IT APPEAL NOS. 503 TO 506 & 569 (COCH.) OF 2014
[ASSESSMENT YEARS 2006-07 TO 2009-10 & 2011-12]

B. P. JAIN, ACCOUNTANT MEMBER 
AND GEORGE GEORGE K., JUDICIAL MEMBER

R. Krishna Iyer for the Appellant. 
K.P. Gopakumar, Sr. DR for the Respondent.

ORDER

George George K., Judicial Member - These five appeals, at the instance of the assessee, are directed against two orders of the CIT (A)-II, Kochi, both dated 30.09.2014. The relevant assessment years are 2006-07, 2007-08, 2008-09, 2009-10 and 2011-12.

2. The assessee, in its grounds of appeals for all the assessment years under dispute, raised identical issues in an illustrative and narrative manner. In essence, the grievance of the assessee is confined to two issues, namely:

3. As the issues raised in these appeals pertain to the same assessee, they were heard together and disposed of by this consolidated order.

4. Briefly, the facts of the issues are as under:

The assessee - a Poothotta Branch No.1103 of the Sree Narayana Dharma Paripalana Yogam [SNDP] - is running educational institutions and also engaged in temple activities by renting out auditorium etc. According to the AO, since the institution was engaged in temple activities by renting of auditorium etc., as well as running the educational institutions and that the assessee had neither obtained PAN nor obtained registration u/s 12A of the Act, he had reason to believe that the income chargeable to taxes escaped assessments and, accordingly, issued notices u/s 148 of the Act, calling for returns of income for the AYs under consideration. In compliance, the assessee had furnished its returns of income, admitting 'Nil' income. After due consideration of the assessee's contentions and for the reasons recorded in the respective assessment orders, the AO came to the conclusion that since the assessee was only affiliated to SNDP Yogam and was not independently registered either under the relevant Kerala State Act or the Income-tax Act, the provisions of s.167B of the I.T. Act were applicable and, thus, the whole incomes of the assessee from all the institutions were to be taxed at the maximum marginal rate. Accordingly, the assessee's incomes for the AYs under dispute were computed on commercial lines.

5. Aggrieved, the assessee took up the issues, among others, for all the AYs under consideration before the CIT (A). The assessee contended before the CIT (A) that once the registration u/s 12A of the Act was granted to an assessee even at a later date, the same was applicable for the pending assessment proceedings for the earlier assessment years. After taking into account the submissions of the assessee as enumerated in his findings, the CIT (A) had confirmed the stand of the AO on the issues. The relevant portions of the reasoning of the CIT (A) are reproduced as under:

"4.3………It is seen that the assessee was not filing its income-tax returns giving an impression that as if its accounts were consolidated with the accounts of the parent company. However, during the course of assessment proceedings, the assessing officer observed that the accounts of these companies were not consolidated with the parent company and, therefore, there was a requirement for the assessee to file a separate return. It is seen that the assessee is not registered u/s 12A and the registration that has now been granted to the assessee u/s 12A is dated 29.07.2013. Since the assessee is registered only from the asst. year 2013- 14 and as per the letter of registration u/s 12A granted by the CIT vide No.CIT/CHN/Tech/12A-81/2012-13 dated 29.07.2013, it is specifically mentioned that this registration u/s 12A does not automatically exempt the income of the institution and it is further mentioned that the certificate is not the finding regarding the charitable/religious nature of the institution and is only to the effect that applicant's name has been entered in the register maintained in this office, it can be treated as applicable only for the AY 2013-14. The appellant has tried to contend in the additional grounds raised that once registration u/s 12A has been granted to the assessee, the same is applicable for the earlier years also as the various activities of the assessee are same since those earlier years. However in the submissions and the additional grounds, the assessee has accepted that CIT's power to grant registration is not with retrospective effect and, therefore, the assessee has filed petition before the CBDT for the condonation of delay in filing application for registration under section 12A, and it is mentioned therein that there is a chance that registration would be granted to the assessee with retrospective effect by the CBDT. Since the assessee does not have registration under section 12A in all these assessment years, exemption under section 11 cannot be given to the assessee.

4.3.1. The assessee has also contended in the additional grounds that since it is running individual education institution the assessee is also eligible for exemption u/s 10(23C) (iiiad). However, it is seen that the total receipts of the assessee are to the tune of Rs.2,98,58,719/- and, hence, the provisions of section which are applicable only for institution having total receipt less than one crores are also not applicable in the case of the assessee. Moreover, AO has given a finding in the very beginning that since this institution is not existing solely for the educational purposes, it is not eligible for exemption under section 10(23C). It is a fact that for to be eligible for exemption of income under section 10(23C)(iiiad), it has to be a university or educational institution existing solely for educational purposes, whereas this branch of SNDP Yogum has diversified activities in line with the main SNDP Yogum's objects, and it is involved in empowering the weak and needy through education and is also involved in temple activities and renting of auditorium etc., Therefore, the activities cannot be treated as solely for educational purposes and AO is correct in not allowing exemption under section 10(23C)(iiiad) also.

4.4. In view of the fact that registration u/s 12A is not applicable to the assessee for this assessment year and that the condonation petition for delay in filing the application for registration under section 12A has not yet been decided by the CBDT, therefore, it cannot be taken that this institution is registered u/s 12A. Accordingly, the assessing officer is correct in taking this stand that the total income of the assessee is to be assessed as per commercial principles and, hence, the assessment of income of the assessee at Rs.72,00,091/-, Rs.77,75,0215/-, Rs.89,63,810/- and Rs.1,30,45,664/- for AYs 2006-07, 2007-078, 2008-09 & 2009-10 respectively is confirmed."

6. Aggrieved, the assessee has come up before us with the present appeals. During the course of hearing, the learned AR reiterated what had been submitted before the first appellate authority. In furtherance, the submissions made by the learned AR are summarized as under:

6.1 The learned AR had, further, submitted that the earlier Bench of this Tribunal, in the case of Dr. CT. Eapen Trust v. ITO [2014] 65 SOT 222 (Cochin - Trib.) by following the decisions in (i) Jat Education Society v. Dy. CIT [2011] 47 SOT 35 (URO)/10 taxmann.com 127 (Delhi) and (ii) CIT v. Children's Education Society [2013] 34 taxmannn.com 285/358 ITR 373 (Kar.), decided that "for the purpose of s. 10(23)(iiab) and (iiiad), the annual gross receipt of each educational institution run by the assessee has to be taken separately and it cannot be clubbed together in the hands of the trust examining the fulfillment of condition of receipt of less than the prescribed limit of the annual gross receipt - if the annual gross receipt of the educational institution is considered separately - the same is below 1 crore in each year, therefore, it is entitled for exemption u/s 10(23)(iiiad) of the Act".

6.2 It was, further, submitted that though the CIT (A)'s attention was drawn to the above facts during the course of appellate proceedings, he had not considered the same. In conclusion, it was prayed that necessary directions require to be given to the AO to grant exemption u/s 12A for all the AYs under dispute based on the amendment in the Finance Act, 2014.

6.3 On the other hand, the learned DR submitted that the AO as well as the CIT (A) have, after careful consideration of the assessee's contentions and the perusal of the relevant records, taken a stand that the whole income of the assessee from all the institutions was to be taxed at the maximum marginal rate. As there were no infirmities in the stand of the authorities below, it was pleaded by the learned DR, that the appeals of the assessee for all the AYs under consideration require to be dismissed.

7. We have carefully considered the rival submissions, perused the relevant materials on record and the case law on which the learned AR had placed strong reliance. The primary issue for our consideration is whether the CIT (A) is justified in confirming the AO's action, for all the assessment years under consideration, in assessing the entire incomes of the assessee from all the institutions at the maximum marginal rate. In this context, it is appropriate to refer the amendment to section 12A(2) of the Act and its proviso. For ready reference the same is reproduced below:

(Section 12A(2) & its proviso)

"[(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.]"

7.1 Further it would be relevant to reproduce the explanatory note to the provisions of the Finance (No.,2) Act 2014 as given in CBDT No.1/15 dated 21.1.2015
"Para 8.2

Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available."

The first proviso to section 12A(2) was brought in the statute only as a retrospective effect, with a view not to affect genuine charitable trusts and societies carrying on genuine charitable objects in the earlier years and substantive conditions stipulated in section 11 to 13 have been duly fulfilled by the said trust. The benefit of retrospective application alone could be the intention of the legislature and this point is further strengthened by the Explanatory Notes to Finance (No.2) Act, 2014 issued by the Central Board of Direct Taxes vide its Circular No. 01/2015 dated 21.1.2015. Apparently the statute provides that registration once granted in subsequent year, the benefit of the same has to be applied in the earlier assessment years for which assessment proceedings are pending before the ld. A.O., unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to provide that no action u/s147 could be taken by the AO merely for non- registration of trust for earlier years.

7.2 When section 12A of the Act was amended by introducing new provisos to sub-section (2) of s. 12A by Finance Act, 2014 with effect from 01.10.2014, the assessment orders passed by the assessing officer in respect of the present assessee were pending in appeal before the first appellate authority. During such pendency, the assessee was granted registration u/s 12AA of the Act on 29.07.2013 w.e.f. the assessment year 2013-14. Those appeals were the continuation of the original proceedings and that the power of the Commissioner of Income-tax was co-terminus with that of the assessing officer [ADIT (Exemption) in the present case] were two well established principles of law. In view of the above and going by the principle of purposive interpretation of statues, an assessment proceeding which is pending in appeal before the appellate authority should be deemed to be 'assessment proceedings pending before the assessing officer' within the meaning of that term as envisaged under the proviso. It follows there-from that the assessee which obtained registration u/s 12AA of the Act during the pendency of appeal was entitled for exemption claimed u/s 11of the Act.

7.3 The explanatory Memorandum to Finance (No.2) Bill, 2014 which sought to amend section 12A explains the objects and reasons for making such amendments. The explanation makes it clear that it was in order to provide relief to such trusts in respect of which, due to absence of registration u/s 12AA tax liability got attached though otherwise they were eligible for exemption by fulfilling other substantive conditions that the amendment was brought in. That being so, denying such benefit to a trust like the assessee who had obtained registration u/s 12AA during the pendency of the appeals filed against the orders of the assessing authority, by narrowly interpreting the term, 'pending before the assessing officer' so as to exclude its pendency before the appellate authority, will be doing violence to the provisions of the Statute and, as such, liable to be interfered with. Moreover, under the Scheme of the Act, sections 11 and 12 are substantive provisions which provide for exemptions to a religious or charitable trust. Sections 12A and 12AA detail the procedural requirements for making an application to claim exemptions under sections 11 and 12 by the assessee and the grant or rejection of such application by the commissioner. Thus, in our view, sections 12A and 12AA are only procedural in nature. Hence, it is not the registration u/s 12AA by itself that offers immunity from taxation. A receipt whether it is revenue or capital in nature is to be decided at the assessment stage. Being procedural in nature, in our view, liberal interpretation will give effect to the intention of the amendment, thereby removing the hardship in genuine cases like the present assessee under consideration.

7.4 Taking into account the above facts and circumstances of the issue, we are of the view that the AO was not justified in taking a stand that registration u/s 12A was not applicable to the assessee for the AYs under dispute and the condonation petition for delay in filing the application for registration u/s 12A [for the AYs under dispute] has not yet been decided by the CBDT and, therefore, the total incomes of the assessee were to be assessed as per commercial principles. The CIT (A) was also not justified in taking a similar stand that of the AO, without taking cognizance and intention of the amendment to s. 12A of the Act. If no judicious or a liberal view is not taken either by the assessing authority or the appellate authority as in the case under consideration, the very purpose for which such an amendment to s. 12A of the Act enacted,in our view, would be defeated. We are also supported by the order of Kolkata Bench of ITAT in case of Sree Sree Ramkrishna Samity v. Dy. CIT[2016] 156 ITD 646/[2015] 64 taxmann.com 330 where it was held that amendment to Section 12A w.e.f. 01.10.2014 is retrospective. The relevant finding of the Hon'ble Kolkata Bench in case of Sree Sree Ramkrishna Samity (supra) read as follows:

"6.10. We hold that it is an established position in law that a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole and accordingly the said insertion of first proviso to section 12A(2) of the Act with effect from 1.10.2014 should be read as retrospective in operation with effect from the date when the condition of eligibility for exemption under section 11 & 12 as mentioned in section 12A provided for registration u/s.12AA as a pre-condition for applicability of section 12A."

Further, the Kolkata Tribunal observed as under:

"6.11. We also hold that though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. It is only elementary that a statutory provision is to be interpreted ut res magisvaleat quam pereat, i.e to make it workable rather than redundant. Applying this legal maxim, it would be just and fair to hold that the amendment in section 12A is brought in the statute to confer benefit of exemption u/s 11 of the Act on the genuine trusts which had not changed its objectives and had carried on the same charitable objects in the past as well as in the current year based on which the registration u/s.12AA is granted by the DIT (Exemptions)."

7.5 In light of the aforesaid reasoning and order of the Tribunal in case of Sree Sree Ramkrishna Samity (supra), we direct the Director of Income-tax (Exemption) to grant registration to the assessee trust for all the assessment years under dispute, subject to the following conditions, namely:

8. In the result, the appeals filed by the assessee are allowed.