CIT (Exemption) Vs Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan (Allahabad High Court)
Summary: The Allahabad High Court, Lucknow Bench, allowed the Revenue’s appeal against the Income Tax Appellate Tribunal’s order dated 26 November 2018 granting the benefit of Sections 11 and 12 of the Income-tax Act, 1961 to Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan for assessment year 2011–12. The central question was whether a trust registered under Section 12AA in June 2015 could claim exemption for an earlier assessment year merely because its appeal remained pending before the Tribunal. The assessee had applied for registration on 15 December 2014 and received registration on 8 June 2015. The Tribunal treated the pendency of appellate proceedings as sufficient to invoke the first proviso to Section 12A(2), which extends the benefit of Sections 11 and 12 to certain preceding assessment years. The Revenue challenged that interpretation, maintaining that the substantive provision and its proviso had to be read together.
The Revenue argued that Section 12A(2) ordinarily makes the exemption available from the assessment year immediately following the financial year in which the registration application was made. According to the Department, the Tribunal’s construction would render that substantive restriction ineffective by extending the benefit to years before the application. The assessee defended the Tribunal’s decision by relying on Commissioner of Income-Tax Vs. Mayur Foundation, (2005) 194 CTR (Guj) 197. It submitted that assessment proceedings could remain pending through appellate stages and that the appeal concerning AY 2011–12 was pending when registration was granted.
The High Court examined the text of Section 12A, including subsection (2) and its provisos. It held that the proviso could not be construed in isolation or in a manner that nullified the main provision. The Court emphasised harmonious statutory interpretation and the difference between rules governing charging provisions and provisions conferring tax exemptions. Referring to the Supreme Court’s decision in Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar and Company and Others, (2018) 9 SCC 1, the Bench observed that an assessee seeking an exemption must establish that the statutory conditions are satisfied. Ambiguity concerning eligibility for exemption could not simply be resolved in the assessee’s favour.
The High Court further emphasised that the first proviso to Section 12A(2) expressly refers to assessment proceedings pending before the Assessing Officer on the date of registration. The proceedings concerning AY 2011–12 were pending before the Tribunal, not the Assessing Officer. The Court therefore rejected the proposition that the pending appeal fulfilled the express statutory requirement. The Bench distinguished Mayur Foundation because that decision addressed the wider concept of pendency of assessment, whereas the proviso under consideration specifically required pendency before the Assessing Officer. It also declined to apply a CBDT instruction to the extent that its interpretation was inconsistent with the statutory wording.
The Court considered that allowing registration obtained in 2015 to govern substantially earlier years merely because an appeal remained pending could lead to anomalous results. The Court concluded that the Tribunal had incorrectly extended the exemption for AY 2011–12, answered the substantial questions of law in favour of the Revenue, set aside the Tribunal’s order and allowed the income-tax appeal.
Related Supreme Court Proceedings: For the subsequent Supreme Court proceedings concerning Section 12A registration, read Supreme Court Dismisses Charitable Trust’s Section 12A Registration SLP as Withdrawn.
Cases Discussed
- Commissioner of Income-Tax Vs. Mayur Foundation, (2005) 194 CTR (Guj) 197 (Gujarat High Court) — Relied upon by the assessee on pendency of assessment through appeal; distinguished by the High Court because the statutory proviso specifies pendency before the Assessing Officer.
- Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar and Company and Others, (2018) 9 SCC 1 (Supreme Court) — Relied upon for the rule that an exemption claimant must establish eligibility and ambiguity in an exemption provision is construed in favour of the Revenue.
Alternative SEO Titles
Allahabad HC Rejects Retrospective Trust Exemption Despite Section 12AA Registration
Pending ITAT Appeal Does Not Satisfy Section 12A(2) Proviso: Allahabad HC
Trust Denied Section 11 Exemption for AY 2011-12 After 2015 Registration
Section 12A(2) Proviso Cannot Override Main Provision: Allahabad High Court
Revenue Wins Appeal on Retrospective Sections 11 and 12 Trust Exemption
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Manish Misra, learned counsel for the appellant as well as Sri Anand Prakash Sinha, learned counsel representing the respondent.
2. This appeal has been preferred under Section 260-A of the Income Tax Act- 1961. Challenge has been made to the order dated 26.11.2018 passed by the Learned Income Tax Appellate Tribunal (hereinafter referred to as “the Tribunal”) .
3. The appeal was admitted by this Court on following substantial questions of law, which are quoted for ready reference:-
1. Whether the Income Tax Appellate Tribunal was justified in allowing retrospective coverage to the assessee U/s 11 and 12 of the Act, 1961 by holding that the appellate proceeding can be regarded as assessment proceeding ?
2. Whether the Income Tax Appellate Tribunal has rightly applied the proviso of Sec. 12A (2) for A.Y. 2011-12 in the case of assessee when admittedly the assessee got registration U/s 12AA from A.Y. 15-16 ?
3. Whether the Income Tax Appellate Tribunal was justified in holding that the assessee is eligible for exemption U/s 11 of the Act even when the assessee was not registered U/s 12AA of the Act at the time of passing of the assessment order?
4. Learned counsel appearing for the revenue submits that benefit of Section 11 and 12 of the Income Tax Act, 1961 (hereinafter referred to as “the Act, 1961”) has been given to the assessee for the assessment year prior to the application for registration of the Trust under Section 12 AA, though not provided and permissible.
5. The Tribunal, has extended the benefit of Section 11 and 12 of the Act, 1961 to the assessee by taking an erroneous interpretation of the proviso to Section 12A(2) of the Act, 1961.
6. Coming to the facts of the case, it is stated that for the assessment year 2011-12, the benefit of section 11 and 12 has been given to the assessee through application for registration under Section 12 AA of the Act, 1961, was submitted in the assessment year 2015-16. It is by taking erroneous interpretation of the proviso to Section 12 A(2) of the Act, 1961, ignoring the main provision. It is submitted that the benefit of exemption under Section 11 and 12 of the Act, 1961 is not permissible to an assessee for the assessment prior to the date of application for registration of the Trust. The Tribunal has extended the benefit on the ground that assessment for the year 2011- 12 was pending either before the Appellate Tribunal.
7. Section 12 A(2) of the Act, 1961 permits benefits of exemption in the following financial year to the date of application for registration and not for previous year.
8. Learned Tribunal has ignored the main provision of Section 12 A(2) of the Act, 1961, while passing the order and accordingly the substantial question of law was framed in reference to it. It is well settled that a substantive provision cannot be nullified by the proviso. By virtue of the order of the Tribunal, the substantive provision of Section 12A (2) of the Act, 1961 has been nullified by giving erroneous interpretation to proviso appended to it. The prayer is accordingly to set-aside the order of the Tribunal while allowing the appeal.
9. Learned counsel for the assessee has contest the appeal preferred by the Revenue. They have supported the order passed by the Tribunal. It is submitted that the pendency of the assessment remains not only when it is pending with the Assessing Officer, but even before the Tribunal. In view of the above and taking note of the fact that an appeal was pending for the assessment year 2011-12 while the application for registration was accepted in favour of the assessee, thus the benefit of exemption under Section 11 and 12 of the Act, 1961 has rightly been allowed by the Tribunal.
10. Reference of the judgment of the Gujarat High Court in the case of Commissioner of Income-Tax Vs. Mayur Foundation, reported in (2005) 194 CTR Gujarat 197 has been given. It is to demonstrate the meaning of word ‘pendency of the assessment’. It has been held that assessment proceedings remain pending till appeal is heard and disposed of by the Tribunal and accordingly interpretation of the proviso appended to Section 12A(2) of the Act, 1961 has been given by the Tribunal. The prayer is accordingly to maintain the order passed by the Tribunal and accordingly the appeal be dismissed.
11. We have heard the rival submissions of the parties and perused the record.
12. The substantial question of law before us is in reference of Section 12 A of the Act, 1961 thus it is quoted herein below for ready reference:-
“12A. [[1] The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [Principal Commissioner or Commissioner] before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution whichever is later and such trust or institution is registered under section 12AA:
Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of section 11 and section 12 shall apply in relation to the income of such trust or institution,–
(i) from the date of the creation of the trust or the establishment of the institution if the [Principal Commissioner or Commissioner] is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period aforesaid for sufficient reasons;
(ii) from the 1st day of the financial year in which the application is made, if the [Principal Commissioner or Commissioner] is not so satisfied: [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;]
[(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form and manner to the [Principal Commissioner or Commissioner] and such trust or institution is registered under section 12AA;]
[(ab) the person in receipt of the income has made an application for registration of the trust or institution, in a case where a trust or an institution has been granted registration under section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)], and, subsequently, it has adopted or undertaken modifications of the objects which do not conform to the conditions of registration, in the prescribed form and manner, within a period of thirty days from the date of said adoption or modification, to the Principal Commissioner or Commissioner and such trust or institution is registered under section 12AA;] ]
(b) where the total income of the trust or institution as computed under this Act without giving effect to [the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub- section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. (ba) 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.]
(c)[Omitted by the Finance Act, 2002, with effect from 1st April, 2002.]
[(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 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 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:
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.]”
13. We need to consider Section 12 A (2) of Act, 1961 along with proviso to determine the issue raised before us. Section 12 A (2) of the Act, 1961 provide that whenever application has been made for registration of trust or institution is made under Section 12AA of the Act on or after first date of 2007, the provision of Section 11 and 12 of the Act, 1961 shall apply in relation to income of such Trust or Institution from the assessment year immediately following the financial year in which application is made. If we go with the provisions of Section 12 A(2) of the Act, 1961, the question raised before us can be answered holding that the benefit of Sections 11 & 12 of the Act, 1961 can be given from the following financial year in which the application for registration is made and registration was subsequently granted.
14. If the facts of this case are taken into consideration then the assessee made an application for registration on 15.12.2014 i.e. in the assessment year 2015-16. The assessment in question is of the year 2011-12. In view of the above, whether the subsequent registration pursuant to the application dated 15.12.2014 would make the assessee entitled for the benefit of Section 11 & 12. It is in respect of the assessment year prior to the date of application. It is in the circumstances that registration was finally given on 08.06.2015. We are required to consider proviso below sub-Section 2 of Section 12 A of the Act, 1961. The proviso provides that if registration has been given to the Trust or the Institution under Section 12 AA of the Act, 1961, then provisions of Section 11 & 12 of the Act, 1961 shall apply in respect of any income derived from the property held under the Trust or the institution for any assessment year proceeding, for which assessment is pending before the Assessing Authority as on the date of registration. The Tribunal has given interpretation to the proviso to hold that irrespective of the date of application, the benefit of Section 11 & 12 of the Act, 1961 would be available to the assessee retrospectively, if the assessment proceedings were pending and pendency of such proceedings may be not only before the Assessing Office, but even before the Tribunal.
15. According to us, the interpretation of the proviso has been given in ignorance of the main provision of Section 12A(2) of the Act, 1961. Whenever interpretation of the statutes has to be given it should be after making harmonious construction of the statute. For the purpose of proper interpretation of Section 12A of the Act, 1961, the Tribunal was required to make interpretation after taking into consideration the main provision along with the proviso and not by giving meaning to the proviso in ignorance of substantive provision.
16. The Tribunal has even ignored the basic principle of law in giving interpretation in charging provisions, the benefit is to be given to the assessee but same principle is not applicable for an exemption notification or exemption clause, where the benefit of ambiguity must be given to the Revenue/State. It is also that burden to prove applicability of exemption would be on the assessee that it comes squarely within the parameters of the exemption notification or exemption clause. The Tribunal was required to make distinction between charging provision where benefit of ambiguity is given to the assessee and the exemption notification or clause where interpretation is to be given in the form of Revenue. The issue aforesaid has been recently considered and decided by the Apex Court in the Case of Commissioner of Customs (Import) Mumbai Vs. Dilip Kumar and Company and Others, 2018 (9) SCC 1.
17. Section 12A extends benefit of exemption under Section 11 & 12 of the Act at the first instance to the cases referred under sub- section 1 of Section 12 A. Sub-section 2 of section 12 A extends benefit even when application for registration of Trust or Institution has been made on or after first day of June 2007. It would however be in relation to the income of the Trust or the Institution from the assessment year immediately following the financial year in which application for registration was made. If the simple meaning of the provision of section 12A(2) is to be given, it governs those cases where application was moved for registration after first day of June, 2007. The benefit of Section 11 and 12 would be extended from the assessment year immediately following the financial year in which the application was given. In the instant case the application for registration was given on 15.12.2014 i.e. in the financial year 2014- 15. On registration of the Trust, benefit under Section 11 and 12 would be available to the assessee from the assessment year following the financial year in which application was given and not any previous year. The benefit of registration could not have been extended for the assessment year 2011-12, even if the matter was pending before the Tribunal when application for registration was submitted on 15.12.2014.
18. The proviso to sub-section 2 applies in a given circumstances, but cannot by making main provision of section 12 A as redundant. In the instant case, the application for registration was then submitted on 15.12.2014. The registration was given on 08.06.2015. Since registration has been given on 08.06.2015, the benefit of Section 11 & 12 would be available for the following financial year in which application was made if the assessment proceedings for the relevant assessment year was pending till the date of registration. It cannot be for the assessment year 2011-12 due to pendency of the appeal before the Tribunal. If the benefit of Section 11 and 12 is extended for the assessment year 2011-12, despite submission of the application for registration on 15.12.2014, it would be in contravention of sub-section 2 of Section 12. By virtue of the interpretation taken by the Tribunal the main provision has been made redundant on the facts of the case, though not permissible. The proviso has to be read along with main proviso and not in isolation and contradiction.
19. The Tribunal even ignored the fact that proviso not only require registration of the Trust or the Institution while the assessment proceedings are pending, but it refers to assessment proceedings before the assessing authority and not elsewhere. In a common parlance, whenever matter is pending before the Tribunal in appeal, considered to be pendency of the assessment proceedings. The aforesaid principle would be applicable in the instant case is another question because proviso qualifies not only pendency of the assessment proceedings, but should before the Assessing Officer not else where, if in the proviso words “pendency of the assessment proceedings”, would have been used then pendency of the appeal against the assessment could have been considered to be pendency of the assessment proceedings, but in the instant case the words used are “pendency of the assessment proceedings before the Assessing Officer”. The assessment proceedings of the year 2011-12 was not pending before the Assessing Officer, but before the Tribunal. The observation aforesaid is relevant on the facts of this case. This Court has otherwise given proper interpretation to the substantive provision as well as the proviso.
20. We have further gone through the instruction of the CBDT and find it to be contrary to the proviso to Section 12 A of the Act, 1961. The instruction of the CBDT cannot be forfeited, if it is against the statutory provisions. The provision is not to extend benefit in case assessment is pending but it should be before the Assessing Officer. In that case, pendency of the assessment can be treated to be pending before the Assessing Officer though pending before the Tribunal in Appeal. It cannot be in those cases where provision is very specific, because proviso not only refers to the pendency of the assessment when it is pending before the Assessing Officer. In few cases, the assessment proceedings is considered to be pending before the Tribunal due to pendency of the appeal but it is applicable in those cases where words used are pendency of the assessment proceedings and not with words “pending before the Assessing Officer”. The interpretation therein is in reference to the words ‘pendency of the assessment’ and not in reference to the pendency of the assessment before the Assessment Officer. The instruction of CBDT can not be applied if seems counter the statue.
21. Accordingly the judgment of Gujarat High Court in Commissioner of Income-Tax Vs. Mayur Foundation (supra), would not apply. The view expressed therein cannot be applied to the facts of this case, otherwise an anomalous situation may emerge in a given case where for one or the other reason assessment proceedings before the Tribunal remain pending for years together or on a remand or for any other reason it comes before the Assessing Officer and such cases also subsequent application for registration and acceptance would result to extend benefit of Section 11 and 12 creating anomalous position if not meant for. This was not the object sought to be achieved by the legislature. If for one or the other reason, the proceedings in reference to the assessment years 1998-99 remains pending and the application for registration under Section 12AA of the Act, 1961 is filed in the year 2014-15 followed by registration, if the proviso is applied, then benefit of Section 11 and 12 of the Act, 1961 would be given to the Trust or the Institution even for the year 1998- 99, though the legislatures have not provided such arrangement or to extend the benefit in such cases. The provision is candid to govern only those cases where the application for registration is submitted followed by registration, to extend the benefit to the assessee from the following financial year of the date of application. Taking aforesaid into mind, we find reasons to allow the appeal preferred by the revenue and the substantial questions of law framed herein above are answered in favour of the Revenue and thereby we set-aside the order passed by the Tribunal.
22. The appeal is accordingly allowed with the aforesaid.
