Income Tax Appellate Tribunal - Hyderabad
Sahasra Educational Society, ... vs Adit (Exemptions)-I, Hyd, Hyderabad on 22 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 772/Hyd/2016
Assessment Year: 2011-12
Sahasra Educational Society, Vs. Asst. Director of Income-tax
Warangal. (Exemption) - 1, Hyderabad.
PAN - AAGTS 7230L
(Appellant) (Respondent)
Assessee by : Shri A.V. Raghu Ram
Revenue by : Shri L. Ramji Rao
Date of hearing : 08-08-2017
Date of pronouncement : 22-09-2017
ORDER
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax(A) - 9, Hyderabad, dated 18-03-2016 for AY 2011-12.
2. Briefly the facts of the case are that the assessee, a society, filed its return of income for the AY 2011-12 on 02/02/2012 declaring "Nil" income. The case was selected for scrutiny as per CASS scrutiny guidelines and notice u/s 143(2) was issued on 02/08/2012 by the AD IT (Exemptions) - II, Hyderabad.
2.1 Assessee society is running educational institutions and it has been granted registration u/s 12AA of the Income-tax Act, 1961 (in short 'the Act') with effect from 29/02/2012 i.e. applicable from AY 2012-13.
2 ITA No. 772/H/16Sahasra Educational Society 2.2 AO noticed that as per income and expenditure account, assessee had shown Rs. 37,48,715/- as income excess over expenditure and shown total receipts of Rs. 2,14,62,109/-. Assessee had claimed exemption u/s 11 of the Act without obtaining registration u/s 12AA of the Act. AO observed that, even though, assessee is running educational institution, it should have obtained approval u/s 10(23C)(vi) of the Act. Since assessee does not have approval u/s 10(23C)(vi) and registration u/s 12AA of the Act, the surplus income, accordingly, was brought to tax by the AO.
3. Aggrieved with the above order, assessee preferred an appeal before the CIT(A).
4. Before the CIT(A), assessee filed an additional ground of appeal challenging the assessment order passed by invoking the amendment to section 12A(2), in which, proviso was introduced from 01/10/2014 that it is only a proviso and not a substantial provision and further it is a beneficial one, it has to be treated as clarificatory in nature and it should be treated as retrospective amendment.
5. Ld. CIT(A) called for the remand report from the AO and reply from the assessee on the remand report. She had dismissed the appeal of the assessee by observing as under:
"4.4 However, the assessee's contentions are not acceptable as firstly the registration u/s 12AA was granted w.e.f. AY 201213. Further, the proviso has been introduced in the Act w. e. f. 01/10/2014 and hence it is clearly not applicable for the present AY i.e. 2011-102. Further, as opined by the AO in the remand report, the assessment has not been reopened u/s 147 of the IT Act and as such, the proviso is not applicable in the assessee's case. As such the assessee's contention cannot be accepted and this additional ground raised by the assessee is dismissed."
6. Aggrieved with the order of CIT(A), assessee is in appeal before us raising the following grounds of appeal:
3 ITA No. 772/H/16Sahasra Educational Society "1. The order of the learned CIT(A) dismissing the appeal is erroneous both on law and in facts to the extent it is prejudicial to the assessee.
2. The learned CIT(A) erred in holding that the proviso to Sec.
12A(2) is not applicable on the ground that the said proviso is introduced from 1-10-2014 and further that the assessment is not re-opened u/s. 147 Without appreciating the legal position that the section categorically provides that for all applications made on or after 1-6-2007 and further that it only provides for not initiating proceedings u/s. 147 and it is not necessary that the assessment should be under that provision.
3. The learned CIT(A) failed to appreciate that the application for registration u/s. 12A was made after 1-6-2007 and when registration is granted the assessment for the assessment year 2011-12 is pending and therefore the said provision Sec. 12A(2) is applicable and thereby erred in holding that it is not applicable.
4. The learned CIT(A) erred in holding that when exemption is refused it is not necessary to compute income on commercial principles applying the provisions of I. T. Act on the ground that the appellant has filed return of income as a single entity when it has no relevance.
5. Any other ground that may be urged at the time of hearing."
6.1 The assessee has filed a petition for admitting the following additional ground under rule 11 of Appellate Tribunal Rules, 1963, but, the same has not been pressed at the time of hearing:
"The authorities below ought to have appreciated the fact that the receipt of each individual institute does not exceed Rs. One crore and therefore the incomes of such institutes are exempt u/s 10(23C)(iiiad) and therefore erred in holding the income to be taxable on the ground that there is no registration u/s 12AA and no approval u/s 10(23C)(vi), which is not required."
7. Ld. AR brought to our notice proviso to section 12A(2), which was introduced from 01/10/2014 and submitted that this proviso being beneficial one and should be applied retrospectively, accordingly, the society was granted registration on 10102/2014 whereas the impugned assessment order was passed on 18/03/2014. He submitted that as per the amended provision, where registration has been 4 ITA No. 772/H/16 Sahasra Educational Society granted to the trust or institution u/s 12AA, then, the provisions of section 11 and 12 shall apply in respect of any income derived from property held under trust of any AY preceding the year in which registration was granted, for which assessment proceedings are pending before the AO as on the date of such registration and objects and activities of such society remain same for such preceding AY. He further relied on the explanatory note to the provisions of the Finance Act, 2014.
8. Ld. DR, on the other hand, submitted that the proviso to section 12A(2) was amended w. e. f. 01/10/2014 and since registration was granted on 19/02/2014, the new proviso will not apply to the case of assessee. He further submitted that as per the explanatory note, the benefit would not be available to the case of any trust or institution, which at any time had applied for registration and the same was refused u/s 12AA of the Act. I n the case of assessee, the registration was rejected. Further, He supported the orders of revenue authorities.
9. Considered the rival submissions and perused the material facts on record. The main question before us is whether the amended proviso to section 12A(2) is applicable to the assessee's case when the proviso was introduced on 01/10/2014 whereas the registration was granted to the assessee on 19/02/2014, while, assessment for the AY under consideration was passed on 18/03/2014. At the time of granting registration, the assessment proceeding was pending. Similar issue came up for consideration before the Kolkata Bench of ITAT in the case of Sree Sree Ramkrishna Samity Vs. DCIT in ITA Nos. 1680 to 1685 of 2012 vide order dated 09/10/2015 wherein the Bench has held as under:
"6.8. It will be relevant to get into the Explanatory Notes to the Provisions of the Finance (No. 2), 2014 as given in CBDT Circular No. 01 / 2015 dated 21.1.2015 in reference F.No. 5 ITA No. 772/H/16 Sahasra Educational Society 142/13/2014-TPL which is reproduced hereinbelow for the sake of convenience :-
Para 8 - Applicability of the registration granted to a trust or institution to earlier years 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.
This clearly goes to prove that 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 Learned AO, unless the registration granted earlier is cancelled or refused for specific reasons. The statute also goes on to ITA Nos. 1680- 1685/Kol/12--C-AM Sree Sree Ramkrsihna Samity 8 provide that no action u/s 147 could be taken by the AO merely for non-registration of trust for earlier years.
6.9. ...
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 6 ITA No. 772/H/16 Sahasra Educational Society 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. Reliance in this regard is placed on the following decisions :-
Allied Motors P ltd vs CIT reported in (1997) 224 ITR 677 (SC) - Judgement by three judges of the Supreme Court The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B.
Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43Bbecome unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions.
In the case of Goodyear India Ltd vs State of Haryana (1991) 188 ITR 402 , this court said that the rule of reasonable construction must be applied while construing a statute. Literal construction should be avoided if it defeats the manifest object and purpose of the Act.
As observed by G.P.Singh in his Principles of Statutory Interpretation, 4th Edn., Page 291, "It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended". In fact the amendment would not serve its object in such a situation, unless it is construed ITA Nos. 1680-1685/Kol/12--C-AM Sree Sree Ramkrsihna Samity 10 as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.
CIT vs Virgin Creations in ITAT No. 302 of 2011 in GA 3200 / 2011 dated 23.11.2011, the Hon'ble Calcutta High Court in the context of retrospective applicability of amendment to section 40(a)(ia) of the Act held as below:-
"The supreme court in the case of Allied Motors P ltd and also in the case of Alom Extrusions Ltd has already decided that the aforesaid provision has retrospective application.7 ITA No. 772/H/16
Sahasra Educational Society Again, in the case reported in 82 ITR 570, the Supreme Court held that the provision, which has inserted the remedy to make the provision workable, requires to be treated with retrospective operation so that reasonable deduction can be given to the section as well".
CIT vs Vatika Township P Ltd reported in (2014) 367 ITR 466 (SC) - Five Judges decision of the Supreme Court "We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India vs Indian Tobacco Association reported in (2005) 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay vs State of Maharashtra reported in (2006) 6 SCC 289. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here".
In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to section 113 of the Act is not beneficial to the ITA Nos. 1680-1685/Kol/12--C-AM Sree Sree Ramkrsihna Samity 11 assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors.
8 ITA No. 772/H/16Sahasra Educational Society CIT vs J.H.Gotla reported in (1985) 156 ITR 323 (SC) If the purpose of a particular provision is easily discernible from the whole of the scheme of the Act which in this case, is to counteract the effect of transfer of assets so far as computation of income of the assessee is concerned, then bearing that purpose in mind, we should find out the intention from the language used by the legislature and if strict literal construction leads to an absurd result, i.e., result not intended to be subserved by the object of the legislation found in the manner indicated before, then another construction is possible apart from strict literal construction then that construction should be preferred to the strict literal construction.
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 magis valeat 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)."
Respectfully following the above decision and findings that the amended proviso to section 12A(2) on 01/10/2010 is applicable retrospectively, it is observed that, in the present case, the assessee was granted registration u/s 12A on 19/02/2014. As per the amended provision, any proceeding pending with AO on the date of registration, such pending proceeding/assessment, the assessee is eligible to get the benefit u/s 11 & 12 of the Act. I n the given case, the assessment for AY 2011-12 was completed on 18/03/2014, i.e. on the date of registration, the assessment for AY 2011-12 was pending with the AO. Accordingly, we direct AO to extend the benefit of deduction u/s 11 to AY 2011-12 which is under dispute. Moreover, as per the 9 ITA No. 772/H/16 Sahasra Educational Society amended provision, the object of the society should remain same in the pending year of proceedings and the year in which registration is granted. In the case before us also, the objects of the society remain same.
9.1 Ld. DR raised objection before us that the registration was denied to the assessee, as per the amended proviso, the benefit cannot be extended to assessee. Ld. AR in the rejoinder clarified that the registration was granted to assessee only on the direction of ITAT as per the appeal against such order. Accordingly, the grounds raised by the assessee are allowed.
10. In the result, appeal of the assessee is allowed.
Pronounced in the open court on 22 nd September, 2017.
Sd/- Sd/-
(D. MANMOHAN) (S. RIFAUR RAHMAN)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated: 22 nd September, 2017.
Kv
Copy to:-
1) M/s Sahasra Educational Society, C/o K. Vasantkumar, AV Raghuram, P. Vinod, Advocates, 610, Babukhan Estate, Basheerbagh, Hyderabad - 500 001
2) ADIT (Exemptions) - I, Posnett Bhavan, Tilak Road, Abids, Hyderabad.
3) CIT(A) - 9, Hyderabad 4 Pr. CIT (Exemptions), Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File 10 ITA No. 772/H/16 Sahasra Educational Society Description Date Intls S.No. 1. Draft dictated on Sr.P.S./P.S 2. Draft placed befor e auth or Sr.P.S/PS Draft pr opose d & placed bef ore the secon d JM/AM 3 Mem ber 4 Draft discussed/appr oved by second JM/AM Mem ber 5 Appro ved Draft com es to the Sr.P.S./PS Sr.P.S./P.S 6. Kept for pro nou ncem ent on Sr. P.S./P.S. 7. File sent to the Bench Clerk Sr.P.S./P.S 8 Date on which file go es to the Head Cle rk 9 Date of Dispatch of or der