By TIOL News Service

JAIPUR, AUG 31, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether the AO could deny benefit of exemption to a trust on ground of non-registration u/s 12A, without first determining whether exemption granted to such trust under repealed Income tax Act, 1922 was saved by the Saving Clauses u/s Section 297 of the present Act. NO is the answer.

Facts of the case:

The assessee, a trust organization, had filed its return declaring nil income. During assessment, it was noted by AO that the assessee derived Income from house property at Rs. 1,84,97,011 & Income from other sources of Rs. 557/- and claimed them to be exempt u/s 10 & 11(1a). Such claim for exemption was however rejected by the AO on grounds that the trust failed to file any documentary evidence of having being registered u/s 12A/12AA. A rectification application filed by assessee u/s 154 was also rejected as well.

On appeal, the Tribunal held that,

++ another argument of the assessee is that since the Trust was granted exemption by the Government of India way back in the year 1958, it was not open to Revenue to tax the receipts of the assessee Trust now under the excuse of not having registered u/s 12A of the Act. Further, the counsel for Assessee has placed on record, the report of the Law Commission under the Income Tax Act, 1922, which says that the trust is partly religious and partly charitable. As such, part of the income of the trust as is applied to religious purpose and also that part which is applied for charitable purposes will be exempts from income-tax u/s 4(3)(i) in the hands of the trust. From the above observation of Law Commission, it is evident that the AO committed mistake by observing that there is no mention of Section 4(3)(i) of Income Tax Act, 1922. The AO has also not given a finding as to what was the status of trust who was granted the exemption under the old Act i.e. Income Tax Act, 1922, after repeal of that Act. Whether such Acts fall under the saving clause or not if falls under the saving clause then it would be deemed that the exemption was available to the assessee trust;

++ from a bare reading of Section 297(2)(k), it is evident that any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act, shall, so far it is not inconsistent with the corresponding provisions of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly. In view of the above, the AO was required to examine whether firstly exemption granted under the repealed Act was saved by Section 297 of the Act and secondly, whether it was consistent with the corresponding provisions of Law under the new Act.

(See 2017-TIOL-1204-ITAT-JAIPUR)