Income Tax Appellate Tribunal - Jaipur
Sahitya Sadawart Samiti vs Commissioner Of Income Tax on 31 May, 2007
Equivalent citations: (2007)112CTR(JP)859
ORDER
I.C. Sudhir, J.M.
1. The assessee has questioned rejection of its application under Section 12A(a) of the IT Act, 1961, by learned CIT on several grounds.
2. The issue involved in all these grounds is as to whether the. learned CIT was justified in rejecting the application under Section 12A(a) of the Act moved by the assessee.
3. We have heard and considered the arguments advanced by the parties in view of order of the lower authority, material available on record and the decisions relied upon by them.
4. The assessee was registered on 20th Nov., 1959 under the Rajasthan Societies Registration Act, 1953 with the main object of imparting education in the Stale of Rajasthan. On 30th May, 2002 the applicant society have filed an application in Form No. 10A seeking registration under Section 12A(a) of the Act before the learned CIT. The application was accompanied with a copy of certificate of registration with the Registrar of Societies, a copy of constitution of the society and audit report in Form No. 10B alongwith income and expenditure account/balance sheet for the yrs. 1998-99, 1999-2000 and 2000-01. The learned CIT noted that the application was belated and thus did not satisfy the mandatory condition for registration prescribed under Section 12A of the Act. In the show-cause notice issued to the assessee in this regard attention of the applicant was drawn to the statutory provisions of Section 12A(a) as per which the application was required to be made before 1st July, 1973 or before the expiry of one year from the date of creation of the trust, whichever is later. He observed that in the present case the trust was created on 25th Nov., 1959 and hence the application under Section 12A was required to be filed before 1st July, 1973. The assessee showed cause for the delay that as a prudent citizen it was felt that since the main objective of the society was to impart education without motive of profit, the income is exempt under Section 10(23) of the IT Act, 1961. However, later on, it was gathered that IT law is amended almost every year and filing of application for registration under Section 12A(a) of the Act was necessary. As this fact came to the, knowledge of the society very late, application for registration was filed on 30th May, 2002 as the circumstances were beyond the control of the society. It was submitted further that the IT law is a very complicated piece of legislation and every one is not supposed to know and understand the complexities of IT law. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh and Ors. . It was pleaded further that as per Section 12AA, Sub-clause (2), every order granting or refusing registration is inquired to be passed before the expiry of 6 months from the end of the month in which the application was received. The assessee also filed an affidavit reiterating the submissions. The learned CIT was not satisfied with the reasons shown for the delay in filing the application by the assessee. He observed that the application is belated and counting from 1st July, 1973 to 30th May, 2002, the delay is of more than 28 years and 10 months. The society has been served with by a reputed professional firm of chartered accountants under Section 10(23C) income of an educational institution existing solely for educational purposes and not for purposes of profit is exempt. Thus, existence 'solely for educational purposes and non-profit motive are essential conditions whereas income from property held for charitable purposes is exempt under Section 11 of IT Act subject to registration under Section 12A and fulfilment of conditions of Section 13. The learned CIT was of the view that ignorance of law cannot constitute a sufficient cause, otherwise in every case of delay an argument can be taken about an-assessee being unaware of legal provisions. An authority can condone delay only for sufficient cause and bona fide reason supported by cogent and proper evidence. On the plea of the assessee that Sub-clause (2) of Section 12AA requires every order granting or refusing registration should be passed before 6 months from the end of the month in which application was received and in the present case, the application filed on 30th May, 2002 should therefore be deemed to be accepted after expiry of 6 months, the learned CIT held that the scheme of the Act is that Section 12A prescribed for filing of application, Sub-clause (a) providing for the time-limit in which the application is required to be filed and Sub-clause (b) providing for the filing of audited accounts alongwith certificate of Form No. 10B. After a valid application has been filed under Section 12A, Section 12AA prescribes the procedure for registration. In Sub-section (1) of Section 12AA the CIT may call for documents or. information from the applicant in order to satisfy about the genuineness of the activities of the trust and after making such inquiries as deemed necessary, may pass an order under Section 12AA(1)(b)(i) registering the trust or under Section 12AA(1)(b)(ii) refusing to register the trust. Sub-section (2) of Section 12AA lays down that an order granting or refusing registration under Clause (b) of Sub-section (1) of Section 12AA shall be passed before the expiry of 6 months from the end of the month in which application was received. The learned CIT held that in the present case, the application dt. 30th May, 2002 is liable to dismissed in limine, being an invalid application and not meeting with the mandatory requirements of Section 12A(a). He was thus of the view that the limitation of Section 12AA(2) is not applicable in respect of such invalid application. The learned CIT vide order dt. 18th Nov., 2005 has accordingly rejected the application under Section 12A(a) of the Act filed on 30th May, 2000.
5. We thus find that the learned CIT has rejected the application mainly on the basis that (1) the application filed on 30th May, 2002 is beyond time-limit prescribed under Section 12AA and no sufficient cause for inordinate delay of more than 28 years and 10 months in making the application has been shown; and (2) the applicant is also not eligible for registration under Section 12A from the first day of Financial year 2002-03 since copies of accounts for financial year 2001-02 were not filed alongwith application in terms of Rule 17A(b) of IT Rules.
6. Explaining the alleged delay of more than 28 years and 10 months in making the application, the learned Authorised Representative submitted that the society was registered on 20th Nov., 1959 under the Rajasthan Societies Registration Act, 1953, with the main object of imparting education in the State of Rajasthan. Till the asst. yr. 1998-99 any income of an educational institution was made exempt under Section 10(22) of the IT Act, 1961. Accordingly, all along in the past the appellant has been enjoying the benefit of the exemption granted to the educational institutions by way, of Section 10(22) of the Act and hence was not required to file any return of income. The appellant society thus had no taxable income and, hence, no return of income was filed till asst. yr. 2000-01. From asst. yr. 1999-2000, Section 10(22) was omitted and in place thereof, amendments were made in the existing Section 10(23C). According to Section 10(23C)(vi), an educational institution which is engaged solely for educational purposes and having gross receipt exceeding Rs. one crore, could have had exemption from taxation under the Act, provided it has obtained approval under that provision from the prescribed authorities (CBDT/Chief CIT). However, on the other hand, the provisions of Sections 11 to 13 of the Act grant an exemption to the entire income of a trust, institution or a society, which held a property for charitable purposes, on fulfilling of certain conditions, also continued as they stood earlier. In other words, consequent to the aforesaid amendments under Section 10(23C)(vi), no consequential amendment was made in Sections 11 to 13 of the Act.
7. Thus, it. was only after the amended law came into effect, every such, institution having receipt, exceeding Rs. one crore could have approval for exemption from the prescribed authority under Section 10(23C)(vi). However, at the same time, it could have also sought exemption of income under the regular provisions meant for a public charitable and religious trust under Sections 11 and 12 in absence of approval under Section 10(23C)(iv). The assessee therefore filed an application in Form 10A on 30th May, 2002 seeking registration under Section 12A(a) of the Act, a copy whereof has been placed at page Nos. 43 to 47 of the paper book. On the observation of the learned CIT that the applicant had not filed application for condonation of delay with the application for registration, the learned Authorised Representative submitted that the learned CIT has himself in para No. 3(b) of the order has entertained the oral prayer of the applicant in this regard and denied condonation. Thus, he has waived filing of written application in this regard while deciding the issue of delay. The learned Authorised Representative submitted that even otherwise oral prayer for condonation of delay can also be made in view of the decision of Hon'ble Supreme Court in the case of Lance Nayak Mahaveer Singh v. Chief of Army Staff 1990 SCC 89(1), wherein such an oral prayer was admitted and decided at the time of hearing itself. The learned Authorised Representative submitted that to avoid any technical difficulty in this regard the applicant has filed a written condonation of delay application reiterating the above explanation for the delay if any in moving the application for registration (before the learned CIT) supported with an affidavit before the Tribunal. He submitted that it is only from asst. yr. 1999-2000 when Section 10(23C)(vi) was inserted, it can be fairly said that the applicant could and should have applied for registration under Section 12A(a) and accordingly the delay, if any, should have been considered only for the period from asst. yr. 1999-2000 till 30th May, 2002 i.e. for three years approximately only as against 28 years 10 months as reckoned by the learned CIT. from 1st July, 1973. Even with regard to the period of delay for 3 years (approx.) there did exist a sufficient cause inasmuch as all along in the past the applicant was enjoying the benefit of exemption under Section 10(22) of the Act not only till it was removed from the statute but till the receipt of the communication from IT Department. Therefore, despite the continuance of Sections 11 and 12 it could come to their notice only when for the first time a general notice dt. 13th May, 2002 for inquiry under Section 133(6), a copy whereof has been placed at page No. 51 of the paper book, was served upon the applicant. To prepare the response thereof in compliance, when the applicant sought advise from its tax consultant, the trustees were told that registration under Section 12A(a) and also under Section 10(23C)(vi), were required immediately in view of the amendment. Hence, immediately first an application under Section 10(23C)(vi), a copy whereof has been placed at page Nos. 43 to 47 of the paper book was filed followed by another application under Section 12AA, page Nos. 138 to 144 of the paper book, which too was filed on 30th May, 2002. The learned Authorised Representative also placed reliance on the decision of Hon'ble jurisdictional High Court in the case of Kanti Lal Purshottam & Co. v. CIT , wherein a new provision under Section 40A(3) prohibiting cash payment exceeding Rs. 2,500 was inserted for the first time w.e.f. asst. yr. 1969-70; it was held that the assessee was ignorant of such a prohibition being the very first year and, hence, disallowance made, were deleted. He also placed relaince on the following decisions:
(a) Collector, Land Acquisition v. Mst. Katiji and Ors. ;
(b) Bharat Auto Center v. CIT ;
(c) Krishi Upaj Mandi Samiti, Kuchaman City v. CIT ITA No. 261/Ju/2006, dt. 17th Nov., 2006);
(d) All India Primary Teachers Federation v. Director of IT (Exemption)(2005) 93 TTJ(Del)155;
(e) Society of Divine Providence v. Union of India and Anr. ;
(f) Kacchhi Hast Kala Maha Mandal v. CIT (2006) 100 TTJ (Rajkot) 1112;
(g) Ananda Marga Pracharaka Sangha v. CIT .
8. The learned Departmental Representative, on the other hand, submitted that application under Section 12A(a) of the applicant was not accompanied with application for condonation of delay and keeping in view that the assessee was assisted by experts/chartered accountant firms, who were aware of the changed/amended law, there was no reason with the assessee for condonation of delay in filing the application for registration. The learned CIT has thus rightly rejected the prayer made by the applicant in this regard. He placed reliance on the following decisions:
(a) Rao Bahadur A.K.D. Dharmaraja Education Charity Trust v. CIT ;
(b) Sole Trustee, Loka Shikshana Trust v. CIT ;
(c) Municipal Corporation of Delhi v. Children Book Trust and Ors. 109 Taxation 142 (SC);
(d) All India Personality Enhancement & Cultural Centre For Scholars, ALPECS Society v. Dy. CIT (2004) 85 TTJ (Del) 514 : (2004) 91 ITD 240 (Del).
9. In rejoinder, the learned Authorised Representative submitted that there was no ignorance on the part of assessee. In the definition under Section 2(15) of the Act, charitable purpose includes imparting of education as well. There is no prohibition to take benefit also under Section 10(23C) of the Act. He referred following decisions:
(a) Birla Vidhya Vihar Trust v. CIT ;
(b) CIT v. St. Xaviers .
10. Considering the aforesaid facts and circumstances in totality, we are of the view that there were sufficient causes for condonation of delay in the present case with the assessee in filing the application for registration under Section 12A(a) on 30th May, 2002. Undisputedly, the applicant society was registered on 20th Nov., 1959 under the Rajasthan Societies Registration Act, 1953 with the object of imparting education in the State of Rajasthan and till asst. yr. 1998-99, the assessee had been enjoying the benefit of the exemption granted to the educational institution by way of Section 10(22) of the Act and hence was not required to file any return of income. From asst. yr. 1999-2000, Section 10(22) of the Act was replaced with, Section 10(23C). Under Section 10(23C)(vi), an educational institution which is engaged solely for educational purposes and having gross receipt exceeding Rs. one crore could have had exemption from taxation under the Act, provided it had obtained approval under that provisions from the prescribed authorities. However, no consequential amendment was made in Section 11 to 13 of the Act. The applicant therefore filed an application in Form 10A on 30th May, 2002 seeking registration under Section 12A(a) when notice under Section 133(6) dt. 13th May, 2002 (page No. 51 of the paper book) was served upon the assessee. Thus, till the issuance of notice under Section 133(6) dt. 13th May, 2002, the Department by their own conduct had been accepting that the applicant was existing solely for education and not for the purpose of profit as required under Section 10(22) of the Act. We are therefore of the view that there is substance in the explanation of the assessee that till 13th May, 2002, it was under a bona fide impression and belief that the society was not required to file an application for registration for having exemption. It is only because of Section 10(23C)(vi) introduced w.e.f. asst. yr. 1999-2000, it came to the light even of the ITO that some action is required in the case of all educational institutions and therefore, notice under appropriate provisions were issued. Hence, despite the availability of Section 12A it can be said that only 2-3 years lapse was there when new provision was inserted and applicant was made aware of making such compliance either under Section 12AA or under Section 10(23C)(vi) of the Act. The ratio of the decision of Hon'ble jurisdictional High Court in the case of Kantilal Purshottam & Co. (supra) is fully applicable in the present case, wherein a new provision under Section 40A(3) prohibiting cash payment exceeding Rs. 2,500 was inserted for the first time w.e.f. asst. yr. 1969-70, it was held that the assessee was ignorant of such a prohibition being the very first year and, hence, disallowances made, were deleted. There is no dispute about that every citizen is supposed to know the law in force but at the same time the authorities have been empowered to exercise its discretion judiciously and liberally to condone the delay under the exceptional circumstances wherein ignorance of a newly amended provision is bona Mely established. In this regard we find support from the decision of Hon'ble Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. (supra) relied upon by the learned Authorised Representative. It is further supported with this material fact that even the Department could only realize on 13th May, 2002 when it issued notice under Section 133(6) to furnish the required information about non-filing of return of income, etc. And above all, by filing the application for registration late, the applicant was not going to benefit anything rather it was disadvantageous to them. We thus condone the delay in filing application under Section 12A(a) for registration by the assessee on 30th May, '2002 as there were sufficient causes for the same, as discussed above, on the part of the applicant.
11. The other basis for rejecting the application for registration by the learned CIT remained that the application for registration from the first day of 2002-03 was not eligible since copies of accounts for financial year 2001-02 were not filed alongwith application in terms of Rule 17A(b) of the IT Rules. In this regard we find substance in the contention of the learned Authorised Representative that the requirement under Rule 17A(b) is mere procedural and cannot take the place of the Act. Such accounts, in fact, are required to be examined only during the course of hearing by the learned CIT, as evident from the provisions laid down under Section 12AA(a) of the Act. In this regard he has placed reliance on the following decisions:
(a) CIT v. Haideodas Agarwalla Trust ;
(b) CIT v. Shahzadanand Chanty Trust ;
(c) CIT v. Gupta Fabs ;
(d) CIT v. Punjab Financial Corporation ;
(e) CIT v. Jayant Patel .
12. The learned Authorised Representative however pointed out that the assessee had filed such accounts before the AO as evident from page Nos. 79 to 135 of the paper book and the same were also filed before the learned CIT as evident from page Nos. 221 to 230 of the paper book vide letter dt. 16th Dec, 2004 i.e. before passing the impugned order. He pointed out further that such accounts for financial years. 1999-2000 and 2000-01 were otherwise also filed through the application under Section 10(23C)(vi) through the learned CIT (page No. 43 of the paper book) and, hence, were available before him. The same learned CIT referred to these accounts in his letter dt. 24th May, 2005, placed at page No. 234 of the paper book, addressed to learned CIT. In fact, the learned CIT was taking up both the matters of Sections 12A and 10(23C)(vi) at the same time. The learned Authorised Representative has also placed reliance in this regard on the decision of Hon'ble jurisdictional High Court in the case of CIT v. Dr. L.M. Singhvi . The learned Departmental Representative, on the uther hand, had placed reliance on the impugned order in this regard. We thus accept the submission of the learned Authorised Representative that the accounts even if it is not accompanied with the application for registration can be furnished during the course of hearing before the learned CIT for his consideration.
13. Regarding observations of learned CIT in para No. 1 of his order dt. 18th Nov., 2005 in question that for financial years. 1998-99, 1999-2000 and 2000-01 the assessee society had earned surplus of income over expenditure at Rs. 27,64,907, Rs. 54,75,700 and. Rs. 1,09,33,486, respectively, the learned Authorised Representative submitted that the learned CIT while making such observations has failed to appreciate that after making out capital expenditure on infrastructure and equipment necessary for imparting quality education there was deficit as it is apparent from balance sheets annexed with the application under Section 12A(a) of the Act. The learned Authorised Representative while referring page No. 231 of the paper book i.e. representation dt. 29th March, 2005 of the assessee before the learned Asstt. CIT submitted that it was made clear that the applicant is also eligible for claiming exemption under Section 11(1) of the IT Act, 1961, as it has invested more than 85 per cent of the gross receipts during the asst. yr. 2002-03 for the purposes of meeting the objectives of the society. We find substance in these submissions of the learned Authorised Representative and thus the learned CIT was not justified in taking adverse observations in this regard while denying registration under Section 12AA of the Act.
14. Lastly, the learned Authorised Representative had submitted that the learned CIT was not justified in denying the plea of the assessee that the application dt. 30th May, 2002 filed under Section 12A(a) of the Act in case of failure of disposal by the learned CIT before 6 months from the end of the month in which application was received, the same should have been deemed to be accepted. Sub-clause (2) of Section 12AA in this regard is mandatory. He placed reliance on the decision in the case of Sambandh Organization v. CIT (2006) 156 Taxman 183 (Del) and in the case of Sardari Lal Oberai Memorial Charitable Trust v. ITO (2007) 106 TTJ (Del) 468. The learned Authorised Representative submitted that in the present case the application for registration was filed on 30th May, 2002 and the same should have been disposed of on or before 30th Nov., 2002 as against which, the learned CIT has passed the impugned order as late as on 18th Nov., 2005 i.e. with the delay of almost three years. The learned Departmental Representative, on the other hand, has supported the view of learned CIT in this regard.
15. After having gone through the impugned order, we find that the learned CIT has denied the above plea of the assessee on the basis that the application dt. 30th May, 2002 was an invalid application and not meeting with mandatory requirements of Section 12A(a), hence the limitation of Section 12AA(2) is not applicable in respect of such invalid application. We do not agree with such findings of the learned CIT on the issue because in all the circumstances either due to defect in the application or on merits of it the learned CIT under Sub-clause (2) of Section 12AA is supposed to grant or refuse registration before 6 months from the end of month in which application was received and in the present case since the application was filed on 30th May, 2002 the learned CIT should have disposed of the application on or before 30th Nov., 2002. The learned CIT has however disposed of the application on 18th Nov., 2005 i.e. with the delay of around three years. In the case of Sarnbandh Organization v. CIT (supra), relied upon by the learned Authorised Representative, the application under Section 12A for registration was filed on 2nd Aug., 2002 which was rejected by the learned CIT on 7th Nov., 2003. It was held that in view of provisions of Section 12AA it could be said that impugned order had been passed beyond statutory period prescribed under Section 12AA, therefore, the application filed by the assessee was deemed to be allowed. Similar view has been expressed by Delhi Bench of the Tribunal in the case of Sardarilal Oberoi Memorial Charitable Trust v. HO (supra) referred by the, learned Authorised Representative.
16. Under the aforesaid facts and circumstances of the present case and due to the above findings on the plea raised on behalf of the assessee we hold that the order impugned is not sustainable and while setting aside the same, we direct the learned CIT concerned to grant registration to the assessee on the application under Section 12A(a) dt. 30th May, 2002 for the requested period. It is needless to mention over here that after granting of registration on the said application, the AO is supposed to give consequential effect of it. The issues. raised in the grounds are thus decided in favour of the assessee.
17. In result, grounds as well as appeal are allowed.