CHHATTISGARH RAJYA OPEN SCHOOL MADHYAMIK SIKSHA MANDAL V. THE DEPUTY COMMISSIONER OF INCOME TAX

TAXC/54/2024

AI Insights

The case revolves around the appellant, Chhattisgarh Rajya Open School Madhyamik Siksha Mandal, contesting the denial of tax exemptions by the Income Tax Department. Initially, the appellant's claim for registration under Section 12AA of the Income Tax Act was rejected, but it was later granted retrospectively. The core legal issue was whether the exemptions should apply to the assessment year 2016-17, given that the registration was granted after the relevant assessment proceedings had commenced. The Income Tax Appellate Tribunal (ITAT) had dismissed the appellant's appeal, leading to this challenge in the High Court.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669697 (HC-CHHATTISGARH)
• Appeal Type: High Court cases
• Pronouncement Date: 10-06-2025
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax (Exemptions) v. Shree Shyam Mandir Committee, Commissioner of Income-tax (Exemptions) and another v. Karnataka State Students Welfare Fund
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AJAY KUMRANI
• Assessee Lawyers: S RAO
• Keywords: Appeal; Assessment; Charitable purpose; Exemption; Income Tax; Registration
• Section: 143(2); 12AA; 260A; 12A(2)

Judgement Text

"Page 1 of 13 (Tax Case No.54/2024) 2025:CGHC:23005-DB AFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 54 of 2024 {Arising out of order dated 7-9-2023 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur in ITA No.02/RPR/2020} Chhattisgarh Rajya Open School Madhyamik Siksha Mandal, Pension Bada, Raipur, Chhattisgarh 492-001. Pan : AAAGC0179F ... Appellant versus The Deputy Commissioner of Income Tax, Exemption Circle, Raipur, Chhattisgarh. ... Respondent For Appellant : Mr. S. Rajeswara Rao, Advocate. For Respondent : Mr. Ajay Kumrani, Advocate on behalf of Mr. Amit Chaudhari, Advocate. Division Bench: - Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Deepak Kumar Tiwari, JJ. Order On Board (10/06/2025) Sanjay K. Agrawal, J. 1.Invoking the appellate jurisdiction of this Court under Section 260A of the Income Tax Act, 1961, the assessee/appellant has preferred this appeal SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.06.16 17:34:49 +0530 Page 2 of 13 (Tax Case No.54/2024) questioning the judgment and order dated 7-9-2023 passed by the Income Tax Appellate Tribunal, Raipur Bench, Raipur in ITA No.02/RPR/ 2020, which was admitted for hearing on 16-4-2025 by formulating the following substantial question of law: - “Whether the Income Tax Appellate Tribunal is justified in dismissing the appeal by ignoring the order granting approval under Section 12 AA of the IT Act which was passed on 14.07.2023 during the pendency of appeal by holding that first proviso to sub-section (2) of Section 12 A is not attracted and further ignoring the fact that appeal was already pending before it (ITAT), by recording a finding which is perverse to the record?” 2.The aforesaid question of law arises for consideration on the following factual backdrop:- 3.The appellant/assessee Society was established with the direction of the Education Department, State of Chhattisgarh on 10-1-2008. The assessee filed its return for the assessment year 2016-17 on 31-3-2018 declaring the income as NIL. On ₹ 30-9-2018, the case of the assessee Society was selected for scrutiny assessment under Section 143(2) of the Income Tax Act, 1961 (for short, ‘the IT Act’). In the meanwhile, the appellant Page 3 of 13 (Tax Case No.54/2024) herein filed an application for registration under Section 12AA of the IT Act in prescribed form claiming exemption on the ground that it is an education institution and involved in charitable purposes which was eventually rejected on 29-4-2019 against which it has preferred an appeal and ultimately, on second round, on 14-7- 2023, the Commissioner of Income Tax (Exemption) granted approval under Section 12AA of the IT Act to the appellant with effect from 1-4-2019. However, the scrutiny assessment was completed and the Assessing Officer declined the assessee’s claim for exemption of the excess of income over expenditure of 5.24 crores (approx.) under ₹ Section 10(23C)(iiiab) of the IT Act and passed assessment order on 12-12-2018 against which the assessee preferred appeal before the Commissioner of Income Tax (Appeals) which was ultimately rejected on 17-10-2019. The assessee preferred appeal before the Income Tax Appellate Tribunal (ITAT) questioning the order of the Assessing Officer as affirmed by the Commissioner of Income Tax (Appeals) and an additional ground was taken Page 4 of 13 (Tax Case No.54/2024) that approval under Section 12AA of the IT Act has been granted by the Commissioner of Income Tax (Exemption) on 14-7-2023 and therefore by virtue of first proviso to Section 12A(2) of the IT Act, exemption would apply retrospectively. 4.The learned ITAT by the impugned order rejected the appeal holding that first proviso to Section 12A(2) of the IT Act has wrongly been construed, as the assessment proceeding was not pending before the Assessing Officer on the date of registration i.e. 14-7-2023 and accordingly proceeded to dismiss the appeal which is sought to be challenged by filing this appeal under 260A of the IT Act. 5.Mr. S. Rajeswara Rao, learned counsel appearing for the appellant/assessee, would submit that first proviso to Section 12A(2) of the IT Act would also apply once appeal against the assessment proceeding is completed and order is even affirmed and appeal is pending before the ITAT, as the said amendment to first proviso to Section 12A(2) also applies to the appeal proceeding and therefore the learned ITAT has Page 5 of 13 (Tax Case No.54/2024) committed grave legal error in holding that it would not apply to the appeal proceeding and first proviso to Section 12A(2) would confine to the appeal proceeding before the Commissioner of Income Tax (Appeals) from the Assessing Officer, therefore, the impugned order is liable to be set aside. He would rely upon the decision of the Rajasthan High Court in the matter of Commissioner of Income-tax (Exemptions) v. Shree Shyam Mandir Committee1 and the decision of the Karnataka High Court in the matter of Commissioner of Income-tax (Exemptions) and another v. Karnataka State Students Welfare Fund2 to buttress his submission. As such, the appeal deserves to be allowed. 6.Mr. Ajay Kumrani, learned counsel appearing for the respondent/Revenue, would support the impugned order and submit that the learned ITAT has taken the correct view of the matter, as the Legislature has clearly confined the benefit to the assessee as the assessment proceedings are pending before the Assessing Officer on the date 1 2017 SCC OnLine Raj 4367 2 2021 SCC OnLine Kar 15982 Page 6 of 13 (Tax Case No.54/2024) of registration and in the instant case, the assessment proceeding had already completed on 12-12-2018 and appeal has also been dismissed by the CIT (Appeals) on 17-10-2019, and only appeal was pending before the ITAT when the registration was granted under Section 12AA of the IT Act on 14-7-2023. As such, the learned ITAT has rightly held that the benefit of first proviso would not flow to the appellant/assessee and as such, the appeal deserves to be dismissed. 7.We have heard learned counsel for the parties and considered their rival submissions made herein- above and also went through the record with utmost circumspection. 8.It is not in dispute that assessment proceeding under Section 143(2) of the IT Act was adjudicated by the Assessing Officer on 12-12- 2018 and on that day, though the appellant/ assessee made application under Section 12AA of the IT Act, it was rejected on 29-7-2019 and after assessment by the Assessing Officer, on second round, ultimately, exemption was granted on 14-7-2023 with effect from 1-4-2019 and Page 7 of 13 (Tax Case No.54/2024) thereafter, assessment proceeding was subjected to appeal by the CIT (Appeals) and the CIT (Appeals) also dismissed the appeal on 17-10- 2019, as such, on the date of registration i.e. on 14-7-2023, appeal under Section 253 of the IT Act was pending before the ITAT, but the ITAT rejected the contention of the appellant herein holding that first proviso to Section 12A(2) of the IT Act would not be applicable as the assessment proceedings were not pending as on the date of registration and therefore first proviso to Section 12A(2) would not be applicable to the appellant herein. 9.In order to decide the substantial question of law, it would be appropriate to notice first proviso to Section 12A(2) of the IT Act, which states as under: - “Provided further that where registration has been granted to the trust or institution under section 12AA or section 12AB, then the provisions of sections 11 & 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust Page 8 of 13 (Tax Case No.54/2024) or institution remain the same for such preceding assessment year.” First proviso to Section 12A(2) of the IT Act has been inserted with effect from 1-10-2014. Section 12A(2) of the IT Act was brought into the statute book by the Legislature to prevent genuine hardship that could be caused on the assessee due to non-registration under Section 12AA of the IT Act and accordingly, the provisos to Section 12A(2) is to be construed as retrospective in nature. 10.At this stage, it would also be appropriate to notice the CBDT Circular No.01/2015 dated 21-5- 2015 which has been made applicable with effect from 1-10-2014 in order to remove hardships to charitable organisations due to non-application for registration for the period prior to the year of registration, relevant portion of which states as under: - “8.2 Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organisations. 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 Page 9 of 13 (Tax Case No.54/2024) condonation of delay in seeking registration was not available.” 11. A careful perusal of the aforesaid circular would show that it mandates that registration will have the effect for the period prior to the year of registration or in respect of which the assessment proceedings are pending and the provisions of Section 12A of the IT Act entailed unintended consequences of non-application of registration for the period prior to the year of registration and, thereby, non-grant of exemption under Sections 11 and 12 up to grant of registration. This position was also recognised by the Central Board of Direct Taxes while issuing the Explanatory Notes to the provisions of the Finance (No.2) Act, 2014, vide Central Board of Direct Taxes Circular No.1 of 2015, dated January 21, 2015. It is, thus, a curative proviso, which is but merely declaratory of the previous law. It has, by removal of the hardship, rendered the procedure more relief- oriented. It adequately complies with the natural justice principle of fairness to all. Hence, it has to be presumed and construed as Page 10 of 13 (Tax Case No.54/2024) retrospective in nature, in order to give the section a purposive interpretation. {See Shree Shyam Mandir Committee’s case (supra), paragraph 26.} 12. In the instant case, admittedly, on the date of registration i.e. 14-7-2023, the assessment proceeding which has been affirmed by the Commissioner of Income Tax (Appeals), was pending before the ITAT, which came to be dismissed on 7- 9-2023. The question for consideration would be, whether the assessment proceeding as stated in first proviso to Section 12A(2) of the IT Act can be taken as pending appeal, in other words, whether the assessment proceeding pending in appeal can be taken to be the proceeding pending before the Assessing Officer? Since appeal was pending before the ITAT under Section 253 of the IT Act, though it was second appeal, but in that appeal, substantial question of law was not required to be formulated which was required to be formulated in appeal under Section 260A of the IT Act, as such, that appeal pending before the ITAT against the assessment order affirmed by the Page 11 of 13 (Tax Case No.54/2024) CIT (Appeals) is the continuation of original assessment proceedings by the Assessing Officer. 13.It is a settled position of law that an appeal is a continuation of the proceedings of the original court. Ordinarily, the appellate jurisdiction involves a rehearing on law as well as on fact and is invoked by an aggrieved person. The first appeal is a valuable right of the appellant and therein all questions of fact and law decided by the trial court are open for reconsideration. Therefore, the first appellate court is required to address itself to all the issues and decide the case by giving reasons. The court of first appeal must record its findings only after dealing with all issues of law as well as fact and with the evidence, oral as well as documentary, led by the parties. The judgment of the first appellate court must display conscious application of mind and record findings supported by reasons on all issues and contentions [see: Santosh Hazari v. Purushottam Tiwari3 followed in Madhukar v. Sangram4, B.M. Narayana Gowda v. 3 (2001) 3 SCC 179 4 (2001) 4 SCC 756 Page 12 of 13 (Tax Case No.54/2024) Shanthamma5, H.K.N. Swami v. Irshad Basith6 and Sri Raja Lakshmi Dyeing Works v. Rangaswamy Chettiar7]. 14.It is held that appeal pending before the ITAT against the order of the CIT (Appeals) affirming the order of the Assessing Officer is the continuation of the original proceedings of the Assessing Officer and thus, the assessment proceeding in appeal pending before the appellate Court i.e. ITAT is deemed to be the assessment proceeding before the Assessing Officer within the meaning of first proviso to Section 12A(2) of the IT Act and we accordingly hold that appeal proceedings pending before the ITAT are deemed to be the assessment proceeding before the Assessing Officer within the meaning of Section 12A of the IT Act. The impugned order so passed after the effective date of grant of registration and subsequent grant of registration on 14-7-2023 operates retrospectively for all relevant years in the present case, assessment year 2016-17, though registration was granted with effect from 5 (2011) 15 SCC 476 6 (2005) 10 SCC 243 7 (1980) 4 SCC 259 Page 13 of 13 (Tax Case No.54/2024) 1-4-2019, as we find that the object of the appellant Society is charitable in nature within the meaning of Section 12A(2) of the IT Act and on which there is absolutely no dispute. Accordingly, we are unable to sustain the impugned order and set aside the same. The appellant Society is entitled for exemption under Sections 11 & 12 of the IT Act. The Assessing Officer is directed to pas consequential order as stated above for the assessment year 2016-17, expeditiously. 15.The substantial question of law is answered in favour of the assessee and against the Revenue. 16.The tax appeal stands allowed. No order as to cost(s). Sd/- Sd/- (Sanjay K. Agrawal) (Deepak Kumar Tiwari) JUDGE JUDGE Soma "