Taxation of Gross Receipts Without Valid 12A Registration: ITAT Rules Only Net Surplus After Expenses Taxable [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT)  held that only the net surplus after allowing expenses and depreciation is taxable where a trust does not have valid registration under Section 12A of Income Tax Act,1961, and the entire gross receipts cannot be treated as income.

SCMS Maritime Training Institute,appellant-assessee,was a trust registered with the Charity Commissioner, Maharashtra, and granted registration under Section 12AA on 01.11.2010. The trust was engaged in providing training to merchant navy candidates through various courses at subsidized rates.

As per the Finance Act, 2021, all registered trusts were required to apply for fresh registration under Section 12AB. The assessee did not file the required application but filed its return of income for the year, claiming exemption under Section 11 by quoting the old registration number. The return declared income of ₹1,86,512/-.

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The CPC processed the return and denied the exemption, determining the total income at ₹32,27,675/-. The assessee filed a rectification application under Section 154, which was rejected through an order dated 24.08.2023. The assessee then approached the Commissioner of Income Tax(Appeals) [CIT(A)].

It was submitted that the exemption under Section 11 was wrongly denied and that, even otherwise, only the net income after expenses should be taxed. However, the CIT(A) dismissed the appeal ex-parte. The assessee then filed an appeal before the tribunal.

The assessee counsel submitted that provisional registration under Sections 12A and 80G had been granted on 05.01.2024, valid from AY 2024-25 to AY 2026-27. It was also shown that total receipts for the year were ₹30,41,163/-, and after accounting for expenses and depreciation, the surplus was ₹1,86,512/-.

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The counsel argued that in the absence of renewed registration under Section 12A, only the surplus of ₹1,86,512/- should be taxed, not the entire receipts. An income and expenditure statement was filed in support.

In response, the departmental representative stated that since the assessee did not have a valid registration under Section 12A for the year, exemption under Section 11 could not be allowed, and the entire income was taxable.

Read More: Income shall be determined on Net Profit even though Society is not Registered u/s 12A of Income Tax Act: ITAT allows Deduction of Expenditure

The two member bench comprising Pawan Singh (Judicial Member) and Girish Agrawal (Accountant Member) noted that the CIT(A) had passed an ex-parte order without addressing the merits. It was accepted that the assessee did not have renewed registration under Section 12A for the relevant year, and therefore, exemption under Section 11 was not available. However, the assessee argued that only the net income after expenses and depreciation should be taxed.

The appellate tribunal held that the entire gross receipts could not be taxed and that necessary deductions for expenses and depreciation should be allowed. It remanded the matter to the Jurisdictional Assessing Officer (JAO) to verify the records and compute tax on the net surplus. The officer was also directed to give the assessee a fair chance to present its case.

Therefore, the appeal was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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