registration. The learned DR has further submitted that the second proviso specifically states that the assessment proceedings are pending before the Assessing Officer as on the date of registration. Therefore, the proceedings pending before the learned CIT(A) cannot be treated as assessment proceedings pending before the Assessing Officer. As regards the alternative plea the learned DR has submitted that the learned CIT(A) has considered the same and found that the claim of the assessee is not allowable. He has relied upon the impugned order of the learned CIT(A).
6. We have considered the rival submissions as well as relevant material on record. As regards the claim of the assessee for exemption u/secs.11 and 12 in view of second proviso to sec.12A(2) as exist prior to its omission by Finance Act, 2023 the same is available in respect of the income derived from the asset held under Trust for any preceding assessment year assessment proceedings of which are pending before the Assessing Officer as on the date of registration. Thus, the said benefit is provided under second proviso only in the cases where the assessee has already applied for registration but the same is yet to be granted and if the registration is granted before any preceding assessment is completed then, the benefit of secs.11 and 12 shall be allowed to the assessee for such assessment year of which assessment proceedings pending before the Assessing Officer as on the date of registration. In the case in hand, the provisional registration was granted to the assessee on 07.04.2022 whereas on that date no assessment proceedings were pending before the Assessing Officer therefore, we do not find any merit in the claim of the assessee for the assessment year 2019-2020.
7. As regards the alternative plea of the assessee is concerned, we find force and merit in the said claim of the assessee that the income of the assessee society ought to have been assessed on commercial principles irrespective of registration u/ sec.12A/ 12AB is granted or not instead of assessing the gross receipts to tax. The Assessing Officer is otherwise duty bound to assess the real and correct income of the assessee and not the gross receipts therefore, in absence of registration u/ sec.12A/ 12AB the income of the Trust is required to be assessed on commercial principle and all the expenses incurred for the normal day-to-day activities of achieving its objects ought to have been allowed against the gross receipts. An identical issue has been considered by the Hon’ble Delhi High Court in the case of Director of Income Tax vs. Vishwa Jagriti Mission (supra) wherein the Hon’ble Delhi High Court has held that the income of the Trust has to be computed on commercial principle and doing so all the allowable expenditure should be deducted from the gross receipts. In this view of the matter and considering the facts and circumstances of the case, the Assessing Officer is directed to verify and allow the expenses as per law against the gross receipts and then assess the income of the assessee after giving proper opportunity of hearing to the assessee before passing the fresh order.
8. In the result, appeal of the assessee for the assessment year 2019-2020 is allowed for statistical purposes.
ITA.No.1991/Hyd./2025 – A.Y. 2020-2021:
9. The assessee has raised the following grounds of the appeal:
1) “The order of the learned CIT (A) is erroneous both on facts and in law.
2) The learned CIT (A) erred in holding that the adjustment of disallowance of expenditure can be made while processing the return of income u/s 143(1) of the I.T. Act.
3) The learned CIT (A) erred in confirming the action of the Assessing Officer in disallowing the expenditure of Rs.1,67,42,213/- .
4) The learned CIT (A) erred in not allowing the claim for exemption u/s 11 of the I.T. Act
5) The learned CIT (A) ought to have considered the fact that the appellant is entitled for deduction u/s 11 of the I.T. Act and as an alternate if the exemption u/s 11 is not available the net income after expenditure only can be brought to tax
6) Any other ground/ grounds that may be urged at the time of hearing.”
10. For the assessment year 2020-2021 the facts and issues are identical to the facts and issues for the assessment year 2019-2020. Therefore, our findings for the assessment year 2019-2020 shall apply mutatis mutandis and Assessing Officer is directed to assess the real income of the assessee after allowing the allowable deduction. Accordingly, the issue is remanded to the record of the Assessing Officer to verify and allow the expenses as per law against the gross receipts and then assess the income of the assessee after giving proper opportunity of hearing to the assessee before passing the fresh order.
ASSESSMENT YEAR 2021-2022:
11. For the assessment year 2021-2022 the assessee has raised the following grounds of appeal:
1) “The order of the learned CIT (A) is erroneous both on facts and in law.
2) The learned CIT (A) erred in confirming the action of the Assessing Officer in making various adjustments while processing the return of income u/s 143(1) of the I.T. Act.
3) The learned CIT (A) erred in not directing the Assessing Officer to allow exemption u/s 11 of the I.T. Act.
4) The learned CIT (A) erred in confirming the action of the Assessing Officer in not allowing exemption u/s 11 of the I.T. Act
5) The learned CIT (A) ought to have considered the fact that even in case the exemption u/s 11 of the I.T. Act is not available only the net income can be brought to tax and the Assessing Officer is not justified in treating the gross receipts as the income of the appellant herein.
6) Any other ground/ grounds that may be urged at the time of hearing.”
12. We have considered the rival submissions as well as relevant material on record. At the outset we note that the return of income was processed by the CPC on 23.08.2022 whereas the assessee was granted provisional registration on 07.04.2022 which means the proceedings for the assessment were pending before the Assessing Officer on the date of grant of registration u/sec.12A of the Act and hence, the benefit of second proviso to sec.12A(2) as exist prior to the omission vide Finance Act, 2023 is available to the assessee for the assessment year 2021-2022. For ready reference, the second proviso to Sec.12A(2) is quoted as under:
“Provided further that where registration has been granted to the trust or institution under section 12AA or section 12AB, 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.”
13. Thus, the proviso specifically grants the benefit of secs.11 and 12 in case where the registration is granted during the pendency of the assessment proceedings before the Assessing Officer. Accordingly, the Assessing Officer is directed to allow the claim of exemption u/secs.11 and 12 of the Act for the assessment year 2021-2022 after necessary verification.
14. In the result, appeal of the Assessee for the assessment year 2021-2022 is allowed for statistical purposes.
To sum up, all the three appeals of the assessee are allowed for statistical purposes. A copy of this common order be placed in the respective case files.
Order pronounced in the open court on 15.07.2026.
Author Bio
