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Retrospective Applicability of Section 12AA Exemption is Available Based on Grant of Subsequent Exemption under Deemed Registration Rule: ITAT

Dohit Muranjan

New Issues Not Considered in the Original Assessment Cannot Be Introduced under Enhancement Powers under Section 251: ITAT



Citation- Children Welfare Trust v. Income-tax Officer (Exemptions) [2024]

ITAT- Delhi

ITA No.- 1368 and 1369 (Delhi) of 2020

Assessment Year- 2015-16

Date of Order- October 29, 2024


Brief Facts:

  • The assessee-trust was formed for charitable purposes, predominantly running two schools.

  • It filed its income tax return as Nil for the AY 2015-16, claiming exemption under Section 11.

  • The trust's application for registration under Section 12AA was initially rejected by CIT(E), leading the AO to deny exemption under Section 11 for AY 2015-16. The trust subsequently obtained registration during the appeal process, however with effect from AY 2016-17.

  • On appeal, the CIT(A) not only upheld the denial of exemption by the AO for AY 2015-16, but also enhanced taxable income by reclassifying funds received for specific purposes under the heads Building Fund and Amalgamation Fund, as revenue receipts.

  • Additionally, the AO had classified the advances provided to managerial individuals (i.e. spouse of the Principal of School) as taxable income citing a violation of Section 13(3). CIT(A) opined that the advances fell under the purview of Section 13(3).

  • The assessee objected, arguing that these observations were unnecessary and beyond the CIT(A)’s powers under Section 251.


Observations of the Tribunal:

The Tribunal made the following observations:


  • Deemed Registration and Section 11 Benefits:

    a. The Tribunal referred to CBDT Circular No. 1/2015 dated 21-1-2015, clarifying that registration granted under Section 12AA during the pendency of an appeal provides retrospective benefits to the trust.

    b. Furthermore, it citied earlier cases, such as Prem Prakash Mandal Sewa Trust v. ITO and Sree Sree Ramkrishna Samity v. Dy. CIT, to establish that the trust qualified for the "deemed registration" rule for AY 2015-16, even though the order received after appeal was with effect from AY 2016-17.

    c. This indicated that the trust could claim tax exemption under Section 11, even though its official registration was granted in a subsequent year.

  • Misuse of Enhancement Powers by CIT(A):

    a. Further, the Tribunal found that the CIT(A) exceeded the scope of enhancement powers under Section 251.

    b. It ruled that reclassifying Building Fund and Amalgamation Fund as revenue receipts constituted introducing a new source of income, which was impermissible.


  • Exclusion from Section 13(3):

    a. The Tribunal further referred to the Thanthi Trust Judgment (Supreme Court), which distinguished between the terms "Trust" and "Institution" in Section 13(3)(cc) affirming that they cannot be used interchangeably.

    b. Further, it cited the Inclen Trust International case (ITAT, Delhi), which clarified that a manager of an institution is not equivalent to a manager of a trust.

    c. Hence, the Tribunal concluded that loans/advances to individuals related to the school’s Principal did not violate Section 13(3), as these individuals were not "specified persons."


Hence, the Tribunal concluded that the trust was eligible for exemption under Section 11 based on its subsequent registration. It also ruled that the enhancement of taxable income by the CIT(A) was impermissible, as it involved new issues not considered in the original assessment. The Tribunal set aside the orders of the CIT(A) and allowed the appeal in favour of the trust.

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