1. These appeals by the revenue and COs by the assessee are directed against the composite order of the CIT (Appeals) dated 12.1.2012 for the AYs 2004-05 to 2007-08. This is second round of hearing of the appeals and CO. The appeals and COs were disposed of by this Tribunal vide composite order dated 28.6.2013. However, both revenue and assessee carried the matter to the Hon'ble High Court of Karnataka and vide judgment dated 18.12.2014, these matters were remanded back to the Tribunal for fresh decision on merits with the observations made in paras 4 to 7 of the decision as under: —
"4. |
We have heard the learned counsel for the parties for some time and with their assistance, gone through the order passed by the Tribunal and so also the orders passed by the authorities below. We find that the contention of the assessee in respect of their status as Trust had not been considered by the Tribunal in proper perspective. We, however, do not wish to express any opinion on merits of the case, since learned counsel appearing for the parties have agreed for the order that we propose to pass. Learned counsel for the parties fairly stated that we need not record any further reasons for the following order: |
|
(i) The order dated 20th June 2013 rendered by the Tribunal, impugned in these appeals, is set aside and the appeals filed by the Revenue as well as the Cross-Objections filed by the assessee are restored to file. |
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(ii) The Tribunal shall endeavour to dispose of the appeals as well as the cross-objections afresh on merits. |
5. |
All the contentions of the parties are kept open. |
6. |
It is needless to mention that the parties, if so desire, may be allowed to file additional documents in support of their case. |
7. |
We make it clear that we have not expressed any opinion on merits of the case. We hope and trust that the Tribunal shall decide all the grounds of challenge raised by the parties in their appeals/Cross-Objections on merits in accordance with law." |
2. Brief facts leading to the controversy involved in these cases are that the assessee is a trust established by way of trust deed executed on 2.3.1995 with the main objective of imparting education and to run the college of pharmacy and to run the college of physiotherapy in Bangalore city. The assessee filed its first application for registration u/s. 12A(a) of the Act on 23.8.2004 before the DIT (E), Bangalore and the same was rejected by the Id. DIT (E) vide his order dated 8.2.2005 for want of representation and necessary details. The assessee then filed second application for registration on 14.3.2005 before the DIT (E) and the same was not acted upon or disposed of. The assessee had again filed its third application on 21.10.2008 which was rejected by the Id. DIT (E) on 24.4.2009.
3. Against the said order dated 24.4.2009, the assessee filed appeal before the Tribunal and vide order dated 13.11.2009 the Tribunal set aside the matter to the file of DIT (E) for fresh consideration. The DIT (E) vide order dated 5.3.2010 granted registration u/s. 12A to the assessee trust w.e.f. 1.4.2008.
4. In the meantime, the AO issued a notice u/s. 148 on 30.12.2008 to reopen the assessment of four years under consideration. The AO completed assessments u/s. 143(3) r.w.s. 147 of the Act whereby it was held that in the absence of registration u/s. 12A, the assessee is treated in the status of AOP. Accordingly, the AO disallowed the claim of application of income u/s. 11 of the Act and the entire receipt was assessed to tax for want of registration u/s. 12A or exemption u/s. 10(23C) of the Act.
5. On appeal, the assessee raised various grounds and contentions. The CIT (A) rejected some of the contention, but allowed the plea that the assessment order passed on AOP is bad in law and therefore allowed the appeals in part. Thus, both the revenue as well as the assessee are aggrieved by the impugned order of CIT (A) and filed their respective appeals and COs.
6. The Revenue has raised the following grounds:-
| "(1) |
The order of the learned CIT (A) is opposed to the law and facts of the case. |
(2) |
The learned CIT (A) erred in holding that the assessments made on the assessee trust in the status of an 'Association of Persons' is bad in law and directed the Assessing Officer to treat the income of assessee as NIL without appreciating the fact that decisions of the Karnataka High Court relied upon by him is distinguishable and not applicable to the assessee's case. |
(3) |
The CIT (A) erred in not appreciating that the assessee itself had filed the return of income in Form No. 3A in the status code No. 8 being 'Association of persons (Trust)' and there was no change of status by the Assessing Officer. |
(4) |
The CIT (A) erred in not appreciating that on denial of exemption U/s. 11 of the Income Tax Act, the charging section will be section 164(2) of the Act as per which the tax has to be charged at maximum marginal rate as the income so exempt were the income of the association of person. |
(5) |
Any other grounds which may arise at the time of hearing. |
(6) |
The order of the learned CIT (A) may be set-aside and the order of the A.O. may be confirmed." |
7. In the CO, the assessee raised the grounds as under:—
"1. The order of the authorities below in so far as it is against the Respondent/Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the case.
2. The order passed under section 143(3) r.w.s. 147 of the Act is bad in law as the mandatory conditions required for assumption of jurisdiction for re-opening of assessment under section 148 of the Act is not in accordance with law or not complied with.
3. Without Prejudice The Respondent 1 Cross Objector denies itself liable to be assessed to tax as determined by the learned assessing officer of Rs. 34,90,364/- as against the income of Rs. NIL reported by the Respondent 1 Cross Objector under the facts and circumstances of the case.
4. Without Prejudice the learned Commissioner of Income- tax [Appeals] failed to appreciate that the Respondent/Cross Objector had made an application before the learned DIT for the recognition under section 12A of the Act the learned DIT failed to dispose of the application made by the Respondent/Cross Objector vide application dated 18/03/2005 within 6 months and hence the Respondent/Cross Objector gets automatic registration under section 12A of the Act as per the provisions of section 12AA(2) of the Act and hence the Respondent/Cross Objector is registered under section 12A of the Act under the facts and circumstances of the case.
5. Without Prejudice the learned Commissioner of Income- tax [Appeals] failed to appreciate that under section 10(23c)(iiiad) of the Act the gross receipts of each institution to be considered separately for the purpose of allowing the claim of exemption under section 10(23c)(iiiad) of the Act under the facts and circumstances of the case.
6. The Respondent/Cross Objector craves leave to add, alter, delete or substitute any of the grounds urged above.
7. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent/Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice."
8. The first issue involved in the Revenue's appeal is regarding the assessment framed in the status of AOP. The ld. DR has submitted that there was neither return of income nor registration u/s. 12A as the application for grant of registration u/s. 12A filed on 26.8.2004 was rejected vide order dated 8.2.2005. Again, the assessee filed application on 23.10.08 which was rejected vide order dated 27.4.2009. Therefore, as per provisions of section 164(2) of the act, the income derived from the property held under trust wholly for charitable or religious purpose are not exempt u/s. 11 or 12 of the Act, shall be chargeable to tax as it were the income of the AOP. Thus, the ld. DR submitted that the CIT (Appeals) has committed an error while holding that the assessment order framed in the status of AOP is bad in law. The ld. DR has contended that when there is a special provision u/s. 164(2) that an income which is not exempt u/s. 11 or 12 is to be assessed as if it was the income of AOP and therefore the AO has rightly treated the assessee as AOP while passing the assessment order. He has relied upon the orders of the AO.
9. On the other hand, the ld. AR of assessee has submitted that as per provisions of section 139(4A) of the Act, return of income is required to be filed only when a person has a taxable income. The assessee trust has no taxable income and therefore there was no need to file return of income. Further, when the registration u/s. 12A was granted w.e.f. 1.4.2008, then the benefit of sections 11 and 12 ought to have been given to the assessee as per the first proviso to section 12A(2) of the Act. He has further submitted that the application filed on 14.3.2005 was not acted upon by the DIT (E) and therefore upon the expiry of six months from the date of filing, it would be deemed registration and consequently exemption ought to have been given u/s. 11 & 12 of the Act. In support of his contention, he relied upon the decision of the Hon'ble Supreme Court in the case of CIT v. Society for the Promotion of Education [2016] 382 ITR 6/67 taxmann.com 264 and submitted that the decision of the Allahabad High Court Society for the Promotion of Education, Adventure Sport & Conservation & Environment v. CIT [2015] 372 ITR 222/[2008] 171 Taxman 113 (All.) has been upheld by the Hon'ble Supreme Court.
10. The next contention of the Ld. AR is that the AO considered the consolidated turnover of the assessee trust for the purpose of section 10(23C) of the Act whereas each education institution is a separate organisation for the purpose of this section and therefore the turnover of each educational institution/college is required to be considered separately for the purpose of section 10(23C)(ii)(d). He has pointed out that the assessee trust is running two institutions viz., Nargund College of Pharmacy and Nargund College of Physiotherapy, but the receipts of each college has to be considered separately for the purpose of exemption u/s. 10(23C) of the Act. Thus, the ld. AR has submitted that as per details of receipt of each college for the AY 2004-05, none of the college is having the receipts exceeding Rs. 1 crore. For the rest of the assessment years, the receipt of Physiotherapy college was less than Rs. 1 crore and therefore the same cannot be charged to tax or added to the total income of the assessee trust. In support of his contention, he has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Children's Education Society [2013] 358 ITR 373/34 taxmann.com 285 (Kar.). Thus, it was contended that the AO was not justified in assessing the entire receipt of tax and changing the status of assessee from trust to AOP. He has forcefully contended that even non-grant of registration u/s. 12A of the Act would not alter the status of assessee being charitable trust.
11. In the rejoinder, the ld. DR has submitted that the first proviso to section 12A(2) of the Act has been introduced vide Finance Act, 2014 w.e.f. 1.10.2014. Therefore, the said amendment is not retrospective and is applicable only from 1.10.2014. The assessee cannot claim the benefit of the said proviso to section 12A(2). The assessment was completed prior to the amendment and therefore the benefit of amendment is not available to the assessee.
12. As regards the deemed registration, when the assessee itself filed application on 21.10.08, then the earlier application stands withdrawn or becomes infructuous. In any case, the assessee has filed a fresh application on 21.10.2008 without praying for adjudication of the alleged earlier application filed on 14.3.05. He has relied upon the decision of the Hon'ble Madras High Court in the case of CIT v. Sheela Christian Charitable Trust [2013] 32 taxmann.com 242/214 Taxman 551 and submitted that the Hon'ble High Court has held that the time frame u/s. 12AA of the Act is only directory and not passing the order within six months would not grant deemed registration to the trust.
13. We have considered the rival submissions as well as relevant material on record. The primary issue is denial of exemption u/ss. 11 & 12 as well as u/s. 10(23C) of the Act and framing the assessment on the status of assessee would not affect the tax liability in respect of the income, not eligible for exemption u/ss. 11 and 12 or u/s. 10(23C) of the Act.
14. The question of assessment of income in the status of AOP or trust depends on the outcome of the main issue of assessability of receipts of the assessee and benefit of deduction u/s. 11 of the I.T. Act. At this stage, it is pertinent to discuss and analyse the relevant facts and development occurred during the entire process of grant of registration u/s. 12A of the Act.
15. The assessee is a trust created vide trust deed dated 2.3.1995. There is no denial that the main object of the assessee trust is to impart education. The assessee is running two colleges in the name & style of M/s. Nargund College of Pharmacy and M/s. Nargund College of Physiotherapy. Besides this, the assessee is also running hostel meant for students. It is pertinent to note that upto FY 2003-04, the department accepted the assessee as charitable trust in terms of section 2(15) as well as for the purpose of sections 11 and 10(23C) of the Act. The first application dated 23.8.04 for registration u/s. 12A was rejected by the DIT (E) vide order dated 8.2.2005 as under:—
"In this case, the assessee has applied for grant of Registration U/S. 12A of the Income Tax Act, 1961 on 26.08.2004. The Trust was established on 02.03.1995. On processing the application, deficiency letter was issued on 2.11.2004 calling for details of books of account for the year ending 31.3.2004. The case was posted for hearing on 24.11.2004. Sri S.M. Mattikalli, Chartered Accountant, Authorised Representative of the assessee appeared and discussed the case. On perusing the details, he was asked to file additional information such as details with respect to tuition fee, basis for recessional fees and miscellaneous fee, rental agreement for the hostel and details of accounts of hostel and hand loan particulars, documents related to purchase of immovable property. The representative requested time till 15.12.2004 to furnish details which was granted. The trust failed to respond within the time permitted. There has been no response to the letter seeking clarification on maintenance of accounts and application of funds.
2. In the interest of natural justice, final opportunity was given vide show cause notice dtd. 13.1.2005 posting the case for bearing on 21.1.2005. None appeared for hearing and no details have been filed.
3. In the circumstances, there is no option but to reject the assessee's application for grant of Registration u/s. 12A of the Income Tax Act, 1961, for non-compliance.
4. Accordingly, the assessee's application u/s. 12A of the Income Tax Act, 1961 is rejected."
16. It reveals that the said application was rejected in limine for want of appearance and necessary details and it was not decided on the objects of the assessee being charitable or genuineness of the activity for achieving the objectives. Immediately after the said order of DIT (E), the assessee filed another application dated 14.3.2005 for registration u/s. 12A and explained the difficulties for not filing the necessary details on earlier occasions. The said application was not acted upon for a considerable period and therefore assessee filed third application dated 21.10.2008 which was rejected on merits vide order dated 24.4.09. However, the matter was remanded back by this Tribunal to DIT (E) and subsequently registration was granted vide order dated 5.3.10 w.e.f. 1.4.2008. It is apparent from the record that the AO issued notice u/s. 148 on 30.12.08 primarily on the ground that the assessee has not been registered u/s. 12A of the Act, whereas registration was finally granted w.e.f. 1.4.2008.
17. The reasons recorded by the AO for initiating proceedings u/s. 148 are as under:—
"The assessee, an educational trust has failed to furnish the R/I within the time allowed u/s. 139(4A) RWS 139(1) of the Act.
Further, it is noticed that the assessee is neither registered u/s. 12A(a) of the Act not got approval u/s. 10(34C) of the Act. Its gross receipts exceed Rs. One crore for the A.Y. 2006-07.
I have, therefore, reason to believe that the income chargeable to tax has escaped asst. within the meaning of section 147 of the Act. Hence, this is a fit case for issue of notice u/s. 148 of the Act."
18. The AO proposed to initiate proceedings u/s. 148 on the reasons that the assessee is neither registered u/s. 12A of the Act nor got notified u/s. 10(34C) of the Act, as the gross receipt exceeds Rs. Two crore. The assessment orders were passed u/s. 143(3) r.w.s. 147 based on two premises as understood by the AO that neither registration u/s. 12A was granted nor exemption u/s. 10(23C) is available due to gross receipts exceeding Rs. 2 crores. It is pertinent to note that assessment was framed on 24.12.2009 based on the orders of DIT (E) dated 27.4.2009 which was set aside by the Tribunal vide order dated 13.11.09. Therefore, during the pendency of the assessment proceedings, the Tribunal set aside the order dated 27.4.2009 of DIT (E). The assessee was granted registration w.e.f. 1.4.2008 which means registration came into effect much prior to initiation of proceedings u/s. 148 of the Act. Therefore, the entire basis of the assessment order was no more in existence, after the grant of registration u/s. 12A.
19. At this stage, we quote the proviso to section 12A as under:—
"Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 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 Chief 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 Chief Commissioner or Commissioner is not so satisfied: |
(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 fifty thousand 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."
20. Explanatory Note on the proviso introduced by the Finance Act, 2014 explains 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."
21. This object of amendment to insert the proviso to section 12A is to remove the genuine hardship caused by the earlier amendment whereby the powers of the competent authority to condone the delay in applying the registration was taken away and consequently due to time gap in registration, tax liability is fastened. Thus, the nature and purpose of amendment is to supply the obvious omission in the existing provisions as well as to provide the benefit to the genuine assessees without inflicting corresponding detriment to the other person or on the public generally. Thus, the presumption would be that this amendment on a purposive construction would warrant to be given a retrospective effect. Since the amendment by way of inserting the proviso is remedial in nature, therefore even though the amendment is w.e.f 1.10.2014, it is applicable in the cases where the application for registration is made after 1.6.2007 because of withdrawal of powers of granting registration from the earlier date prior to the financial year of application. Further in the case of assessee, there is no allegation of change of objects or activities as it was at the time of granting registration in comparison to the objects of activity during the years under consideration.
22. Thus, benefit of sections 11 and 12 of the Act cannot be denied merely on the ground that registration is granted w.e.f. 1.4.2008, though by a subsequent order, but the registration u/s. 12A came into effect prior to the initiation and completion of assessment proceedings of these four years. Accordingly, we hold that assessee is eligible for exemption u/s. 11 of the Act.
23. As regards the receipt of each educational institution to be considered separately for the purpose of exemption u/s. 10(23C) of the Act, the Hon'ble High Court in the case of Children's Education Society (supra) has held in paras 18 to 25 as under:—
'18. Therefore, one crore of rupees is the aggregate annual receipts which is prescribed under the Rules. In other words, if the aggregate annual receipts of an educational institution is less than one crore, the income from such educational institution in the hands of the assessee, is not taken into consideration in computing the total income of the assessee.
19. Sub-clause (vi) provides that any university or other educational institution existing for educational purpose and not for the purpose of profit other than those mentioned in sub-clause (iiiab) and sub-clause (iiiad) and which may be approved by the prescribed authority, they are also entitled to the said benefit. In other words, sub-clause (iiiab), sub-clause (iiiad) and sub-clause (vi) applies to three categories of institutions.
20. Now, we are concerned with the meaning to be attached to the word "aggregate annual receipt". The argument is, other educational institution referred to in the said sub-clause refers to all educational institutions run by the assessee and aggregate annual receipts of such other educational institutions means the aggregate of annual receipts of all such educational institutions put together. Otherwise, the use of the word "aggregate" loses its meaning. We find it difficult to accept the said argument.
21. Firstly, if the word "aggregate annual receipts" of other educational institution is to be understood as clubbing of annual receipts of all educational institutions run by an assessee-society, then it will also include the annual receipts of an educational institution which is wholly or substantially financed by the Government. If that was intention of the Legislature, they would not have introduced separate sub-clauses as (iiiab) and (iiiad). If such interpretation is placed, sub-clause (iiiab) becomes otiose. Therefore, it is not possible to place such an interpretation. If an assessee society is running several educational institutions, if some of them are wholly or substantially financed by the Government in terms of sub-clause (iiiab), the income on behalf of such educational institution received by the assessee is exempted from being computed the total income of the assessee. If the assessee is running other educational institutions which are not wholly or substantially financed by the Government, then the benefit of that exemption is also extended to the income derived from such educational institutions and received by the assessee under sub-clause (iiiad) reading with sub-clause (iiiad) along with rule 2BC. It was contended, the Legislature used the word "aggregate annual receipt" and "amount of annual receipts" and, therefore, the provisions are not one and the same. The word "aggregate" has been defined in Chambers 21st Century Dictionary as under:
"Aggregate noun = a collection of separate units brought together, a total taken altogether, bring together."
In Wharton's Law Lexicon, it is defined as thus : "a collocation of individuals, units or things in order to form a whole."
22. Similarly, relying on the judgment of the apex court in the case of Aditanar Educational Institution v. Addl. CIT, it was contended the words "other educational institution" refers to the assessee society and not to the individual educational institution. If the intention of the Legislature was to club the annual receipts of all educational institutions run by the assessee society, they could have said so in clear terms. On contrary what is stated in the said section is the aggregate annual receipts of such university or such educational institution referring to other educational institution. Other educational institution is to be understood with the context of the first word, i.e., the university. Both in the university and any educational institutions, education is imparted. The university is a statutory body. But there are a number of educational institutions which are not run by a statutory authority which are imparting education, the word "other educational institution" has to be understood in the context of other than any university. If so understood, all that it means is every educational institution existing solely for educational purpose and not for the purpose of profit, if the aggregate annual receipts of such educational institution exceeds Rs. 1 crore, then the income from such educational institution received by the assessee is excluded from his total income. In an educational institution the amount are calculated periodically. It may be calculated under different heads. All such amounts received constituted receipts and those receipts may be received throughout the year. Therefore, the word "annual" has been inserted. But to be eligible for exemption, aggregate of annual receipts should not exceed Rs. 1 crore, i.e., the total annual receipts of a year if it does not exceed Rs. 1 crore, then the income derived from such educational institution in the hands of the assessee cannot be taken into consideration to compute the income of the assessee.
23. No doubt, education has become a business, a very profitable business also. But it requires huge investment. It is the duty of the Government to provide education to all its citizens, as the Government is not able to shoulder the responsibility completely. Therefore, the field of education is now thrown open to private organizations. But for throwing open the field to the private operators, probably, the country would not have achieved in the field of education what it has achieved. Therefore, lot of funds are invested in running these educational institutions, either by creating a society or a trust. In course of time, they have expanded their activity providing course in various subjects at various levels and for that purpose they have established more than one educational institution. Each educational institution is a separate entity controlled under various statutes for various purposes. May be the management of these educational institutions would be in the hands of the societies or the trust, but for all other purposes they are different, independent entities. That is the reason why section 10(23C) is worded as under:
"any income received by any person on behalf of. . . . "
24. Here "any person" refers to the assessee and "on behalf of" refers to such institutions. It may be an university, it may be an educational institution, it may be a hospital or other institutions of similar nature. As all such institutions are independent entities and they generate income and when that income is received by the assessee, it becomes the income in the hands of the assessee and it is such income which is sought to be excluded while computing the total income of the assessee under section 10. The test prescribed under the aforesaid provision is not the income of the educational institution. It is the aggregate annual receipts of such educational institution that is prescribed at Rs. 1 crore. Therefore, irrespective of the expenditure incurred by those institutions, the exemption is based on the total receipts. Even if the word "aggregate" has to be understood as suggested by the Revenue as the annual receipts of such educational institutions put together, probably, the said provision regarding exemption would be of no use at all. Especially, if the society is running a medical college or any engineering college or other professional courses, then the annual receipt of each institution would run to a few crores and, therefore, the very object of granting exemption to such genuine institution would be lost. Therefore, the words "aggregate annual receipt" has to be understood with the context in which it is used and the purpose for which the said provision was inserted, keeping in mind, the scheme of the Act. Therefore, if an assessee is running several educational institutions, if any of them is wholly or substantially financed by the Government, then the income from such educational institution received by the assessee is not included while computing his total income. Similarly, income from each educational institution if they are not receiving any aid from the Government wholly or substantially in respect of which the aggregate annual receipt do not exceed Rs. 1 crore received by the assessee, is also not included while computing annual total income of the assessee.
25. Clause (vi) makes it clear that if educational institution do not fall under either of those two categories and still such educational institutions are also entitled to the exemption, provided such institutions are approved by the prescribed authority. Therefore, all these three provisions apply under three differed spheres. Otherwise, there was no necessity for the Legislature to introduce these three provisions. In that view of the matter, the finding recorded by the Tribunal that aggregate annual receipt of other educational institution means, total annual receipt of each educational institution, is correct and it does not call for any interference. Therefore, the substantial questions of law Nos. 2 and 3 is answered in favour of the assessee and against the Revenue.'
24. Respectfully following the judgment of the Hon'ble jurisdictional High Court (supra), we hold that the annual receipt of each college which is a separate educational institution, has to be considered for the purpose of section 10(23C) of the Act.
25. Though the issue of assessment on the status of AOP becomes infructuous and academic in nature in view of our finding on the issue of eligibility of exemption u/s. 11 of the Act, however, we find that the Hon'ble High Court in the case of Children's Education Society (supra) had an occasion to deal with this issue in paras 5 to 8 as under:—
'5. The word "person" is defined under section 2(31) of the Act. It reads as under :
"2. (31) 'person' includes—
| (i) |
an individual, |
(ii) |
a Hindu undivided family, |
(iii) |
a company, |
(iv) |
a firm, |
(v) |
an association of persons or a body of individuals, whether incorporated or not, |
(vi) |
a local authority, and |
(vii) |
every artificial juridical person, not falling within any of the preceding sub-clauses. |
Explanation. - For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains."
6. A reading of the aforesaid definition makes it clear that a "person" includes an association of persons or body of individuals whether incorporated or not and also every artificial juridical person, not falling within any of the preceding sub- clause. Once a body/society is incorporated under a statute, it becomes juridical person.
7. Under the terms of the Societies Registration Act, 1860, any seven or more persons associated for any literary, scientific or charitable purpose, may by subscribing their names, to a memorandum of association and filing the same with the Registrar of Societies may form themselves into a Society under the Act.
8. Once the society is formed, it would become a juridical person as opposed to natural persons. Business of the society is carried on in the name of the society and not in the name of the persons who form the said society. The properties of the society would vest in the name of the society managed by the governing body. The society so registered, may sue or be sued in the name of the president, chairman or principal secretary or the trustees as shall be determined by the rules and regulations of the society and in default of such determination, in the name of such persons as shall be appointed by the governing body for the occasion. Therefore, the society would be an artificial juridical person other than the association of persons or body of individuals. Therefore, the society while filing return is described the status as artificial juridical person. The assessing authority could not accept the said status and treated the assessee as an association of persons and has passed the order. Now, the Tribunal has held that the assessee is to be treated as artificial juridical person. When the return is filed as artificial juridical person, the question of treating the assessee as an association of persons would not arise. Therefore, the substantial question of law No. 1 is answered in favour of the assessee and against the Revenue."
26. In the case in hand, the assessee is a trust and therefore so far as the income not eligible for exemption u/ss. 11 and 12 of the Act is concerned, the provisions of section 164(2) are applicable which reads as under:—
"(2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons:
Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate."
27. Therefore, the status as per section 164(2) is only for the assessment purpose and not to after the real status of the trust. In the case of society, there is no special provision providing the status of the person in terms of section 2(31) of the Act and therefore it was held by the Hon'ble High Court that it would fall in the residual category of Artificial Juridical Person ["AJP"]. Whereas in case of income from property held under trust which is not eligible for exemption u/ss. 11 and 12 of the Act, it will be dealt with as per the special provisions of section 164(2) of the Act, which stipulates the status in which the income is assessable. Therefore, this provision is applicable only when the income is found to be not eligible for exemption u/ss. 11 and 12 of the Act. In the case in hand, we have given a finding that assessee is eligible for exemption u/s. 11 of the Act and therefore the status of the assessee would be AJP and not AOP.
28. The plea taken by the ld. AR of assessee that DIT (E) has not acted upon the application dated 13.3.2005 and therefore on expiry of six months from the date of application, it would be deemed registration, will be dealt with while adjudicating the grounds raised in the COs.
CO Nos. 80 to 83/Bang/2012
29. Ground No. 1 of the COs is general in nature and does not require any specific adjudication.
30. Ground No. 2 is regarding validity of order passed u/s. 143(3) r.w.s. 147 of the Act for want of jurisdiction u/s. 148. The ld. AR of assessee has submitted that non-filing of return would not give jurisdiction to the AO automatically to initiate proceedings u/s. 148, when the assessee was not having any taxable income and therefore as per provisions of section 139(4A), it was not required to file a return of income. Further, all receipts are not income and the AO cannot presume that the receipts are income assessable to tax without any material on the basis of which the AO could have formed a belief that income assessable to tax has escaped assessment. He has retied upon the 2nd proviso to section 12A and submitted that no action u/s. 147 shall be taken by the AO in the case of trust merely because of non-registration of such trust for the said assessment year. He has further contended that the AO proceeded on wrong presumption of facts and took the consolidated receipts of both the educational institutions instead of receipts of each college separately for the purpose of exemption u/s. 10(23C) of the Act. Therefore, there is no material or new information available with the AO to form a belief that income assessable to tax has escaped assessment.
31. On the other hand, the ld. DR has submitted that at the time of issuing notice u/s. 148, proviso to section 12A as relied upon by the assessee was not in the statute as it was inserted by the Finance Act, 2014 w.e.f. 1.10.2014. Therefore, in the absence of return of income and registration u/s. 12A, the AO had reasons to believe that income chargeable to tax has escaped assessment. Thus, initiation of proceedings u/s. 148 is valid and proper. Further, the receipts of the trust/institution has to be considered and there is no provision in the statute to separate the receipts of each college. Hence, what is required at the time of initiation of proceedings u/s. 148 is a prima facie reasonable belief that assessee is not eligible for exemption u/s. 10(23C) because the gross amount of receipts are more than the prescribed limit. He has relied upon the orders of authorities below.
32. We have considered the rival submissions as well as relevant material on record. It is undisputed fact that at the time of issuing notice u/s. 148, an application for registration was rejected by the DIT (E) and therefore as per the provisions of section 12A as existed at the relevant point of time, the AO has valid reason to believe that the income assessable to tax has escaped assessment. As regards the composite amount of receipts, it is only a matter of interpretation that for the purpose of section 10(23C) of the Act, the receipt of each educational institution has to be considered separately and not by clubbing together of all the institutions of the trust. In the absence of any provision in the statute as well as any binding precedent at the time when the notice was issued by the AO u/s. 148, the AO was justified to believe that consolidated amount of receipts of the assessee trust are to be taken into account for the purpose of exemption u/s. 10(23C) of the Act. Therefore, at the stage of forming the belief, the AO was having tangible material in the shape of rejection of registration as well as consolidated receipt of the assessee trust exceeding the exemption limit provided u/s. 10(23C) and hence initiation of proceedings u/s. 148 are valid.
33. However, the assessment framed by the AO by making addition was not found sustainable as this issue was decided in favour of assessee while dealing with the revenue's appeal.
34. Ground No. 3 is regarding addition made by the AO. This issue stands decided in favour of assessee in view of our finding on the issue of eligibility of exemption u/s. 11.
35. Ground No. 4 is regarding deemed registration on expiry of six months from the date of application. Having considered the rival submissions as well as relevant material on record, we find that the present proceedings are against the assessment order and not against the order of DIT (E) u/s. 12AA of the Act. Further, the issue of registration was earlier brought before the Tribunal and in the set aside proceedings, the DIT (E) granted registration vide order dated 5.3.2010 w.e.f. 1.4.2008. The said order has not been challenged by the assessee, therefore, the issue of registration has attained finality and cannot be agitated in the proceedings arising from the assessment order. Hence this issue cannot be raised in the present proceedings and therefore deserves to be dismissed.
36. Ground No. 5 is regarding gross receipts/separate receipts of each institution. This issue has already been considered while deciding the issue in the revenue's appeal and stands allowed.
37. The assessee has raised another additional ground as under:—
"1. The. order of the authorities below in so far as it is against the Respondent/Cross Objector are opposed to law, weight of evidence, natural justice, facts and circumstances of the case.
2. Without prejudice the order passed by the learned Assistant Deputy of Income-tax [Exemptions] under section 143[3] r.w.s. 147 of the Act is without jurisdiction, since the status of the Respondent/Cross Objector was not recognized as Trust and the learned assessing officer ought to have transferred the case of the Respondent/Cross Objector to the respective ward in which the jurisdiction for assessing the Respondent/Cross Objector lies under the facts and circumstances of the case.
3. The Respondent/Cross Objector craves leave to add, alter, delete or substitute any of the grounds urged above.
4. In view of the above and other grounds that may be urged at the time of hearing of the Cross Objection, your Respondent/Cross Objector humbly pray that the Cross Objection may be allowed in the interest of equity and justice."
38. We have heard the ld. AR as well as ld. DR and considered the relevant record on the point of admission of additional ground. Since it is a pure question of law and does not require any investigation of facts, therefore in view of the decision of the Hon'ble Supreme Court in the case of NTPC Ltd. v. CIT [1998] 229 ITR 383, the additional ground raised by the assessee is admitted for adjudication.
39. The ld. AR for the assessee has submitted that when the AO has not recognized the assessee as trust and framing the assessment by treating the assessee as AOP, then the jurisdiction to pass assessment order other than the trust, does not lie with the AO. He has contended that the assessment order is not sustainable and void ab initio when the AO was not having jurisdiction to pass the order in the case of AOP.
40. On the other hand, the ld. DR has submitted that the assessee did not raise this issue before the AO as per section 124(3)(a) of the Act which stipulates that a person who has made a return before the AO cannot call in question the jurisdiction of AO after the expiry of one month from the date on which he was served a notice u/s. 143(2), or after the completion of the assessment, whichever is earlier. The ld. DR has submitted that the assessee did not raise the issue of jurisdiction at all before the AO and took part in the proceedings before the AO. Therefore, assessee cannot raise this ground of jurisdiction of the AO at this stage.
41. We have considered the rival submissions as well as relevant material on record. The assessee filed return of income with the AO who has framed the assessment. Once the assessee itself has submitted to the jurisdiction of the AO and did not raise any objection of jurisdiction of the AO to frame the assessment, then it is not open to the assessee to raise this objection on the basis of outcome of the assessment order. It is not the case of the assessee that the AO was not having jurisdiction right from the beginning of initiating the proceedings of assessment on the return filed by the assessee, but this objection of the assessee is based on the fact that the AO assessed the income of the assessee in the status of AOP. It is pertinent to note that it is only an outcome of the assessment proceedings and not at the time of initiation of proceedings that the status of assessee trust is as AOP. Section 164(2) clearly provides that assessment of income of the trust so far as it is not eligible for exemption u/ss. 11 and 12 of the Act as income of the AOP. Therefore, we do not find any merits or substance in the additional ground raised by the assessee.
42. In the result, the appeals of revenue are dismissed and the cross objections by the assessee are partly allowed.