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
