Case Law Details
Chhattisgarh Rajya Open School Madhyamik Siksha Mandal Vs DCIT (ITAT Raipur)
ITAT Raipur held that assessee-society not being wholly and substantially financed by the government is not entitled for claiming exemption under Section 10(23C)(iiiab) of the Income Tax Act, 1961.
Facts- The assessee society, which was established with the Direction of the Education Department of the Chhattisgarh Government had filed its return of income in the status of an AOP/BOI, declaring an income of Rs. Nil. The case of the assessee society was thereafter selected for scrutiny assessment u/s. 143(2) of the Act.
During assessment proceedings, AO observed that the assessee had claimed exemption u/s. 10(23C)(iiiab) of the Act. On a perusal of the details, it was observed by the AO that the assessee society had a total gross receipt of Rs.24.04 crore (approx.) during the year under consideration. Observing, that the assessee society was not in receipt of any government grant, AO declined the exemption u/s. 10(23C)(iiiab) of the Act. CIT(A) upheld the action of AO. Being aggrieved, the present appeal is filed.
Conclusion- Held that the AO/CIT(Exemption) remained under a statutory obligation to have guided the assessee society, which admittedly not being wholly and substantially financed by the government, was disentitled from raising a claim for exemption u/s.10(23C)(iiiab) of the Act, to have applied for registration and raised a claim of exemption u/s.10(23C)(vi) of the Act, we are of the considered view that as the said issue does not emanate from the orders of the lower authorities, therefore, we refrain from dealing with the same.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals), Raipur, dated 17.10.2019, which in turn arises from the order passed by the A.O. u/s.143(3) of the Income-tax Act, 1961 (for short ‘Act’), dated 12.12.2018 for A.Y. 2016-17. The assessee has assailed the impugned order on the following grounds of appeal before us:
“1. In the facts and circumstances of the case and in law the ld. Commissioner of Income-tax (Appeals) has erred in confirming order of ld. Assessing Officer denying exemption claimed at Rs.5,24,17,851/- u/s.10(23C)(iiiab) of the Income-tax Act, 1961.
2. In the facts and circumstances of the case and in law the ld. Commissioner of Income-tax (Appeals) has erred in not addressing the appellant alternate submission that, in view of CBDT’s Circular No.14/XL/35 dted 11/04/1955, ld. Assessing Officer should have advised the appellant to seek exemption u/s.10(23C)(vi) of the Income-tax Act, 1961 and allowed the same in the interest of justice.
3. The impugned order is bad in law and on facts.
4. The Appellant reserves the right to add, amend, alter, omit or withdraw all or any of the grounds of appeal.”
Also, the assessee has raised an additional ground of appeal, which reads as follows:
“Without prejudice to other grounds of appeal, in the facts and circumstances of the case and in law, the ld. Assessing Officer may be directed to give effect to provisions of sub-section 2 of section 12A of the Income-tax Act, 1961 and allow exemption u/ s. 11 and 12 of the Act and exclude the appellant’s income from the total income for Assessment Year 2016-17.”
2. Succinctly stated, the assessee society, which was established with the Direction of Education Department of Chhattisgarh Government vide letter No.7/Raipur dated 27.08.2007 & F-55/2006/20 dated 10.01.2008 had filed its return of income for A.Y.2016-17 on 31.03.2018 in the status of an AOP/BOI, declaring an income of Rs. Nil. The case of the assessee society was thereafter selected for scrutiny assessment u/s.143(2) of the Act.
3. During assessment proceedings, it was observed by the A.O. that the assessee had claimed exemption u/s.10(23C)(iiiab) of the Act. On a perusal of the details, it was observed by the A.O. that the assessee society had a total gross receipts of Rs.24.04 crore (approx.) during the year under consideration. Observing, that the assessee society was not in receipt of any government grants during the year under consideration, the A.O called upon it to put forth an explanation as to why exemption claimed u/s.10(23C)(iiiab) of the Act may not be disallowed. Although the assessee tried to impress upon the A.O as regards its entitlement for exemption u/s.10(23C)(iiiab) of the Act, the same was declined by the latter for the reason that the following two conditions were not satisfied:
(i) The education institution/university must be existing solely for the purpose of education and without any profit motive and;
(ii) The educational institution/university must be wholly or substantially financed by the government.
Carrying his observations further, the A.O was of the view that as the assessee society had not received any government grants during the year under consideration, thus, it had not fulfilled the basic condition laid down u/s.10(23C)(iiiab) of the Act. Accordingly, the A.O., based on his aforesaid deliberation, declined the assessee’s claim for exemption of the excess of income over expenditure of Rs.5.24 crore (approx.) u/s.10(23C)(iiiab) of the Act. For the sake of clarity, the observations of the A.O are culled out as under:
“4. During the year under consideration, the assessee society has claimed exemption u/s.10(23c)(iiiab) of I. T. Act, 1961. In the course of assessment proceedings, the balance sheet and income & expenditure along-with the allowability of exemption u/s.10(23C)(iiiab) has been examined. As per computation of income furnished by the assessee, it is found that the total gross receipts of the assessee society for the year under consideration is Rs.24,04,35,386/-. Out of Rs.24,04,35,386/-, the assessee society has not shown any govt. grants during the year under consideration. Therefore, a show cause notice dated 08/12/2018 was issued to the assessee and asked to submit the reply of following show cause on or before 11/12/2018 positively :-
“On verification, it is found that the assessee has claimed exemption u/s10(23c)(iiiab) of I. T Act, 1961. However, the assessee has not fulfilled all the conditions for claiming exemption u/s10(23c)(iiiab) of I. T. Act, 1961. Therefore, a show cause is being issued as to why the exemption claimed u/s10(23c)(iiiab) should not be disallowed?”
In response to the show cause notice, the assessee society has submitted as under:-
The assessee society was received grants from State Govt. of Rs.1 crore vide letter no.35/2008-09 dated 20/08/2008. As per the CBDT circular no.4/2002 dated 16/07/2007 in which clearly exempted the education institution covered u/s10(23c)(iiiab) of the Income Tax Act, 1961 and assessee society is a State Govt. Society which is governed by the State Govt. officials and funded by the State Govt. as and when required. Therefore, covered u/s10(23c)(iiiab) of the Income Tax Act, 1961.
The submission of the assessee has been considered but not acceptable. It is necessary to mention here that the entitlement for exemption under section 10(23c)(iiiab) is subject to two fold conditions:-
(I) The education institution/university must be existing solely for the purpose of education and without any profit motive and; (ii) The educational institution/university must be wholly or substantially financed by the government.
The Rules 2BBB of the Income-Tax Rules, 1962 have been inserted w.e.f. 12.12.2014 to clarify the position and percentage of Government Grants (i.e. 50%) for considering any university as substantially financed by the Government for the purposes of section 10(23C) of the Act.
As it is clearly evident from the submissions of the assessee that the assessee society has not received any govt. grants during the year. As such, the assessee society has not fulfilled all the conditions as laid down u/s10(23c)(iiiab) of I. T. Act, 1961 for the year under consideration. Accordingly, the exemption claimed by the assessee society on excess of income over expenditure of Rs.5,24,17,851/- u/s10(23c)(iiiab) of I. T. Act, 1961 is not allowable. Since, the assessee has furnished inaccurate particulars of its income, therefore, penalty proceedings u/s271(1)(c) is initiated separately.
Similar issue was involved in the case of M. P. Rajya Open School vs. Dy. Commissioner of Income Tax-1(2), Bhopal in ITA Nos. 193 to 198/Ind/2012 vide order dated 08/11/201 for A.Ys. 2003-04 to 2008-09 in which the issue was decided by the ITAT, Bench-Indore in favour of revenue.”
4. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success.
5. The assessee, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before us.
6. We have heard the ld. Authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record and considered the judicial pronouncement that has been pressed into service by Ld. AR to drive home his contentions.
7. Shri S.R. Rao, Ld. Authorized Representative (for short ‘AR’) for the assessee society took us through the additional ground of appeal. The Ld. A.R submitted that the assessee society had before the framing of assessment in its case for the year under consideration, applied for registration u/s.12AA of the Act in “Form 10A” on 31.10.2018. Carrying his contention further, it was submitted by the Ld. AR that as per the “2nd proviso” to Section 12A(2) of the Act, as was available during the year under consideration, i.e., A.Y.2016-17, where registration had been granted to the trust or institution u/s.12AA of the Act the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under the trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings were pending before the A.O as on the date of such registration, though subject to the condition that the objects and activities of such trust or institution remain the same for the said preceding assessment year. Elaborating further on his contention, it was submitted by the Ld. AR that though the registration u/s.12AA of the Act was earlier rejected/refused to the assessee society by the CIT(Exemption), Bhopal vide his order dated 29.04.2019 for the reason that it had failed to file within the stipulated time period the requisite replies to the queries raised by the latter, but the said order had thereafter been set aside by the Tribunal vide its order dated 02.01.2023 in ITA No.124/RPR/2019 and the matter was restored to the file of the CIT(Exemption) with a direction to re-adjudicate the same. The Ld. A.R submitted that the CIT(Exemption) had thereafter, vide his order dated 14th July, 2023, granted approval to the assessee society u/s.12AA of the Act. Based on his contention above, it was submitted by the Ld. AR that now when the CIT(Exemption), Bhopal vide his order dated 14.07.2023 had granted approval to the assessee society u/s.12AA of the Act, therefore, the A.O may be directed as per provisions of sub-section (2) to Section 12A of the Act to allow exemption u/s.11 & 12 of the Act and exclude the income of the assessee society from scope of its total taxable income for the year under consideration i.e. A.Y.2016-17. In support of his contention above, the Ld. AR relied on the order of ITAT, Raipur, in the case of Shivom Vidyapeeth Shikshan Samity Vs. ITO, Exemption-2, Raipur, ITA Nos.262 & 263/RPR/2022 dated 17.03.2023.
8. Per contra, the Ld. Departmental Representative (for short, ‘DR’) relied on the orders of the lower authorities. The Ld. CIT-D.R submitted that the “2nd proviso” to Section 12A(2) of the Act could not be pressed into service by the assessee society in the course of hearing of the present appeal wherein the issue involved was confined to declining of its claim of exemption u/s.10(23C)(iiiab) of the Act.
9. We have deliberated at length on the issue at hand and are unable to persuade ourselves to concur with the claim of the Ld. AR. Admittedly, the “2nd proviso” to sub-section (2) of Section 12A of the Act contemplates that where registration had been granted to the trust or institution u/s.12AA of the Act, 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 A.O as on the date of such registration, though subject to the condition that the objects and activities of such trust or institution remain the same for such preceding assessment year. For the sake of clarity, the “1st proviso” to Section 12A(2) is culled out 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 & 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.”
(emphasis supplied by us)
Further, the CBDT Circular No.01/2015 dated 21.05.2015 (applicable w.e.f. 01.10.2014) in order to remove hardships to charitable organizations due to non-application for registration for the period prior to the year of registration had come to the rescue of such assessee’s for the years preceding the year of registration. As per the aforesaid CBDT Circular No.01/2015 (supra), the benefit of Sections 11/12 of the Act would be available to an assessee for a period prior to the year of registration despite the fact that no application for registration for the said period had been filed. The only rider/pre-condition that is required to be satisfied for bringing a case within the realm of the CBDT Circular No.01/2015 (supra) is that the assessment proceedings for the said preceding assessment year is pending before the A.O on the date of registration u/s.12AA of the Act. For the sake of clarity, the aforesaid CBDT Circular No.01/2015 (supra) is culled out as under:
“8. Applicability of the registration granted to a trust or institution to earlier years
8.1 The provisions of section 12A of the Income-tax Act, before amendment by the Act, provided that a trust or an institution can claim exemption under sections 11 and 12 only after registration under section 12AA of the said Act has been granted. In case of trusts or institutions which apply for registration after 1st June, 2007, the registration shall be effective only prospectively.
8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organisations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfil other substantive conditions. However, the power of condonation of delay in seeking registration was not available.
8.3 In order to provide relief to such trusts and remove hardship in genuine cases, section 12A of the Income-tax Act has been amended to provide that in a case where a trust or institution has been granted registration under section 12AA of the Income-tax Act, the benefit of sections 11 and 12 of the said Act shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted.
8.4 Further, it has been provided that no action for reopening of an assessment under section 147 of the Income-tax Act shall be taken by the Assessing Officer in the case of such trust or institution for any assessment year preceding the first assessment year for which the registration applies, merely for the reason that such trust or institution has not obtained the registration under section 12AA for the said assessment year.
8.5 However, the above benefits would not be available in the case of any trust or institution which at any time had applied for registration and the same was refused under section 12AA of the Income-tax Act or a registration once granted was cancelled.
8.6 Applicability: – These amendments take effect from 1st October, 2014.”
10. We are principally in agreement with the Ld. AR that as per the “2nd proviso” to Section 12A(2) of the Act, where registration had been granted to the trust or institution u/s.12AA of the Act, 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 A.O as on the date of such registration, subject to the condition that the objects and activities of such trust or institution remain the same for such preceding assessment year. However, the claim of the Ld. AR that the A.O be directed as per the provisions of sub section (2) to Section 12A of the Act to allow exemption u/s.11 & 12 of the Act and exclude the income of the assessee society from the scope of its total taxable income for the year under consideration does not merit acceptance. In our considered view, the Ld. AR has on the basis of premature observations misconceived and wrongly construed the concession contemplated in the “1st proviso” to Section 12A(2) of the Act, and sought a direction to the said effect in the present appeal which challenges the declining of its claim of exemption u/s.10(23C)(iiiab) of the Act.
11. Although the claim raised on the basis of “additional ground of appeal” by the assessee society for relief/concession contemplated in the “2nd proviso” to Section 12A(2) of the Act does not emanate from the orders of the lower authorities, but as the same involves purely a question of law based on the facts available on record, therefore, the same is admitted. However, as the assessee society had been granted registration u/s.12AA of the Act by the CIT(Exemption), Bhopal vide his order dated 14.07.2023, on which date its assessment for the year under consideration, i.e. A.Y.2016-17 was not pending before the A.O, as the same had culminated vide an order passed by him u/s.143(3) of the Act, dated 12.12.2018, therefore the sine-qua-non for triggering the “2nd proviso” to Section 12A of the Act, i.e. “….assessment proceedings are pending before the Assessing Officer as on the date of such registration…..” is not found to be satisfied. Accordingly, in absence of satisfaction of the pre-condition contemplated in the “2nd proviso” to Section 12A(2) of the Act and CBDT Circular No.01/2015, the assessee society is not found to be entitled to avail the concession/relief therein provided.
12. Apropos the order of the ITAT, Raipur in the case of Shivom Vidyapeeth Shikshan Samity Vs. ITO, Exemption-2, Raipur, ITA Nos.262 & 263/RPR/2022 dated 17.03.2023 that had been pressed into service by the ld. AR, the same being distinguishable on facts, would, thus, not assist its case. In the case above, the issue before the Tribunal was the challenge thrown by the assessee society in light of the CBDT Circular No. 01/2015, dated 21/01/2015 to declining of the benefits under Sections 11/12 of the Act for the year under consideration, i.e. A.Y 2015-16 for which year assessment was pending at the time when registration u/s 12A was subsequently granted to it by the CIT(Exemption), Bhopal on 20.04.2017. As the assessee in the aforesaid case, had assailed the declining of the benefits under Sections 11/12 of the Act before the Tribunal, therefore, the facts therein involved are distinguishable as against those of the present assessee trust, wherein the declining of its claim for exemption u/s 10(23C)(iiiab) of the Act has been assailed before us.
13. Apropos the claim of the Ld. AR that the AO/CIT(Exemption) remained under a statutory obligation to have guided the assessee society, which admittedly not being wholly and substantially financed by the government, was disentitled from raising a claim for exemption u/s.10(23C)(iiiab) of the Act, to have applied for registration and raised a claim of exemption u/s.10(23C)(vi) of the Act, we are of the considered view that as the said issue does not emanate from the orders of the lower authorities, therefore, we refrain from dealing with the same. Thus, the additional ground of appeal raised by the assessee society being devoid and bereft of any merit is dismissed in terms of our observations above.
14. As the Ld. AR had not advanced any contentions regarding the Grounds of appeal Nos. 1 & 2; therefore, the same are dismissed as not pressed.
15. Grounds of appeal Nos. 3 & 4 being general are dismissed as not pressed.
16. In the result, the assessee’s appeal is dismissed in terms of our observations above.
Order pronounced in open court on 07th day of September, 2023.
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