Case Law Details
Telangana Working Journalists Welfare Fund Vs ITO (Exemptions) (ITAT Hyderabad)
ITAT Hyderabad held that CIT(A)/ NFAC failed to consider circular no. F.173/193/2019-ITA-1 dated 23.04.2019 and subsequent circular No.2/2020 vide F.No.197/55/2018-ITA-I dated 03.01.2020 which are issued by CBDT and the same is binding on the revenue authorities. Accordingly, matter restored.
Facts- The assessee is a society registered under the Telangana Societies Registration Act, 2001. It is granted registration u/s. 12AA of the I.T.Act, 1961. It filed its return of income on 31.03.2021 belatedly but within the time permitted u/s. 139(4) r.w.s. 139(4A) along with audit report in form 10B declaring ‘nil’ total income. An intimation u/s. 143(1), dated 24.12.2021 was issued to the assessee determining the total income at Rs.24,51,44,792/- and determining the tax liability, Fees and interest at Rs. 12,83,26,572/- after denying the benefit of section 11 and section 12 to the assessee. In the intimation, the CPC considered the corpus donation of Rs. 23,18,75,399 as income and determined the tax and other liabilities on the basis of such corpus donation and bank interest income of Rs. 1,32,69,393/-.
The assessee filed an appeal before the ld.CIT(A)/NFAC. CIT(A)/ NFAC held that since the assessee has not furnished the return of income along with audit report in Form No.10B on or before the due date of furnishing of return of income, which is one of the conditions to claim the benefit under section 11 and 12, therefore, the order of the CPC is in accordance with the provisions of the Act.
Conclusion- CBDT vide circular no. F.173/193/2019-ITA-1 dated 23.04.2019 and subsequent circular No.2/2020 vide F.No.197/55/2018-ITA-I dated 03.01.2020 were not considered by the ld.CIT(A)/NFAC, although, these are instructions/circulars issued by the Board and are binding on the revenue authorities, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of ld.CIT(A)/NFAC with the direction to adjudicate the issue afresh in the light of the circulars/instructions issued by the CBDT clarifying the time allowed for filing of return of income subsequent to the insertion of clause(ba) in sub-section (1) of section 12A of the Act. Needless to say, the ld.CIT(A)/NFAC shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the assessee is directed against the order dated 12.06.2022 of the Learned Commissioner of Income Tax (Appeals)/National faceless Appeal Centre (NFAC), Delhi for AY 2020-21.
2. Facts of the case, in brief, are that the assessee is a society registered under the Telangana Societies Registration Act, 2001. It is formed for the purposes of welfare of the journalists by improving the living standards of the journalists and to support their families through various welfare activities and other similar objects. It is granted registration u/s. 12AA of the I.T.Act, 1961 vide registration No. CIT(Exemption), HYd/12AA/2018-19/A/10317. It filed its return of income on 31.03.2021 belatedly but within the time permitted u/s. 139(4) r.w.s. 139(4A) along with audit report in form 10B declaring ‘nil’ total income. An intimation u/s. 143(1), dated 24.12.2021 was issued to the assessee determining the total income at Rs.24,51,44,792/- and determining the tax liability, Fees and interest at Rs. 12,83,26,572/- after denying the benefit of section 11 and section 12 to the assessee. In the intimation, the CPC considered the corpus donation of Rs. 23,18,75,399 as income and determined the tax and other liabilities on the basis of such corpus donation and bank interest income of Rs. 1,32,69,393/-.
3. The assessee filed an appeal before the ld.CIT(A)/NFAC. It was argued that the corpus donation is in nature of capital receipt and hence, it cannot be brought to tax even if deduction u/s. 11 is denied. Relying on various decisions and exhaustive submissions before the ld.CIT(A)/NFAC, it was argued that the CPC is not justified in making the adjustment and raising such huge demand.
4. However, the ld.CIT(A)/NFAC was not satisfied with the arguments advanced by the assessee and held that since the assessee has not furnished the return of income along with audit report in Form No.10B on or before the due date of furnishing of return of income, which is one of the conditions to claim the benefit under section 11 and 12, therefore, the order of the CPC is in accordance with the provisions of the Act. The relevant observation of the ld.CIT(A)/NFAC at para 7.5.3 and 7.6 of the order reads as under:-
7.5.3. Thus after insertion of clause (ba) in section 12A(1) w.e.f. AY 2018-19, it is now mandatory to file the return and audit report within the time limits prescribed for furnishing of return of income. Failure to do so results in denial of deduction u/s. 11 of the Act. In the given case the due date for furnishing of return of income was 15/02/2021. The appellant has furnished the return along with the audit report in Form 10B on 31.03.2022. Thus the return and audit report was filed beyond the prescribed time limits and accordingly the conditions as laid down in section 12A(1)(ba) were not complied with hence at the time of processing of return the CPC has not allowed the deduction claimed u/s 11 of the Act.
7.6. The appellant has claimed that even if section 11 deduction is denied the voluntary contributions to the corpus fund are exempt as they are in nature of capital receipts. In this regard as discussed in para 7.2 above. the section 2(24)(iia) lays down that all voluntary contributions to a charitable or religious trust constitute income. The voluntary contributions to the corpus become exempt only by virtue of operation of section 11 (1 ) (d) which is again reproduced below:
11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income-
(a) …….
(d) income in the form of voluntary contributions made with a specific direction that they shall form pat of the corpus of the trust or institution.
Thus the appellant’s contention that corpus donation are capital receipts and exempt is misplaced as firstly section 2(24)(iia) considers all voluntary contributions to be “income’ and secondly the corpus donation get exemption from income only by virtue of operation of section 11 (1 )( d) of the Act. In the given case the appellant has been denied the deduction u/s 11 of the Act. as conditions laid down in section 12A for claiming the said exemption are not met. viz. the return along with audit report in Form 10B has been filed beyond the due date allowed u/s 139 of the Act. As the deduction u/s 11 has been denied all voluntary contribution whether corpus or other than corpus donation become taxable and therefore the action of ADIT , CPC is in accordance with provisions of the Act and is hereby upheld. Therefore Grounds of Appeal no. 1 to 5 are hereby dismissed.
5. Aggrieved with such order of the Ld.CIT(A)/NFAC, the assessee is in appeal before the Tribunal by raising the following grounds.
1. The Ld CIT-A erred in law and in facts of the case in confirming the intimation of the CPC passed U/S 143(1) which determined the Total Income at Rs. 24,51,44,792 and the taxes and other sums payable at Rs 12,83,26,572;
2. The Ld CIT-A erred in law and in facts of the case in conforming the intimation of the CPC which failed to appreciate the fact that Corpus Donations partake the character of capital receipts and hence could not be taxed even though the appellant was denied the benefit of Sec 11 and 12;
3. The Ld CIT-A erred in law and in facts of the case in conforming the intimation of the CPC which failed to appreciate the fact that taxing the corpus donations amounts to taxing the capital receipts which is against the underlying principles of taxation;
4. The Ld CIT -A erred in law and in facts of the case in conforming the intimation of the CPC which brought the corpus donations to taxes and which failed to appreciate the fact that granting or disallowing the benefit of Sec 11 and 12 has nothing do in exempting the corpus donations;
5. The Ld CIT -A erred in law and in facts of the case in conforming the intimation of the CPC which failed to consider the taxable income alone which is ‘Nil or :Negative’ in this case [i.e Gross Revenue Receipts as reduced by Total Revenue Expenditure ] in the event that it intended to deny the benefits of Sec 11 and 12 to the appellant.
6. The Ld CIT-A erred in law and on the facts of the case in confirming the intimation of the CPC which levied interest of Rs.20,64,992/- u/s 234A, Rs.1,65,19,336/- u/s. 234B and Rs.52,14,105 u/s. 234C and enhanced the late fees u/s 234F to Rs.10,000.
7. The Appellant craves leave to add, amend, alter, vary and/or withdraw any or all the above grounds of appeal.
6. The ld.counsel for the assessee referring to the CBDT instructions vide File No.173/193/2019-ITA-1, dated 23.04.2019 submitted that as per the said instruction, an assessee can file the return u/s. 139(4A) for claiming the deduction u/s. 11 and 12,which is applicable to AY 2018-19 and subsequent years.
6.1 In his alternate contention, he submitted that he has no objection if the matter is restored to the file of the AO with direction to consider the CBDT instruction on this issue for claiming the deduction u/s. 11 and 12A even in respect of returns filed u/s. 139(4) & 139(4A).
6.2 The ld. DR on the other hand while relying on the order of the ld. CIT(A) submitted that he has no objection if the issue is restored to the file of the ld.CIT(A)/NFAC with direction to decide the issue afresh in the light of the CBDT instruction No.173/193/2019-ITA-1 relied on by the ld.counsel for the assessee according to which benefit of section 11 and 12A cannot be denied in case where returns are filed u/s. 139(4) & 139(4A).
6.3 He also relied on the following decisions:-
1. Arham Pumps vs. DCIT reported in 195 ITD 679 (Ahd.Trib)
2. Grama Vidyodaya sangha(Regd) vide ITA No.345/Bang/2022, order dated 06.09.2022 for AY 2018-19
7. We have heard the rival arguments made by both the sides, perused the orders of the CPC, Bangalore and ld.CIT(A)/NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case filed its return of income belatedly on 31.03.2021 declaring total income at nil. We find the return was processed u/s. 143(1) of the I.T.Act, 1961 and intimation was issued on 24.12.2021 determining the total income at Rs.24,51,44,792/- wherein the corpus donation of Rs.23,18,75,399/- and interest income of Rs.1,32,69,393/- was brought to tax and benefit u/s. 11 and 12A was denied on the ground that assessee has not filed the return of income before the due date as prescribed. We find the ld.CIT(A)/NFAC upheld the action of the CPC, the reasons of which are already reproduced in the preceding paragraph. It is the submission of the ld.counsel for the assessee that the CBDT vide circular No.F.173/193/2019-ITA-1, dated 23.04.2019 has issued certain clarifications, which read as under:-
F.No. 173/193/2019-ITA-I
Government of India-
Ministry of Finance
Department of Revenue Central Board of Direct Taxes
New Delhi, Dated: 23 April, 2019
To,
The Pr. DGIT (Systems),
New Delhi.
Subject : Clarification with regard to the time allowed for filing of return of income subsequent to the insertion of Clause (ba) in sub–section 1 of section 12A of the income –tax Act , 1961.
Sir,
Undersigned is directed to refer to the representation (s) received on above mentioned subject stating that while processing of ITR-7 for the A.Y. 2018- 19, in respect of the belated returns filed u/ s 139(4) of the Income Tax Act, 1961 (Act), the following is being communicated u/s 143(1)(a) of the Act:-
“As per section 12A(1)(ba) of the Income -tax Act , 1961 the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section. Otherwise the exemption u/s11 i.e. sr. no 4(i) and 4 viii in schedule Part BTI is not allowed.” Based on this, exemption u/s 11 of the Act has been denied to otherwise eligible trust, thereby creating huge demand.
2. In the matter, the memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under:
“as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under subsection (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However , there is no clarity as to whether the said return of income is to be filed within time allowed u/ s 139 of the Act or otherwise. In order to provide clarity in this regard , it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income tax shall furnish the return of income within the time allowed under section 139 of the Act.
These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years.”
3. Additionally, an excerpt of circular 02/2018 dated 15.02.2018 “Explanatory Notes to the Provisions of the Finance Act, 2017” on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under:
“the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income -tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. Amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Income -tax Act.”
3. Thus, for a trust registered U/s 12AA of the Act to avail the benefit of exemption u/s 11 shall inter-alia file its return of income within the time allowed u/s 139 of the Act. Accordingly, orders u/s 143(1)(a) in those cases in which demand has been raised on this issue may please be rectified.
This issues with the approval of Chairman (CBDT)
8. Since the above instruction dated 23.04.2019 and subsequent circular No.2/2020 vide F.No.197/55/2018-ITA-I dated 03.01.2020 were not considered by the ld.CIT(A)/NFAC, although, these are instructions/circulars issued by the Board and are binding on the revenue authorities, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of ld.CIT(A)/NFAC with the direction to adjudicate the issue afresh in the light of the circulars/instructions issued by the CBDT clarifying the time allowed for filing of return of income subsequent to the insertion of clause(ba) in sub-section (1) of section 12A of the Act. Needless to say, the ld.CIT(A)/NFAC shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.
9. In the result, the appeal filed by the assessee is allowed for statistical purposes.
SA.No.16/Hyd/2022 in ITA No.343/Hyd/2022:
10. Since, we have restored the issue to the file of the ld.CIT(A)/NFAC for adjudicating the issue afresh, therefore, the stay application filed by the assessee becomes infructuous. Accordingly, the same is dismissed.
11. In the result, the appeal filed by the assessee is allowed for statistical purposes and the stay application filed by the assessee is dismissed.
Order pronounced in the Open Court on 21st November, 2022.
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