In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Indore Bench, held that a society registered under section 12AA in 2021 could still claim exemption under sections 11 and 12 for an earlier year, i.e., Assessment Year 2018-19, by virtue of the first proviso to section 12A(2) of the Income Tax Act, 1961.
The Tribunal clarified that once registration is granted under section 12AA and the charitable nature of activities remains consistent, the benefit of exemption cannot be denied merely because the registration was obtained at a later date. This ruling reinforces the legislative intent behind the proviso—to extend relief to genuine charitable institutions whose registration is pending but whose activities have always been charitable in nature.
Facts:
- The assessee, a charitable society, was engaged in educational and social welfare activities.
- It was granted registration under section 12AA of the Income Tax Act in 2021.
- For Assessment Year 2018-19, the assessee had claimed exemption under sections 11 and 12, even though registration was obtained later.
- The Assessing Officer denied the exemption on the ground that registration was not in existence during the relevant previous year.
Issue:
Whether a society granted registration under section 12AA in a later year (2021) is entitled to claim exemption under sections 11 and 12 for a prior assessment year (AY 2018-19), by invoking the first proviso to section 12A(2) of the Income Tax Act, 1961.
Tribunal’s Observations:
- The first proviso to section 12A(2) allows the benefits of sections 11 and 12 to be applied retrospectively to earlier years, provided the objects and activities of the trust or institution in those earlier years were the same as those for which registration was granted.
- The assessee had produced records showing that its charitable activities were genuine and consistent in nature, both before and after registration.
- The Tribunal noted that the CIT(E) while granting registration in 2021 had not doubted the genuineness of activities carried out in prior years.
- Therefore, the exemption could not be denied merely on the ground of delayed registration.
Decision:
- The ITAT held that, by virtue of the first proviso to section 12A(2), the assessee was eligible for exemption under sections 11 and 12 even for AY 2018-19, despite registration being granted in a later year.
- The denial of exemption by the AO was set aside.
- The appeal of the assessee was allowed.
Key Legal Principle:
“Where registration under section 12AA is subsequently granted and the nature of charitable activities remains the same, exemption under sections 11 and 12 cannot be denied for earlier years by virtue of the first proviso to section 12A(2).”
Relevant Provision:
First Proviso to Section 12A(2):
“Where registration has been granted to the trust or institution under section 12AA or section 12AB, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year for which assessment proceedings are pending before the AO as on the date of such registration.”