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7 Charitable Trust — For claiming benefit
u/s.11(1)(a), registration u/s.12A is a condition precedent.
[U.P. Forest Corporation & Anr. v. Dy. CIT, (2008) 297
ITR 1 (SC)]
The U.P. Forest Corporation, the appellant, was constituted
by a Notification issued u/s.3 of the U.P. Forest Corporation Act, 1974. In the
year 1977, the Income-tax authorities issued a notice to the corporation to file
its return of income for the A.Y. 1976-77. The corporation challenged the said
notice by filing writ petition which was disposed of by the High Court by
holding that the corporation was a local authority u/s.10(20) of the Act and was
entitled to claim exemption. Since the said order was not challenged by the
Revenue, the same became final and remained in force till a contrary view was
taken by the Supreme Court in respect of the A.Ys. 1977-78, 1980-81 and 1984-85
in the case of CIT v. U.P. Forest Corporation, reported in (1998) 230 ITR
945.
For the A.Y. 1977-78, the corporation’s income was assessed
by making some additions of income and deleting some deductions claimed in the
return of income. On an appeal being filed, the Commissioner (Appeals) upheld
that the corporation was exempt from paying tax, on the ground that it was a
‘local authority’ within the meaning of S. 10(20) of the Act. Insofar as the
relief sought regarding additions of income and deleting of deductions is
concerned, the Commissioner declined to decide the said issue. The Tribunal set
aside the said order of the Commissioner (Appeals) and held that the corporation
was not a ‘local authority’ and remanded the appeals to the Commissioner
(Appeals) for rehearing on the merits on the issue of grant of relief relating
to additions/deductions. Since the corporation was also assessed for the A.Y.
1984-85 as was assessed for the A.Y. 1977-78, the corporation preferred writ
petition before the High Court of Allahabad which was accepted, and the High
Court declared that the corporation was a ‘local authority’ and was entitled to
exemption u/s.10(20) of the Act. It was held that it was entitled to exemption
u/s.11(1)(a) of the Act being a charitable institution.
Aggrieved by the said order, the Department chose to file
special leave petition before the Supreme Court, wherein leave was granted and
ultimately the appeals were accepted and order passed by the High Court was set
aside. It was held that even though S. 3(3) of the U.P. Forest Corporation Act
regards the corporation as being a local authority for the purpose of the Act,
it would not, in law, make the corporation a local authority for the purpose of
S. 10(20) of the Act. On the question whether the corporation was to get itself
registered u/s.12A of the Act for invoking the provisions of S. 11(1)(a) of the
Act to claim exemption being a charitable institution, it was held that since
the question had not been raised before any of the authorities below, the High
Court should have remanded the case back to either the assessing authority or
the Tribunal for a decision. The Supreme Court, under the peculiar facts and
circumstances of the case, directed the assessing authority to consider the
claim of the appellant-corporation as to whether the appellant was not liable to
be taxed in view of the provisions of S. 11(1)(a) of the Act as a charitable
institution.
In the meantime, following the decision of the High Court in
W.P., the Commissioner (Appeals) allowed the appeals of the corporation in
respect of the A.Ys. 1977-78 and 1980-81 allowing exemption u/s.10(20) and S.
11(1)(a) of the Act.
The appellant-corporation, on July 11, 1988, moved an
application before the competent authority for being registered u/s.12A of the
Act, which was rejected after a gap of nine years on March 18, 1997.
Against the said rejection, the corporation filed writ
petition before the High Court during the pendency of which the corporation
filed another application for the purpose on May 4, 1998. The High Court allowed
the writ petition and set aside the order of the competent authority rejecting
the application of the corporation for registration, on the ground that the
Commissioner had passed an order in violation of the principles of natural
justice inasmuch as the appellant-corporation had not been given an opportunity
of hearing and directed the Commissioner to redecide the corporation’s
application for registration after giving an opportunity of hearing to the
corporation. The Commissioner decided against the corporation against which
order an appeal filed by the corporation before the Tribunal at Lucknow is
pending decision.
After the matter was remanded by the Supreme Court in the
case of CIT v. U.P. Forest Corporation, (1998) 3 SCC 530, the assessing
authority held that the appellant was not a charitable institution and assessed
the income in respect of the A.Ys. 1977-78, 1980-81 and 1984-85 to tax. The
Commissioner (Appeals) partly allowed the appeals of the appellant-corporation
granting some relief on issues of additions/deductions. The
appellant-corporation as also the Revenue filed appeals against the said order
before the Tribunal. The Tribunal allowed the appeals filed by the Revenue and
set aside the relief granted to the corporation on the issue of
additions/deductions, on the ground that this Court had remanded the matter only
to decide one issue. Being aggrieved, the corporation filed an appeal u/s.260A
of the Act before the High Court. The High Court remanded the matter to the
Tribunal for considering the matter afresh. Aggrieved by the said order, the
corporation filed appeal before the Supreme Court. The Revenue also filed an
appeal against the said order. The Revenue also challenged a subsequent order
passed by the High Court, wherein the above question had not been decided in
view of the pendency of the aforementioned appeals. The Supreme Court held that
for claiming benefit u/s.11(1)(a), registration u/s.12A is a condition
precedent. Unless and until an institution is registered u/s.12A of the Act, it
cannot claim the benefit of S. 11(1)(a) of the Act. Keeping in view the fact
that the appellant-corporation had not been granted registration u/s.12A of the
Act, it was held that the appellant was not entitled to claim exemption from
payment of tax u/s.11(1)(a) and u/s.12 of the Act. The Supreme Court dismissed
the appeals filed by the corporation without deciding the merits of the dispute.
In view of the dismissal of these appeals, the appeals filed by the Revenue were
also dismissed. However, in order to protect the interest of the assessee as
well as the Revenue, the Tribunal was directed to take up the matter on priority
basis and decide the same as expeditiously as possible without being influenced
by any of the findings recorded by the High Court in its order.
